Let a Franchise Put Money in Your Pocket (Dec, 1961)
Let a Franchise Put Money in Your Pocket
If you’re an inventor with a product to sell, or a man who wants his own business, franchising could be your way to wealth.
BY JAMES JOSEPH
WHETHER you’re an inventor who has brainstormed a marketable product, or a fellow yearning to plunge into a business of your own, experts nowadays are apt to prescribe the same means of success: franchising.
Franchising your brainstormed product or service and you lease its use—and marketing —to dozens, even hundreds, of in-business-for-themselves franchisees, dealers who pay you a use fee or royalty, or both, for the privilege of cashing in on your success-laden idea. (Franchise fees range from $10 to $100,000, with the average from $6000 to $10,000; royalties run from 1% to 10% of gross sales.)
Advantages for You, the franchisor? At little or no cost, you get nationwide, sometimes worldwide, distribution and sales through a closely-knit chain of licensed-to-use dealers—and a continuing cut of your franchisees’ gross. An example:
Back in 1952, A. L. Tunick, an Illinois scrap dealer, bought a defunct plant that had been making an odd-ball product—electric conduction cookers. Tunick couldn’t find any cooker customers, but he did find that chicken done up brown in the gadgets tasted good, so he set up a take-out chicken dinner place. The result was almost instant success.
Franchising this proven success (and conduction cookers) to others eager to follow in his profitable footsteps, Tunick’s Chicken Delight, Inc., currently licenses about 270 independent quick-dinner take-out food places in 45 states and Canada and reaps a multi-million dollar annual gross.
Eager franchisees invest about $12,500 ($7000 cash) for an exclusive territory, conduction-cookers, remodeling of a take-out-dinner place—plus on-job training and supervision. Chicken Delight, 2211 Third Ave., Rock Island, 111., profits from the equipment and packaging it sells franchisees, including a special batter. Many of the company’s fran chisees net upwards of $15,000 a year.
Buy a Franchise and you buy the use of a profit-proven product or service. And you get on-job training, supervision by the franchisor, his money-making secrets and operational methods, and more. You plunge into a business of your own with most of the risk wrung out of it. The parent organization which hands you its profit formula sees to it (if only for the sake of its own cut from your profits) that you make good. Some will, in fact, refund all or much of your original investment if the “package” doesn’t please you or if you don’t reap the profits you should.
Another example: For just a modest investment of $1890—just under $600 down—you can move into one of the most lucrative businesses in the franchise field, on-location carpet and furniture cleaning.
A pioneer in this field since 1930, Dura-clean Co., Deerfield, Ill., trains you for a week at the company’s tuition-free school, provides you with all the special equipment you need, and backs you with a huge national advertising campaign.
Many Duraclean Franchises are taking home $10,000 or more every year. One reason for this is that the Duraclean dealer has little or no overhead. He doesn’t need a shop; his home can be his office. And all the work is done on the customer’s premises.
Better yet, the market is still almost untapped. Every homeowner is a prospective customer—and every theater, church, business, or school. The U. S. Department of Commerce reports there’s a $750-million potential in the home cleaning field alone; right now, only about 3% of it is being realized.
Another example: Rayco Manufacturing Co. (auto seat covers, convertible tops, mufflers) , with more than 150 outlets nationwide, builds a Rayco store (its experts select the just-right site), leases it to you, and sees that you profit (you get expert sales help, market- ing reports, intensive training, and are backed by research and advertising). Rayco, which claims it’s never lost an operator, asks a minimum $30,000 for letting you cash in on its name, know-how, and ready-made market.
Franchising? It’s Snowballing. Since the end of World War II, more than 100,000 franchisees—many of them business neophytes— have jumped onto the bandwagon.
Says a happy owner of a franchised doughnut shop in California, ”I made money from the day I opened. Going it alone, though; I’d probably have flunked out . . . fast.”
Underlining his why-franchises appraisal is a sobering report by Bank of America’s Small Business Advisory Service, which finds that 90.8% of all small-business failures are due to “inexperience . . . and incompetence.”
But pick with caution a first-rate franchise deal, and you all but eliminate 90% of the hurdles: The franchisor makes up for your inexperience with his experience. You can, moreover, pick from more than 400 franchisors: • Want to boss a potato production line? You can, as a caterer of pre-cut, packaged, and ready-to-cook potatoes to restaurants, hotels, and quick-order eateries. Minimum $2000 franchise fee, plus perhaps $12,000-$15,000 (part cash, part financed) for equipment, buys exclusive territory, training, process secrets, sales advertising training. Company, Redi-Spuds of America (6218 May-wood Ave., Bell, Calif.) claims your profits can be upwards of $18,000 yearly.
