Tuesday, September 02, 2014

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A Look At How Franchising Works

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From restaurants to retail stores to real estate, there are currently more than 750 thousand franchise establishments across the country and that number keeps growing. NY1's Tara Lynn Wagner begins a series of stories on franchising with a look at how the model works. She filed the following report.

Drive through any town, big or small, and dollars to donuts, you'll probably pass a franchise.

"Subway, 7-Eleven, McDonald's, those are all franchise brands. Franchising is a huge business. One out of every nine businesses out there is a franchised brand," says Steven Beagelman, the CEO of SMB Franchise Advisors.

So what exactly is a franchise? It's really just an agreement between two parties: the franchisor, which is the company, and the franchisee, a small business owner who pays for the right to operate under that trademark or brand name.

"Really, anyone who feels as though they would like to get into business for themselves, but not by themselves, that's the beauty of franchising," says Jim Mastandrea, show director for MFV Expositions. "The beauty of franchising is that you have a company behind you that is continually supporting you."

"The franchise itself supplies a lot of support to franchisees, so it helps eliminate much more of the risk," says Eugenia Tzoannopoulos, a franchise owner with Massage Envy. "There isn't one component that's left unturned, from support in marketing, social media. We have guides in everything."

In addition to support, Tzoannopoulos says that franchisees are paying for something equally important: brand recognition.

"We're 900-plus clinics in 48 states," she says. "I don't think there's anything you can do individually to get to that level.

Which brings us to what for many is the main selling point. Cookie Advantage owner Heather Carver says that when you buy a franchise, the recipe has already been tested.

"They did the trial and error. They had to figure out what worked and what didn't work," Carver says. "Where I come in as a franchisee with a proven system that works and generates money on the first day."

Maybe. But not always. Every business is different - different locations, different staff, different demographics - and the ingredients that work for one may not work for another.

With 850 stores worldwide, the folks at Krispy Kreme understand these variables, but they say that the key to success is having franchisees who follow their formula to the letter.

"We have a proven business model, and so we believe that if you adhere to our brand standards and you're strong operationally, you have a good chance of being very successful within our organization," says Patricia Perry, vice president of U.S. franchise development with Krispy Kreme.

Want a piece of the pie? In our next segment, we'll look at the costs involved in owning and operating a franchise.

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