Picking the Right Concept
There's no question that generally some types of businesses fare better in a recession than others. Expensive restaurants tend to suffer, but people continue to need haircuts. Still-hot niches our experts identified include products and services tailored to Latinos, as well as child-care, elder-care and home-repair franchises.
Does that mean you should shop for a countercyclical concept? It depends in part on your own interests, income needs and long-term plan for the business. Medaglia, a former airline pilot, specifically looked for something that would be recession-proof and profitable right away. Because PuroClean focuses on helping homeowners with water damage and other house damage usually paid for by insurance, it's rarely affected by the downturn, he says. Medaglia was in the black within 90 days of opening, and he projects sales well into the six figures this year.
Others have done well with concepts that at first blush might not seem obvious choices in 2008. The success found by Scott Pekovich, a Salad Creations franchisee in Billings, Montana, points to a key fact about the current downturn: It doesn't affect every market in the same way.
Billings' economy has stayed fairly strong, notes Pekovich, 38. The PGA golf pro sensed an open niche for a healthy quick-serve restaurant, and despite the generally gloomy outlook in the restaurant sector this year, he opened his Salad Creations eatery in May. Since then, the restaurant has ranked in the top two in gross revenues in the roughly 50-unit chain nearly every week. Pekovich, who projects 2008 sales of $700,00, eventually plans to open about 35 Salad Creations throughout Montana, Idaho, the Dakotas and Spokane, Washington. "We felt the demand was there," Pekovich says. "It's unique and healthy, offering lots of choices."
Bad times can also provide opportunities to take advantage of others' lack of conviction or business savvy. That was Bob White's strategy during the 2002 downturn. White, 46, opened his first The Maids Home Services franchise just a few months before 9/11.
Shortly after the economy tanked, White got a call from another Maids franchisee in his Dallas-Fort Worth market who was looking to sell. In short order, White bought out four local Maids franchisees. Each let him pay for the franchise in installments, keeping his investment costs low.
Suddenly, White had a dominant presence in the market and began advertising aggressively. Moving operations into one office created efficiencies that made the expanded territory instantly profitable. Last year, his franchise brought in $2.3 million. "There was quite a bit of uncertainty back then," White says. "But I was confident in what I was doing. And I still believe there's huge upside potential in my market."
—By Carol Tice, a Seattle writer reporting on business, finance and social issues for Seattle Magazine, Washington CEO and other leading publications.
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