LIVE FAST BUY YOUNG
in this article:
March 2005 - Out of school and into business? Teens and 20s are increasingly finding franchising offers a great way to get into a business of their own.
Franchising seems the perfect way for young people to get into business. Training, support, systems, a known brand – great idea, right? Shame that you have to be well into your 30s before you can afford all these benefits.
That might be the perception, but it’s not true. Young people are increasingly finding ways to make a start in business through franchising, and they can be hugely successful. The combination of youthful energy, the willingness to take risks and a good franchise system is a powerful combination.
Scott Manderson and Carl Sara were just 21 when they bought their first business – a $200,000 Muffin Break franchise. Seven years on, the pair own two Muffin Breaks and are angling for their third.
The youthful entrepreneurs hardly seemed cut out for business when they first met at university, where ‘Scott got a geography degree and I didn’t,’ laughs Carl. During the university holidays, Scott found a job working on a development and his friend Carl joined him. ‘We were basically digging holes,’ Carl says, ‘but gradually the development got going and Scott and I ended up managing the project. We had 10-20 employees at various times – it was our first experience of man management.’
When the development wrapped up, Carl and Scott were wondering where to go next when their boss at the time said, ‘You two should go into business together.’ The idea appealed. ‘We both believe that if you work hard and work smart then the opportunities will come, and our boss recognised that,’ Carl recalls. ‘So we started looking for a business. We had nothing in particular in mind, just a good business that we could learn in and develop. We believed in ourselves and we believed we could achieve our goals. I guess you could say our naivety gave us confidence!’ Also giving them confidence was their old boss, who acted as mentor as they started looking at businesses and putting down their findings on paper to work out what was viable.
‘Although we didn’t start off looking for a franchise, the numbers in Muffin Break just stacked up,’ Carl says. ‘A franchise gives you brand recognition that takes years to establish, and Muffin Break had 22 or 23 stores at the time. Neither of us thought, “Muffins, jeez, I want to spend my time doing that!” but the success of the brand appealed.
‘Muffin Break is not an easy franchise to get into – there were a lot of applicants. But there was an existing store that we reckoned could do better in a different location, so we bought that and moved it.’ Simple – if you had the courage to do it. And, of course, the money. Were Carl and Scott wealthy from other sources? Carl laughs. ‘At that stage we had between us precisely no money at all. During training in Auckland, we were sleeping on the floor of a distant relative’s house and hoping to get food at discount prices from the store we were training in.’
So how did they finance the franchise? ‘We were fortunate enough to have what these days is called an “angel investor” who took a chance on our abilities – of course, they had a lot of confidence in the value of the brand too,’ Carl admits. ‘They invested on the basis that we would buy them out as soon as we could, and that became our number one goal. Of course, at the beginning none of the banks would look at these two 22 year olds with no experience, no money and no security to offer, but after six months’ trading we bought out our investor and couldn’t have been happier.’
This happiness was the result of a lot of hard work. ‘We had absolutely no other commitments. All we did was work. Neither of us took a day off for six months and we paid ourselves tiny salaries. And once we had the bank loan, our biggest priority was and still is debt reduction. Why pay interest on a loan when you can get rid of it? We wanted to stand on our own two feet and we focused on that.’
Their careful selection process was paying off. ‘The beauty of Muffin Break is that it’s a cash business. The money’s in the till one day and the bank the next. With the help of our mentor and Muffin Break, we had carefully prepared a budget for our business growth. By the end of our second year we were off the top, and today it’s double that from the same store.’
Even with six months’ successful trading under them, though, the banks proved hard to convince when they decided to buy out their investor. ‘It wasn’t easy. We got a business broker to present our case, and he had to go to almost every bank. In the end, it was the strength of the brand that counted.’
Scott and Carl had started talking about buying a second Muffin Break after just two months, and eventually achieved their aim in April 2003. The second store is doing ‘extremely well’ and now they’d like more. ‘Put in a word for us with Garry (Croft, Muffin Break’s general manager),’ Carl says cheerfully.
