Beyond McDonald's: A Look at Franchising Today

John Freda wanted to be in business for himself, not by himself. That's why he purchased a Sylvan Learning Center (www.educate.com) franchise in Plainview, N.Y., in 1995.

"Franchising is an excellent way to become an independent businessperson without having to do all the groundwork yourself," he says. "Sylvan has a proven product. We don't have to go out and reinvent the wheel. And when we run into problems and don't know what to do, Sylvan corporate is just a phone call away."

Freda was so enamored of franchising that he opened two additional centers on Long Island, N.Y., and has plans for two more. "It's been very exciting," he says about operating his tutoring service franchises. "We see kids who hated to go to school achieving. My teachers have an atmosphere for teaching that they can't find anywhere else. So they have highly motivated students and a near perfect atmosphere for learning."

Such enthusiasm is not unusual. According to a study released last year by the International Franchise Association (www.franchise.org), 92 percent of franchisees say they are very or somewhat successful. Another 93 percent say that their association with a franchise system gives them an advantage over independent business owners. Sixty-five percent said they would purchase the same franchise again.

Franchising became popular after World War II. Despite popular opinion, the concept goes well beyond McDonald's (www.mcdonalds.com) and Burger King (www.burgerking.com). Today, franchise companies range from fast-food restaurants and retail stores to business-service shops and temporary-staffing agencies. Think of an industry, and chances are that a franchise is one of the top players.

Franchising is about relationships. A company develops a business concept, or format. Known as the franchisor, this company then sells the use of its trademark and business method to franchisees. The two parties form a partnership, of sorts. The franchisor provides the franchisee with such services as site-selection assistance, business set-up, training, advertising, marketing, product supply, and ongoing support.

The franchisee agrees to follow a certain method of doing business. Whether you go to a McDonald's in New York or California, you're going to get the same basic hamburger. That's the beauty of franchising. Customers recognize the company name and they know what to expect from it.

These advantages don't come without a price. According to the IFA, 95 percent of franchisors charge an initial franchisee fee of $40,000 or less; 2 percent charge $50,000 or more. That fee doesn't include such start-up costs as rent, renovations, equipment, etc. The initial investment for all that averages $250,000. For more large-scale franchises, such as hotels, franchisees spend over $1.8 million. In addition to the initial franchise fee, most franchisors charge ongoing advertising fees and royalties based on sales percentages.

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