What does it Take to Make a SUCCESSFUL FRANCHISE?

By Jack Etzel

So you’ve said to yourself, “Hey, if I had the money to open a franchise, any kind at all, I bet I could make a lot of money.” Don’t bet on that. For this month’s Perspective, we spoke with a local man who you may have seen on CNN, or eaten in one of his franchises, or used a service that one of his companies franchised to other entrepreneurs. Since leaving his job as a young executive with Exxon, Ron Sofranko has not only transformed his own life, but that of countless others, all in the name of ‘franchise.’ We met at the Cranberry office of one of his latest ventures, BookSmarts™, a tax and accounting franchise aimed at small businesses.

North Hills Monthly Magazine: Ron, what’s your own definition of the word franchise?

Ron Sofranko: Basically, a franchise is a system that ties procedural operations that have been proven by someone else, also known as the franchisor, to a business. The franchise comes with a lot less risk for the person going into business. Eighty-five percent of franchises succeed, compared to 60 percent of all new business ventures that fail in the first year. So buying and being involved in a franchise gives a person a successful model already in place. When we go to a McDonald’s, for example, we know that we’re going to get a consistent product, and know exactly what we are paying for what we’re getting.

NHMM: Don’t we know that at any place?

Sofranko: If you go to an independent operator, ‘Joe’s Burgers’ or wherever, you’re not really sure until that company has been there for a while and has established a good reputation, and so forth.

NHMM: When a person buys a franchise, how long does that agreement usually last? Five years, forever?

Sofranko: A typical range would be from 10 to 20 years, but that varies. There’s a document called the Franchise Disclosure Document (FDD) that basically outlines the terms, as well as just about everything else. It explains the whole relationship between the parties; what the franchisor and the franchisee will each do and what the responsibilities of each will be. That, of course, includes upholding the brand, the product, the quality, the image, the marketing and so forth.

NHMM: Sounds like the franchisee could use an attorney.

Sofranko: (Laughing) Yeah, but not always.

NHMM: At some point I read about Isaac Singer, the sewing machine guy, who tried to sell his invention by franchising it back in the mid-1800s. So this idea really isn’t new, is it?
Sofranko: Franchising has been around that long or longer, but it was a lot different back then; it was more a matter of licensing. If I owned a patented product, I’d sell you a license for a fee in order for you to sell it, using my process and my machine. The current franchise concept goes much deeper. For example, referring back to the sewing machine, where do you buy your thread? From Mr. Singer? Or could you buy it from an independent thread maker? Today, do you buy your napkins, your straws and other products from McDonald’s, from which they have an opportunity to make a profit, or can you buy them from a direct distributor? The answer is different and varies widely from one franchise agreement to another.

NHMM: There must be characters out there who just want to pick a local sucker’s pockets. How do prospective entrepreneurs protect themselves?

Sofranko: There are thousands of franchisors. Like anything else, you must do your research; you look closely at your risk and check out everything possible. Know with whom you’re dealing. There are some fraudulent people out there, just like in anything. There are some quick scams, and like any business, it’s always a buyer-beware world.

NHMM: What qualities do you consider absolutely essential for the success of a franchisee?

Sofranko: You’ve asked a question about something that I really like to talk about. You’ve got to jump out of bed every morning! You must evaluate your passion. Do you have it? Do you possess the confidence? You must absolutely love what you do. If you’re going to buy a franchise in a printing company, or a tax and accounting service, a restaurant or whatever, you’re really going to have to go out and work that business. A franchisor doesn’t just give you a whole pile of business. It doesn’t work that way—that’s not our job. Our job is to give you systems, procedures, training, marketing materials, branding support, knowledge, everything we can to help you be successful. No matter how much time goes by, our job is to continue to help the business stay successful. But it’s the business owner who’s going to have to be the one who looks forward to jumping out of bed every morning.

NHMM: Even among people who think that they would like to have their own businesses, I would guess that many don’t fall into that gung-ho definition you just described.

Sofranko: That’s why the franchisee is chosen by the franchisor. Just because you walk in and say you want to buy a franchise, we’re not automatically going to sell you one. There is an upfront franchise fee from which the franchisor makes little or no money. The franchisor is looking for a long-term relationship. From that, the franchisor can make a royalty fee. So the franchisor gets a five, seven or 10 percent ongoing royalty for years down the road. It’s the long term that pays off for both parties. Choosing the right franchisee is more than just important; it’s absolutely essential for everyone involved.

NHMM: Most people would consider you to be very successful in this field. Is there a secret you could share with us?

Sofranko: It’s no secret. The best qualities of any entrepreneur are passion, patience and perseverance. Period.