• No fee or royalty payment is presently asked for exclusive territories to sell predrawn commercial artist’s reference art conceived by commercial sketcher Bill Williams (Art Aids, Inc., 3422 Lake Mendota Drive, Madison 5, Wis.). Williams says the sale of one art system a day should bring an average $1500 monthly, on a commission basis.
Franchising Is Not New. Some of the nation’s biggest, most successful chains—Ben Franklin Variety Stores, with 2400 stores in 50 cities; Western Auto Supply, with 3717 dealer-stores; Midas Muffler, with more than 400 shops; Howard Johnson restaurants,, and nearly every one of the country’s new-car dealerships—are franchised, with a kind of economic charter from a parent company.
But, in one profitable respect, franchising is new: Now hundreds of more modest enterprises offer the investor with only a small grubstake a chance to cash-in.
How can you cash-in, either as a franchisor or franchisee?
You might—as did Glenn H. Freeman and Joseph D. Keating—prove that the impossible is not only possible, but profitable: that a three-year-old business open only two days a week can net you better than $25,000 a year.
Their first Glen-Joe packaged-meat store was as maverick as its specialty: freezer-quantities of tenderized steaks, pre-packaged “hotel style,” each steak weighing precisely the same, usually 8 or 10 oz., and sold only in 5- to 10-lb. cartons. Not only must housewives buy big (average purchase about $14, although many plunk down $40, even $60, for packaged meats), but they must shop from 10 a.m. to 6 p.m. Fridays or 9 to 3 on Saturdays—or not at all. Those are Glen-Joe’s only open-for-business days. Freeman, who like his partner was 38 when the meat-by-the-carton idea struck, says: “We ran a market survey. Seventy per cent of the average market’s meat business comes on Friday and Saturday. We figured it silly—and uneconomic—to be open Monday through Thursday simply to grab off 30% of the potential shoppers. Better, we thought, to cater to the more profitable 70%.
Success Formula. Behind Glen-Joe, Inc.’s, bonanza stands a formula which, if you in- tend to franchise an invention, product, or service, must one way or another be duplicated. To be franchisable, what you offer must be (1) different, (2) available nowhere else, and (3) profitable.
Consider Glen-Joe’s basic offering—tenderized, pre-portioned meat, with emphasis on steaks. Tenderized by a secret-formula recipe in the company’s Long Beach, Calif., processing plant, the steaks can not be duplicated. The liquid tenderizer isn’t for sale. Moreover, it permits relatively low grades of cheaper beef to be served up as T-bones and New Yorkers. Thus, Glen-Joe’s tenderized product is at least 30% cheaper—pound for pound—than what the average supermarket sells.
With four stores of their own operating profitably (and serving as training centers for franchisees), Freeman and Keating could have expanded.
As with most franchises, however, the problem was finding competent store managers. In-business-for-themselves franchisees deliver —make profits for themselves and the franchisor. Hired managers often don’t.
So Freeman and Keating put together a “franchise package.” They offered, in return for about a $7500 franchise fee, to set up a Glen-Joe, outfit it with a walk-in freezer, refrigerated display cases, neon signs—the works, plus on-job training. Franchisees were expected to foot their own rent and operational expenses out of profits and buy all their meat from Glen-Joe’s plant. (Glen-Joe processes, cuts, and packages more than 750,000 lbs. a year, figures to make at least $50 weekly per franchised store, with a franchise grossing at least $800-$1000 a week.) And the company offered even more—an opportunity which required but two days a week, thus permitted a wage earner to keep his regular job while he and his wife took turns clerking over the weekend.
No Successful Stumbling. Freeman and Keating did not just stumble blindly into success, though. Both had been high-paid executives with a firm specializing in food seasonings. Both, in fact, had pioneered the sale of liquid tenderizer to big meat process plants. When they quit their jobs, they had the basic knowledge to succeed, their new tenderizer— and the packaged, pre-weighed, pre-tender-ized concept that was their brainstorm. The whole business was launched with less than $10,000 capital.
But be wary. All of franchisedom’s glitter isn’t gold. The franchise boom—mushrooming especially during the past three years and annually attracting more than 20,000 investors—is riddled with fly-by-night operators who, failing in their own enterprises, seek to recoup their losses by selling franchises to the gullible.
In a recent effort to clean house, some 80 big national franchisors have organized the International Franchise Assn. (549 W. Randolph St., Chicago 6), their avowed purpose to put the “Seal of Good Practice” on approved franchise operations. The monthly National Franchise Reports ($12 a year, 333 N. Michigan Ave., Chicago 1) serves up all that’s new and available in franchised opportunity. So does Modern Franchising, a new quarterly magazine ($2 a year, 320 Fifth Ave., New York City 1).
