Cloning the concept Featured

10:08am EDT July 22, 2002
Bob Tumolo opened a small Italian- ice business in 1984 to supplement his income as a Philadelphia firefighter. Italian ice is a popular treat made from real fruit and finely chopped ice. The concept was fairly simple: give people a fat-free treat made up of natural products that will cool them off during the hot summer months.

Rita's Italian Ice was so successful that Tumolo opened three more locations in the greater Philadelphia area. When customers kept asking if they could own one, Tumolo decided to franchise in 1989, with the first franchise units opening in 1990.

"It was a way to expand the concept with other people's money," notes Tumolo, who serves as the company's president. "Part of the reasoning behind expanding through franchising-even though it sounds simplistic-is we got tired of opening company-owned stores. It was getting unmanageable, because only family members knew the recipes."

Tumolo hired another company to handle the entire franchising process, from writing the marketing manuals to the legal work. The preparation took about six months, and shortly thereafter, Tumolo decided to take control of the process himself.

Franchising didn't change the business concept, but it did change the type of work Tumolo did.

A tough road

"The ironic part is I went into the seasonal ice business for the lifestyle, because it is essentially a six-month business," he says. "Now all my franchisees are enjoying that lifestyle and I'm working year-round. Franchising is really a different animal. It's gone from entrepreneurial to more of a corporate company."

While many entrepreneurs dream of franchising their concept and retiring to the good life, it rarely works out that way. Once franchising begins, franchisers must deal with a whole new set of problems.

"It's not that easy," says Ron Norelli, president and CEO of Norelli & Co., a Charlotte, N.C.-based management consulting firm for middle-market clients. "There is a lot of work at both ends of the franchising agreement. The real risk is what if it doesn't go right and the franchisees turn on you? There is a legal risk and a financial risk."

Even McDonald's faced a recent rebellion from franchisees regarding pricing strategy and market saturation.

It takes months to put a plan together covering every aspect of the business. How will the business concept be explained to franchisees? Will you grant exclusivity to each territory? What support will be made available and how will it be provided? How much capital is required?

"The entrepreneur needs to talk the idea through with competent advisers and other people in the industry," says Norelli. "The key for the franchiser is understanding the product or service, why it works and why it's different. Have they determined there is a market for their product or service elsewhere?"

Even after the groundwork is laid, there are more issues to be addressed with potential franchises. Background, reference and credit all have to be checked, along with where the financing will come from. What about site selection and store design? And while you're dealing with the new franchisees, who's running the original location?

"You better assume it won't run itself," advises Norelli. "The original business needs to have someone run it with the same degree of attention and care and commitment as the founder."

Tumolo found that running four stores and the franchising operation was too much.

"We kept the original four stores when we started franchising, but are now down to only the original location," says Tumolo.

A foundering original location will not generate a lot of interest in potential franchisees and may create trouble with existing owners if they perceive the business concept is failing.

"We took our growth slowly," notes Tumolo. "Our goal was 20 units in the first five years. My brother and I were inexperienced, and were learning as we went along."

The first franchise went to a friend, and only three opened in that first year. But as the concept continued to succeed and Tumolo streamlined the process, expansion increased to the current 40 to 50 units a year. There are currently more than 150 franchises in the chain.

Tumolo offers the following advice for potential franchisers:

  • Make sure you have plenty of capital. Capital was important when starting the business, and it's just as important for the franchising operation.

  • Hire experts in the industry. Get advice and objective opinions on how the franchise should operate and whether the concept is repeatable.

  • Plan policies and procedures carefully. "You have to document everything," says Tumolo. "The need for documentation is unbelievable. Something you're doing today, you might have to defend in court five years from now.

  • Choose markets carefully. Continued success can hinge on site location and brand awareness. "For us in particular, product identity in the outer markets can be a problem," says Tumolo. "For many concepts, you might go into a market where there is an unawareness of your brand. With Italian ice, there is sometimes an unawareness of the product. You have to choose your markets carefully."