Attractiveness of franchises working for ‘quasi-preneurs’
NEW YORK — In 2020, Kelly Jackson and Davina Arceneaux wanted to leave their company jobs and become business owners. They were looking for something both COVID19-proof and recession-resistant.
Instead of completely stepping out from under a corporate umbrella, they looked at franchising.
The two worried about the notoriously tight margins for restaurants. They looked at a drug testing franchise, but the initial investment was too steep.
A mentor told them about Motto Mortgage Home Services, and Jackson and Arceneaux opened one in Oakbrook Terrace, Illinois, in July of 2020 with an initial investment of $35,000.
“People always need new places to live and are always buying and selling houses,” Jackson said.
He takes rising interest rates in stride.
“Interest rates move up and down, that’s what they do, that’s part of the industry,” he said.
Jackson and Arceneaux, who had been a senior IT program and project manager and an assistant director of catering, respectively, had no experience with mortgages, but Motto Mortgage provided training and support.
“You don’t necessarily need experience in that industry in order to go into that category, the brand will train you,” said Matt Haller, president and CEO of the International Franchise Association.
In the months after the pandemic hit, many people with corporate jobs decided to strike out on their own, in what’s referred to as the “Great Resignation.”
They looked for alternatives, including opening up a franchise with an established brand.
The “quasi-preneurs” opening franchises say they like the ability to buy into a proven brand name and the access to tools and operations that you wouldn’t get if you started your own small business.
But franchising has plenty of challenges too.
There are a lot of rules and regulations to abide by. Contracts are lengthy and can be difficult to terminate.
The number of U.S. franchises grew an estimated 3% in 2021 to 774,965 after a dip in 2020, according to IFA. Those include big franchises like McDonald’s or 7-Eleven, but all types of businesses can be franchised, from pool cleaners to barbershops.
There are about 3,000 franchisor brands in the U.S. The IFA predicts franchises in the U.S. will grow 2% to 792,014 this year. That’s still just a fraction of the 32.5 million total small businesses in the U.S.
Franchise owners buy in with an initial fee — anywhere from tens of thousands to hundreds of thousands of dollars — to get their business, and then pay a monthly royalty percentage. In return, they get use of the brand name and marketing, and other support.
However, getting used to a franchise structure can be an adjustment. When Chris Dordell and his husband, Jason Fenske, decided to leave their jobs at Wells Fargo and Salesforce and open two Club Pilates in 2018 and a YogaSix studio in 2020, in and around Palm Springs, California, they appreciated the playbook provided by the franchisor, Xponential.
“It was appealing at this stage after being in corporate jobs for 20-plus years that we could plug into an existing model,” Dordell said.
But Dordell said following the corporate rulebook took some adjusting to. There were some costs incurred while building the franchises that could have been cut, but “in keeping the consistency across the company, we were required to follow the model.”
As with any business venture, franchisees need to be aware of what they’re getting themselves into.
Mario Herman, a lawyer based in Washington that focuses on franchise litigation, said it’s important for potential franchisees to go over the contracts carefully to make sure nothing is being obscured like previous bankruptcies or a lack of profitability.