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Instant entrepreneur
Franchising is a popular career choice among downsized Americans looking to run their own businesses
March 5, 2004: 11:13 AM EST
By Sarah Max, CNN/Money staff writer

BEND, Ore. (CNN/Money) - When Kevin Jackson joined the ranks of downsized Americans in September 2002, he'd been in the semiconductor industry for 19 years. Like many people in his situation, he thought about striking out on his own. But the semiconductor business was all he knew.

"I didn't want to stay in that industry," said Jackson, 43, a process engineer who was president of a $20 million company before it underwent a series of acquisitions. "I also didn't have the time or burning idea to go create something."

Kevin Jackson (second from right) with his family and employees.  
Kevin Jackson (second from right) with his family and employees.

The very day he got laid off, Jackson started surfing the Web for information about buying a franchise. The next week he met with one of three consultants who helped him narrow his search to a handful of companies, including a maid service, a portable pet grooming service, a tutoring service and a smoothie chain.

After researching each company, Jackson chose to put his money in Robek Fruit Smoothies & Healthy Eats. In January he completed the deal, which for $170,000 included one Robek franchise and the rights to the entire state of Arizona.

It's pretty impressive considering that four months prior to buying into Robek, Jackson had never even tasted a smoothie.

No experience necessary

Consultants who specialize in matching franchisees (buyers) with franchisors (chains) say that interest in franchising has picked up quite a bit over the past few years.

"The catalyst in the past couple of years has been corporate restructuring," said Steven Hockett, president of FranChoice, one of many consulting firms that are paid by franchise companies to refer qualified franchisees. Hockett's firm, which has 75 consultants, thinks it can double its business by 2006.

"There are a lot of people in their 30s, 40s and 50s who are too young to retire but don't want to go back to Corporate America," he added.

As Jackson found during his search, the number of franchising opportunities is almost mind-boggling. There are 1,500 franchise brands in the United States and more than 300,000 individual franchise "units," according to the International Franchise Association (IFA), which does not have statistics showing how these numbers compare with previous years.

Chains like Dunkin' Donuts, The UPS Store and Merry Maids are run almost exclusively by franchisees, who typically pay an initial franchise fee as well as ongoing royalties based on a percentage of their sales. In exchange for paying their dues, individual franchisees not only get instant brand recognition, they're handed almost everything they need to know to run the business.

As such, most franchise companies don't require direct experience in their business. If anything, it's discouraged.

"Franchisers are not looking for someone to come in and think they know how to do something better," said Hockett, who opened a Great Clips franchise when he was 26 years old. Instead, franchise companies put new franchisees through a couple weeks of mandatory training, in which they learn the business from the ground up. During his training, Hockett cut hair on a mannequin, but after that he hired licensed hair stylists to do the job.

In other words, a franchise might not be the best route if you have a lot of innovative ideas or a strong opinion about how things should really be done.

"For me, franchising made a lot of sense," said Jackson, who says that as an engineer following a process is in his nature. Before opening his Phoenix store in November, he got a crash course in everything from making smoothies to managing shift changes.

In exchange for recruiting and mentoring other Robek franchisees in his state who include former employees of Intel, Motorola and Deloitte & Touche Jackson gets paid a percentage of the franchise fee and royalties paid to the company.

A franchise for every budget

Prospective franchisees learn about franchise brands through a number of sources. Many follow the same route as Jackson; they start their search online and then work with one or more franchise consultants to narrow down the list of appropriate franchises. Others base their decisions on word-of-mouth recommendations or go directly to company, as is often the case with big chains like McDonald's.

The IFA runs a free online database of 850 franchises, which you can search by industry or investment required -- an estimate that typically include initial franchise fees, equipment, working capital and other startup costs.The total investment required to open a Merry Maids, for example, ranges from $21,000 to $50,000, while Dunkin' Donuts ranges from $200,000 to $400,000.

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"The majority of companies we work with fall between the $75,000 and $150,000 range," said Hockett. Many franchisees leverage their home equity, he said, while others are able to borrow much of the money needed to open a chain.

Once candidates identify franchises they're interested in, they typically fill out an application, speak with company representatives and arrange to visit franchise headquarters in person, said Russell Frith, CEO of Lawn Doctor and chairman of the IFA.

At that point they're given a copy of the franchisors' Uniform Franchise Offering Circular, which includes the company's financial statements, explanations of fees, turnover rates and contact information for other franchisees. (Click here for the Federal Trade Commission's guide to buying a franchise.)

"I recommend always calling existing franchisees," added Frith. They're often happy to give an inside scoop on the franchise and talk about how they're doing financially.

Lifestyle is another consideration.

After Mary Hartman Hime, 41, was laid off, she looked at everything from a dry cleaning franchise to a pizza chain before she decided to invest $27,000 in American Ramp Systems, a company that sells steel wheelchair ramps for homes and businesses.

"I wanted something that would give me more control over my schedule," said Hime. She started her business in November and works out of her home office in San Antonio, Texas. "My plan is to break even in six months."  Top of page

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