Franchising Is Growing In Westchester—And It's Not Just Food
Despite the threat of increased labor costs, franchising is on the rise in Westchester—in sectors both expected (food) and unexpected (nearly everything else!)
Dan Magnus knew, one night at his Elevation Burger restaurant in Rye Brook, that he had made the right decision to go into franchising. A former publishing executive, he was left without a job when his company was sold. During his one-year, non-compete severance time—“my ‘gardening clause,’ as they call it in Europe,” he says—and with the media business in turmoil, he decided that it was time to move on to something else. He found franchising and opened two county locations of Elevation Burger, a restaurant offering organic, grass-fed beef and other health-conscious food items.
That evening, three C-suite publishing execs whom Magnus knew well happened to walk into his restaurant coincidentally. “They told me: ‘You are the smartest guy in town for getting out of the [publishing] business,” Magnus says.
Dan Magnus (right) ditched the publishing world to try his hand at franchising. He now owns two county Elevation Burger locations.
Magnus, 51, says he has “never been happier” since leaving the tumultuous publishing world and opening his own business. That, in a nutshell, explains the seductive lure of franchising. In our current economy, entrepreneurship is increasingly attractive to many who fear losing their jobs through mergers, restructurings, and all the other corporate landmines that dot the employment battlefield. Magnus, like many others, found himself out of work and “had no brilliant idea,” he says, other than deciding that he “didn’t want to spend my life in a business that hadn’t figured out a model yet.” He looked at different options, and someone suggested franchising. “I can’t say I was immediately enamored with the idea,” Magnus recalls. “But looking into it, there were a lot of things desirable about it. I fell in ‘like’ with the business. But I fell in love with Elevation Burger.”
Passion like his is helping fuel strong growth in franchising, both around the nation and here in Westchester County. Franchise businesses grew at a faster pace than the rest of the economy—by 5.2 percent franchise GDP to 3.4 percent overall US GDP—according to the mid-2015 forecast update by the International Franchise Association Educational Foundation and IHS Economics, a business analysis and forecasting firm. In fact, franchising is expected to outperform the US economy for the fifth consecutive year and will have contributed $521 billion to the economy in 2015.
Local franchise numbers are harder to come by, but those in the trenches say business is booming here, too. “Unfortunately, most of the hard data that exists is not broken out on a Westchester basis, but we have had more inquires this year [from Westchester] than last year, and more last year than the year before that,” says Frank Dunne, of FranNet, a national company that helps match prospects with franchise opportunities. “We’ve seen franchise businesses open here in massage, cell-phone repair, direct mail and marketing, dental-product repair, residential cleaning, residential and commercial painting, staffing, frozen yogurt and desserts, senior-home-placement advisement, and others,” says Dunne, who also offers seminars on franchising through SCORE Westchester. “Franchising is very much alive here.”
David Kaufmann, a senior partner in the New York City law firm Kaufmann Gildin & Robbins, who specializes in franchise work, agrees. “We have had very significant growth here in 2015 and will again in 2016,” he says. That optimism is confirmed by the Fall 2015 Bank of America Small Business Owner Report, which finds that small-business owners in the metro-New York area—of which franchisees are a significant portion—are quite bullish about 2016, with 70 percent expecting revenues to increase in the year ahead and 57 percent confident the local economy will improve in the next year.
Beyond Fast Food
Franchising is far bigger than most people realize and goes well beyond the fast-food joints we typically associate with the model. There are about 3,100 franchise concepts across more than 90 industries nationwide, Dunne says. “Today, 40 percent of retail sales in the US are made in franchise outlets,” Kaufmann says. “Every time you buy a car, have it serviced or fill it with gas; virtually every hotel you stay in; most stores in the mall; most lawn-care or pet-care services you use—all of these are predominantly franchised.”
All those options can make it hard for potential franchisees to choose their business sector. Franchise owner Seth Berkman of Edgemont recalls a franchising expo he attended four years ago: “There were so many franchises I had never even heard of; it was mind-boggling,” he says. Before becoming a franchisee Berkman, 41, owned a tech company but “yearned for a situation where I didn’t have to be in charge of every last detail,” he says. “I wanted to deliver a product or service in the best way possible but have the pipeline for dealing with the product, the website, all that taken care of for you.”
