Entrepreneurs & Innovators

How Franchise, Invention and Technology Propel Our Economy
by Don Rodriguez

CoverStory_0214To recover from an injury, any boxer will credit being fit as critical to a speedy comeback. That’s not unlike an Arizona economy counting on being FIT to get it back to fighting form. Only this FIT stands for three pillars: franchise, invention and technology.

Entrepreneurs and innovators from these three economic drivers are contributing to a new economy that is proving a success for us — making it possible for our growth to be about more than home construction. And members of each group are thinking beyond just catching up; they’re already taking the steps to raise their businesses to new levels that should keep entire supply chains working while creating profits that, in turn, feed local economies.

Franchise: Entrepreneurship on a Proven Track

Small business is a vital sector of Arizona’s economy, and, while there are those who create their own start-up, other businesspeople choose to take the franchise route — working with an enterprise that has a proven track record and a built-in support system.

According to the latest National Franchise Report from the ADP Research Institute, which studies crucial trends in work environments to provide insights that could impact organizations’ overall business performance, there were 13,070 more people employed in November 2013 by franchises in the nation compared to October. That was also a 2.7 percent year-over-year growth rate, compared to the 1.9 percent increase in all non-farm private employment.

That growth should continue this year. The International Franchise Association, the world’s oldest and largest education and advocacy organization representing franchising worldwide, forecasts the number of franchise establishments in the United States to increase 1.7 percent. Related employment should grow 2.3 percent, which means more than 8.5 million people will be working in franchises. By the time 2014 ends, the annual output by U.S. franchise establishments should be valued at $839 billion, a 4.7 percent increase. More people working and more money making its way into the economy reflects the economic powerhouse that franchises have become.

If there’s a niche to fill, odds are there’s a business for that. Building a business by way of a franchise means the model is proven and the success is likely. An example of an entrepreneur who took this route is Heather Owens, who identified a great need for a pet boarding facility and looked to a franchise like so many are doing locally. She opened a Camp Bow Wow franchise. Camp Bow Wow was named to the Inc. 5000 “Fastest Growing Companies” list and was on Entrepreneur’s “Franchise 500” list in 2012. Her judgment is paying off as she realizes success.

Owens’ franchise is on its own fast track for job growth: Adding in-home care with the new Home Buddies program, Owens grew her business from two to five sitters in six months, and she plans further expansion later this year. “We stay very busy with our boarding pups, but it is amazing to see our day camp numbers continuously growing,” she says. While job growth is not the impetus for many who are starting these franchises, it is the net effect. As many are developing their own businesses, they are contributing in a great way to this new economy.

Many other existing franchise operations have purposely directed efforts to establish locations in Arizona, and some specifically in the Greater Phoenix area, due to this perceived opportunity for growth. Such is the case with Orangetheory Fitness. There are, currently, nine Orangetheory studios, all in Metro Phoenix. Becky Renner, who owns two franchises herself, is an Arizona regional developer for the company, helping make Arizona its second-most popular state for franchises, further demonstrating a level of success that is clearly propelling franchise as a way of doing business.

One of many examples of businesses specifically targeting military veterans as a desirable entrepreneurial — or employment — pool and creating opportunity for that segment of our population, WIN Home Inspection Thunderbird opened last July to serve the north Phoenix area around Norterra. Leonard Curto, the franchisee for this Madison, Alabama-based company, is an Air Force veteran, and he was attracted by WIN Home Inspection’s special program aimed at veterans.  With groups like the Arizona Workforce Connection and the Arizona Commerce Authority focusing on job opportunities for veterans, franchises like this are finding it easy to enter into growth areas like Arizona.

Another aspect of franchises as a pillar for growth in Arizona is the support provided by these larger organizations. Mother/daughter entrepreneurial team Sandi Fleming and Lovely Unique Mitchell recently bought an existing PostNet franchise in Tempe. While their business focuses on providing back-office help to other businesses in their area, they get their own operational help from PostNet, which also has 16 other franchises in the Valley that offer services ranging from receiving packages to creating marketing campaigns. With such support as national ad campaigns, Mitchell says they don’t feel like they’re on their own, so their business can “move in the right direction with the demands of the economy.”

