Small Business and Franchise Success Stories

People seeking to buy a franchise may be surprised by which franchises are performing well in a down economy. Sometimes, the best-performing franchises are not the most obvious choices—rarely are they the most glamorous—but Cliff “Kayo” Folsom has now long been in an industry that is clean, fun and lucrative.
Kayo had worked for the Rocky Mountain Chocolate Factory for over two decades when in 1995 the company created a new division called Fuzzi Wigs Candy Factory, which is a play on Fezziwig, the name of Scrooge’s kind mentor in Charles Dickens’ A Christmas Carol. Rocky Mountain Chocolate sold the Fuzzi Wigs division in 1998. In 2002 Kayo left his vice president position at Rocky Mountain Chocolate to become president of Fuzzi Wigs and launch a franchise program.

But now Kayo isn’t just the president. He’s also a franchisee.

“It’s a good business model. I can see that some franchisees are making a heck of a lot more than I’m making as an equity partner and president of the company. It’s a really good business model and my wife was looking for a new business path. She was a paralegal for a local attorney and doing really well, but wasn’t excited about spending 9 to 5 working for someone else.”

The couple had already owned several small businesses, including three bagel shops and a custom homebuilding business. They enjoyed these things, and even toyed with franchising the bagel shops, but ultimately, buying a franchise business seemed the simplest and securest option.

“I’ve been in the candy business for 25 or 26 years now and it’s just a darn good, simple business model. If you run it right, you can make a really good return on your investment and have a lot of fun. There are no returns, no charge backs. Customer complaints are rare...People are happy when they come in and they’re happier when they leave. We do not deal with unhappy people. It’s a clean business. There are a lot of great reasons to do it, and if you’re in a decent location you can make really great money.”

There are 80 Fuzzi Wigs locations nationwide. In recent years, the company has seen 10-15 units open each year, but the number dropped to 5 in the wake of the downturn. This doesn’t bother Kayo too much.

“We’re not a high growth company. We’re trying to grow organically, at a steady pace, and 10 to 15 is a comfortable pace for us. We’re not publicly traded. We’re a private company, but with the problems in the economy, nobody is growing at any great shape right now.”

The franchise program isn’t growing much, but as for Kayo’s own store, even in this sour economy, profits have remained rather sweet.

“The candy business is somewhat recession-resistant. Our same store sales are just about flat year-over-year from 2008, and 2008 was almost a record year for us. So one of the things that is compelling about a candy franchise business is that even in down times, unless things get truly terrible, you can pretty much count on not taking the hit that everybody else will take.”

“At our individual store in Derango, tourism is a large piece of our business, so when the economy took the dive we were really concerned about what would happen over this last summer, but we actually met last year’s sales numbers through all of 2009. From June through October we’ve been running about 5 percent ahead. All of those numbers for 2008 were better than they were in 2007, so over three consecutive years we’re still showing the same store sales growth.”

Kayo is not alone. Other Fuzzi Wigs franchises are still booming even when the economy has fizzled.

“My partner has a store in Steam Boat Springs that is showing record numbers even while we have friends who own other businesses and franchises reporting declines: from 10 to 25 percent in women’s wear and toy and gift, and so we feel pretty darn fortunate.”

That may come as a surprise to people who view candy franchises as niche stores for a product that one can find many other places. Kayo and his staff are aware of that and so customer service is one of their priorities, because even if traffic is lower, the quality of each transaction can be improved.

“People are going through really tough times. They don’t need to shop here. They can buy candy elsewhere, but what they can’t buy is the fun, the entertainment, the enthusiasm, the customer service that we can provide in addition to great product selections. So we made sure that our staff was not treating customers as if they were a given, and to let them know that we are truly glad to have them there... You can get your average transaction up just by engaging people more, and then there is repeat business. You can do all kinds of things to mitigate the impact of a slower economy where you may see less customers.”

Kayo is, of course, not just a franchise owner with his wife, who runs most of the day-to-day operations at their franchise. As president of the company, he is still in a position to advise and counsel existing and new franchisees on survival strategies in a tough economy. As he and his wife emphasize to the staff in their own store, Kayo makes clear to other franchisees and small business owners the importance of customer service, keeping a prosperous looking store and not giving into self fulfilling prophecies of financial doom. He relates one story as an example of what not to do:

“I heard this story a long time ago about a hot dog vendor in New York City who opened another cart and opened another cart. He did so well that he sent his son off to Harvard, where he got an MBA. He comes back and is working in his dad’s business and tells him, ‘Dad, didn’t you know there’s a recession going on?’ The father says he didn’t know, and the son says that there is and they have to do things like cut marketing. The old man says, “Well, gosh, I didn’t notice! Our sales are fine, but I sent you to Harvard and you got an MBA, so I better listen to you.’ So he cuts back on advertising and all these expenses and he comes back to his son, and says, “Son, you were right. There is a recession. Our sales are going down.’ Things are not as bad as they’re often perceived, so keep your store fully stocked, don’t start cutting back on inventory. Do things with wisdom and moderation, but don’t start assuming things are bad and let that bring down the appearance of your business, because it may become a self-fulfilling prophecy.”

Cutting costs does not mean cutting corners. In fact, some franchisees may be in a prime position for growth and not even know it.

“We have some franchisees who are struggling, and so we focus on helping them get their expenses in line through negotiating rent reductions. It is easier than people assume right now. Landlords are really hungry for tenants, especially those who can expand. So if you have some expansion money right now, it’s a great time to get position for growth because you can see lease rates anywhere from 10 to 30 percent less than a year ago—maybe even more in some places. So if you can see a market that’s going to rebound and you have a little steel in your gut, you can get some pretty good deals out there. If things do rebound you’re going to be well-positioned then to take advantage of a good return in the next 10 years.”

That is the ultimate lesson to take away for many franchise owners and people who might buy a franchise business: Every business is an investment, and it may take time to see real returns. However, when you have a strong and reliable business model, one can be optimistic. That is one of the reasons that Kayo decided to go through Guidant Financial use 401(k) retirement funds to start a franchise.

“The return that I thought we could get by investing in our own business was going to be far greater than any return that we were seeing through leaving it to sit in a 401(k) or mutual funds or whatever the broker was putting it into. I thought I could probably invest our money better, and because I knew our business model, it was not a high risk investment at all for me. Also, there wasn’t a lot of money out there available for new businesses and franchises. Even though my wife and I have a great track record and I’m a president of the company, the banks weren’t crazy to loan to somebody starting a new retail candy store. It’s a common problem now for new business owners and franchisees. That’s our big struggle right now. We have franchisees who do want to expand and they may have you know 50 to 75 to 100,000 liquid, but they need another 100,000 and it’s very difficult to get it from banks.”

Investing retirement funds in a franchise has worked for Kayo and his wife and he recognizes that it could help many others, but he doesn’t sugarcoat the idea.

“I think folks out there that are looking to start their own business really should evaluate the return they’re getting on their 401(k). If they’re looking at funding a small business with retirement funds through a service provider like Guidant, they should certainly evaluate carefully, but know that if they do it right they can probably get a much better return out there. The bottom line is that it’s just a great time to be starting a new business because if you position yourself well, you’re going to get a great run as the economy turns around. It always does.”

Optimism and practicality are seemingly rarer and rarer these days. They may be one more reason that Kayo and his wife are still seeing good returns from their franchises. People looking to buy a franchise or small business can certainly learn from their example. A positive outlook, good customer service and perseverance can bring sweet returns.


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