Why it matters:
- Today, about 250,000 franchisees operate 800,000 units in the U.S., according to the International Franchise Association.
- These businesses operate in over 200 diverse industries and range from mom-and-pop operations to multiunit franchises.
- Many entrepreneurs have made millions building multiunit franchise operations.
For thousands of entrepreneurs in the United States with business savvy, franchising has been a path to riches. But for these individuals, success hasn't come easy. It's taken hard work and a keen knowledge of how to leverage an iconic brand’s operational, marketing, human resources training, and other resources.
Gary Robins, a multiunit operator of 63 Supercuts hair salons in Delaware, New Jersey, and Pennsylvania, can attest to that. Twenty-seven years ago, he opened his first store in Philadelphia, learned the business, and then grew it to profitability.
Over the years as his cash hoard grew, Robins reinvested the money to acquire or open other Supercut franchises in the tristate region. Today, his chain of stores employs 400 people, and annual revenues this year are approaching $20 million.
"Franchising is a great place to start an entrepreneurial career since you have mentors and a peer group in your network that can help you succeed," Robins said. "The franchisor does a lot of the heavy lifting for you by supplying everything — from architectural store design, marketing support, and employee training to vetting vendors and supplying operational and branding standards."
Another attraction is the fact that median startup costs vary from $25,000 up to $5 million, so founders have options depending on their budget, he notes.
That is why franchising has a colossal footprint on Main Street, representing about 3% of the U.S. gross domestic product, according to the International Franchise Association (IFA). Today, about 250,000 franchisees operate 800,000 units, from single mom-and-pop stores to large multistate operations, according to the IFA. These businesses serve more than 200 industries, including business services, healthcare, lodging, real estate, and restaurants.
[Read: How 4 Entrepreneurs Are Making Millions on Amazon as Third-Party Sellers]
A formula for success: 'It was a growing national brand with a good reputation, and I felt with the company's support I could build a scalable business'
But opening a franchise isn't a golden ticket that guarantees business success. The key is choosing a strong brand that offers long-term growth opportunities and is in a line of business that taps into your skill set, say industry experts.
That was the strategy Keegan Trudgen used when he chose to buy a PuroClean disaster services franchise in Bensenville, a suburb of Chicago, for about $150,000 in 2013. He believed the company — which provides emergency services to restore property damaged by water, mold, fire, biohazards, and other conditions — was in a lucrative niche.
"It was a growing national brand with a good reputation, and I felt with the company's support I could build a scalable business," Trudgen recalled.
The decision to buy the franchise, however, was made after a lot of due diligence. Trudgen carefully reviewed PuroClean's franchising disclosure document, which outlined startup costs that included an initial upfront investment of $50,000, royalty and marketing fees that were 10% of revenues and 2%, respectively, as well as the corporate training and operational support he’d receive to determine if his return on investment would be worth it.
He also made sure the company had good financials and a strong leadership team, and it didn't have onerous supplier or e-commerce restrictions. After the review, he felt it was a high-margin business that didn't take an exorbitant amount of money to operate.
Three years later, Trudgen brought in a partner, Tim Lohse, a friend with over 20 years of corporate management experience, to help him run and grow the business. Together, the co-owners, along with an additional partner in Texas, expanded the business to 10 franchises that serve five markets: Chicago, Dallas, Detroit, Green Bay and Milwaukee, Wisconsin. Their multiunit franchise operation garners $15 million in annual revenues, employs 80 people, and serves about 2,500 clients each year.
That expansion was achieved after working with the parent company to develop a multiunit program in 2016 that allowed PuroClean franchisees to own and operate more than one store per territory, said Tim Lohse, Co-Owner and Vice President. After the multiunit program launched, Trudgen and Lohse began acquiring other franchisees by using their own business' capital and seller financing, where the seller acts like the lender to the buyer.
"We never sought outside bank financing," explained Trudgen. "Instead, we self-funded all of our expansion, and we were able to do this using the power of compounded returns since we have had 40% compounded returns annually for 10 years."