His aha! moment came when his wife’s cell phone crashed. “We were in North Carolina, and my wife went to this place I’d never heard of, called uBreakiFix. She had a great experience. She spent so much money, like $500, and said it was fantastic. That was the start of it.” The company wasn’t franchising then, but Berkman kept an eye on it. When uBreakiFix did become a franchise, he dove in, and now owns three stores in the county (in Scarsdale, Mamaroneck, and Mount Kisco) with plans for two more.
Like Magnus, Berkman is in love with his business. “I felt these guys were a lot like me, really passionate about servicing the customer properly,” he says. “That is what is missing from the tech service industry. You expect to deal with someone who will be mean or condescending or dismiss you. That is the exact opposite of what I preach and what uBreakiFix preaches.”
Such passion is critical for success. But so is caution. “The biggest mistake people make is that they don’t engage in evaluation,” says Charles N. Internicola, a New York franchise attorney who also practices in Westchester. “They become attached to a particular brand or business they personally like, and as a result they short-circuit what should be a vibrant due-diligence process.” All franchisors must, by law, offer a Franchise Disclosure Document, which details the agreement and lists all other current and former franchise holders, Internicola points out. Prospects are able to contact those franchisees and learn all the good, the bad, and the ugly associated with the company. “If you don’t call them, you are being absolutely foolish,” Kaufmann agrees. “They will be pleased to tell you if they are doing well and will tell you even louder if their experience is negative.”
Franchising does very well with first-time business owners, because it’s like cooking from a recipe.
— Frank Dunne, FranNet
Michael Lang couldn’t agree more. “Do your due diligence, no doubt,” says Lang, who opened a Signarama franchise in Hartsdale two years ago, after losing his job as a marketing executive in 2010. “Don’t make a decision based on a few conversations. Use all the resources you can get, and ask lots of questions. Look at many options. I looked at 12 to 18 different franchise systems in different fields.”
Financial due diligence is perhaps the most critical. “In the beginning you are not making any money, so financial planning is very important,” Lang says. “Many businesses fail in the first few years from financial constraints, so you need a business plan to cover that part of the venture.” Even with such planning, “The first year was really tough,” he says. But he doubled his business in his second year. “I can now pay myself, though not to the extent I was paid at the corporate level. Will you get rich fast [through franchising]? No. You have to work hard, maybe harder than before. But it is absolutely fun.” He especially likes watching the signage he creates pop up in the community: “You see the direct impact, the results of your work, right away,” Lang notes.
As a community, Westchester offers both enticements and potential roadblocks to franchising. “It takes a certain amount of income to live here, so there are plenty of people who don’t blush at spending money,” Magnus says. “That’s always good when you are selling something.” This relative wealth has created franchise opportunities for supplemental services and enrichment activities, such as specialized fitness centers, home healthcare for the elderly, and childcare and early-education programs, Internicola says. More problematic, though, is the high cost of real estate. “I see a lot of people who make errors in real estate,” Magnus says, meaning they misjudge the hit those high costs will impose on their bottom line.
The Minimum-Wage Factor
Another storm cloud billowing overhead is the minimum-wage issue, which affects the entire state, of course. In most businesses, labor is the biggest expense, “and it has been a runaway train,” Magnus says. “And that train became a bullet train recently, [with the minimum wage] on track for $15 an hour.” While most of those interviewed agree that the current minimum of $7.25 is too low, they also agree that $15, which Governor Cuomo is calling for in the food-service industry, is too high.
Every time you buy a car, have it serviced or fill it with gas; virtually every hotel you stay in; most stores in the mall...—all of these are predominantly franchised.
— David Kaufmann, Kaufmann Gildin & Robbins
“I worked for minimum wage back in the day, so I know the need,” Kaufmann says. “On the other hand, picking an arbitrary number like $15 an hour, which the governor is cramming down our throats, creates a dilemma.” Kaufmann believes that doubling the cost of labor will result in higher consumer prices and in franchisees not making an adequate ROI, which will in turn slow business growth in the county.
