Choosing a franchise that’s a good fit can be harder than it seems, and experts at franchisEssentials explain what to look for in that perfect opportunity. President and CEO Paul Segreto breaks the choice down into five essential elements that must be examined: leadership, capitalization, demand for product/service, unit economics/profitability, relative initial investment. Franchises that have mastered these fundamentals and make them a good bet for investment include The Dwyer Group (home maintenance services), BrightStar Care (in-home elder care), Fastsigns (sign making), Jersey Mike’s Subs and Massage Envy Spa. For more on this continue reading the following article from The Street.
So you want to own a franchise, but don’t know how to start looking? While there are many reputable companies using the franchise model, some companies have not only mastered the art of franchising, but is also benefiting from strong consumer trends that suggest their companies having plenty of room to grow.
But how does a potential franchisee decipher good from great?
Paul Segreto, President and CEO of franchisEssentials, a franchise management, marketing and development consulting firm, says there are five primary areas to weigh when researching franchise investments:
Leadership
Capitalization
Demand for product or service
Unit economics/profitability
Relative initial investment
Segreto, who also hosts a weekly Internet radio show called Franchise Today, notes strong management is crucial to any company’s success.
"You don’t want it to be centered on one or two people," he says, and this type of structure tends to be more characteristic of young companies.
Experts agree that potential franchisees should also talk to existing franchisees to find out things like: Are they happy with the company? Are they buying additional franchises or territories? Would they would make the same investment again?
Bankers who make loans to franchisees are also a good resource to consult. Potential franchisees should ask them if they have had good experiences with the franchisees and franchisors?
In today’s economy, more and more banks are looking at the franchisor’s strength, Segreto says. Making sure the franchisor is creditworthy is just as important as the determining the franchisee’s financial capabilities, he says.
Steve Olson, president of Franchise Update Media Group goes one step further. He says before looking at franchises, use an assessment tool to find your own strengths and weaknesses.
"What type of characteristics and strengths does the individual have? Are they going to match the business they’re going to be in? It’s a huge problem if you have somebody that really didn’t have the skill sets or characteristics to succeed in that business," Olson says.
With an eye on the bottom line, an increasing amount of franchisors are using these tests as another influence in their recruiting tactics, Olson says. "More and more are using them, especially in today’s environment, where you don’t want to [make a] mistake on who you’re bringing on," he says.
"Companies are using assessment tools [before and after to measure] the difference in unit performance," Olson says. In many cases, "the increase in performance at the unit level was higher when they used profiling tools as a way to recruit."
Finally, look at the company’s culture. Aside from the economics of the company, do they have a following both inside the organization and with customers? Choose a company where "the franchisees, the employees, the customers are brand fans," he says.
Taking all that into consideration, here are five franchises that stand out from the pack.
1. The Dwyer Group
Probably known best for her recent appearance on the TV show Undercover Boss, Dina Dwyer can’t take credit for the original vision of The Dwyer Group. When her father started Rainbow International, originally a carpet dying and cleaning company, in 1981, he wanted to have "a collection of franchised companies serving the same customer base," she says. But she can take credit for bringing his vision to life and expanding it.
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Between 1989 and 1996, The Dwyer Group launched or acquired other service-related brands — Aire Serv, Glass Doctor, Mr. Appliance, Mr. Electric and Mr. Rooter — and has expanded to become a fire and flood restoration company for residential and commercial properties. In 2010, The Dwyer Group partnered with Canadian landscaping company The Grounds Guys to build out its U.S. operations. The group has more than 1,300 franchises in the U.S. and Canada and runs several hundred more through master licensees internationally.
The secret to The Dwyer Group’s success, Dina Dwyer says, is in its ability to centralize each company’s infrastructure, such as accounting, IT, marketing and legal, to support multiple brands without adding a lot of overhead or personnel.
Segreto likes that there are many opportunities for a franchisee to expand, both within geographic markets and with other services under The Dwyer Group umbrella. "It gives people a lot of different opportunities," he says.
He also points out that the company’s code of ethics is strong.
"You have a lot of two-income families. They need something local in the market. They want one source they can turn to," he says. "The wrapping of the brands, their processes and values of cleanliness and communication with customers … consumers are clamoring for that type of customer experience."
2. BrightStar Care
BrightStar Care provides in-home adult and elder care staffing service as well as child care and medical staffing services for individuals, families and healthcare facilities, the company says.
J.D. and Shelly Sun founded BrightStar in 2002 after their own poor experience with caregivers. The company started franchising in 2005 and became the first franchised company in the U.S. to specialize in both medical and nonmedical care and healthcare staffing. BrightStar expects to have 300 locations by the end of 2012.
The company is looking to move toward becoming a multi-brand franchisor. In the next few years, the company plans to add at least five brands that complement BrightStar Care’s mission of making more possible, according to the website.
