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Making the franchise decision

Sep 1, 2002 12:00 AM


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Few things arouse such controversy among independent quick printers as the franchise system. Many will claim that joining a franchise is akin to becoming a corporate drone, and balk at the notion of paying fees to do business.

“I see this industry in particular as being full of folk wisdom — what Donald Krause identified in ‘Sun Tzu, The Art of War for Executives,’” explains quick-print consultant Tom Crouser of Crouser & Associates, Inc. (Charleston, WV). To take a quote from the book, “Folk wisdom is that body of unchallenged assumptions which everyone thinks to be true.”

Much of this folk wisdom emanates from misinformation — horror stories told by disgruntled franchisees can certainly cloud any fair evaluation. Adding to the confusion is the fact that not all franchises are created equal. (See “So you want to be a franchisee,” on p. 50, for evaluation tips.) To help clarify the issue, we've compiled some of the key franchise assumptions and misconceptions.

BRANDING BONUSES

One common assumption among franchise hopefuls is that the franchisor's established brand — and consequently, recognition — will lead to instant sales.

In certain markets, having a well-known brand name can attract business. For 17 years, John Phildius was the owner of a $1.5 million Allegra Print & Imaging franchise in Norcross, GA; having sold that shop, he currently owns two centers in Chattanooga, TN. The original business' location near Atlanta, which Phildius describes as “a highly transient area,” sometimes attracted businesspeople travelling in the area. “One night, we were getting ready to close, and a lady called me, panicked,” Phildius recalls. The woman was staying at a hotel in downtown Atlanta and was attending a show the next day. Unfortunately, her conference materials didn't make the trip with her.

“She needed stuff printed and was wondering if we could help her,” Phildius says. “She saw our logo in the phonebook and she trusted [Allegra] in Michigan, where she came from.” Even after Phildius explained to the woman that his shop was actually 25 miles from downtown Atlanta, she insisted on taking a taxi to Phildius' center. Without the brand recognition, the exec believes “she never would have called us, being that far away — we had about 100 printers in between us.”

That said, “you just can't open your doors, put up a brand and expect that all of a sudden the customers are going to come,” says Darryl Buchanan, vice president of development at Allegra Network LLC (Troy, MI), which includes the Allegra Print & Imaging, American Speedy Printing, Instant Copy, Quik Print, Speedy Printing, Zippy Print, and just recently, Insty-Prints franchises. “We're not really in the retail business — we're in the business-to-business category, so you have to be focused on marketing, whether it means sending out direct mail, having an outside salesperson, getting involved in Rotary Clubs or Chambers of Commerce.”

Concurs Ron Zayas, vice president of marketing at Sir Speedy, Inc. (Mission Viejo, CA), “The type of customers we target, you have to go to them — they will not come to you, on average.”

Although it's true that PIP Printing may be more recognizable than Bob's Quick Print, a famous name may create unforeseen image problems. George Coriaty is the owner of a Sir Speedy franchise in Whittier, CA. It's also the fifth-largest franchise in the system, with annual revenue approaching $4 million. “It's an interesting dynamic: With Sir Speedy, people have a picture in their mind of a certain type of business, like Kinko's,” Coriaty explains. “When people come into our center, they have an expectation, but then they look at our capabilities, which far exceed it.” Forty percent of work coming out of Coriaty's 12,000-sq.-ft. shop is digital, whether it is work printed on a color copier, Xerox DocuTech or Heidelberg QM DI. Franchisee or independent, Coriaty states, “You have to build relationships.”

NETWORKING OPPORTUNITIES

Some former franchisees complain that once they joined the system, they were neglected. Although print franchises have varying levels of networking opportunities, one of their major selling points is that their members have immediate access to each other, regardless of location. Many independents would be loathe to call a peer in their area, much less a neighboring town, county or even state, for fear they'd make themselves vulnerable to competition. (Nonetheless, many peer groups are available for independents — see “Peering into better business,” April 2001, p. 50.)

“I've always participated in performance groups,” says Phildius. He credits one in particular, Allegra's Operational Ratio Study group, with helping turn his business around. Members get together once or twice a year to examine one another's financials and business. “You bare your souls,” Phildius notes, adding that members analyze each other's finances, equipment and operations, and then offer suggestions, feedback and constructive criticism. “It was the hardest thing in the world to open my finances up to my peers, especially when they weren't doing nearly the volume of sales I was,” Phildius admits. “But what ticked me off was they were making more money than me. They were doing something right and I wasn't. That opened my eyes.”

Coriaty also endorses the networking opportunities. “There's tremendous value in what you can learn from other franchisees — there's always someone who's been where you've been and always a group of people who are where you are,” he observes. The exec is on a board group that meets twice a year to share financial and business-planning information; he says a major benefit of being in the group is that it forced him to put together a business plan. He notes that members are not assigned to groups according to sales or profit, but rather by their willingness to share information.

That, ultimately, is the determinant of success or failure in a franchise. Franchisors and franchisees alike note that being a member of the system is just like being a member of a gym or country club: You'll pay fees whether you participate or not — and it definitely pays to participate.

