Rich Levy plans to sell franchises of his Salad Spinners restaurant, but not too soon.
Plowing ahead before the company is ready could backfire, Levy said. And he should know. His first restaurant closed its doors eight months after it opened due to poor branding and quality issues, he said.
“It was my first huge, embarrassing failure,” Levy said. “I lost half a million dollars.”
But the failure has made Levy a more humble, though no less ambitious, entrepreneur.
“We get a lot of requests to franchise. It’s tempting to take that money, but the courts are full of the remnants of businesses that franchise too soon,” he said. “I just don’t want to be there.”
Despite the risks, interest in franchising is booming, with about 500 new franchise concepts launched in 2005, according to the International Franchise Association in Washington, D.C. The association counts more than 767,000 franchised businesses nationwide, including 33,000 in Illinois. The growth is fueled in part by downsizing in major corporations.
“Lots of middle-level managers took buyouts and have investment capital and are looking to get into business,” said franchising expert Lewis Rudnick, senior counsel in the Chicago office of corporate law firm DLA Piper.
But franchising a concept before you have all the kinks worked out is a common mistake, experts say.
“Franchising prematurely can sink a company,” Rudnick said. “It can spoil what otherwise might have been a good concept.”
Levy’s plan to open 10 company-owned Salad Spinners locations in the next year or so before franchising the concept is right on target, Rudnick said.
“In the course of expanding from three to 10 units, they will uncover some elements of their operating system that might be improved upon,” he said.
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