It is just such support that contributes to the attraction of franchise and encourages many entrepreneurs to establish a business, helping to expand business creation and job development.

Invention: New Economy in Creativity

Many new businesses are being launched on the foundation of a single new product.

What started as a small group in Tucson has evolved into the 110-member Inventors Association of Arizona, with people driving to Phoenix from as far as Yuma and the White Mountains for meetings twice a month, says Executive Director Laura Myers. Lately, more members are joining “to have control over their financial futures by investing in themselves and their own ability to make things happen.” Some have made money by licensing their products to larger companies while one trio from Sedona has attracted interest of an oil company with their suite of products.

The success of members has attracted the interest of state Rep. Andrew Sherwood, who sees group members’ creating products as future revenue for Arizona, Myers says. He has helped her introduce the group to other possible partners as well as discussing potential future legislation that could support the inventors’ community. Myers is also working with leaders of some of the state’s incubator programs who realize their programs will be the step to real growth after a final product is patent protected and soundly designed.

For inventors looking for practically daily support, they can always stop by Gangplank in Chandler. The group offers a collaborative workspace where people from various backgrounds come together to create. “It is about connecting people to their inner creator and the community they create in,” says co-founder Derek Neighbors. “A by-product of that is developing talent and creating businesses.”

Thanks to Gangplank lighting the fires for success, new companies have launched, and these are hiring workers in the Valley who, in turn can spend their money where they live. One new launch is Athlinks, a social media site that keeps track of race performances and was recently purchased by Lifetime Fitness. And in time for a recovering job market, there is Hiring Solved, a recruiter’s dream with access to millions of candidates and backing by new investors. There’s also Pagely, Forty, Heat Sync Labs — Neighbors’ list goes on and on.

The results have been a new type of discussion where it comes to economic development, Neighbors says. There is no longing for the good ol’ days of Arizona’s 5 C’s. “It has shown the state that investing in people and place is more sustainable than waiting for old economies to revive,” says Neighbors. “Most, if not all, implementations of new co-working spaces and incubators cite Gangplank as an influence of their work.”   »

That influence already goes beyond Chandler as more communities support the concept. Gangplank also has sites in Avondale; Tucson; Richmond, Va.; and even Canada. “The next level is a Gangplank in every city around the globe,” Neighbors says. “Our economy benefits because our communities will be radically transformed to be more anti-fragile.” He points out that, for Chandler, that meant encouraging better infrastructure such as high-speed wireless Internet for its downtown neighbors like the library, while in Avondale it was influencing education with stronger science and technology components — all of which lead to a better-prepared future work force in those areas.

Strength for the start-up is the big idea behind the Entrepreneurship & Innovation Group of Arizona State University. Based at SkySong in Scottsdale, EIG is on track in 2013-2014 to increase the depth of our business community by creating 48 start-ups for students, 15 to 18 for faculty and 10 for alumni/external entities, says Gordon McConnell, assistant vice president of entrepreneurship and innovation. As part of the university’s Office of Knowledge Enterprise Development, McConnell heads the three-year-old group that works closely with Arizona Technology Enterprises (AzTE), ASU’s technology transfer arm run by Charlie Lewis, vice president of venture development.

There is a lot riding on the inter-university partnership succeeding. After all, 50 percent of start-ups with no support system fail in the first year and 90 percent by the third year, McConnell says. With EIG, the failure rate has plunged to 10 percent over the last two-and-a-half years, he says. “That’s way better than the norm.” In addition to gainfully employing the companies’ founders, 68 jobs also have been created directly and indirectly during the same period in the Phoenix metro area. As the program evolves, so should its impact on economic development, with even more jobs.

