Minorities, women turn to franchises: Proven business systems offer more opportunities

Betsy Knoke’s northeast-side business is the latest addition for Colorado-based 10 til 2, a franchised staffing service that places college-educated individuals in part-time employment.

On a grander scale, the landscape-architect-turned-business-owner is among the scores of women and minorities who are finding business opportunities through franchises.

A report issued in October by the IFA Educational Foundation found minorities own 20 percent of the nation’s franchises and women 25 percent. The affiliate of the International Franchise Association in Washington, D.C., used U.S. Census data from 2002, the most recent year for which statistics are available, to compile the report.

The study gives the IFA its first comprehensive look at how minorities and women are shaping the franchising industry. The organization plans to use census data to track minority and female participation every five years.

“Of course we want the number to increase,” said Miriam Brewer, the foundation’s director of diversity. “We’re pleased with the results, but we know we can do better.”

One effort involves more than 220 companies that are IFA members. They participate in a program that aims to increase the number of minority franchisees, employees and suppliers. Since April, the IFA’s Diversity Institute has conducted more than a dozen seminars in major cities addressing franchising opportunities for minorities, women and veterans.

For Knoke, 45, the 10 til 2 concept of helping professionals find part-time employment attracted her more than any recruiting effort. Yet, she realizes the obstacles that can arise when starting a company from scratch.

“[With a franchise], you have your own business, but you’re really not alone,” she said. “You get a lot of support and a lot of things from your franchiser that you would have to do on your own.”

Less risk to find success

Indeed, because of their established business models, franchises tend to be less risky than starting a company from scratch. Despite what can be six-figure startup costs, funding usually is easier to find for franchises than for startups because banks view them as a safer bet.

In addition to an upfront fee, franchise owners pay subsequent fees for advertising and other support. They usually pocket 1 percent to 10 percent of a store’s profits.

But the extra costs are often worth it because franchises offer a proven system. Survival-rate statistics vary widely and are often distorted, but the general consensus among business experts is that franchises have a better chance of making it than do independent startups.

Karthik Aiyar can vouch for that. The 59-year-old Indian native immigrated to the United States in 1970 to pursue a master’s degree in industrial and systems engineering from Northeastern University in Boston.

A job at the former GTE’s regional headquarters brought him to Indianapolis in 1980. A decade later, he joined Carmelbased Telamon Corp. before launching his own telecommunications engineering company in 1997. Four years later, right about the time of 9/11, the bottom fell out of the telecom industry. He closed his operations and bought into Georgia-based Jan-Pro Franchising International Inc., a commercial-cleaning service.

As a master franchise owner, Aiyar trains and certifies Jan-Pro franchisees, of which he has 40 under his umbrella in the metropolitan area.

“The level of risk is a lot less from where I came from,” he said. “I always had it in me to improve and help people. This gave me the opportunity to work with people who are looking to establish a business, and they can be prosperous.”

Rene Flores is a prime example. The 32-year-old from El Salvador began working at Domino’s Pizza as a teen-ager in Arlington, Va. A stint as a deliveryman led him to enroll in the corporation’s assistant manager program, which ultimately led to a managerial position.

In 2000, Flores received a call from a friend in Bloomington who operated a Domino’s on the Indiana University campus informing him of a store for sale at Purdue University. He bought it and a neighboring Domino’s in Lafayette for $200,000.

Seven years later, his stable has grown to include another Lafayette Domino’s location, as well as two more in Frankfort and Zionsville.

“The culture for minorities is that they’re willing to put a lot of hours into the restaurant business,” said Flores, explaining why many gravitate toward franchising opportunities within the dining industry.

Huge impact

To be sure, the “food services and drinking places” sector has one of the highest concentrations of franchises owned by minorities, according to the IFA study.

Overall, however, the percentage of franchises owned by minorities and women nearly mirrors their ownership of businesses in general. In 2002, minorities owned 20.1 percent of franchises compared with 13.2 percent of non-franchised businesses. Women owned 25 percent of all franchises compared with 27.9 percent of non-franchised businesses.

Philip Whistler, chairman of Ice Miller LLP’s business litigation group, whose practice includes franchising, sees the commitment to minority ownership firsthand.

“Diversity is very much on their screens,” he said. “So I think whether they’re getting results that are dramatically different than the business world, I do know they are making a concerted effort.”

Large franchisers in particular are interested in recruiting minorities to fulfill self interests as well, Whistler said. That mainly involves conducting market research for certain products and demographics to determine what is successful.

At any rate, the American dream of owning your own business is a concept that still resonates with the immigrant population, Whistler said. Of the 20.1 percent of minorities that owned franchises, 8.9 percent were operated by Asians, 5.8 percent by Hispanics, 4.4 percent by blacks, and 1 percent by American Indians and Pacific Islanders.

Nearly 800,000 franchised establishments nationwide provide more than 9.7 million jobs and represent 3.2 percent of all businesses. They account for more than $1 trillion in annual U.S. retail sales-or 50 percent of all retail sales nationwide, according to the U.S. General Accounting Office.

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.

{{ articles_remaining }}
Free {{ article_text }} Remaining
{{ articles_remaining }}
Free {{ article_text }} Remaining Article limit resets on
{{ count_down }}