Small businesses with big names

Locally owned franchises offer advantages to first-time entrepreneurs

February 15, 2006

By DANE GOLDEN
ARGUS-COURIER STAFF

When you think of small business in Petaluma, you probably think of names like the UPS Store, Burger King, and the Rocky Mountain Chocolate Factory.

No?

Nationally branded stores don't always come to mind when thinking of local businesses. But local businesses they are. Although some big named stores, like Starbucks, are all owned by the corporation of the same name, many of the names you see in town have local owners, the franchisees.

Franchises can offer an opportunity to start a business for those who want to do so but don't have small business experience. That was true for Tony Lucas, owner of the Rocky Mountain Chocolate Factory in the Petaluma Village Premium Outlets.

A decade ago, Lucas was a civil litigation attorney, "Which is about the worst thing you can get into," he said. A career change was in order.

"My wife and I decided on a franchise precisely because we had no business experience. We figured it had to be a franchise so we could get that business background from somebody else."

They researched several franchise operations before deciding to go with the national candy store. Rocky Mountain Chocolate Factory is based in Durango, Colo. It has been franchising for almost 25 years, and now has more than 300 stores worldwide.

Lucas and his wife moved here from San Francisco when the franchise opportunity opened up in Petaluma. His original idea was to start a store in a San Francisco residential area, but the company discouraged that. They told him that in their experience, locations where people spent the most time walking around yielded the best results. That was lesson number one, and Lucas found that the business experience from the franchisor helped him learn the business much faster that he would have on his own.

The company provided everything from the operating manual, training on store operations and how to cook candy apples and fudge. They also sent him a "store opener," a person who specializes in helping franchisees get through the first week of business.

Lucas said that the company is also helpful on an ongoing basis. When his store got water in the recent storms (the store escaped being flooded too badly), Rocky Mountain was able to help him expedite the replacement of his product.

A Rocky Mountain Chocolate Factory franchise can cost between $120,000 and $450,000 to set up, including the $24,500 franchise fee. Franchisees also pay a royalty fee of 5 percent plus 1 percent for marketing and promotion.

Bob Foster, owner of the UPS Store near Orchard Supply Hardware, also went into business to gain more freedom.

"I don't think I could ever work for anybody every again," the former school administrator said. "I work well when I'm my own boss."

He also felt that starting a franchise was easier for him than a non-franchise would have been, as he too had no business experience.

"I would never want to go into business at the age I went into it without it being a franchise first. I needed the experience and the support of a corporation behind me, because you can lose an awful lot of money very, very, very quickly."

Even with the help of the franchise, he had a tough start the first year or so.

"I'm a bright guy, but I was not prepared for the things that operating a small business required of me. When you get paid once every two weeks, you pay your bills based on the fact that you're always going to get a paycheck. This is not like that, there is no paycheck. I always say it's got the best of both worlds: You're not working for a anybody and youÕre not encumbered by being paid."

And what happens when you want to retire from a franchise and want to sell it? Foster said that the brand brings a higher premium for reselling because of brand recognition. But he's probably not selling anytime soon.

"The funny thing is I thoroughly enjoy coming to work every day. I really enjoy this."

The UPS Store has more than 4,000 franchises. The franchise fee is about $30,000, with an ongoing royalty fee of 5 percent. Initial startup investment for a franchise totals between $140,000 and $250,000.

Geoff Jones, whose Petaluma-based company Francisco Foods owns eight Burger King restaurants in Marin and Sonoma counties, came to franchising from a different direction. He originally worked for the Burger King corporate office in Miami before joining his father-in-law in the Burger King franchise ownership business. His company has owned Burger Kings for 23 years.

One of the challenges Jones now faces is the rising cost of real estate. Each of his stand-alone restaurants, except the Petaluma location near Orchard Supply, is on leased land. And the price of land is going up.

"If you're a businessperson and you don't own the land, you're in deep trouble," he said. As the value of area real estate skyrockets, landowners continue to want a percentage return on the land value, but that's not easy for the local Burger King restaurants.

"Our sales have been really static for decades," said Jones.

And where the fast food business was once more lucrative, customers have many more options now.

"Now you can get fast food in the gas station, for crying out loud," he said.

Additionally, in his business, there are greater costs in terms of energy, government regulation, and litigation, as well as a variety of personnel issues.

"If you have a labor-intensive business in 2006, you have some issues," he said.

Jones' advice for franchisees? Keep it simple. Also, have as few employees as possible, with the lowest startup costs and a recognizable brand name. Also, he said, don't expand too fast.

"If you have something that works, don't expect that opening three or five or 10 of them would be any better."

Burger Kings cost between $294,000 and $2.8 million to set up, with a franchise fee of $50,000 and a royalty fee of 4.5 percent. There are more than 11,000 Burger Kings worldwide.

Jones wouldn't recommend franchises as a way to get rich quick. He said that a lot of the well-known logos people see on stores and restaurants are owned by small businesses, whose owners may drive 10-year-old cars.

But for some franchise owners, like Rocky Mountain Chocolate Factory's Tony Lucas, nothing could be finer.

"The worst day in the candy business is better than the best day as an attorney," he said.

(Contact Dane Golden at dgolden@arguscourier.com)