After eight years the Manderson/Sara partnership is still going strong, opening a second Muffin Break in April 2003. ‘It’s an equal partnership – that’s fundamental,’ says Carl. ‘We share the same aspirations, but our goals are big enough to encompass our differences. Of course we have differences of opinion sometimes but we face them, sort them out and move on. We’re looking for continual growth and to make truckloads of cash. We enjoy what we do but ultimately we like to make money.
Has the pair’s youthfulness caused any difficulties other than finance? ‘Not really – now we just point to our track-record. We employ 26 full and part-time staff now, some older, some much younger, and we’ve never had a problem. They know we’d never ask them to do something we wouldn’t. That doesn’t mean we’ll do it instead, but we lead from the front.’
How about working within the disciplines of a franchise structure. ‘It’s not a regime – that’s one of the things we liked about this franchise. It’s a group of people working towards a bigger goal. Muffin Break has concentrated on finding quality sites and good franchisees and then building a good structure around them. Of course, in any franchise you have to be prepared to make compromises for the greater good – any group is only as strong as its weakest link. I think we recognised that when we started, but we certainly understand it better now. The best way to increase the value of our franchises is to increase the value of the brand overall.’ So it’s important to think beyond your own four walls? ‘We don’t even think we have four walls. It only seems natural that if the brand becomes more successful, so do we.
‘When we started, we set ourselves a task – to make one improvement in the store every day. We still do that even now – we don’t rest on our laurels.’
Carl knows all about laurels. In 2003 and 2004, he was named New Zealand’s National Barista of the Year and went on to be placed sixth out of 37 contenders in the World Barista Championships in Trieste, Italy. The World Championships are widely considered to be the Coffee Olympics, and next month he flies to Seattle to compete on the global stage again.
‘Entering the competition was about improving what we do. Coffee’s the most profitable part of our business, so we wanted to make the best coffee possible so people would talk about it. Scotty and I are both competitive people, so we started entering competitions. At one point I got one up on him, then we decided to work as a team with me out front. There’s rafts of people behind me working on the research and new ideas for the competitions.
‘This whole business is about the customer, and people enjoy the fact that their Muffin Break is the national champion. Everyone expected the winner to be a little boutique cafï¿½ somewhere, so it’s great that a big brand like Muffin Break can win. We’re in a franchise, and the best way to improve value is to raise the bar for the whole brand. Garry is really innovative – now we have coffee workshops for franchisees, a Muffin Break competition and so on, and we’ve seen huge growth in the brand.’
What messages would Carl and Scott pass on to other young potential franchisees?
‘The reality is that at the beginning you’ll work twice as hard as you ever imagined but it gets better – the franchise gives it structure and once you get used to the systems it all becomes much clearer and things get easier.
‘Persevere. Keep your head down, bum up and don’t let the knocks set you back. You need to know people believe in you. Plenty of people thought we were too young but we had our “angel” and the franchisor who believed in us. Find a good mentor outside the brand and listen to the franchisor within it. Our partnership has also been very helpful – when one of us gets down, the other does a reality check.
‘Finally, be bold – but do your homework. There’s no point in being bold aimlessly - have a clear and focused plan for what you are going to achieve and remember it.’
Craig Leathley started in business even younger than Scott and Carl. At college in New Plymouth, the sixth-former did a theoretical business plan on a cafï¿½ for his business studies course, and from then on he was hooked on the hospitality industry. The following year he left school and worked part-time in cafï¿½s and bars while doing a one year course in hospitality operations at the local polytechnic. By 18 he had his manager’s licence and was running a nightclub, bar and restaurant for a local businessman. At 19, he bought his own business – a Bevinco franchise.
‘I had regularly been working until the early morning 12 days straight,’ Craig says. ‘I decided that if I was going to work my arse off I wanted to be doing it for myself rather than someone else.’ No-one in Craig’s immediate family owned their own business, but they all applauded his courage. ‘I reckoned if I failed I was young enough to start again and learn from it.’