“I have sometimes thought that the royalty fee was a burden — during the first five years after I purchased my center, I felt that absolutely,” Coriaty admits. “But in retrospect, it really had more to do with my lack of interest in communicating with the franchisor than its lack of support.”

EQUIPMENT — WHO CHOOSES?

A common assumption is that print franchisees must adopt franchisor-endorsed equipment — whether it is suitable for that printer's operations and market or not.

“We have national contracts with vendors, but franchisees have the right to choose whatever equipment they want to put in their locations,” says Buchanan of Allegra Network.

“They can buy whatever they wish,” affirms Sir Speedy's Zayas. He explains that franchisees can consult with corporate if they're thinking of buying something; the franchisor can then recommend which machines or products are ideal for the application. Sir Speedy has an R&D arm, Digital Quickcolor, that evaluates upcoming technologies. A monthly equipment- and technology-update newsletter lists the machines tested, their performance, strengths and weaknesses, and national pricing. “We also tell our franchisees that the price is a ceiling, not a floor. So, in certain markets, or for franchisees that are in the multimillion-dollar range, you can do even better than that. But at least we start you at about 20 percent below retail before you even get going.”

Special pricing is a nice perk — albeit not an exclusive one — for franchisees. In fact, what makes discounts possible is the sheer number of businesses to which a vendor can sell. Independents can enjoy the same type of volume discount through groups like PrintImage International (Chicago). Don Cortez, CEO and general manager of First Impression Printing and Graphics (Howell, MI), a 14-year-old, $1.3 million independent printer, notes, “I have found that I can negotiate the same, or in some cases, a better deal than the franchise special pricing. Printing is a relationship purchase, not a branded purchase.” (For more on business resources for independents, see “Independent resources,” below.)

Again, not all franchisors are equal, but some will assist in disputes with vendors. Phildius recounts an instance in which he had ordered a digital-color printer. The vendor provided him with a loaner machine, which failed to meet expectations. When the actual machine was being delivered, the printer attempted to reject it; but, because he had signed a contract for the equipment, the vendor resisted. Phildius called an Allegra corporate exec in charge of vendor negotiations who interceded on his behalf. The vendor readily agreed to take back the machine.

Some former franchisees have stories proving otherwise. Randy Abramovic, president and general manager of independent shop ProSource Printing & Copying (Pittsburgh), notes that with his former franchisor, “I found out that you are really on your own. They made suggestions, but they did not get directly involved.”

If vendor intervention is important to you, doing your research and speaking with current franchisees can prevent a similar problem.

TAKING DIRECTION

In the long run, both franchisors and franchisees alike insist that shop owners need to be proactive and willing to take direction.

Most new franchisees — 80 percent to 90 percent — have no graphic-arts or printing experience. Many are former print buyers or have managerial experience, and are looking for a way to apply their skills in the business-to-business market. Franchisors have, however, reportedly been seeing more independent printers interested in converting to a franchise to obtain direction. Some pundits claim this paternalism requires franchisees to surrender all independence — and individuality — once they sign on that dotted line.

Zayas disagrees: “If you're very independent, very business-minded, you might think that a franchise isn't for you — that it's more for the passive person who wants to be told exactly what to do,” he says. But the exec claims franchisees tend to be entrepreneurs who don't want to waste a lot of time doing something that's already been done somewhere else. “A good franchise provides a lot of training and marketing programs and helps you save time,” explains Zayas.

Phildius is a big believer in training. He has attended sessions on interviewing, hiring and training salespeople; his press operator recently learned four-color printing; and two employees are attending account-management training at a regional office. “Not a month goes by where I can't send someone to training,” he claims. “If you're not learning, you're not growing.”

Coriaty also learned how to manage and train his sales staff through franchisor-provided training. When he wanted to expand his shop's sales, he contacted Sir Speedy corporate for assistance; business consultants helped him design an initial plan for implementing digital technologies. “They had the benefit of the other stores' successes and failures, and they also shared information about what they know is current in the market and what may come in the future,” Coriaty says.

IN THE LONG TERM

Many independent printers hesitate to join a franchise because they are afraid that once they join, they're locked into the corporate system until the contract expires. With 20-year contracts becoming the norm, this fear becomes even more valid. If franchisor support begins to weaken during the time period of the contract, franchisees very often just have to deal with it, to avoid the expense of exiting before the contract is up. In this area, myth can become reality.

“I believe the franchises' long-term commitment is one of the root causes of the large amount of discontent I see among franchisees,” says consultant Crouser. “If the franchise term was shorter, the franchisor would be forced to pay more attention to the short-term needs of the franchisees.

“You see many franchisees dropping the franchise when their 20 years are up. So while the franchisors have been good about teaching people how to get into the business, they have not given them enough overall reasons to stay in their systems.”

Franchise success stories are a product of expectations met. Phildius advises that those considering joining a franchise should speak with several of its current members — of various sales volumes and years in business — to get a more realistic picture of what to expect from that franchise. He stresses, “My key question would be, ‘If you had to do it all over again, would you, and with the same franchise?’ I would do it all over again.”