Magnus says a hike in the minimum wage will of course eat into his profits at Elevation Burger and counters that the restaurant business is actually one of the best places for workers to move up the management and income chain. “There is no industry where people can grow faster in their careers than in this business,” he says. “I had a woman start at my Ridge Hill store, and she went, in two years, from $7.25 an hour to a manager spot making a $50,000 base salary.”
An even bigger threat looms at the federal level. The National Labor Relations Board (NLRB), in an action against the McDonald’s Corporation, is proposing to change the status of franchisors to that of “joint employers” of the people who work for the franchisees. “The federal government seems to be challenging the very structure of franchising and the relationship between franchisor and independent contractor, the franchisee,” Kaufmann says, noting that he believes the NLRB’s motivation is for labor unions to be able to negotiate a pay rate with McDonald’s corporate. “This goes against 50 years of judicial decisions,” he adds.
A passion for user-friendly tech service drove Seth Berkman to open three Westchester uBreakiFix franchise locations.
The International Franchise Association states: “If this ruling survives legal challenges, it will impose additional costs on franchisors associated with the need for more oversight and insurance against risk. Uncertainty about how this issue will be resolved could impede the growth of franchise business formation, employment, and output.”
Keys to Franchise Success
Despite these headwinds, franchising can be the right choice for anyone looking for something other than the current world of regular employment, where, as Berkman says, “There is no real security for anybody, anywhere.” Of course, not everyone is suited to running a business. But you don’t need experience or a special skill set in any particular sector to succeed, Dunne claims. Indeed, past experience may be a shortcoming. “Most franchises don’t want people with a background in the business,” he says. “Financial franchisers consider those with a financial background untrainable. Franchisors will train you how to be a successful owner.” Franchisors will train you how to be a successful owner.”
You don’t need to be a big-picture entrepreneur either, Dunne says: “People like Elon Musk and Sir Richard Branson would make horrible franchisees because they couldn’t follow the systems. Franchising does very well with first-time business owners, because it’s like cooking from a recipe.”
That’s what attracted Nataliya Kisseleva and her husband, Andrei Kisselev. They both left Manhattan-based corporate jobs to try their hand at running a business. “We wanted to see if we were made for entrepreneurship, if we could handle it,” Kisseleva says. “We went with the safer route, with a franchise, because it gives you the infrastructure and support, rather than running it completely on your own.” They chose to franchise with a lesser-known business, which offers both benefits and challenges. About six years ago, they signed a contract with Massage Envy, a chain offering monthly memberships for massages and facials and opened the first Massage Envy in the county, in Scarsdale. (There are now several others.)
Pioneering the region affords a unique opportunity to any business, and that was attractive to them. “Being first can work for you,” she says. “But there are also challenges you have to overcome. No one knew what we were about,” she says. “There was a lot of cheerleading we had to do.” They led their own cheers at every health fair, chamber of commerce event, and community gathering they could attend, drumming up as many articles in local publications as they could muster. “If there is any type of exposure in the community, you have to be there, explaining what you are about,” she says.
Going with a newer franchisor also means staying on your toes. “This franchise has gone through many changes, and you have to be flexible and agile. Even if you don’t agree with everything they do, you have to do it,” she says. “You have to figure out, at this location in this community, what can you do to spin it your way to run your business?”
The most important factor in franchise success, though, gets back to passion. There is nothing easy about running a business, so it’s critical that owners feel strongly about their brand. While looking for his franchise fit, Magnus came across an idea that resonated for him and his family. “I have kids, and having a place for them to eat high-quality food is something my wife and I talked about,” he says. “When we saw this idea of grass-fed organic beef, we knew this is what we are talking about. I am proud to represent Elevation Burger. In a sense, it is a personal mission.”
David Levine, an Albany-based freelancer has written for Westchester Magazine, Hudson Valley Magazine, the New York Times, Sports Illustrated, American Heritage, and many other publications.