Summer 2001 Ready! Set! Start Up!
You know you want to start a business, but you don’t know where “start” is? If so, you’re in plenty of good company. Just finding out what a true start-up actually involves can be daunting. In fact, the start-up process—and the money it can take—discourages some people from even trying. Others have braved the elements despite the risk and rigors, and did so successfully.
Even so, anyone who ever attempted to start a specialty retail business from scratch will tell you that the “to do” list is endless. You need to think of everything and then make it all happen. You have to develop or decide on the concept; line up financing; write the business plan; and deal with all manner of details: leases and legalities… inventory, signage, staffing… finances, taxes, record-keeping… pricing, promotions, and so much more. Some people find this entire process invigorating. Many others see it as a time-consuming, potentially expensive and often overwhelming endeavor. For them, “start-up” means nothing but “stress.” If that’s you, here’s good news: You can take another route to starting a business: the franchise, the “turnkey,” the package deal.
Franchises or other “turnkey” packages, as they’re known, are complete start-up packages that include all the elements of a business bundled together. By their very nature they’re designed to cut down on the headaches and hassle of starting up. In theory, they include everything the new business owner needs to get started, all in one neat package. The idea is that all you have to do is “turn the key” to open the door of your new business and make that first sale.
Franchises aren’t the only type of turnkey business packages available. Others include owner-operator, licensee, and independent reseller programs. In specialty retailing, franchises are largely outnumbered by other turnkeys. (See the Editor’s Note sidebar for an overview of legal structures.) Entrepreneurs turn to franchises because they want to get into business without having to start a business from ground zero. And franchises minimize their risk, allowing them to see a return on their investment sooner and helping to ensure their success. That’s because buying a solid, well-tested turnkey means buying a workable system, not merely a new product one is “betting” will be successful. “The main benefit of going with a turnkey is the proven product and marketing approach,” says Tim Runner, a partner with In Your Face Cosmetics.
On the following pages is this year’s SRR guide to turnkey concepts, geared not only to seasoned specialty retailers, but also to newcomers who want to get started. Before you study the list, be aware that turnkey opportunities are not all structured the same way. For example, some relationships between the “offering company” (as it’s known) and the business buyer are strict or close-knit, while some are looser. Other variables to consider: Does the offering company contractually require you, the buyer, to sell company products exclusively? Many don’t. Do they require you to purchase ongoing product supplies from them? Not all of them do. Do they require you to adhere to strict regulatory guidelines? Some buyers want more freedom; others want a tighter rein. The bottom line: know your own style, ask questions, and do your homework before signing on any dotted lines.
Veterans in specialty retail know what works and what doesn’t because they’ve been there. In fact, spokespeople of several offering companies say they started in the turnkey industry for the opportunity to share their years of experience with newcomers. Many also say they believe that if they had initially invested in a turnkey concept, the support and mentoring their companies now provide could have saved them a great deal of stress and money. Another key benefit, one that’s often cited as a turnkey’s greatest advantage, is that the buyer doesn’t have to reinvent the wheel. The concept is already in place. And if the concept is a good one and it’s offered by a quality company, then the long, stressful and costly learning curve has already been drawn and conquered.
How they work
In Your Face Cosmetics promotes its turnkey package as everything the owner could need, all wrapped up and user-friendly. Their package deal includes all the necessary forms, as well as customer coupons, promotional ideas (like advertising in local high school newspapers), and holiday decorating kits. The company also offers a merchandise buy-back program, which “shows our company has faith,” says Runner, and reduces risk.
Teresa Williams, director of wholesale for Peace Frogs, says theirs is a complete, proven package that “can easily be put in your hands.” She says this turnkey concept provides an established marketing strategy—the homework and legwork have already been done, including their Web site that’s regularly updated to include new locations. “It’s hard to start a new business,” says Williams. “This company is already successful. Why not go with something that’s already established itself?”
After paying a licensing fee, the buyer is free to use the Peace Frogs name, logo, signage and more. Above all, Williams stresses that Peace Frogs products—youth-oriented apparel and accessories—ultimately sell themselves. Marketing and promotion aside, a quality product is what generates positive attention for the company. “It’s one of those things that just took off,” she says. “Everybody wants it, and it’s established a very good name. People do go with name recognition.”
Name recognition is also important to leasing managers, who tend to be skeptical of a new entrepreneur with unknown products. Another Peace Frogs benefit is the help the company offers in gaining mall management’s acceptance. “Catesby [Jones] is the type of person who would call the mall on behalf of the individual,” Williams says. And he’s accessible: “You [don't] have to go through ten secretaries to talk to [him], and he always returns his calls.”
The Nature’s Way program has grown from six to 75 carts in five years. Because effective demonstration is critical to selling Nature’s Way products—great smelling, heat-activated herb packs—VP Jay Oxenhorn works closely to offer specific help to owner-operators. As part of the package, a Nature’s Way company representative conducts training sessions on site, and leaves a video and other materials with the owner for ongoing training. Another big plus is that Nature’s Way can help the buyer obtain a discount on the rent in certain shopping centers managed by Crown American Properties.
