Unfortunately for those who take on the job of growing a franchise business, financial risk is always present. If you are like other franchisors who want to minimize risk and boost profits, you may want to take a serious look at using a more extensive corporate-ownership program than you now have in place.
One franchise company that has launched a new promising effort is Syosset, N.Y.-based GarageTek. Under its newly unveiled corporate-ownership program, GarageTek is going all out to increase the number of corporately-owned franchise units.
"We feel strongly that our business model is extremely viable," says Marc Shuman, founder and president of GarageTek, a home improvement franchise that uses modular shelving, bins, and brackets to create a finished and clean appearance in the garage, a part of the home that is often overlooked There are almost 100 different accessories ranging from activity racks for equipment to workbenches. The system also features stain-resistant, polypropylene modular flooring that can hold many times the weight of a car.
After an initial fast start, GarageTek decided to do more to increase investment in its own business. It still is selling its franchises to the right franchisees, but to boost corporate ownership, it is assuming all costs associated with start-up of some new units in its ownership plan. Existing successful franchisees are brought in to run the units and profits are shared by both the corporate arm and the operator/manager. "We decide on the distribution of the profits," says Shuman.
While other franchise systems may believe that having a large number of franchisees is the best way to go, Shuman says it is unwise to judge a franchise system by the amount of franchisees it has. "You judge it by the quality of the franchisees," he says. For example, it is better to manage 25 great franchisees than 50 mediocre ones. GarageTek is looking to own about one third of its franchise units.
Growing too quickly at first helped Shuman come to this realization that a corporate-ownership program would be a good addition. The franchise was launched in 2000. In 2002, GarageTek grew from eight to 27 franchisees in the blink of an eye. The system reached its peak of 65 markets in March 2004, but beginning that same year and continuing into 2005, the GarageTek system was pared down. A number of franchisees were terminated.
"We found that quite a few of our failing franchisees were owned by detached investors," he explains. They just were not involved in the hands-on operation of the franchise. Seven of those franchisees, for example, were passively managed by groups with multiple investors who found their own managers to operate the business.
"We were naïve enough to believe that the franchise could be managed through a non-equity owning general manager and that is just not the case," he said. It is important to have your complete heart and head in this business, he adds.
One corporate-ownership franchise was opened in Atlanta this past fall. Following the model Shuman envisioned, GarageTek funded the opening of this unit. It is operated by its Washington, D.C. franchisee, who is the company's top producing franchisee. Another corporate ownership unit will be launched in an Orange County California location later in 2006.
In addition to its corporate-ownership program, GarageTek expects to add 10 franchises per year in major metropolitan markets across the country. The estimated initial investment is $250,000.
Looking for Solid Growth and Profits
Despite its initial obstacles, GarageTek operates in 49 markets in 27 states. It also operates in Canada and the United Kingdom. Revenue in 2005 hit $20 million and is expected to grow to $25 million in 2006. It has installed more than 10,000 of its custom designed and professionally installed systems.
People who are looking to own a franchise business tend to gravitate to GarageTek, says Shuman. "We appeal to their intellect because our successful franchisees consistently come from strong business and educational backgrounds." But Shuman says he now realizes it isn't possible to take on any franchisee who has the money for the initial investment. They must be able to really perform.
Shuman came to the franchise world with years of experience in a family business called International Visual Corp., manufacturers of fixtures for department stores. When this business began slowing down, Shuman and his partner came up with what they believed to be a unique way to use modular wall materials.
It is estimated that garage organization and fixup systems represents a $450-million-a-year business. The average installation cost of a GarageTek system is about $6,500 and is considered one of the most economical home renovation projects, ranging in cost from $30 to $45 per square foot. A recent survey of customers throughout the GarageTek system revealed an average household income of $150,000 and a home value of $550,000.
The company also instituted a two-fold change in its marketing strategy. It realized it is important to focus dollars on direct mail, print advertising, public relations, and home show participation. "We underestimated the marketing dollars needed to create interest in a category that previously did not exist," Shuman points out. "We were not a copycat business that had an established market. We were the pioneers. You have to tell people who you are. We underestimated the cost and time required to build a brand in an unrecognized category, on a market-by-market basis," he adds.
The second component was the specific direction in its marketing effort. Research revealed that among couples it was often the woman who initiated contact with GarageTek and was often the advocate for its garage system. Now the marketing effort is designed to appeal to the entire family, especially women.
GarageTek also is doing all it can to make sure its hands-on franchisees succeed. It has a comprehensive training program that has been designed to encompass a franchisee's entire first year within the system following an initial two-week training program at GarageTek University in Syosset. It includes sharing of best-system practices, extensive training on three proprietary software packages, and actual field training in both installations and in-home sales.
Customer Relationship Management (CRM) software gives each GarageTek franchisee a minimum of 10,000 potential customers and then allows them to track activity with each prospect. Franchisees can easily target a market and manage sales and customer relationships. Says Shuman: "We're now much more focused on quality versus quantity with our franchisees."
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