Franchising: Canada’s Hottest Industry

After 25 years in the corporate sector, Brian Spiteri had a big decision to make. He'd just lost his sales-management job in a downsizing wave for the second time in his career. As he pondered "the big, empty highway ahead" at the age of 47, he wondered what to do next.

Then, recalls Spiteri, "My wife Jan looked at me and said, 'You've been talking about starting a business for a long time. Isn't it time you got off your butt and did that?'"

Spiteri knew he had the capacity to run a business and felt it was time to be responsible for himself. Still, he was wary of the risks entailed in launching an independent company and was more keen to exploit an existing brand than to build his own.

So, Spiteri opted to become a franchisee. In 2004, he and Jan, now his business partner, joined the franchise network of Speedpro Imaging, a printer of large-format marketing materials such as vehicle wraps and banners for trade-show booths. The couple proved to be naturals in this sector. Spiteri landed his first order even before he had been trained in how to use the printer and laminator, so he got the suppliers of that equipment to show him the ropes. Spiteri's Milton, Ont.-based unit set a Speedpro record for biggest opening month, and later won several awards for sales results.

Spiteri's choice is one that thousands of other laid-off executives have made. It's easy to see the appeal of being a franchisee: greater freedom than an employee has, yet the relative safety of a proven business. Franchise consultant Perry Maisonneuve, principal of Northern Lights Consultants Corp. in Mississauga, Ont., says displaced corporate executives are one of the two key groups driving today's huge demand for franchises. The other is recent immigrants who have moved to Canada with equity and a desire to go into business while limiting their risk. "They may have a chunk of dough," says Maisonneuve, "but they're strangers in a strange land, and they don't have an old boys' network to help them."

Data isn't available on how many newcomers wish to become franchisees. But a member survey in January by Execunet, a Norwalk, Conn.-based career-support service for executives, shows that the recent recession has spurred interest in this option. Fully 21% of respondents, 85% of them in North America, are considering becoming franchisees, up from 14% in 2008.

Franchising is also flourishing on the supply side. Maisonneuve says mature franchisors are expanding robustly, and some long-established firms, such as restaurant chain Il Fornello, have turned to franchising as a low-risk way to scale up more quickly. Shawn Saraga, president of Mr. Franchise Inc., a Toronto-based consultancy, says fast-expanding retail developers such as RioCan and SmartCentres prefer leasing to franchisees, who are more likely than independent stores to still be around in five years. And Gary Prenevost, president of Mississauga-based FranNet of Southern Ontario, says more of the established U.S. franchisors are expanding north because credit is easier to obtain here.

With such strength on both the demand and supply sides, says Prenevost, "We've never seen it so hot in the almost 20 years I've been a franchise consultant."

This boom extends well beyond the fast-food and full-service restaurants that make up 40% of franchisors. Firms in more and more sectors are adopting the franchise model. Canadian Franchise Association data on the number of franchise systems by category shows the swiftest growth from 2010 to 2011 was in commercial and residential services (up by 47%); advertising, marketing and promotional services (45%); children's products and services (37%); business consultants, services and training (29%); and seniors' services such as home care (28%). Consultant Mark Siebert, CEO of iFranchise Group in Homewood, Ill., points to other hot sectors: luxury services for less, such as affordable massages; foods that are more healthful (or, at least, perceived to be), such as frozen yogurt; B2B services; and fast-food options new to franchising, such as Middle Eastern cuisine.

Ex-corporate executives have skills that push them more toward service-based franchises than retail ones, says Prenevost. And for $75,000 to $150,000 up front, they can probably generate $100,000 in profit without having to work like a dog. "With retail, you're open mall hours," says Prenevost. "In a service business, you work hard in your first year. But once you get the business running, you can work civilized regular business hours and have the people who service your clients work the crummy off-hours."

Whichever sector newbie franchisees choose, chances are they won't sell the business when they retire. "If you have a franchise generating $100,000 in profit and pay someone $60,000 to run it, you'll have an annuity of $40,000," says Pre­nevost. "If it were an independent business, you could sell it for about $300,000—and you'd be lucky to get $20,000 a year if you invested the proceeds."

There are other upsides to becoming a franchisee rather than going out on your own. For instance, says Frank Robinson, an associate in the franchise-law group at Cassels Brock & Blackwell LLP in Toronto, you can tap into joint purchasing power when buying supplies and, if you're in retail, gain access to superior locations if the franchisor guarantees your lease to the landlord.

Yet, becoming a franchisee makes sense only for those with an uncommon mix of traits. Saraga says these include a hunger to learn how to do things the franchisor's way and a willingness to serve multiple bosses—clients, landlords, suppliers, mentors and bankers.

Peter Druxerman, vice president of marketing at Toronto-based Druxy's Inc., says you'll be a bad fit if you have the mindset of an employee who's risk-averse and wants limited responsibility or of a self-employed person who loves freedom and accepts risk and responsibility. Instead, the ideal franchisee wants the freedom of not being an employee combined with limited risk and responsibility. If this makes a franchisee's worklife sound mundane, think again. Druxerman notes the sharp variation in sales growth at Druxy's franchisees over the past year: "We have some whose sales have grown by up to 20%, and others that have declined by up to 20%. Yet, all have had the same training, branding, advertising and systems."

The differentiator isn't, as you might expect, location. Some of the growth stars are in lousy locations, and vice versa, says Druxerman. Rather, the stars share Druxy's business philosophy and do things its way, yet also take responsibility for their own success. They're forever asking customers how to serve them better, keeping an eagle eye on costs and trying new ways to promote their offerings. Even operating within the limitations of a franchise network, they're showing, as Brian Spiteri has, that they're true entrepreneurs.