Franchising Can Be as Risky as It Is Rewarding
Have people said your business is so great that you should package your secrets and sell them to other entrepreneurs?
If so, you’re not alone. According to industry statistics, a new franchise outlet opens somewhere in the United States every 17 minutes. However, according to two small-business owners who recently franchised their companies, franchising may be extremely rewarding, but it also is risky and expensive.
Richard Billings, an Ojai, Calif., photographer, is ready to franchise his first Glitter Photography glamour photo studio but has yet to find a franchisee. He was approved by the state to sell franchises earlier this year.
Michael Grozier, founder of Vidtron drive-through video stores, is further ahead. He recently sold the franchise rights to most of California for $1 million.
Neither Billings, 46, nor Grozier, 28, had any formal business training or experience before launching their businesses. Billings is a portrait photographer. Grozier was a sheet-metal worker in Texas when he came up with the idea for Vidtron.
Although their business concepts are different, both figured out a way to serve customers in an unusual way.
The Glitter Photography concept is simple. With the help of a makeup artist, lights, props and special soft-focus lenses, Billings transforms ordinary people into gorgeous fashion models.
Glitter, which is not alone in the shopping mall glamour photography business, charges a basic $69 fee, plus the cost of the finished photos, which can run into hundreds of dollars.
The Glitter studio opened about two years ago in Ventura’s Buenaventura Plaza. Soon after it opened, a franchise packager approached Billings and persuaded him to let it franchise the idea.
Billings planned to wait about three years to perfect the concept before trying to sell franchises, but he said the franchise packager, which he declined to identify, encouraged him to move quickly.
“Franchising is a very complex thing,” he said. In retrospect, he wishes that he had not been so naive and had done more research before franchising. He also regrets not checking the franchise packager’s references before signing a deal.
Billings acknowledges that he was not prepared for the expense of outfitting a corporate office and meeting the legal requirements to sell franchises in California. He also was surprised at the high cost of setting up exhibits at franchise trade shows.
After investing $225,000 of his family’s money, Billings finally is ready to sell Glitter franchises for a basic $21,000 fee. “For us, franchising was the right thing,” he said. “But I’ve got it all on the line.”
Several potential franchisees have visited his studio to see how the business works but, so far, no one has bought a franchise.
“We are looking for business people, not photographers,” Billings said. It’s more important to have good business sense than to be an expert photographer, he said, because the photos are taken and printed in a uniform way under the franchise agreement.
Billings said he shoots pictures of about 15 customers a week during the summer months and more than 100 a week before Christmas and Valentine’s Day. He said he feels confident that the Glitter concept will sell because “glamour photography is a growing thing.”
While Billings creates stars, Michael Grozier is relying on real ones for his success. Grozier came up with the idea of a drive-through video store that stocks only the top 40 hit videos because he could never seem to rent the popular movies he wanted from his local video store.
He found a weather-beaten, 25-year-old Fotomat kiosk in a junkyard and bought it for $250. He cleaned it up, bought about 200 videos and opened the first Vidtron store across the street from the local video store in Cleburne, Tex.
By the third night, Grozier had rented all but six of the store’s 175 videocassettes. He figured out that renting only the most popular titles was a powerful way to attract American customers who rent 120 million tapes a week, usually settling for their second or third choice because the popular films are already rented.
At first, Grozier relied on Billboard magazine’s hit video list to guide his video buying. Then he developed his own formula to predict which videos would be popular.
Grozier attributes his success to a great idea coupled with solid guidance from top-notch franchise lawyers and consultants. Because he had no business or franchising experience, he hired the attorneys who work for Century 21, one of the nation’s most successful real estate franchises.
Today, Vidtron has about 60 stores in seven states. Vidtron charges a $15,000 franchise fee. It costs another $30,000 to $50,000 to get the business going, depending on the location. Vidtron also cashes in on the wholesale end of the $3.6-billion home video market by selling Vidtron’s used tapes to dealers. Grozier said he hopes to franchise 250 stores across the country by the end of the year. The entire operation is computerized, including the use of bar codes on the video tapes.
“We are totally debt free,” said Grozier, who estimates the company is worth $3 million. “I pay cash for everything.”
SBA Open House
The new Los Angeles district office of the Small Business Administration is hosting an open house this morning from 9 a.m. to noon. The office is at 330 N. Brand Blvd., Glendale. Business owners, financial and community leaders are invited to attend.
Although the office has moved from downtown Los Angeles, free small business counseling is still available downtown at the Los Angeles Area Chamber of Commerce. Counselors from the Service Corps of Retired Executives are available daily from 9:30 a.m. to 2:30 p.m. For appointments, call 213-629-0633.
Allred to Speak
Attorney Gloria Allred is the scheduled speaker for Tuesday’s National Assn. of Women Business Owners dinner. Allred will discuss how to protect your business from lawsuits. The dinner begins with a reception at 6 p.m. at the New Otani Hotel, 120 S. Los Angeles St., Los Angeles. Tickets are $40. For reservations call 213-623-9977.
Stanford Forum
The Stanford Entrepreneurial Forum will meet at 6:30 p.m. Wednesday. The scheduled presentation is by RJS Inc., a company that designs and manufactures bar-code products and services. The meeting will be at the Los Angeles Petroleum Club, 900 Wilshire Blvd., Los Angeles. The cost is $15 and includes refreshments. For reservations call 213-972-4000, ext. 2852. The Forum is sponsored by local alumni of Stanford Business School.
ARE YOU READY FOR FRANCHISING? “Administering a franchise system is significantly different from operating a business,” says Les Rager, president of Rager & Associates, an Atlanta-based franchise consulting firm. He said franchising can launch your business into the big time--or lead to failure.
If you think your company is ready for franchising, Rager suggests asking yourself these questions:
Is your business unique?
Has your business found a niche through superior service, products or a different marketing strategy?
Is your business based on a fad? Don’t assume that today’s craze will be tomorrow’s money maker.
Have you done any test marketing to make sure your product or service will fit the needs of customers in other areas of the country?
Do you have enough money for legal fees, accounting expenses and the fees charged by some states to register your franchise?
Can you afford the advertising costs and cost of producing training manuals and materials?
Do you have the skills to train other people?
Rager also suggests making careful reference checks before hiring a franchise consultant. There are unscrupulous people preying on naive business owners, he points out.
