Franchising to Expand the Business

It's a tricky transition to go from mom-and-pop retailer to branded franchise operation—one that requires costly professional help.It certainly helps to have experience from both sides of the franchisor-franchisee relationship, says Solomon Choi, 30-year-old president of 16 Handles frozen yogurt shop in New York's East Village. He's drawing on experience working in his parents' franchise restaurants as he starts the franchising process himself.He spoke recently to Smart Answers columnist Karen E. Klein; edited excerpts of their conversation follow.

Karen E. Klein: How did you get started as an entrepreneur?

Solomon Choi: I grew up in Southern California, where my parents were franchisee owners of a couple of Japanese seafood buffet restaurants called Todai. While I was at USC studying business, on weekends I worked for them as a busboy and then as a server. After I graduated as a marketing major and worked in Corporate America for a few years, my father reached out to me to help him run his restaurant in San Diego, where there was a lot of competition from the hotels. We turned around that business and sold it in 2005. During that time I saw how a business is run and how you report to franchise owners.

That experience must help as you begin to sell 16 Handles franchises.

Definitely. And on the other side, I also worked with a startup restaurant group in Los Angeles and one of their divisions was franchising a gelato concept. I did seminars, dealt with franchisees, and answered their questions, so I got both sides of the relationship.

How does an entrepreneur decide whether a one-store location is a good prospect to franchise?

Starting a food business is very, very difficult. It looks so much easier than it is. You put all this work and money into something that has no guarantee, and it's no joke. In the restaurant business, employee management is crucial. Your business is dependent on skilled employees like chefs and bartenders and if they don't show up, you can't step in yourself or train others to do those jobs in a pinch.

I learned the self-serve frozen yogurt business from a family friend who had a very popular store in Newport Beach [Calif.]. This was in 2005 or 2006, when Pinkberry first introduced the concept of tart yogurt in America. I thought the model was great because there are no skilled positions, it doesn't require a lot of employees, and there's nothing to learn, aside from cutting fruit.

Why take the concept to New York?

I promised our friends that I would never be their competitor, so I figured I'd be safe opening my store on the other side of the country. It seems trends start in New York and L.A. and the rest of the country picks them up.

Of course, we had challenges when we opened in Manhattan in summer 2008. Because of the weather here, it becomes more of a seasonal business. And we learned that we had to do delivery in the winter. Also, we had close to a dozen frozen dessert competitors—both large franchises and mom-and-pop shops—within three blocks. We were just fortunate that we got a lot of press, mainly started by food bloggers and people online, and customers really liked our product and our concept. We have a line out the door on any given night, while half of our competitors have since closed.

How did you get started with the franchise concept?

We hired a franchise consulting company because we knew we needed to set ourselves up with some experts. They helped with everything from creating our operations manual, to our franchise marketing materials, to tweaking our operations so they are easier to franchise. They also helped us find our franchise attorney.

What's the startup franchisor's investment in money and time?

It's really a six-month-to-a-year process and so far we've spent about $80,000. We're focusing very heavily on creating a brand so that we have longevity and people will recognize us. We've hired an agency to do our outside marketing and a PR agent with a wealth of experience.

You also brought on a partner who can dedicate his time to the franchise operation.

Yes, my partner is my cousin, Alex Choi. He knew the New York market and has a finance background. Franchising is definitely not a task one person can do alone, especially when they are running a busy store and managing employees. It helps for the franchisees also, to know there is always someone available to help them.

How do you market the franchise concept to potential investors?

We got lucky with all the PR we got. We haven't had to market the franchises at all yet. All the inquiries we've received have come from customers and parents of customers because so many of our fans are New York University students. So far we have sold four franchises and have another half-dozen deals in the works.

You have a second store that opened in New Jersey last winter. Why go the franchise route rather than expand through a chain of corporate-owned stores?

The limitation is up-front capital. If I had the money to open 10 stores myself, I'd probably do that. In fact, we're still looking for other locations to operate as corporate-owned stores. But 90 percent of chain operators do both, because they want to expand their brand and can't fund it all themselves.

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