Identities also helps buyers with lease negotiations. “We’ve been in this business for 11 years, so we’ve had a lot of experience in dealing with leasing people,” says VP Dan Jones. “We know the leases and what you should be paying for rent. We want to give that experience to other people.” Jones adds that “[we] know what sells and what doesn’t. It’s all about product and price.”
Because uniqueness is everything, turnkeys that succeed are those that offer what consumers want and can’t find elsewhere. A prime example: the hand-painted, personalized bear figurines distributed by Bears, Etc. “It’s a great concept,” says VP Sheila Philipps. “It’s a very small investment, and regular people can get into it. But above all, the concept works because of the product’s uniqueness. You can’t just walk into a store and buy [the product], so there’s not a lot of competition.”
Louise Berenson, owner of Purple Panache Ltd., says entrepreneurs who buy into her “everything purple” program are buying a proven track record. “This merchandise has been tested,” says Berenson. Another of the program’s top benefits is her “call anytime” personal support, backed by her 20 years of business experience. “Everything we’ve seen throughout the years we pass along to the operators, [whom] we consider part of our family,” she says. “We also try to price as inexpensively as possible. We know mall rents are high… we know what [the owner-operators] are going through.”
Another benefit: advice on visual merchandising, a critical area many newcomers know little about. “For example, instead of purchasing expensive fixtures, we suggest buying baskets and painting them purple,” Berenson says. Likewise, Jones of Identities says their company helps owners with display. “We provide pictures of other carts, so in the end it’s almost a no-brainer.”
Taking a closer look
You want to be sure the offering company you’re interested in is one of integrity. Here are several other issues you need to explore before you make a decision:
Track record. Take a hard look at the company’s own success. It’s a key indicator of whether you have a realistic chance to be successful with them and through them. Does the concept make money, and will it make money for you the moment you buy in? This is what you’re looking for. Or do you have to succeed in order for the company to succeed? This is not what you’re looking for. You want the company to stay interested in your success, not just take your money and leave you stranded to fend for yourself. After looking at the facts, ask yourself if you trust this company to be around after start-up and into the long haul.
Product supply. What’s their turnaround on your product orders? Will they deliver products when you need them, especially around critical times like Christmas? Some companies, including Nature’s Way, are willing to guarantee product availability and, hence, your peace of mind. “You have to be fully stocked on the last day of Christmas,” says Oxenhorn, “and we will supply.” And not just for the holiday season. “We take care of people,” he says. “You have to keep your people happy.”
The home office. A great way to learn more about an offering company is to visit their company headquarters. If a company doesn’t welcome visitors—especially prospective purchasers—to their doorstep, you have to wonder what’s up. Many companies openly invite prospects to come and visit them. Bears, Etc. is one of those companies, giving entrepreneurs hands-on experience at their Florida headquarters.
The happiness factor. Ask some of the offering company’s current owner-operators if they’re happy! Are they happy with the offering company’s structure and support; with the products; with their own level of sales. And ask some former owners, too, about their experience with the company.
Ask the offering company for names and contact information. Some companies won’t divulge that information, citing confidentiality clauses. But many will give them to you up front. “We encourage prospective entrepreneurs to check out references,” says Runner. “Ask them how responsive the company is [to] questions, and in shipping orders. Ask how often there are backorders. And look for red flags—like if they maintain confidentiality in their sales figures. Do your homework—that’s ’101′ stuff.”
“I actually think people are too quick to plop down their money,” he adds. “We send information and a sample kit, and some [people] buy right away. Others run us through the mill, and I admire them for that. They’re doing due diligence.”
By the numbers
With all of your preliminary “homework” done, the final and perhaps most critical step is to put pencil to paper for some basic arithmetic. Even though your investing in a package deal, you’re launching a real business nonetheless. And while turnkeys may be easier start-ups than independent ventures, they don’t run themselves. It takes many hours of many days to get going and gain momentum, let alone be profitable. And because starting a business of any kind is a risk no matter how it’s structured, you have to look at all the numbers, actual and projected, objectively, even ruthlessly. Plot the outgo—start-up costs, overhead and ongoing expenses such as product costs—against projected income, and see if you end up with a viable outcome. Ask yourself if you (and those who depend on you) can truly afford this opportunity at this time.
One last thing
Everything looks rosy. The research is done, the answers sound right, the numbers add up and… you’re going for it! But wait: you’re going to need one last thing-patience. Remember the old saying, “It takes time to be an overnight success.” But with all the right stuff in place and you at the helm of your new enterprise, you’re on your way.
Looking for more information on wholesalers and products? Check out our directory of useful links.
- VTG Interactive
- Ivanhoe Cambridge
- Amika/Heat Makes Sense
- Himalayan Salt Corp
- SunTan Village
- Puka Creations
View the full directory