BrightStar has received lots of press, most notably on Undercover Boss. Shelly Sun is very active in the franchise industry (she is on the board of directors of the International Franchise Association) and speaks publicly about her experiences in franchising and how to be a successful business owner.
"It comes back to the values and the vision of the organization," Olson says, "and so when somebody’s looking at an organization if it’s in the area of senior care, BrightStar is definitely one to look at."
As baby boomers begin to retire and seniors are living well into their 80s and 90s, there is strong demand for services that can help keep elders in their homes for as long as possible.
"The kid’s business and the senior care businesses are always there. These businesses are not going to go away," Olson says.
Segreto agrees. Sun has "put together a very unique concept, one of the best in an industry segment that is beginning to show signs of saturation. Long term, I see some consolidation," but BrightStar is likely to be on the acquiring rather than consolidating side, he says.
He also gives accolades to BrightStar’s growing management team. In December, the company brought on Brian Schnell, a well-respected franchise attorney, as its COO. "I think that says a lot about where the organization is headed," Segreto says.
3. Fastsigns
Businesses that provide services and products to other businesses, more commonly referred to as b2b services, is another strong industry. Fastsigns , a 27-year-old company making signs, decals, digital prints and other custom solutions for businesses, has been able to adapt its services to a changing market.
The company has 530 locations in the U.S. and abroad.
While startup costs for a Fastsigns store that is not converting from another company average around $200,000, the company is doing its part to open up capital access to franchisees.
Besides co-sponsoring the International Franchise Association’s Small Business Lending Summit (along with other companies) earlier this week, Fastsigns is one of several companies that partnered with The Bancorp (TBBK) and Franchise America Finance to offer an expansion financing program. Under the program, Fastsigns has a $6 million credit facility for startups and expanding franchisees, it says.
Fastsigns also rolled out a program to fund the conversion of independent shops to Fastsigns franchises.
"We have the highest [franchisee] satisfaction scores in our category, and Bancorp came in and looked at all of that data," Mark Jameson, senior vice president of franchise development for Fastsigns, told TheStreet in a previous interview. "In partnering, we have dedicated today $6 million of funding for new centers. And because of that our new-center growth will be in record numbers. If we didn’t have the financing, that wouldn’t be the case."
Segreto says Fastsigns has a very hot market that is going to be around for a long, long time within the industry segment.
Fastsigns in particular is set up for success. Coincidentally, Fastsigns CEO Catherine Monson will also appear on Undercover Boss on May 4, according to the company’s website.
"They’re rebranding in a [digital] industry. They’re adapting to a changing market. That speaks volumes as a far as a franchisee," Segreto says. He notes that so many old-school printing companies are "dying on the vine" because they won’t adapt to a changing market.
4. Jersey Mike’s Subs
Jersey Mike’s sandwich sub-shop has taken the country by storm. Just look on the company’s website and you will see the numerous local awards it has won for Best Sandwich Shop, Best Place for Lunch and Best Steak & Cheese, among others.
With culture so important to the company, Olson names Jersey Mike’s as one of the companies that "bleeds the brand."
"They truly have a culture, they have good operators, they have ones coming over from other systems and operating and they do very well," Olson says. "Everybody is marching to the drum together, they’re growing and there is this fever."
He adds that even during franchise discovery days, the company takes potential new franchisees to the [Jersey Shore] boardwalk so that people who aren’t from New Jersey have a sense of their tradition, he says.
Starting with just one shop in Point Pleasant, N.J., Peter Cancro loved working at the store so much decided as a high-school student that he decided to buy it in the early 1980s when the original owners sold. He began franchising the company in 1987, changing its name to Jersey Mike’s Subs to reflect its regionalism. Now, the company reports on its website that it has more than 600 stores open or under development across the U.S.
5. Massage Envy Spa
Personal services and wellness are two big and growing bigger industries. Massage Envy Spa is playing to both these trends by figuring out how to franchise spa services.
"With more than 750 locations in 44 states, the company has become the largest massage therapy franchise system in the industry and continues to expand its nationwide presence. This unprecedented growth makes now the ideal time to open a massage business," it says on its website.
And the economics of its franchises are there to prove it. The average Massage Envy Spa has annual sales of more than $1 million. The services are membership-driven, meaning that there is automatic recurring revenue, the company says.
Consumers are looking for affordable massage therapy and other spa treatments, while companies – playing on the wellness incentive (as health insurance costs spike) are starting to offer massages as an employee benefit. It is actively looking for business owners to join the company to continue with its expansion plans.
"They’re really the ones that pioneered the massage," Olson says. "They’re very popular because of their culture. And so it’s not only big on the West Coast, it’s in the central states, the Southeast, etc. It’s just growing."
Massage Envy, like all the franchisors named in this list, "really care about the franchise owner and that they provide a great experience for their clients," Olson says. They are "very customer-conscious. It’s no longer just a transaction."
This article was republished with permission from TheStreet.