[Read: Startups Turn to Venture Debt to Turbocharge Growth]
Franchising is a great place to start an entrepreneurial career since you have mentors and a peer group in your network that can help you succeed. The franchisor does a lot of the heavy lifting for you by supplying everything — from architectural store design, marketing support, and employee training to vetting vendors and supplying operational and branding standards.
Gary Robins, a multiunit operator of 63 Supercuts hair salons in Delaware, New Jersey, and Pennsylvania.
The power of economies of scale: 'Today, about 20% of all franchise owners run multiunit franchise operations in the U.S.'
Multiunit franchising has been a way that many entrepreneurs have fast-forwarded business success. "Today, about 20% of all franchise owners run multiunit franchise operations in the U.S.," said Michael Layman, Senior Vice President of the IFA. "They run the gamut in size, and some are very large, sophisticated multistate operations."
Michael Browning, the Founder of Urban Air Adventure Park and CEO of Unleashed Brands, is a prime example of multiunit franchising entrepreneurship. His journey started in 2011 when he opened his first Urban Air Adventure Park in Southlake, in the Dallas-Fort Worth area, with $1 million in financial backing from family and friends. The 21,000-square-foot park — which included indoor attractions like dodgeball, trampolines, and a gymnastics track — was so successful within two years that he expanded and opened two more parks in the same metroplex area.
"I never intended to go into franchising, it just happened,” Browning recalled. "Visitors spread the word about Urban Air, and I began getting requests from entrepreneurs in other states like Kansas to franchise my concept."
He opted to franchise outside of the metroplex instead of opening his own parks because he liked the idea of having locally owned and operated business units running operations. So, in 2014, Browning met with a franchising attorney who helped him develop a franchise disclosure document that outlined information about the company, its management team, startup expenses and fees, legal obligations, and how the relationship between the franchisee and franchisor is conducted. Within five years, he had 118 franchises across over a dozen states, including Alabama, Arkansas, Kansas, Indiana, Pennsylvania, New Jersey, Oklahoma, and Texas.
Choosing the right franchisee partners was key to success. According to Browning, individuals had to have the core values and leadership skills necessary to accomplish the company's objectives. They had to be innovative and communicative leaders.
In addition, they had to meet financial requirements such as more than $1 million in net worth, a good FICO score, and $700,000 of liquidity. That's because the total cost to buy and set up an Urban Air franchise was $3.5 million. In addition, there is a royalty fee of 7% of gross revenue monthly.
"That may sound steep, but the Urban Air franchise in our top quartile generates an average profit margin of 26.8% on $5.2 million in revenues annually," says Browning.
Today, Urban Air has over 200 franchise units in all states except Alaska, and annual revenues have hit $700 million. Next year, it expects to grow revenue by about 13%.
That is impressive when you consider the pandemic forced many operations to close in 2020. According to Browning, it was a time of introspection that urged him to rethink his business strategy.
"I realized I could replicate the formula I used to grow Urban Air with other brands," Browning said. So he created an umbrella company called Unleashed Brands and started buying franchise brands that service kids and help children learn, play, and grow.
Unleashed Brands includes seven brands, including Urban Air, XP League, Snapology, The Little Gym, Premier Martial Arts, Sylvan Learning, Class 101, and the just-acquired Water Wings Swim School. It services over 20 million kids annually at over 1,100 locations, offering everything from STEM (science, technology, engineering, and math) learning and gymnastics to college planning.
"We're like a one-stop-shop for parents offering them all kinds of services for their kids on one platform," said Browning.
What's his advice for other entrepreneurs thinking of jumping into franchising?
To be successful, you have to offer the best service possible and be willing to work hard, he said.
Supercuts' Robins agreed. "It takes a certain mindset. You must have to be able to face adversity and be resilient since there are a lot of challenges to deal with every day, including finding great hires to help you run your business," he said. "But if you think you have what it takes to be an entrepreneur, this may be an avenue to pursue."
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