Craig’s new business would require a $60,000 investment – a lot for a young man. ‘I had saved up a bit, though – I’d been working such long hours I didn’t have time to spend it! I had planned to buy a house, but that doesn’t give the return a business can, so I took my business plan and budgets along to the local bank and they said yes, providing I had a guarantor. My parents agreed to do that – they have always been very supportive, and now my mother actually works in the business as my secretary.’
At the time, Bevinco was pretty unknown as a franchise in New Zealand, but it was made for Craig. Franchisees operate as consultants to the hospitality industry specialising in liquor assessments, maximising client profitability by using a specialist software program. There are now 260 franchisees worldwide and five in NZ. The young Craig Leathley was the first.
‘I liked the fact that it was relevant to what I knew and relevant to the industry.’ Nonetheless, it took me six months to make my decision because I wanted to suss it out properly.’ Key to his decision was the relationship he built up with Peter Nelson, the NZ master franchisee, during this time. ‘Peter was a great source of information, had practical experience and answered all the questions he could. He was, and still is, a great mentor.’
Peter helped Craig put together his business plan and budgets before the 19 year-old set off for his two weeks’ training in Canada, then provided further support on his return. ‘I had a marketing strategy based on presenting to all the local movers and shakers in the industry locally. They taught us presentation skills in Canada, and once I got a few of my targets on board the whole thing started to snowball and I got references and referrals for more. Being so young wasn’t exactly an advantage – it’s certainly harder to sell to older people who have been in the industry as long as I’ve been alive. Funnily enough, my ex-boss was one of the hardest. Eventually he got me to put the system into a new bar he was opening, and he was so pleased I’m now servicing all his other outlets too.’
It wasn’t easy in the beginning, though. Selling a totally new service under an unknown brand meant that Craig was tracking below budget for a while, but he was confident enough that after just six months he took on a second territory in Manawatu. ‘It was in the plan for two years out, but having seen the potential I decided I didn’t want to run the risk of someone else getting it.’
Now a business veteran at the age of 21, Craig’s gambles have paid off. He was on target in both territories after 12 months and doubled his business last year. In addition, he won Bevinco’s international Rookie of the Year title, beating franchisees from 18 other countries.
‘I am working as hard as ever, but it’s my business now and that’s the only way to get ahead,’ he says. ‘I have had to make compromises in my personal and social life – like I don’t have one – but I know that will pay off in the end. In a couple more years I’ll be sitting back wondering why I made such hard work of it,’ he laughs.
Like the Muffin Break duo, Craig values mentors very highly. ‘Peter Nelson took me under his wing and gave me a chance. Knowing he believed in me gave me confidence. There have been a couple of other guys locally in the hospitality industry I admire and talk to as well. Most surprising to me was the bank manager. It was a big learning curve to prepare to see her, but she was amazing and helped me with a lot of things. Never underestimate the help a good banker can be.’
Craig was also encouraged to take professional advice. ‘I was dreading that a bit because on TV lawyers are always big high-flying guys in flash suits, but Venture Taranaki recommended a lawyer and an accountant and they were great. They could see I was serious, took me at face value and I felt right at home very quickly. Professional help might cost money but it’ll save you in the long run – you have to take it. And my accountant, particularly, has become another of my mentors.’
Craig is still learning, still improving his business. ‘Every day I learn something new to help me get ahead,’ he says. ‘That’s what business is about.
Craig Leathley’s parents guaranteed his first loan, but while the support and understanding of their family is critical for anyone starting a business of their own, according to one franchisor the injection of family money doesn’t always guarantee success.
‘It depends on attitude. We have four young franchisees who have been funded in by family money. While two have been very successful, the other two are under-achieving,’ says the franchisor (not identified for obvious reasons). ‘Quite frankly, they don’t have the same work ethic, and part of it is because they don’t have their own savings on the line. Because the money has come easily and is not theirs to risk, they lack the hunger and commitment of those who have stretched themselves to buy into the franchise.
