FINDING A FRANCHISE 8,000 visit show to investigate buying into chain


Holy cow! It's Ho-Lee-Chow.

"It's the same concept as Domino's Pizza -- fresh quality [Chinese-style] food delivered to your door," said Amy B. Jones to one of the estimated 8,000 visitors at the recent International -- Franchise Association's show in the O'Hare Holiday Inn in Rosemont, Ill.

HLC -- for Ho-Lee-Chow -- America Inc. was one of 75 exhibitors dispensing information to potential franchisees on everything from mobile Venetian blinds cleaning to pet stores.

There were some familiar names, such as MAACO, Dunkin' Donuts, Hardee's, 7-Eleven and Baskin-Robbins. There also were some relative unknowns, such as Two Twins from Texas, the blinds cleaners.

The visitors, who paid $5 a head to attend even though many said they were unemployed middle managers who were victims of recent mergers or downsizings, were mostly looking. There were no quick deals.

"Most of the people who are here or who came to the show in Atlanta don't like their [current] job," said John Appel, president of Leadership Management Inc., of Waco, Texas, a firm dealing with management training. "So they're coming here out of discontent. Most won't act on it."

Twenty-two-year-old Christopher Marshall of Naperville, Ill., who sells credit-union services to corporations, did not disagree with that assessment of visitors like himself. "I'm looking to get ideas," he said.

"We don't have the ability right now to write a check for $100,000," said his companion, Bill Sechter, 27, who also is in sales.

The franchisers are also choosy.

Ira Rashap, director of franchise development for Docktor Pet Centers Inc., said he is not necessarily looking for a doting animal lover who wouldn't step on an ant as much as a management type who has worked for a retailing chain and is familiar with business systems. "You have to be able to manage as many as 12 employees, and we use a lot of complicated systems," Mr. Rashap said. Negotiations with potential franchisees usually take months.

Still, buying a franchise can be a first step toward financial independence . . . or a first stumble into a nightmare of indebtedness.

Just ask Jeff Tuckey and John Keaveny. One of them is a winner in the franchise game. The other is asking himself why he ever got involved.

Jeff Tuckey, who bought into Rainbow International, a carpet-dyeing and cleaning business on the North Side, said the freedom of being able to work when he wants to was worth the struggle.

He and his partner often work seven days a week, cleaning and dyeing carpets, balancing books, answering the phone and mailing bids and bills from their office-in-the-home here.

"If I don't have to work tomorrow, I don't," Mr. Tuckey said. "I like that."

Until two years ago, the 42-year-old knew almost nothing about carpet care. For five years, he was president of a Chicago cable-television installation company. He worked 16 hours a day, six days a week, overseeing a handful of employees and suffering all the headaches of being the boss.

"The stress and amount of time caused me not to have any other life," Mr. Tuckey said. "So I left."

With the money he had saved from working at the cable company, Mr. Tuckey decided he would travel. One day he got a phone call from someone at Rainbow who asked him if he would be interested in a franchise. Mr. Tuckey said he doesn't know how the person got his name.

He had considered franchising before, Mr. Tuckey said, but he didn't want to work in food service or have to operate a building.

"I laughed when I got the call," he said. "I didn't know anything about carpets."

Nevertheless, he contacted some of the other Rainbow franchisees -- 2,000 nationwide -- and listen to what they had to say about the company.

He spent two days at Rainbow's training center in Waco, Texas, talking to personnel and studying the company's financial records.

"Anybody who looks into a franchise and doesn't look into the financial records of a company is crazy," Mr. Tuckey said.

He decided to take $40,000 out of his savings and buy a Rainbow franchise. His first cleaning job was Memorial Day 1989.

Mr. Tuckey now has two trucks, two part-time workers and 200 clients, including two hotel chains. He estimates his firm grossed almost $60,000 in its first year -- enough to cover start-up costs, though his take was minimal.

He expects his profitability to grow substantially next year.

"I think you have a far greater chance of success if you franchise, than if you start from scratch with your own," he said. "They [the company] already started the groundwork."

L Then there is John Keaveny, who wishes he never got started.

Mr. Keaveny drifted into business for himself after the cooking-oil refinery where he worked was closed. For three years he and his wife, Mary Ellen, made a good living with a car wash they bought in Joliet, Ill. In January 1989, in what they thought would be a smart business move, they decided with another couple to invest a $30,000 franchise fee in the West Coast Video movie-rental chain and open a store in the Chicago Ridge Mall.

"We looked for a year and a half at businesses," Mr. Keaveny said. "We spent a lot of money on accountants checking them out. We finally got to the point where we trusted someone. That was our mistake."

Based on what he claims West Coast officials told them, the Keavenys expected their upfront investment in the store to be about $157,000. But even after paring their movie inventory the final tab was about double that, Mr. Keaveny claimed. The inventory of 4,000 movies they bought from West Coast alone cost $120,000. And once open, they had to plow an additional $62,000 into the business for newly released tapes.

The Keavenys say they were told by West Coast officials that the average outlet produced $300,000 a year in revenue, on which they could expect a 30 percent profit.

But Mr. Keaveny complains that the location West Coast picked for them was near a Phar-Mor Discount store that had a large video rental section. Mr. Keaveny gives the following account:

"In 9 months, we grossed only $62,000. That's why we closed it. The new releases and advertising took up everything that was coming in.

"Without attorneys' fees of $15,000, and the $50,000 the landlords want, we lost $620,000 [including a second West Coast Video outlet they opened in Bridgeview]. That includes the $350,000 loan."

The Keavenys are among a group of franchisees whose experience is cited by Illinois Attorney General Roland Burris in a suit against West Coast for violations of state franchise-disclosure laws. That agency hopes to obtain at least some restitution as part of a settlement with West Coast, said Christina M. Saunderson, chief of Mr. Burris' franchise division.

West Coast, meanwhile, has been barred from offering any more franchises in the state.

Jules Gardner, chief operating officer of West Coast, said his company's lawyers are attempting to negotiate a settlement.

"No one wins in a lawsuit. We are trying to get this settled and get their franchises back," Mr. Gardner said. "We have 49 franchises [in the Chicago area] which are open and happy with us. Then there is a group of six who are disgruntled and unhappy with the system."

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