“Packaged” Success. Moreover, at least a half dozen consultants make it their business to turn profitable business ventures into franchisable “packages.” Among such consultants: International Franchise Consultants (369 White Plains Rd., Eastchester, N. Y.), National Franchise Development Corp. (1048 Kane Concourse, Miami Beach 54, Fla.), and Aaron Rothenberg and Associates (8845 W. Olympic Blvd., Beverly Hills, Calif.) Here are three of the most common types of “packages”: • Co-Ownership Franchises. You “buy” half ownership in a potentially profitable business, sharing ownership and profits 50-50 with the franchisor. Typical is TraveLodge, Inc., (3045 Moore St, San Diego, Calif.), with 195 motels coast-to-coast in the States, four in Canada, one in France, and 10 in Australia. Co-owners invest $35,000-$175,000 in a 35- to 150-room unit, manage the motel, earn a manager’s salary, get swank living quarters—and half the profits.
• Co-Managership Franchises. You buy the privilege of managing a franchisor-owned business—and earn a share or all of the profits. Some, such as International House of Pancake, Inc., managerships, are very profitable. Co-managers may invest $20,000 in an International Pancake House (home office: 6837 Lankershim Blvd., North Hollywood, Calif.), have sometimes earned twice that on first-year operations.
• Area Franchises. You buy an exclusive franchise area. Typical is a vended trip-insurance operation—Secure-Ur-Trip, Inc., (home base: 271 Church St., New York City). Secure-Ur-Trip of California (8845 W. Olympic Blvd., Beverly Hills), which holds a state franchise, re-franchises to smaller franchisees who invest about $180 per vending machine ($3600 for a minimum 20 units), place them in their franchised territory, turn over half of each vended trip-policy’s 50c fee to the franchisor.
Says Rothenberg: “Franchising makes sense both sides of the economic street. It often is as profitable for the individual who wants to set up big-time sales and distribution at minimum cost as it is for the fellow who wants a business of his own with both minimum investment and minimum risk.”
And One Success Story after another proves it:
• E. B. Smith and Dwight Patton began in 1948 with a hole-in-the-wall tool rental shop in Lincoln, Neb. Today their 250 United Rent-Alls franchisees in 46 states have boomed them into the heady brackets of success.
• Four years ago, 38-year-old Alvin Roth-stein and Sheldon Mermelstein, 36, roaded their first ice cream sales wagon in Wilkes-Barre, Pa. Today, their Dairy Dan, Inc., has some 460 franchised rigs on U. S. streets.
• Back in 1954, the idea of a specialized auto-muffler shop was only a glimmer of an idea when 32-year-old Gordon Sherman set up his first Midas Muffler shop in Chicago. If you’re a car owner, you know the rest: Midas Muffler’s franchised shopmen operate everywhere, earn sizable incomes for themselves and a multi-million gross for Midas, Inc.
Franchising? Never has the opportunity been riper for the man with a bright idea.
A Sampling of Franchise Opportunities…
One-Hour Martinizing dry cleaning (Ross and Section Road, Cincinnati, Ohio). Over 1500 franchised cash and carry dry cleaning stores in all states, Republic of Panama, Puerto Rico, and Canada. No previous experience required. Investment of about $9000 includes store location, planning, and layout; plus equipment, fixtures and signs, technical service, advertising and training. Franchise fee $500 with nominal annual renewal.
Clean-Up with Carpets.
Servicemaster (2117 N. Wayne Ave., Chicago 14) sells on-location carpet and furniture cleaning gear and know-how, asks an investment of $1995 (includes $695 for special equipment leasing, training, and chemicals good for $12,000 worth of business). You buy in for $995 down, with $70 a month for 18 months. Company gets 10% royalty on your gross, says you can net upwards of $10,000 annually.
Money in Cans.
A cash-and-carry paint store is the no-franchise-fee, exclusive-territory deal by Mary Carter Paint Co. (Tampa 7, Fla ). Company says many of its 600 franchisees began with minimum inventory (about $5450), now pocket $10,000-$30,000 yearly, thanks to company’s store-site selection, co-op advertising, and “Buy 1 Can, Get 1 FREE” sales method. Besides starting inventory, you need capital to rent and outfit store.
A flow-on process (and applicator) that plastic-coats Sun-stricken home and store windows, reducing or eliminating glare, is franchised under name Sun-Stop by Transparent Glass Coatings Co. (533 N. La Cienega Blvd., Los Angeles 48, Calif.). No franchise fee; depending on size, an exclusive territory with equipment, materials, sales manual takes $3000-$5000.
Rewards from Music.
