most available and attractive to African American entrepreneurs.
Unlike a “traditional” start-up, a franchise is based on a proven method of distributing products and services. According to Michael Seid, managing director of a West Hartford, Connecticut, franchise consulting firm and co-author of Franchising for Dummies (IDG Books Worldwide Inc., $19.99), the franchising process itself occurs when the franchisor licenses its trade name (the brand, such as Merry Maids or Burger King) and its operating methods (its system of doing business) to a person or group (the franchisee), who in turn agrees to operate according to the terms of the contract (the franchise agreement).
Through that relationship, the franchisor provides the franchisee with support, and in some cases exercises some control over the way the franchisee operates under the brand. In exchange, the franchisee typically pays the franchisor an initial fee (the franchise fee) and a continuing fee (known as a royalty), which is a percentage of gross sales. Royalty fees range from 1% to 11%, with the typical franchise falling into the 3% to 7% range.
Franchisees get support on various fronts, including the opportunity to be instantly associated with an established brand name. Most franchisors offer managerial training programs to franchisees prior to their opening a new outlet, and many also provide follow-up training and counseling services.
On paper, the concept sounds simple enough, but running a successful franchise is demanding, and is best approached through initial homework and research on the franchisee’s part.
Not all franchise opportunities are alike: Some franchises can be run from home while others require an official location; some require employees while others can be run by the entrepreneur himself.
Don DeBolt, president of the IFA, advises new franchisees to stick with the business concept they feel most passionate about, whether it’s food service, hospitality, automotive, or some other field. DeBolt says that right now the service industry franchises are growing significantly and represent a trend area where many new business-to-business franchises are emerging. Such companies provide a service as opposed to a product, and include industries such as lawn care, tax, payroll, and accounting services for other companies, elder care services geared toward serving the nation’s aging population, and commercial cleaning.
Oldham adds that African American entrepreneurs are also looking at opportunities in the automobile and hotel industries–both of which involve franchising. “Ford probably leads the way in terms of the number of black dealers associated with the brand,” says Oldham, “but I’ve also seen a number of people pooling their resources to get into the hotel business.”
When H. Herbert Love bought his first Meineke franchise in Atlanta for $85,000 in 1989, he assumed that adding new locations would be the quickest route to success. By the end of that first year, he and his wife, Charlene, together with his brother Brian, had acquired three more locations.
But a lack of qualified, reliable auto technicians and management staff put a kink in their plans. Realizing they’d spread themselves too thin, the trio scaled back to one location, which last