Profit potential: Is a franchise the right business model for you?

2014-08-02T00:00:00Z 2014-09-04T09:37:08Z Profit potential: Is a franchise the right business model for you?By TOM HOWARD thoward@billingsgazette.com The Billings Gazette
August 02, 2014 12:00 am  • 

“Ribbit!” It’s the first sound one hears after opening the front door at Big Frog, a new business specializing in custom T-shirts, apparel and gifts. Big Frog’s amphibian-inspired doorbell and a décor that’s designed around a rain forest, aims to be fun.

Teens who cruise the Shiloh Crossing neighborhood on bikes or scooters sometimes give the front door a nudge just to hear the frog. Days after the store officially opened, walk-in business was picking up.

“So far we’ve done shirts for six or seven family reunions, and we also did one for a judge who was riding in a parade. She needed it right away, and she loved it,” said Brett Maas, owner of the Billings Big Frog store. The Billings store is the 60th outlet for Big Frog Custom T-shirts and More, a Florida-based franchise company.

Maas was looking for a new career after his job was eliminated by Charter Communications last year. He had opportunities to remain in the telecommunications business, but that would have meant moving his family out of Billings. After taking advantage of a placement service provided after he left Charter, Maas began exploring the possibility of opening a business, and investing in a franchise was one option.

During the process, Maas met with a Denver-based franchise consultant, who helped him explore what types of businesses would suit his strengths and business background.

“She put me through a series of tests, almost like a Myers Briggs assessment that’s supposed to help match your personality, how much money you want to make and your lifestyle,” Maas said.

Test results showed that consulting businesses, web design firms, business coaching and even a sign company were potentially good matches for his skills. Independently, he had heard about Big Frog, and before long he began taking a serious look at the company.

One important step is discovery day, where prospective franchisees learn about the nuts and bolts of running the business, as well as rules, guidelines and expectations from the franchisor.

Maas was impressed by what he saw. “They were amazingly entrepreneurial, and it gave me the feeling this is something the whole family could do. I felt a sense of being in common with the guys who run the business,” he said, and the company’s training was thorough and professional.

Big Frog relies on direct-to-garment printing, a technology that allows designers to take a digital image and print it directly to a shirt or another object at an affordable price. To get an idea of how the DTG process works, it uses technology that’s similar to how an ink-jet printer works on paper, Maas said.

“We can print on a lot of things, like aprons or even mouse pads,” Maas said.

Big Frog’s designers can create a single T-shirt or dozens of garments from a customer’s photograph or a hand-drawn image.

Big Frog requires franchisees to be involved in their communities, and that represented a big plus when he was looking at the company, Maas said. Big Frog helps schools or other non-profit organizations raise money by providing rebates for merchandise that’s sold.

So far, Maas is excited about being involved in a franchise, a business model with a storied history that was made famous by McDonald’s, Holiday Inn and other multinational companies.

Franchising continues to help the economy grow, experts say. FRANdata, a company that analyzes franchising activity, estimates that demand for franchise units will grow by 12 percent this year, the largest increase since 2009. IHS Global Insight, an economic forecasting company, estimates that franchises will account for 220,000 new jobs this year.

Investing in a franchise is commonly seen as a lower risk strategy for developing a profitable business. But experts advise potential franchisees to do their homework before plunking down money.

Officials at Billings-based Kampgrounds of America Inc. say their franchisees have played an essential role in the company’s success over its 52-year history.

“Franchising is about building on a winning system,” said Chris Fairlee, KOA’s vice president of franchise sales. “There’s a track record franchises have that independents don’t.”

Throughout the past five decades, the KOA brand has become synonymous with outdoor recreation.

“People are looking for brands and the consistency that they bring. The independents don’t have the manpower or the financial resources to do that,” Fairlee said.

As part of a multi-year expansion, KOA has added more than 100 campgrounds to its franchise network since 2007. The KOA system now includes 490 campgrounds, with all but 29 corporate-owned properties operated by franchisees, Fairlee said.

Turnover is fairly small. Fairlee estimates that about 20 KOA campgrounds change hands each year. The circumstances include owners deciding to retire, or looking for different properties.

Donnette Roberts, co-owner of the three Anytime Fitness stores in Billings, said the national franchise offered more than she could have developed on her own.

“We knew we could run a club, but we wanted to be part of something,” she said.

One reason that Anytime Fitness appealed to Roberts is that gym memberships are universal. The company’s 1.5 million members can use any of the 2,000 Anytime Fitness gyms located throughout the United States and in several foreign countries.

Providing that kind of benefit to members would be nearly impossible to do for a stand-alone business, Roberts said.

Anytime Fitness recently unveiled its new store at 24{sup}th{/sup} Street West and Broadwater Avenue.

“We want our members to be more than a number. We want them to be taken care of,” Roberts said. “When you join Anytime Fitness, you’re not just paying your fee. We want you to feel like you’re part of a family.”

One advantage of being part of a franchise is that the company has tremendous buying power and can purchase equipment at a discount compared to prices offered to stand-alone businesses, Roberts said.

Another advantage of Anytime Fitness is that the company has expanded into smaller cities like Billings. Most national fitness chains focus on major metropolitan areas.

It goes without saying, but franchisees are expected to follow company policies and procedures. That means Anytime Fitness gyms are expected to remodel every three or four years, she said.

Tucker Veltkamp, who recently graduated from Colorado State University, recently took over as the new owner of the Spicy Pickle restaurant at 900 S. 24th St. W. The restaurant reopened on July 15. Veltkamp said investing in a franchise seemed like a good opportunity as he launches his business career. So far he has been impressed by the menu and the support provided by corporate officials.

Veltkamp often stayed up late at night researching franchises during his college years.

“I feel that at this point in my career, I wanted some support, and franchising was a good option for me,” Veltkamp said.

Cibus Franchising, LLC franchises the Spicy Pickle brand. The company is headquartered near Denver, with Spicy Pickle restaurants located in five states and three international locations in the Middle East.

John Halstvedt of Billings, who helps buyers locate suitable businesses through an organization known as Partner On-Call, urges clients to do their homework before they decide to invest in a franchise.

It’s widely believed that investing in a franchise can be a pofitable, yet lower-risk method of building a business. McDonald’s, KFC and Billings-based Kampgrounds of America all have experienced international success based on the franchising model.

The number of franchises has exploded in recent decades, but success isn’t always guaranteed. Halstvedt recommends that potential buyers should carefully sift through financial information to determine whether the company’s revenues come from selling new franchises or from collecting royalties from existing franchisees that are profitable.

Franchising companies must also provide a list of existing franchisees, as wel as those who may have left the system, he said.

Some experts recommend that prospective franchisees to have an attorney on board. But Halstvedt said that hiring an attorney too early can complicate matters and lead to additional expenses.

Another potential pitfall is that budding franchisees don’t always do a good enough job of assessing their own strengths and weaknesses.

“They hear rosy stories and see businesses thriving and they’re sold on it, so then they have a loaded view of how great it would be to own a franchise,” Halstvedt said.

Copyright 2014 The Billings Gazette. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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