Joint Ventures in Franchising
In 1986 we started Signarama and today we have approximately 800 stores in 50 countries. We focused solely on building and growing the one franchise system for almost 15 years and then started a second brand, EmbroidMe, which now has 400 stores in 15 countries.
Opening the second brand helped the entire company, from employees seeing growth opportunities to franchisees getting jobs from each other. The growth of each brand pushed business to each other's franchisees. We became a true, professional, multi-franchise company. We decided we needed a name to go with this franchise company and chose United Franchise Group (UFG).
We then bought a company called BillboardConnection, which had one franchisee at the time and now has 50 agencies in 4 countries. We eventually started another company called Plan Ahead Events, which has 80 franchisees in 5 countries.
As our fifth brand, FranchiseMart (franchise consulting, 20 franchises), expanded and grew it became obvious that we needed a new name to get into the business brokerage side of business buying. It was also obvious we needed more experience and help fast! I had heard that Transworld Business Brokerage was looking into franchising, so I met with company employees and, eventually, Andy Cagnetta, the owner and president.
After several meetings (I would highly recommend many meetings and social gatherings) we determined that creating a joint venture - in which UFG would be focused on sales and franchising (one of our strengths) and Transworld would be focused on operations and the business brokerage side (one of their strengths) - would create a tremendous opportunity for us and the right franchisees. Today we are approaching 50 franchisees across the country in only 9 months of working together. We have had very few hurdles working together. Several things worked in our favor:
- Our headquarters are only 40 minutes apart, so that makes it possible for us to get together any time.
- We picked the right partner (easy to say, hard to do). The companies have a similar culture, are sales-oriented, and have great people.
- Communication is key with all the staff, but is really needed at the top as well. Andy and I have spoken, met, texted, or emailed each other every week since the joint venture was established. There have been no "surprises" because of this high level of communication.
- Leadership has the same goals. In our cases, neither Andy nor I needed to take money out of the business (we have other businesses), so we put the money back into the company each month. This takes away a lot of the early pressures.
- We decided on one leader for the company - Andy. I have too many commitments already, and Andy will do a better job anyway, as long as I stay out of his way! A huge advantage of a joint venture is the ability to share best practices from both companies, but in our case all of our brands have benefited from our joint venture partners.
The joint venture with Transworld has been such a great early success that we have already established another one! A company in energy-efficient products in Australia (13 stores) approached us with the idea of partnering in the U.S. and worldwide. The products in the store include solar panels, wind turbines, air filtration, water purification, weatherization products, etc. Our flagship store is open in Florida. Look for our next franchise, SuperGreen Solutions, to be introduced in 2012! It's another joint venture with industry experts.
With a joint venture, one of the most important items to consider is an exit strategy. Is one partner much older than the other? How do you unwind it if it does not work out, or if there are issues? You must have a good agreement and a well-thought-out operating agreement. We have always been believers in keeping things simple and basic. I never wanted to fight with a partner because we have to consider the franchisees and the brand first.
So before any agreement is made we agree on how an exit strategy would be done. No outsiders or third-party evaluators would be needed. If I want out, I name the price and my partner decides to take the money or buy me out for the same amount I suggested. If he wants out, he names the price and I decide. This is a very simple process that has a built-in "check and balance" for pricing. Whenever someone wants to sell a business they almost always think it is worth more than it truly is. This eliminates that huge potential problem.
Joint venturing in franchising works very well if the partners know each other's strengths, stay focused on what they are good at, and both have a vested interest in the long-term success of the brand. Our company likes to build brands and keep them for the long term. We have no real history of selling brands so our focus is on doing the right things over the long-term relationship and benefiting over the long term. For others it might be different, so make sure you align your goals before doing a joint venture of any kind.
A joint venture is only as good as the partner you pick, so pick wisely. Do your research and due diligence. Get to know them personally, and then "go with your gut."
Ray Titus is president of United Franchise Group, a $500 million company with approximately 1,400 franchise locations in 50 countries. The company's brands include Signarama, EmbroidMe, Billboard Connection, Transworld Business Advisors and Plan Ahead Events, a home-based corporate event planning franchise.
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