Video Entrepreneur: Video Franchises

by William Ronat
May 1995

There is an aspect to having my own business that I really enjoy--I get to wear so many hats. I'm a director one day, choosing people and props and putting them through their paces. The next day I'm a bookkeeper, trying to keep the suppliers paid and the clients paying. Then, when needed, I'm on the phone selling a job to a client. But some days my head gets tired of all the hats.

Some people would rather not wear these hats at all.

One way to avoid some of the hats is to buy a franchise. You may already have a vague understanding of how a franchise works. The folks down at the Burger Biggie didn't invent the special sauce, the franchiser did and then sold that formula (or the sauce itself) to the local owner. The local guy may also buy all his meat and potatoes from the main office, chipping in a percentage or a set fee on the national advertising.

There are video franchises that work the same way. INVY Multi-Media sells a franchise for doing Video Yearbooks for schools. You might say, "Hey, now that you've given me the idea, I can do it myself. What do I need them for?"

If you want to start from ground zero--learning the techniques of selling, advertising, training your staff and creating internal packaging--you can. But if you're willing to invest your money instead of your time and trouble, a franchise can get you up and running right away.

Video Yearbooks
Don Covington of International Video Yearbooks has been putting videomakers into franchises since 1989. He breaks his service down this way:

"The basic components of our system," Covington says, "include teaching a franchisee four things: how to sell both video and print yearbooks to schools, how to market video and print yearbooks to the students and the parents, how to produce the video itself and how to manage the business. And, of course, they do receive protected territorial areas."

If you get a protected territory with your franchise, it means that your neighbor Fred can't start up the same franchise next door to you. The territory could be a city, or a city block, depending on what arrangement you have with the company. You might see a 7-11 store every mile or so, but for most video franchises, the territory will cover more area.

The concept behind the Video Yearbooks franchise is simple. Using Super VHS camcorders, the franchisees create video of school activities (using the company's guidelines). Over the year, six tapes containing less than six hours of raw footage are sent to the company's headquarters where they are edited down to a forty-five minute end product.

The concept is simple, but the execution without prior knowledge would be difficult. Who do you talk to at the high school to get permission to shoot at the activities? How much should you charge per copy of the video yearbook? What should the box look like? Do the students have any input as to what video you shoot? These are all questions that the company will answer during a franchise training session.

"There are so many people who get into video," Covington said, "making things like special interest videos, weddings, you name it. But they find that once they have tied their assets up, they're competing against all types of other people and having to bid for the business. Although they might be great at producing video, they may need training in other areas of business.

"If you take a look at people who start their own businesses, you'll find that 75% or better of people who go the franchise route make it, whereas less than 25% of people who try it on their own are successful.

"The reason is very simple. We have a proven track record, a specific system; we were the pioneers, we have the arrows in our backs, we've already made the mistakes. We're able to take a person, train them and have them up and running and have their cash flowing quickly."

How It Works
Here's how a franchise works. The company selling the franchise grants you the rights to sell, distribute or market the company's products or services. You can use the company's name, trademarks, reputation and selling techniques. You pay for these goodies with either a chunk of change (the franchise fee), a percentage of the money you bring in over a year, or both. You may also be able to buy your supplies from the company (although they shouldn't require you to buy from them--that's illegal).

The franchiser wants to see you succeed (not because he likes you, but because he wants to see your money continue to flow into his pocket), and so he will keep you up to date on all the latest techniques. This can take the form of training programs, help from consultants or the introduction of a new product line.

Franchises aren't the cheapest way to do business. The initial fee can often run into the tens of thousands of dollars. In some cases, the franchiser may let you get started (after coughing up the fee) by only paying a part of the start-up costs (which could cover marketing brochures, internal order forms, access to vendors and discounts, etc.). You would then pay the rest of this money off over a number of years. It's still a loan, but it may be cheaper than borrowing the same money from a bank.

Once you are up and rolling, it may actually be less costly to buy your supplies through the franchise. If the company is big enough and buys tape stock for 200 video franchise owners at the same time, then the company probably gets a good discount. If you're lucky, they will pass these savings on to you.

Another advantage of a franchise is that they often have a good advertising campaign already hitting your target market. If I say, "Pizza, pizza," what brand comes to mind? How about "Have it your way?" These are examples of national advertising campaigns that benefit local franchise owners.