Independent resources

Independent printers are proof that there's strength in numbers. Following are some resources available to assist small printers.

EQUIPMENT

PrintImage International (Chicago) members can take advantage of the quick-print association's Group Purchasing Program (GPP) for discounts up to 40 percent on printing supplies, equipment and services. Participating equipment vendors include A.B. Dick, Danka, Heidelberg, GBC and Xerox. Discounted services in such areas as human resources, payroll, shipping, credit-card and check processing, and workers' compensation insurance are also available. For more information, visit printimage.org.

NETWORKING

PrintImage's annual expo and conference is a big networking opportunity for independent quick printers. For the past couple years, the organization has been holding the show in conjunction with the Photo Marketing Assn. annual conference. The 2003 show will be held March 2-5, in Las Vegas.

PrintImage also has an annual Owners Conference that focuses on growing your business; the 2002 session will be held Oct. 3 to 6 in Chicago. Finally, the association also has a chapter network composed of groups of local PrintImage members who meet to share ideas and help solve common business dilemmas.

SPECIAL INTEREST GROUPS

PIA (Alexandria, VA) offers management and sales training as part of its Executive Development Program. Printers can also join one of the association's Premier Printing Executive Network groups; new members are matched with eight to 10 noncompeting peers. Activities include visits to co-members' plants, sharing ideas and solutions on a range of business topics and problems, and access to PIA and GATF's (Sewickley, PA) resident experts. Membership is $250 annually. See gain.net for more details.

PrintImage offers Special Interest Groups where members focus on such topics as digital printing, mailing and sales and marketing. Participation is free to members.

Crouser & Associates, Inc. (Charleston, WV) has Professional Performance Alliance groups composed of independently owned, noncompeting printers. Group sessions cover such topics as finance, organization, leadership, operations management and sales. Group members can also attend optional sales and owner conferences, and have access to Crouser's business advisors. Visit crouser.com for more info.

For human-resource help, consultancy TG & Associates (Tucson, AZ) offers job descriptions, personality profiling, hiring advice and employee-retention tools. Consultant, speaker and author Deborah Thompson also writes “The Communicator,” a free monthly e-newsletter with human-resource tips and information. Sign up at tgassociates.com.

So you want to be a franchisee

You've decided to join a print franchise. Before you sign a contract, however, there are certain questions you should ask yourself.

First off, why are you joining a franchise? The benefits mentioned in the main article are attractive indeed: support and direction, and access to the tools you'll need to succeed. But if you're looking for an immediate solution to your business ills, a franchise isn't it. “If you've lost faith in the business, or if you want to find a solution to get you further without having to put any time or money into it, a franchise is not going to be a panacea for that,” says Ron Zayas, vice president of marketing at Sir Speedy, Inc. (Mission Viejo, CA). Similarly, if your business is doing well, converting to a franchise isn't necessarily going to improve it.

Considering money matters

Also, can you afford it? What you'll pay to join a print franchise is highly dependent on the franchisor and your own business situation. For an independent printer converting to a franchise, most franchisors require a “conversion fee” to pay for new branding, including signage, uniforms and stationery (some franchisors refund the amount spent on conversion to the franchisee).

In addition, franchisees will need a significant amount of working capital. The franchisor will also look at the type and age of your equipment, and determine whether it needs to be upgraded to meet the system's technological level. Once converted, expect a royalty fee between three percent and 12 percent; additional fees may be charged for such services as advertising or training assistance.

Tom Crouser, principal at quick-print consultancy Crouser & Associates, Inc. (Charleston, WV), advises performing a cost-benefit analysis: “How much will it cost and what are the values received?”

What type of support will your potential franchisor provide? “I'd look at the field staff,” notes Crouser. “Where are they located — in the field or back at headquarters? Generally, the franchisees I see who are happy with their franchise are happy with their field support.”

George Coriaty, owner of a Sir Speedy franchise in Whittier, CA, learned this firsthand immediately after buying his center in 1979. His shop had one employee who ran the press and knew all of the customers. As soon as Coriaty, who had no printing experience, walked into his shop, the employee informed him that she would be having surgery and out for the next six weeks. “I would not have made it past that,” the exec admits. “But Sir Speedy plucked one of its business-management consultants and put him in my center.” The consultant initially ran the press and then taught Coriaty how to operate it.

Having some room to grow

Will the franchise offer support for the services you're interested in? John Bevilacqua is the owner of Acclaim Print & Copy Centers and Acclaim Mailing Services (Dublin, CA). A former franchisee, Bevilacqua left his franchise after 10 years because he was growing in a different direction than the system. “I was heavy into mailing services then, and the franchise did not offer any support in that area,” he explains.

Finally, what are the terms of the contract, and once you sign, how easy is it to leave? Although 10-year contracts used to be the norm, 20-year contracts are becoming standard. Some franchisees leave the system once their contract expires; others buy out of their contract or sell their shop. It's important to determine your means of exit before you even enter.