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NEW YORK - One of the fastest growing electronic cigarette companies in the country weighed its options of going with a franchise business model or an independent distributorship. In terms of dollars and risks, the latter won hands down.
Leonardo Lombardo, CEO of Clearette Electronic Cigarette, said, “We took a look at going franchise and we immediately realized we did not need to do that to create distribution and make money. Why charge some guy a big number? I mean, for what? Training? A binder or something? We know our products are great, our margins are great, we don’t need to take some guy's nest egg, or make him go get a big SBA loan, for everyone to be successful.”
The report states that the independent distributor model has made many business owners very wealthy over the years because their initial cash outlay is dramatically less than that of a franchise model. The key focus in this type of venture is timing, product and industry. The key is alignment with the right company and simply and efficiently creating distribution of your company’s product lines in your territory.
Lombardo said, “I think our biggest challenge is determining who is real. Those franchise guys get a whole lot of money up front; they MAKE their money selling franchises and materials. Our distributor’s upfront cost is for inventory and point of sale materials, that’s it. So we have to determine who the best candidate to grow a region is. It’s a process.”
The e-cigarette CEO said horror stories abound as to franchises gone bad and lost fortunes to unviable franchise business plans. It highlights Mother Jones 2009 article, telling franchisees Deborah Williams and Richard Welshans’ story: Franchise Fraud: Wake Up and Smell the Fine Print (Inside one couple’s descent into Coffee Beanery franchise hell).
Lombardo explained, “But it seems, once a corporation has navigated the state and federal regulations ostensibly created to protect consumers, franchise operations continue to be sometimes a license to print money for the franchisor, not the franchisee.”
He said the independent distributorship allows the business owner to utilize his or her money for their new business inventory. That immediately creates an asset—which their company in turn needs to sell for a profit. “With good products and pricing, this becomes an ongoing reoccurring event. Clearette gives each distributor specific territories, which they retain contractually through performance.
The CEO further explained, “There is a reason companies like us, and Boars’ Head, and Snap-on Tools embrace the independent distributor business model. It is the business owner who will always work hardest to further the business, and who, hands on, will develop and maintain the best relationships with their business partners in the territory.” He said the company’s part is equally important, providing the quality product, and the training and support they will need to grow and be profitable.
Lori Abbot, a Clearette distributor in Jacksonville, Florida said, “I was worried about big tobacco. It seemed to me they could squash little me. Then I tried the Clearette products, loved them, and looked at the industry growth and start up costs, and wrote the check.” The mother of three, who recently signed 124 stores in the Jacksonville area, started her e-cigarette business with $8,500 in inventory.
Clearette touts it is a privately owned company that is making headway as a true rival for big tobacco’s late blooming attempts to maintain its industry stranglehold through electronic cigarettes. The firm currently has 170 distributors in 39 states.