‘Quasi-preneurs’ see opportunity, challenges in franchising

In 2020, Kelly Jackson and Davina Arceneaux wanted to leave their company jobs and become business owners. They were looking for something both COVID-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 franchising 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.

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 US 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 US. The IFA predicts franchises in the US will grow 2% to 792,014 this year. That's still just a fraction of the 32.5 million total small businesses in the US.

While the money invested in a franchise is still at risk if the business fails, brand name recognition and franchisor support offer more of a safety net than establishing an unknown brand.

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.

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.

“If done properly, (a franchise is) great, but you have to be extraordinarily careful,” Herman said. “There is a lot of fraud out there.”