Three years ago Len King of Barrington took early retirement from the school district where he had spent 33 years as a music teacher and band director. But he wasn’t interested in a downbeat retirement. Even before he officially left his job, King was exploring opportunities for self-employment that would give him the flexibility to travel with his wife.
Franchising proved to be the solution. In 1990, he bought a franchise of Computertots, which brings computers to day-care centers and preschools. “With this business, I can get everything organized and take trips,” he explained. “And I’ve always loved computers and kids. This was a great combination,” said King, who holds the franchise for Lake County and northern Cook County.
When King launched his franchise, he lined up 25 sites. Now he has more than 50, with 600 students taught by 17 part-time teachers, who work for him.
He also has managed to attain the lifestyle he wanted. He works about six hours a day on scheduling, marketing and paperwork from his home office. And one of his teachers takes over when he leaves for monthlong vacations.
King bought his franchise, one of three for the Chicago area, for $12,000. For that, he got educational software, training in the concept’s marketing and operations and continuing marketing support. Actual computer hardware and related accessories were additional expenses totaling $10,000 to $15,000. Financially, the franchise is “doing what I expected,” King said. He has doubled his retirement income to $60,000 a year.
Home-based franchises are one of the hottest growth trends of the 1990s, according to the International Franchise Association in Washington, D.C., which represents franchisers. And franchises that can be run from home are among the most popular, a spokesman said.
According to Women in Franchising Inc., a Chicago firm that advises prospective franchise purchasers, the American franchise industry has enjoyed steady growth of 10 to 12 percent for the last 10 years, with 35 percent of all retail sales now going through franchises.
Conventional wisdom from experts in the category holds that home-based franchises are taking off now because the concept combines the work-at-home trend, which has been gaining momentum for the last five years, with entrepreneurship. LINK Resources, a New York-based research firm, estimates that about 34 million Americans work full or part time from home offices.
No one knows how many franchises exist because the federal government quit keeping track in 1987, as a budget-cutting move. But people on all sides of the industry agree that the action is hot, and Lake County is no exception.
“Franchising is unique because you’re not an employee, but you’re not just a business owner either,” said Michael Warshaw, managing editor of Success magazine, based in New York. “You have to be prepared to invest and work like it’s your own business, but you also have to adhere to the parent company’s systems and standards (and sometimes products). You don’t own the name, brand and system. But on the other hand, you don’t have to invent them. … It’s a quirky sort of partnership.”
Franchises in general can cost from a few thousand dollars to more than $250,000. Home-based franchises almost always are on the lower end of that scale, costing from about $3,000 to a high of perhaps $50,000. Basic office equipment and some other necessary equipment can cost thousands more. One strong appeal of home-based franchises is that new business owners don’t have the monthly burden of paying rent on top of all their other expenses.
The concept works best for people who are intrigued by the advantages of working from home and working for themselves, according to Warshaw. In fact, he said, most people who get into it are seeking a lifestyle change.
King’s situation illustrates several crucial factors that lead to franchising success, according to Andrew Sherman, a Washington, D.C., attorney who specializes in franchise law and operations.
“It’s getting more and more expensive to start a business out of the office or retail space,” Sherman said. Service businesses where telemarketing and marketing at the client’s site are the norm anyway are ideally suited for a home office. If there is no need for a storefront or formal office, and the likelihood of walk-in business is scant, then it makes sense to operate from home and save the $700 or more per month in rent for a small office suite.
Another major attraction is that most franchisees are supported by a national advertising and marketing campaign. For franchisees long on ideas and enthusiasm but short on the practicalities of business, the outlines set out by franchisers can be a godsend.
But a home-based business of any sort is not for the organizationally impaired or the chronic procrastinator, Sherman pointed out. “Psychologically you have to apply the same work ethic when your business is operating from your living room as when you get up and put a tie on and go downtown,” he said. “You really have to have your heart in the product.”
That wasn’t a problem for Mary Leben of Gurnee. The 9-to-5 grind of devoting her sweat to turn a profit for someone else was wearing on her, though she found her job as a buyer for a Loop jeweler interesting.
“When I did the commute on the Kennedy, I was an absolute banshee,” she said. “I’m much more relaxed now that I’m at home.”
The change came six years ago when Leben plunked down $20,000 for a Decorating Den franchise. Now, with her custom home-decorating business that operates from a van, she claims a gross of $250,000 a year.
When she was scouting opportunities for her own business, Leben came across the Decorating Den concept in a magazine and then at a franchise show. After meeting the owners of the parent company, she bought her territory (Gurnee and Grayslake). After six months, her initial marketing efforts started paying off. Referrals started rolling in and haven’t stopped.
Leben spends about half her time working from her home office, calling potential and current clients, ordering materials and doing paperwork. Sales calls are made in the customer’s home, with all the needed samples and catalogs stored in the Decorating Den van, which she bought in addition to the franchise cost. “It’s like having a store in the customer’s driveway.”
Bankruptcy attorney Lawrence Korrub of Kofkin, Feld & Korrub, with Lake County offices in Waukegan and Round Lake Beach, said that despite these success stories, potential franchisees should investigate a franchise thoroughly before making a commitment to buy into it.
Although he doesn’t tabulate specific figures, he speculated that more people are being drawn to franchising because of recessionary forces that have bounced more middle-management workers out of corporate jobs. “That doesn’t mean it’s a bad avenue to select,” he said. “People are being forced in that direction.”
But he strongly urges that potential franchisees err on the side of caution. “They really have to have some very conservative projections” about what to expect from the business initially, he said. “If you want to bet the farm on it, then do it with your eyes open.”
In that vein, he suggested that franchisees try to keep their home and other basic necessities of life out of the business equation. For example, if you mortgage your house for a franchise, or any business for that matter, keep in mind that you could lose it.
He also said that if a person is savvy enough to do his own market research, he should consider opening his own business and bypass the franchise altogether, thus saving that money.
“Whatever you do, don’t borrow against your retirement funds,” he warned. “Everything people have worked for all their lives can be gone overnight.”
Susan P. Kezios, president and founder of Women in Franchising Inc. of Chicago, is a contractor for the U.S. Commerce Department who advises prospective franchise purchasers. She echoed Korrub.
“You have to be prepared,” she said, “meaning that even though you’re investigating the purchase of a franchise, you should act as though you’re starting a business from scratch. Bottom line: You’re the only one who’s going to take care of yourself. You need to realize you’re going to have to supplement your income for the first six to 12 months. Most important are your financial projections.”
The Federal Trade Commission and the Illinois attorney general’s office strictly regulate franchises, she said, and considerable information on franchisers is available through those offices. But the first step in any case should be to call the Illinois attorney general’s office at 217-782-2538 to make sure a franchiser is listed with the state, as required. If not, she said, forget it.
“Eyeball these guys,” she warned, “because they are going to be your business partners for the next 10 to 20 years.”
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Women in Franchising will hold a workshop for prospective franchise owners at 8:30 a.m. Dec. 2 at the Northern Trust, 265 E. Deerpath, Lake Forest. Phone 800-222-4943 to preregister. The cost is $40.