‘I think that to some extent our underachievers – and their families – have seen it more as buying themselves a job. They bought existing businesses which provided their previous owners with a good return, but the new owners haven’t been prepared to put in the hard yards and their profitability has actually reduced. Meanwhile, the other two young couples who started new franchises from scratch have learned that if you don’t put in the effort yourself, nothing happens.
‘The whole family money thing is interesting. While it acts as a spur to some people to prove themselves and gain financial independence as quickly as possible, it seems to make others relax too much. Such people often have successful parents but have not seen the years of hard work that went into creating that success. As a result, they have a lower definition of what hard work is, and are too laid back. From this point of view, their upbringing and the mentoring they have had is much more important than age when it comes to selecting successful franchisees.
‘It’s an area we now investigate when interviewing potential franchisees – how much of your own equity is at risk and what evidence is there of a strong work ethic in your own life? If they are financially committed and personally determined, with family backing younger people can become real high performers in a franchise.'
Our next case study is a prime example of the value of family backing. James Grant’s father had been a Paper Plus franchisee in Christchurch for the past 12 years when James and his partner Allison Devine decided the time had come for them to start their own business at the age of 24. To do so, the couple moved from the heat and humidity of Australia’s Gold Coast to the …er… humidity of Greymouth on the West Coast of the South Island.
There were two major triggers to their decision. First, they had their eyes opened to the insecurity of employment when Allison’s father lost his job after 12 years’ service. ‘No matter how loyal and hard-working you are, you’ve never got security working for someone else,’ Allison says. Secondly, there were the terrorist attacks of September 11th. ‘We realised life’s too short to say “We’ll have our own business one day.”
James was a salesman with Mars Confectionery and Allison a Japanese translator at Sanctuary Cove, but the couple knew that they wanted a book/stationery/newsagent type business if they could afford it. ‘Newsagents are very regulated in Australia and cost about half a million to get into, so my dad looked out for an opportunity here,’ James says. ‘What he found was an existing opportunity within the Paper Plus Group – what is now our Take Note shop in Greymouth.’
The shop hadn’t yet converted from its old Top Line naming to the new brand, and the Grant family decided there was scope for considerable improvement. Working to first year budgets set out by James’ father, James and Allison set to work sorting out the stock, increasing the space devoted to books and working ‘very, very hard. We put in seven days a week and don’t have days off together, but after two years we’re over budget and have seen huge continuing growth – we recently re-vamped again and we’re up 130% on book sales alone,’ says Allison.
‘Working hard doesn’t worry us – we have no kids and no commitments, so now is a key time to get established if we do decide to have a family. We are going to need more staff though, because we’re just getting too busy to cope in the peak periods.’
The couple were assisted in their purchase by James’ family. ‘Without them it would have been a lot harder, but probably not impossible,’ Allison admits. ‘We have a majority shareholding and our aim is to own it 100%, but we don’t have a fixed goal for that – it’s family after all,’ she smiles.
Chris Tollemache is another example of the value of determination coupled to family support. Although he grew up with the Arano juice factory as the family business, he got to the position of NZ master franchisee at the remarkable age of 20 through sheer determination and ability.
‘At home I was always expected to do jobs around the place but I always got rewarded too,’ Chris recalls. ‘If you don’t get anything, you’ll never make the connection between work and money. I left school eager to get on and earn. I got an apprenticeship as a mechanic and spent my spare time doing up and selling cars. I always saved my money while everyone else was out boozing – mind you, it’s hard to spend money when you’re living on an orchard,’ he laughs.
‘After I finished my apprenticeship I wanted to get practical business experience, so I asked someone I admired, the manager of a local service station, to give me a job. He was a real mentor and I learned a lot. At the same time I was still saving, and by the time I was 19 I had $57,000 saved up when I heard of one of the Arano franchises for sale. I knew the franchise overall was good, but this particular business was lousy – and affordable.’
Chris bought the territory and, to make sure that he was committed to his new business, burned all his CV’s and certificates. ‘I didn’t want to have “something to fall back on”,’ he says.