Assuming that the advertising is good and the company name is strong, then customer acceptance should be high. If you have a new business and try to reach a client who has never heard of you, they're likely to say, "Video what? I've never heard of you." Click. But if you're part of a franchise, they might say, "Cool Video Biz? Oh, yeah, I've seen your commercials on TV and your ads in the paper, and who could miss that blimp? Come on over!"

And Now the Bad News
A pretty idyllic picture, I'll admit. So now let's mentally have the dark clouds begin to form as thunder rumbles ominously. Here are some less cheerful points about franchises that you should keep in mind.

A franchise limits your free will. If you want to run your business your way, then create your own business. When you're part of a franchise, there are rules about how you can create product, how packaging looks, how you do your job. It may be true that the company is successful because they've always followed these rules, but if you have trouble with authority, a franchise may not be for you.

The company probably has a better lawyer than you. There's a lot of paperwork involved in creating a business deal. The franchise company has been through this procedure before. The company's lawyer wrote the contract. Read it carefully. There's a good chance that the company is going to come out of this deal better off than you will. If this bothers you--well, start your own franchise.

Here's a cute little item that might slip by you in a quick read of a contract. Normally, you will have to pay the franchiser a percentage of annual gross sales. Did you catch it? That's gross sales. So if you make a profit, you pay a percentage of all the money that came in to the company. If you lose money, you still pay a percentage of all the money that came in to the company. Ouch.

You may also have to fill out a variety of reports for the franchiser. No doubt these documents give the company valuable feedback on customer preferences and buying habits, but you may not like doing them. And chances are, if you don't like writing reports, you will put this job off until it becomes a major pain.

You'd think that when you buy your franchise, you own it, but depending on how they word the agreement, this ownership may have some limitations. It's possible that you won't be able sell your business, bequeath it to a buddy or family member or even give it away, unless you get the franchiser's approval (in the case of bequeathing, you should get this approval before you actually need it).

It's Right There In Black and White
There are several areas that you should explore about a franchise before you sign anything. These areas will be covered in the contract.

To the uninitiated, a contract can look very intimidating. But all those pages of legalese represent the company's attempt to cover its butt. You need to do the same. Remember that the contract is binding. The time to get any clauses changed is before you sign it. Have a lawyer look at it and make a determination as to whether the franchise is a good deal or not.

What's it going to cost? Find out the actual price of everything you need to get started. This will include the franchise fee, and where applicable, a physical facilities lease (if the company makes you use a building it owns for your shop), equipment and fixture costs, inventory and supplies costs, royalty payments, promotion costs and finance charges.

How long does it run? What is the contract life? Can you hang on to your franchise indefinitely or do you have to renew after a few years? How does the contract regulate fees and price increases, if at all? The average contract life for all franchises is 15 years.

Can the franchiser "fire" me? The contract may contain a termination clause. This is a clause which lets the franchiser terminate your contract by canceling or failing to renew your contract. They say they won't do this unless you're doing something to hurt their company name, or your standards are so low that the customers are complaining. But a company can use this clause to get rid of you for any reason that they like, such as finding someone else who can make more money for them in your territory.

How much leeway is there in procedures? The company can tell you how to run your business, from the message on your answering machine to what percentage of your video shots can be handheld. Be sure to choose a franchise that you can live with, because these kind of guidelines might make you crazy later.

What kind of training do they provide? The company may have you spend a couple of weeks a year learning the latest and greatest techniques, or they may just send you a letter telling you to keep up the good work. If training is extensive (maybe they even send a person to your place of business to get you up and running), then find out who'll pay for it. Don't assume that the franchise fees include these services.

Is It Right For You?
Buying into a franchise is a big step--don't take it lightly. Explore all the possibilities, read the contract carefully, don't be afraid to ask for changes and after you've spent a lot of man-hours doing all these things- -be prepared to walk away.

On the other hand, if you find a company that you feel comfortable with, a franchise can put you on the road to a profitable video business as quickly as possible. Any kind of business means hard work, but being part of a franchise is like having a partner who has done all the groundwork, made the mistakes and knows how you to keep from repeating the worst of those mistakes.

If that kind of advice is valuable to you, then a franchise may be the way to go.

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