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Flipping Burgers & Changing Oil
A Second Lucrative Career
By Kathleen J. Kiley
Have a yen for food or cars? It could be a good time to turn these passions into franchises.
When the economy softens, corporate executives often turn to franchising. A surprising number of executives, either retired or tired of corporate life, end up in the franchise industry, especially when the economy starts to sour, says Michael St. Jacques, a founding partner in St. Jacques Franchise Brand Marketing in Morristown, N. J.
“It’s the corporate executive in his late fifties and early sixties who will gravitate toward franchising,” St. Jacques says. “They usually end up in an industry they are familiar with or an activity they have a passion for, such as cars.”
Nearly 90% of franchise owners in the Express Oil Change franchise are former corporate executives, says St. Jacques. The company, which was founded by former gas station manager Jim Lunceford in 1979, was purchased by franchisees Joe Watson and Ricky Brooks in 1996, who previously worked in the insurance and financial planning industries.
This move seems like the perfect second career: Executives get to use their years of experience and run their own company. But managing a franchise comes with its own set of challenges, St. Jacques says. Sometimes the franchisor and the franchisee are unknowingly at odds—the owner of the business concept, the franchisor, wants to maximize sales by getting as many franchisees as he can, which eats into the franchisee’s profits, St. Jacques explains.
An executive may be brilliant at running his own empire, but if the mothership wants to set up another franchise on the adjacent corner, he may not have a say in that decision. The franchisor is maximizing profits based on sales. The more locations opened, the more sales: The franchisor can fetch between 5% and 15% of sales, regardless of whether the franchisee makes a profit, says St. Jacques.
“Over the past 15 years, there’s been a huge growth spurt in the number of franchises registered with the federal government,” St. Jacques says. “It’s a popular distribution system, and when the labor market starts to soften, workers start looking for other opportunities.”
But while franchising—acquiring the right to use an established brand, product, service and business process—may seem like a cake walk compared to corporate America, it isn’t, says Peter Cohen, president of Sylvan Learning Center, which offers tutoring services to students in grades pre-kindergarten through 12.
A franchisee has to forecast far into the future because the regions a franchisee acquires today will be drastically different 30 years from now, Cohen says. “You have to figure out if the population will support the business.”
Today’s demographics, including cultural tastes and styles, will shift over time and franchise owners have to determine if the original franchise concept can be supported in certain locations, says Jerry Ashton, president of CFO Advisors in Manhattan and president of American Indian T.V. In addition, the franchisor has to be supportive, he says.
“The ones who start the company are often the visionaries who are good at sprinting and not long-distance running,” Ashton says. “That’s when you need people who are good at making money over the long run.”
Krispy Kreme Doughnuts, founded in 1937 in Winston-Salem, N.C., is a good example of how changing consumer tastes and demographics can adversely affect a franchise, Ashton says. The company over-expanded when consumers were buying more low-calorie foods, he says. Although Krispy has since added low-calorie and low-fat products to its mix, including the 100% whole wheat doughnut that has only 180 calories, sales are still declining, according to the company.
When a franchise expands too quickly, management can lose control, says St. Jacques. Part of it is the lack of communication between the management of the company and its franchise owners. As a result, the problems become amplified and the brand starts to degenerate, he adds. Consumers who’ve had a bad experience at one franchise, come to see the entire franchise operation as doing a bad job. “The management team has to think of franchises as one company.”
That’s the way McDonald’s approaches franchising, according to Cohen. McDonald’s doesn’t leave much to chance: It trains its managers