He paid $25,000 for the business and used the rest of his savings to buy the best truck he could and provide working capital. ‘Growth always takes money, and I was planning to increase turnover from $3000 per week to $10,000. I told one of the other franchisees that in my first week and he was, shall we say, doubtful.’ After 18 months, the 20 year old had reached his target and was Arano’s top performer. ‘My customers were fantastic. They were surprised this young guy was the owner, but they were very supportive.
‘I was wondering where to go next when the Arano master franchise came up for sale. I reckoned if I could help other franchisees do what I had done, it would be a good investment.’ Chris sold his franchise and went for it.
‘Up to now I’d done it all on my own money. I wanted to be independent, but this was a big step – over half a million. My parents guaranteed the loan from the bank and took a shareholding but my aim was to buy them out as soon as possible. It took a bit longer than I hoped because I was growing the business again, but I repaid the loan within five years and had total ownership.’ The franchise grew, the franchisees flourished – oh, and along the way, Chris had found time to get married, too. ‘You do need balanced relationships,’ he grins.
Now 28, Chris is putting some of his experience back into the schools. He is a guest lecturer with Onehunga High School’s innovative business school programme, which encourages 6th and 7th formers to study business at a practical level. ‘After three years at university, most business graduates have no idea how to apply what they’ve learned in the real world,’ Chris says. ‘The OHS programme involves students in real businesses. It keeps them in school longer and sends them out into the world open to opportunities.
‘Franchising can help people achieve an enormous amount,’ Chris concludes. ‘It’s a great way to get into business, and you learn so much. It’s like doing an on-the-job MBA. Having a franchise support team is like having a group of mentors who have a financial stake in your business without owning it. What could be better?’
At the same time, Chris has some very sound advice for other young would-be franchisees. ‘If you want a big business, start with what you can afford and use it as the first of your stepping stones towards what you really want. Don’t bite off what you can’t pay back.
‘But don’t wait to get started, either. If you talk to the average accountant or lawyer when you’re 19, they’ll say “You’re too young, wait till you’re 35.” Don’t.
‘When you’re young you have a bit of attitude and you’re not afraid to fail. But if you choose wisely, plan carefully, work hard and listen to the people you trust to guide you, you won’t fail – you’ll find that franchising can help you to achieve more, and younger, than others think possible.’
- Expect to work harder than you have ever done in your life. These people aren’t just saying it.
- Be prepared to give up all your other commitments – social and sporting – while you are establishing your business. Pour your energy into your business instead.
- Look for mentors and role models you admire and respect who work the way you would like to work. Keep asking for guidance as you grow.
- Think of your franchisor team as a group of mentors who have experience in precisely your business.
- Develop proper business plans and budgets for your business and review your progress against them regularly with your mentors.
- Take good professional advice at the beginning and continue to be prepared to pay for it.
- If you need bank finance, get your bank manager on your side. Prepare thoroughly for meetings with them so they can see you are serious. Ask your mentors, accountant and franchisor what you will need. If your figures and plans are right and they still don’t take you seriously, try another bank.
- If you borrow money from family, friends or a bank, aim to repay it as quickly as possible. This will give you freedom to build the business or businesses you really want.
- Remember the 'stepping stone' approach. Only take on what you can realistically afford at the beginning. You have plenty of time to grow.
- Most customers will respect a young person with the courage to run their own business but may doubt their expertise. Show you are professional and can do a good job, then ask for referrals. Word will get around.
This article is an extended version of a story first published in Franchise New Zealand magazine Volume 14 Issue 1 (2005)
About The Author
Simon Lord is editor of Franchise New Zealand and has almost 25 years’ experience in franchising both in NZ and the UK.
This material is copyright © Franchise NZ Marketing Limited, Franchise New Zealand ™ magazine and Franchise New Zealand On Line . While it may be downloaded for personal use, no part may be reproduced in any form whatsoever without the specific written permission of the publisher.