Buying into a system

A growing number of independent contractors may be turning toward franchising to be successful during this ongoing period of economic uncertainty.

Donald MacDonald, CEO of North Billerica, Mass.-based Rooter Man, said he is seeing a greater interest in franchising among independent contractors who are struggling and looking for another source of customers amidst the economic downturn.

“Franchising grows in a time of recession because people group together when times are tough,” he said. “When times are tough, people realize they've got to get together and work together. Even major corporations merge to be successful in the marketplace. Even the giants can't do it on their own.”

John Sembower, president of Pittsburgh-based Mr. Water Heater, said poor economic conditions are attracting more qualified leads to his franchise.

“We're getting some of the larger companies that are looking to add on business to theirs,” he said. “Those are the calls I'm getting now, the more qualified people with larger companies trying to find another niche to help them as the economy is not as great.”

Many contractors turn to franchising during a tough economy because franchises have a proven system of attracting and retaining customers, according to Mary Kennedy Thompson, president of Mr. Rooter, a division of The Dwyer Group, Waco, Texas.

“A lot of times the reason people are struggling and losing customers in an economy like this is that instead of concentrating on the customer, they concentrate on the transaction and they turn people into numbers,” she said. “Our system does it the other way.”

Each franchise establishes its own system for interested prospects and offers various levels of training and support. Mr. Rooter has a group of franchise directors who coach applicants through what Kennedy Thompson described as “a fairly long process.”

“We take who we're going to partner with very seriously,” she said.

The process includes a “discovery day,” which is an orientation that allows both franchise representatives and the applicant to find out about each other and how each business operates.

“We look for a match because better than 40% (of applicants) aren't a good match,” Kennedy Thompson said.

After awarding a franchise, the Dwyer Group sends the new franchisee through its Sure Start Program, which includes a weeklong training session that covers the franchise's system.

“We don't teach them how to be a plumber because they already know how to be a plumber,” Kennedy Thompson said. “We teach them how to be a businessperson.”

The company also assigns a mentor and a franchise consultant who works with the new franchisee on a daily basis throughout the training period. Additional support includes a 14-step process that teaches customer relations and regular training sessions throughout the year once the new franchise is open.

The cost to start a franchise with the company varies greatly depending on the size of the market and can vary from $25,000 to $100,000.

“We work with the oncoming franchisee to find out what is the best territory for them and what is going to serve their needs,” Kennedy Thompson said.

No matter the outfit, the Federal Trade Commission requires all franchisors to supply applicants with a franchise disclosure document that details all the required fees as well as the franchisor's financial information.

Rooter Man's MacDonald said prospects have 10 days to review the document before they can enter into any agreement.

“It's kind of a cooling off period where they can look at the system and see if it's a solid franchise system,” he said. “At the same time, the franchisor is looking at the contractor to see if he's a good fit, he's a team player and he works with the other franchises. That's what makes it work. It's not for everybody.”

Like other franchisors, Rooter Man basis its licensing fee on population. A market with a population of 125,000 people would cost $3,975 to purchase the rights to an exclusive license, along with an ongoing fee of $75 per month, MacDonald said. Once a contractor signs on with Rooter Man, the new franchisee receives manuals that detail the training for every aspect of the job, such as bookkeeping, human resources and business administration.

“Thirty-five years of trial and error by existing franchises are all compiled into a successful system,” MacDonald said. “At McDonalds, they know what temperature to put the oil at. You can go to California and get french fries that taste the same as the ones that you got in Massachusetts or Chicago. There's a consistency to it. That's the ultimate goal.”

Mr. Water Heater's Sembower also touts the benefits of gaining the assets of a well-established franchise.

“When you're buying a franchise, you're buying a company that already knows how to run a business,” he said. “You're buying all of their tools, their commercials, TV and radio spots and print advertising. You don't have to reinvent the wheel.”

Once a prospect contacts Mr. Water Heater and initially learns about the company, the contractor can then fill out an online application. After reviewing the firm's financial disclosure document, the applicant can go over a computerized analysis that projects what the candidate's gross profit margin might be after opening a franchise.

The company also hosts a discovery day to show the prospect around its office and to introduce the firm's advertising agency. If the applicant qualifies and continues to express an interest, Mr. Water Heater will offer a contract.

Training includes a one-week course on installation, business systems and software. The course also covers water heater installation, advertising and human resources.

The cost to start a Mr. Water Heater franchise includes a territory fee of $9,900 and 25 cents per household.

While Mr. Water Heater is a relatively new franchise, opportunities also exist at well-established organizations such as Sarasota, Fla.-based Benjamin Franklin Plumbing. The franchise is a unit of Clockwork Home Services that also franchises One Hour Air Conditioning.

Tab Hunter was a plumbing contractor who opened his own franchise in 1992. Hunter, now president of franchise operations at Clockwork Home Services, said there are advantages to owning a franchise that don't exist for independent contractors, particularly when it comes to operating a business.

“Most contractors, especially in the home services business, really know the technical side and really understand the trade, but they're not the most sophisticated business people,” he said. “Franchising becomes extremely interesting to these people because they want to do a good job, they want to take care of their customers and they just want a roadmap.”

Hunter said Clockwork offers franchisees a complete set of operation manuals that detail everything necessary to run a service business.

Contractors interested in franchising with Benjamin Franklin Plumbing must go through a rigorous qualification process, however.

“We're very peculiar about who we let into our organization,” Hunter said. “People qualifying for one of our franchises must have the financial stability to be able to franchise and convert.”

Additionally, prospects must have high standards and pass a criminal background check as well as be in good standing with their licensing board of contractors and the Better Business Bureau, he said.

Contractors also have the opportunity to meet with representatives of Benjamin Franklin Plumbing for a full day and learn everything the franchise has to offer, Hunter said.

If the applicant qualifies, the new franchisee goes through six one-hour sessions via a webcast prior to initial training. The course, “Gearing Up 101,” includes four full days at a 90-person training facility in Sarasota. The program covers every resource made available by the franchise to run a business.

After completing the course, the new franchisee attends “Clockwork University,” which is a combination of interactive Web and instructor-led training. Technicians, call takers and dispatchers go through days of instruction learning the techniques necessary to be successful, Hunter said.

The training is free, and costs to start a franchise include a royalty fee of 5% of gross revenues. Initial franchise fees vary according to the territory requested and can range from $10,000 to $100,000.

“The average (initial franchise fee) is about the price of a new truck,” Hunter said.

Although many big-name franchises have opportunities available for interested contractors, there is one exception.

Mike Higgins, director of franchise development for Cincinnati-based Roto-Rooter, said many of Roto-Rooter's franchise owners are entering their third or fourth generation of ownership. Most of the franchise transfers are from franchise-to-franchise.

“You won't see Roto-Rooter proactively advertising or recruiting for new franchises because we're pretty much sold out.”