Franchise vs. Startup: Entrepreneurs look at both options

But there’s one other question that is just as important: Should the new business be a franchise?

Budding restaurateurs Brian Kubik of Buxton-Kubik-Dodd Interiors and Architecture and Paul Freeman of Computech Mailing Service, and industry veteran Jeff Hurshman chose a franchise – Cleveland-based San Francisco Oven – when they were ready to open an eatery in 2006 under the Oven Spaces LLC banner.

“With a franchise, a lot of the headaches have been worked out,” said Kubik, whose group paid $300,000 to renovate their first space, at 1845 E. Sunshine St., in May 2006.

“The menu’s been made, the kitchen’s been decided, the equipment has been decided, the approach, what people wear, what the place looks like, how the business is run.”

Dealing with details

That the details are taken care of by the franchise is one of the biggest draws for entrepreneurs, according to Terry Hill, vice president of communications for the International Franchise Association.

“You’re buying a system that is, as much as possible, perfected in the marketplace,” Hill said. “You also get a recognized brand and the marketing muscle behind that. You get a support system.”

Hill noted that IFA is gearing up to conduct a survey of U.S. franchise operations, but he said that in 2001, when the last survey was conducted, there were 2,500 viable franchise systems in the United States and more than 767,000 franchised businesses by the end of that year.

Part of the popularity of joining a franchise may be that franchisees have access to group experience and resources – a major draw for Kubik and Oven Spaces LLC, which is in final negotiations for a second location in Matt O’Reilly’s Green Circle Shopping Center at Republic Road and National Avenue. Oven Spaces LLC also has added northwest Arkansas to its territory, with plans to have a total of eight or nine eateries open in five years.

“The guys at corporate, all they do all day is try to find ways to make the business better,” he said. “The people running the restaurant don’t have time to think about those types of things – they’re running the restaurants. And it’s a full-time job just to run the place.”

Vinay Garg, associate professor of strategic management at Missouri State University, said that those advantages give franchisees a better chance for success in the Springfield market, which has a higher-than-average number of restaurants per capita – one for every 280 people.

“It’s a very competitive market for restaurants, and to start from scratch and be successful can take a long time. Success is not guaranteed,” Garg said. “Having all of those advantages, a franchisee improves their chances of success in a new business.”

The drawbacks

One potential drawback of franchising is the fees – San Francisco Oven franchisees, for example, pay a $25,000 franchise fee plus 5 percent of sales in royalties. Kubik, however, doesn’t see the fees as additional costs.

“I think you’d spend that anyway. You have to develop your menu, your logo, your concept,” Kubik said. “With a franchise, you’re buying a system – for a dumb guy like me, it’s great because you can just paint by numbers.”

Franchises also allow little in the way of modifying the company model, mostly because the biggest strength of the franchise system, according to IFA’s Hill, is brand consistency.

“In a franchise, you don’t have as much leeway to make changes,” Hill said. “When you sign an agreement, you agree not to tinker very much with the model – it’s designed so you get the same experience no matter where you go.”

Sam Hamra, founder and chairman of Springfield-based Wendy’s of Missouri Inc., opened his first Wendy’s on West Sunshine Street in 1976 and now has 23 restaurants throughout the state. He said that, while franchises have the advantage of drawing on expertise of their founders, a franchise is only as strong as its executives. When the parent company is strong, the franchise fees are justified.

“We were impressed that the royalties and franchise fees would help to pay for people to come here and help us finalize locations, approve sites, give us plans and drawings that we could adapt to our local sites,” Hamra added. “These were people that would be helping us in the hiring and training process. We knew that the integrity of our whole operation would be based in part on the integrity of the people behind the parent company.”

Hamra Enterprises Inc., the parent company of Wendy’s of Missouri, also is the parent company of two Panera Bread franchise companies that own 43 locations in the Boston and Chicago areas.

The alternative

Franchises, however, are not for everyone.

Jana and Chris Daugherty are preparing to open their new business, The Cheddar Block, in 2,000 square feet at 1410 W. Republic Road, in the Quail Creek Shopping Center.

Jana Daugherty said the business idea came from The Better Cheddar, a store they enjoy visiting at Country Club Plaza in Kansas City.

Daugherty, the business development director at architecture firm Butler, Rosenbury & Partners, said she wasn’t aware of franchises for the type of gourmet cheese and specialty foods shop that she and her husband wanted to open. Even if she had found one, Daugherty said she wouldn’t have wanted to go that route.

“What I like about doing it independently is that you get to start from scratch – you get to make the rules up, do the creative part from the beginning to the end,” she said. “That made it attractive to me – to come up with the concept and the branding of it, and do it the way you want to.”

Franchise proponents also see the value of independent businesses for those who have the right entrepreneurial spirit.

“Independent businesses are fine operations if that’s what suits you,” IFA’s Hill said. “If you are a very independent, entrepreneurial person, a franchise may not be for you. We don’t discourage people from starting independent businesses – we like them, because sometimes they become franchises.”