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Many remodelers are looking for ways to offset a slowing remodeling market. One direction some are choosing to head in is national franchise operations.
A franchise can be a great opportunity for some remodelers, in terms of national brand awareness, marketing support and a team of peers that are working toward the same goal. However, not all franchise companies are created equal and the key to optimizing a franchise system is fairly simple — do your homework.
A franchise relationship is akin to a marriage, where both parties must mutually agree to work with one another to achieve a common goal. Prior to getting involved with any new business venture, find out if this relationship fits your business structure and lifestyle.
QR gathered Mark Richardson, CR, president of Case Design/Remodeling; Doug Dwyer, president and owner of DreamMaker Bath & Kitchen; Robb King II, vice president of operations, Paul Davis Restoration; and brother and sister team, Darren and Karen Sager, principal owners of MasterShield Gutter Protection, to find out who is the right candidate to operate a typical franchise.
Questions to ask yourself before pursuing a franchising path.
RICHARDSON: Do I want a business or do I want a practice? Ninety-nine percent of the remodeling community in the U.S. are practices and the practice generally is dependant on the principal to even exist. If you really yearn for more of a business and to exit from the business at some point, I think that's a good question to ask yourself and I think franchising is a vehicle to be able to do that.
DWYER: Am I willing to follow a proven system? Am I willing to get out of my comfort zone to learn new ways of doing business — Without those two things, they won't get the benefit of a franchise system.
RICHARDSON: Owning your own business can get lonely, its gets complicated — it's like being on an island all by yourself. If you like that, you should not become part of a franchise community. On the otherhand, if you clearly want to be part of a group, work off of similar systems and processes and want to dialogue with others that are doing similar things, than I think franchising is a good vehicle for you.
KING: What are you trying to accomplish by having a franchise relationship? Are you looking at a franchise system to relieve some pressure on your current business? If so, what is that are that you feel a franchise system can add value to? Is it around a branded product? Are you looking for marketing help? Or are you looking for something other than what their own brand represents in the market? You must figure out what you are trying to accomplish by having this relationship.
RICHARDSON: What is my exit strategy? I've done talks around the country and one of the common things I ask is how many of you have an exit strategy? In a 300 person room, I might get two to three hands. That's because there isn't a good exit strategy in a traditional remodeling business.
Now, when I ask, how many of you would like to have an exit strategy — almost everyone raises their hands. So I think what franchises allow is an exit strategy because all of a sudden this business has equity and value that's not dependant on you — you can sell it someday because it's not just dependant on you.
Is it OK to have a franchise as a sideline to my existing remodeling business?
RICHARDSON: This has a lot to do with the owner. If the owner has the financial wherewithal or the skills to be able to have multiple businesses, then I think it is fine.
However, I would say many don't. When you start a new business, whether it's a franchise or not — it requires a lot of focus and attention. And it's not unusal that something's going to suffer — whether it's the new business or the old biz. Much as it is a strategy — it has more to do with your structure and your wherewithal. Under our system if you have a sister business, we would require you to have a general manager of the Case business and we want to meet and train the GM — without the right GM, you are going to suffer.
DWYER: It depends. If they are a company specializing in widows, siding or roofing and are looking at DreamMaker who specializes in kitchens and baths, then, yes, it makes sense for DreamMaker to be a division of that company or a separate company. If they are a general remodeler and they do kitchens and baths, additions, etc. We suggest converting that entire company over into DreamMaker — those are the most successful franchisees because it easier to run one business than it is two — they are really focused and dedicated to making it happen. We've seen great results that way.
What level of financial training is required to operate a typical franchise?
RICHARDSON: One of the benefits that the remodeling community has is that they have a fair amount of assets they bring into the business and they don't have to start from scratch We require around $40,000 to $50,000 in upfront fees. But, depending on what you bring into it, you might need only another 100k in capital to get it going — if you are starting from scratch, you will need more capital, but most of the remodeling community has things in place.
DWYER: We've found that somebody has to already have a business/marketing mind about them — doesn't mean it's developed, but they get it. They get that financials are important, marketing is important, systems are important. If they understand that than that's a pretty good candidate for a franchise. For DreamMaker, we have a very complete detailed financial management system from hourly burden rates spreadsheets to accurately get burdening costs into a project, down to a management P&L system. We'll train on our system and how it works. What kind of investment capital do you have? Depending on the current health of their business, their growth plans and how we will be setting them up, based on the conversion-type setup, someone can need $100,000 up to over $300,000 just to get started. More failures come from lack of capital than anything else. People kid themselves, "I can do this, I can operate off my cashflow" — we have found that it's not always true. Sometimes it is, but we don't' want to risk it
KING: They have to have operating capital. A good rule of thumb that we look at is 10 percent of last year's sales, that's the bare minimum. If you don't have that, you're probably cash strapped. And that's assuming flat growth.
K. SAGER: They should have some financial knowledge. However, if they aren't highly-skilled in finances, they should hire a good accountant.
Who is the ideal remodeler/franchise candidate?
KING: We are looking for a person with higher business skills. It typically takes a lot longer to learn really good business skills. If we have somebody who possess that level of business knowledge and experience, but they are starting from scratch, they can grow the business a lot faster. Most businesses fail because they run out of cash or they don't market. However, If they come in with some business experience, they know that.
D. SAGER: Someone with an entrepreneurial spirit and has a basic understanding of the home improvement industry. This person should also have a marketing sense, is a committed individual and someone who can sell!
RICHARDSON: Someone who has the sophistication and wherewithal but who is in pain — someone who says, "You know I'm ready for a passage, a change, I'm ready to join a community and not be out there on my own. I'm tired of not having an exit strategy." A lot of times our decisions are driven by pain.
DWYER: This is very specific to DreamMaker — Do I feel like you match our team? If you're in a room with other DreamMaker's, would you fit? So we really look at that — that you match our team, match our culture — we have a written code of values, people read those and they say, "I like these, it's how I live my life and I want to be part of a company like that" — or they go — "I don't buy into this."
In their mind, have they truly made a decision to change or expand their business. But if they haven't mentally gotten to that state then they aren't ready. They must have the desire to build a company that will capture 2 to 5 percent of the market.
Will there be a day when national brands dominate the remodeling industry?
DWYER: I do believe it's true. We live in a brand driven society — we go to brand stores to buy brand products in those brand stores — it's not something we created, but it's something we need to recognize that is going on. In the next 3 to 10 yrs, it's not going to happen overnight..
RICHARDSON: Yes. The remodeling industry, to me, is parallel to the real estate industry. In the '60s and '70s, most real estate transactions were handled by independent mom and pop companies. Now, most are by national companies. That same evolution will happen with remodeling. What will be different with remodeling is the speed of it and the reason is technology. The little boutique companies will not go away, but will represent a much smaller part of the total pie. Because of the growth of remodeling, many bigger companies are circling around waiting to grab ahold and do things on a national level. Whether they are related to the big boxes, supply chain or other players from the outside — when we are dealing with these kind of numbers, it won't continue to be as fragmented as it is.
author: By Chaya Chang