Recorded music lessons for piano, accordion, and guitar put top “instructor” from Vavro School of Music (South St. Paul, Minn.) in a student’s home. Ten-lesson beginner’s course on a 12-in. LP sells for $4.98. Twenty-four lessons on two records, $9.95. Complete course, $39.75. A $2,500 initial outlay buys the franchisee complete how-to, record players, records, promotion material. Company claims average franchisee earns $10,000-$15,000 a year.
Collect from Doctors.
Medical Management, Inc. (500 W. Second St., Dayton 2, Ohio), sets you up in a territory to acquire doctor-clients and provide them business services such as billing, collections, and simplified accounting. Cost of franchise is $4500, which includes $1000 prepaid processing, training, and initial supplies. You charge doctors about $1000 a year. Company says to expect $10,000 income yearly, you need an area with 100,000 or more population.
Doughnuts for Dough.
Mister Donut of America, Inc. (91 Providence Hwy., Westwood, Mass.), a mostly-Eastern-localed chain features 44 kinds of doughnuts. Cost of an owner-operator franchise is about $10,000. Company says operator who grosses $1250 weekly nets about $15,-000 a year, gets benefit of ad campaigns, promotions, training, and recipes. This new, lower-cost franchise package is for a Mister Donut Jr., a smaller version of larger packages.
“Soft” ice cream, with 30 assorted toppings, is sold in neighborhoods by a “factory on wheels” franchised by Mister Softee (Runnemede, N. J.). Claimed typical eight-month season gross is about $21,000; net (after truck depreciation, other expenses) is $9,000-$13,000. Truck life is seven to 10 years, and franchisee gets free repaint job every three years if in that period he buys 10,000 gals, of mix. About $2500 down to start, but total truck cost (about $9000) may be financed.
Profit from Rentals.
United Rent-Alls (2627 N. 27th St., Lincoln, Neb.) has 304 franchisees in 48 states, claims they gross $40,000-$ 100,000 yearly and net from $15,000-$20,000 on a $40,000-gross. Rents such things as tools, appliances, home medical essentials. Company charges $500 franchise fee, 10% royalty on rentals, helps pick site, shows you how to operate, sells you rental items wholesale. You build or lease your store. A $6000 investment buys franchise and minimum inventory; another $1500 rents and remakes store.
Before You Sign a Franchise Contract . . . Check These Points
1. What’s the reputation of the company or individuals offering the franchise? Check to see how long the firm’s been in business and how many franchises it has sold in your area. Double-check its net worth (with Dun and Bradstreet; your local Better Business Bureau; The National Better Business Bureau, Chrysler Bldg., New York 17, or with the International Franchise Assn., 549 Randolph St., Chicago 6).
2. Are you buying a proven business? Check on the franchisor’s own success. How many years, pre-franchise, was he in business? How well did he do? Visit nearby franchisees to see how they’re doing, if they’re satisfied, if the franchisor has lived up to his promises (verbal and contractual).
3. Beware the franchise contract which:
a. Asks you to pay an “advance fee” to hold a franchise opening.
b. Permits the franchisor to cancel the contract whenever he wants.
c. Holds you to a rigid sales quota, else you lose your franchise.
d. Prohibits you from reselling your franchise.
e. Fails to grant you a specific and exclusive territory. Be sure to know what “exclusive” stands for: state, county, town, an area of a town, or what. If the contract doesn’t grant you an exclusive territory, don’t sign.
f. Permits the franchisor to set up, under another name, a new but directly-competing franchise operation in your territory.
g. Fails to spell out specifically what obligations the franchisor has to you, and you to him. Contract should list precisely what you’re getting for your franchise fee —so much merchandise, so many weeks of training at a specific school, the price you’re to pay for the franchisor’s merchandise, and all other obligation. All this should be specified in writing and in minute detail.
4. Be cautious of vending franchises. They can be treacherous. Seldom can they be turned to profit, regardless of glowing promises, except by vending experts. Rule of thumb: Don’t buy a vending franchise unless you check it out with franchisees operating under the same franchise set-up.
5. Suspect any deal that’s too inexpensive, that let’s you in on apparent big profits for peanuts. Trend in franchise fees is steeply upwards. With the cheap deals, you’ll probably find you’re asked to stock up on some product and, in fact, that you’re not buying a franchise but simply the right to peddle the manufacturer’s product.
6. Does the franchisor really offer something you can’t get elsewhere for free? Does he really train his franchisees, guide their businesses, let them in on his success secrets? Or does he merely accept their franchise and forget them? Some do.
7. Be sure you have surveyed all offers in your area of interest. Study publications in the franchise field, such as National Franchise Reports, for current listings and descriptions.
8. Finally… make “caution” your guiding word. Any time you’re offering to hand somebody $100-$ 100,000, you’ll find plenty of takers. What you want is a lucrative franchise that’ll return your money… and a handsome profit besides. That, and a franchisor who stands to lose if you lose, profit if you profit.