Results like these are the reasons behind EIG being named one of the top 20 university incubators in the world for 2013 by the UBI Index (10th in the U.S.) and winner of the national award for emerging technology-based economic development by the State Science & Technology Institute. According to AzTE, spinout companies based on technologies developed by ASU researchers raised $68 million during the 2013 fiscal year from venture capitalists betting on seeing returns for their investments. Further, companies that have licensed ASU discoveries have raised nearly $400 million in total venture funding since AzTE’s launch in 2003. This comes from venture capital groups, most of which are private but some of which are set up through quasi-governmental agencies.

Behind the economic powerhouse is the impact that program participants’ inventions have had on people’s lives. With 50 percent of the start-ups in manufacturing, McConnell says a program like his offers the support for the needed years of development to occur. This is especially true with such items as medical devices and diagnostics that have been created. “We’re building real companies,” he says. “We’re building technology that’s important.” It is that new technology which creates new businesses with new jobs.

Technology: Hotbed for Innovation, Economic Development

Vaidy Iyer, founder and CEO of Chandler-based appsFreedom, knows there’s a lot at stake when it comes to his business. According to the 15th edition of Cyberstates from the TechAmerica Foundation, a nonprofit organization whose mission is to educate executives, policymakers and opinion leaders on the scope and impact of technology, Arizona’s technology industry employed 110,700 people in 2012, up by 1,350 jobs from 2011. This employment accounted for 5.5 percent of Arizona’s entire private-sector work force. There were 7,600 technology companies in 2012, ranking the state 18th nationwide. Arizona also was 18th with a technology payroll of $9.9 billion for the year. This translated into an annual average wage rate of $89,300, compared to $43,700 for the entire private sector.

You bet Iyer wants his company to be a player in that action! His company offers a multi-channel, multi-device platform-as-a-service. In short, appsFreedom offers a way for mobile users to be productive without sitting in the office. (And, yes, he has the apps for that.) The product has drawn attention as one of the best mobile products of the year by the mobile technology news and directory site MobileVillage.com. Closer to home, the Arizona Commerce Authority granted the company $250,000 in its Innovation Challenge to support the work.

Iyer sees the nation’s economic recovery tied to innovation and, “needless to say, the technology sector is now and will continue to be the hotbed for innovations.” With the coordinated effort of the Authority, the Arizona Technology Council and the private sector, “I do share the feeling that technology and innovation will further fuel the state’s economic recovery,” he says.

He’s already getting ready for what’s to come. Last year, appsFreedom hired six new Arizona-based employees while it outsources various aspects of the business to local vendors. And, like the saying in real estate, the strategic mission is tied to location, location, location. The company is based at Innovations, a technology incubator owned by the City of Chandler, which Iyer credits with providing an excellent ecosystem and resources for technology start-ups like his. “We do intend to stay in Arizona, and as we grow, we will continue to generate a positive impact on the local economy,” he says.

Just as Iyer turns to outside companies, so do the bigger companies like Honeywell Aerospace, which has three sites in the Valley. “We need to rely on a lot of sub-tier suppliers and their expertise,” says Robert Witwer, vice president of advanced technology. Like a lot of companies, Honeywell Aerospace has become less vertically integrated than it was 20 years ago. By turning to suppliers, the company can take advantage of “economies of scale of flowing work out,” he says.

There should be quite a bit of work to come for those suppliers. Witwer’s group has created a business jet engine that emits 40 percent less oxides of nitrogen, which causes smog; an electric “green” taxi system that will move jets to the runway without the need for running and idling engines, ultimately saving hundreds of thousands of dollars in fuel costs for each jet; and a next-generation air traffic management system to efficiently get jets in the air and to the gate, allowing more planes to fly at a time. Besides putting wasted dollars back in consumers’ pockets, carbon footprint also can be cut.

In his job and in his role as board chairman of the Arizona Technology Council, Witwer has a front-row seat to invention and innovation, which should not be considered the same. The latter is “something new that is of value; someone is willing to pay for it.” And sometimes it doesn’t have to be all that new. For example, data storage has led to more ways to use that data, as Amazon shoppers know when they get recommendations. “[That innovation] spawned new innovation,” he says. Like many types of technology, “it’s a virtuous cycle.”

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