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The Joys of Juggling More Than One Franchise | |
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Comment The Post Below...
Greetings,
Some franchisees who diversify can squeeze new revenue
streams out of the same territory. Learn about some business
owners who have done just that, and about the struggles and
rewards of owning more than one franchise.
Best,
Mandi
Be sure to visit the SoHo News and Tips blog!
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The Joys of Juggling More Than One Franchise
Derek Norwood and his dad have owned an Outdoor
Lighting Perspectives franchise in Chicago for 10
years. In the early going, father and son were
mostly satisfied with the returns. But every year,
there was a predictable lean period that hurt their
bottom line: winter. Their business would freeze
for months at a time under the assault of Chicago's
arctic winds and deep snows.
Finally, three years ago, the younger Mr. Norwood
took steps to eliminate those swings in revenue,
not by tinkering with Outdoor Lighting, or with
the weather, but by starting two new businesses.
He launched a new company designed to help ride
out the winter solstice: a holiday lighting
supplier. And he purchased a second franchise that
also fit nicely into the family landscaping empire:
a Mosquito Squad outlet.
Plying this strategy puts the Norwoods in the
forefront of a rare but growing breed: the multi-
tasking franchiser. Franchise holders who diversify
with more than one type of franchise not only get
help counterbalancing unavoidable slow periods in
one industry, but they also squeeze whole new
revenue streams out of the same territory, and
sometimes even the same customers. Having learned
to run one franchise system often helps in learning
the ropes of another. And just like with larger
business empires, there can be synergies between
the operations, too.
According to FranData, a franchise-research firm
based in Arlington, Va., only about 3% of all
franchisees currently operate more than one franch-
ise brand. Anecdotal evidence suggests, however,
that the practice is growing, the organization
says. FranData started tracking data on the subject
just last year.
New Patterns
"As more operators have become more business-savvy,
there is a natural inclination to diversify," says
Darrell Johnson, president of FranData. The multi-
taskers usually have saturated their market with
their first franchise, he says, and have logged
"enough experience in franchising to desire a new
concept challenge."
Matthew Shay, president of the International
Franchise Association, in Washington, also has
noted the trend. As the franchise model has matured
and become better understood, it is being tweaked
more to suit individual goals, Mr. Shay says.
"There is a generation coming behind baby boomers
who don't see themselves as fitting into a single
pattern," he says.
Franchise Update Inc., publisher of a franchising
trade magazine, holds an annual conference dealing
with multiunit and multiconcept franchisees. And
according to Therese Thilgen, president of the San
Jose, Calif., company, multiconcept franchisees
are "growing on the fast track. Clearly we're going
to see an increase in that arena."
Indeed, for many franchisees it makes sense to
diversify. "I was able to springboard into the
holiday-lighting business because we had 1,000
[Outdoor Lighting Perspectives] customers to market
to instantly at a very cheap rate," Mr. Norwood
says.
The revenue from his Outdoor Lighting franchise
also allowed him to take the financial risk, he
adds. The store has about $700,000 in annual sales,
a 20% to 25% profit margin, and cost $80,000 to
launch, he says. Starting the holiday lighting
business required between $80,000 and $100,000, he
says, and Mosquito Squad about $100,000. Last year
the two additional stores brought in about $300,000
and $135,000 in sales, respectively. And Mr. Norwood
thinks Mosquito Squad will do better in 2006. Drier
weather last year meant fewer mosquitoes than usual,
he says. He expects all of his businesses to be
profitable this year. Mosquito Squad and Outdoor
Lighting Perspectives are owned by parent company
Outdoor Lighting Perspectives, in Charlotte, N.C.
For all multitaskers, a key to making more than
one franchise work is to build on the resources
and skills the franchisee already has. For Mr.
Norwood, some of the same customers who pay him to
install and maintain outdoor lighting also hire
him to hang their holiday lights or install
mosquito misting systems in their backyards. He
also has one employee who works for all three
businesses, though each business has other workers
as well.
Similarly, Claudine and Mark Rubin figured that
many of the same people who used their junk-removal
franchise would also hire them to pick up after
their dogs. The husband-and-wife duo in Gaithersburg,
Md., are franchisees for 1-800-Got-Junk?, a junk-
removal business based in Vancouver, British
Columbia, and for DoodyCalls, a pet-waste-removal
company with headquarters in Palmyra, Va.
The Rubins invested about $150,000 in their junk-
hauling outlet in March 2003 and quickly became
that franchiser's largest operation in the U.S. By
last year they had revenue of $2.3 million from 15
sales territories in Maryland, Virginia and the
District of Columbia. Their business was doing so
well, they decided to build on their initial
success with another franchise. So, last April the
Rubins spent about $24,000 to buy two DoodyCalls
franchises in Maryland, overlapping their junk
territories in that state. They expect their first
full year's DoodyCalls revenue to be about $250,000.
So far, the Rubins like the way their two business-
es complement each other. "Both businesses, aside
from the vehicles, have a very low start-up cost,"
says Mrs. Rubin. That's especially true of Doody-
Calls, she says, which doesn't even need a store-
front. "You're just buying an area and the name,"
she says. The Rubins also save on advertising costs
by hanging their hauling and DoodyCalls fliers on
the doorknobs of the same homes.
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There seems to be less of a natural convergence
with the two franchises that Todd Patrick owns.
The Patrick family, in Superior, Colo., got start-
ed in franchising with a Dairy Queen store in 1979.
But, like the Norwoods, the family noticed they
had a problem making sales during the colder months
of the year.
Two years later, they added a Grease Monkey car-
lube franchise, from Grease Monkey International
Inc., in Greenwood Village, Colo. Now Mr. Patrick
says his Grease Monkey brings in $900,000 annually
in revenue, compared with the Dairy Queen's roughly
$600,000.
Leveraging customers is more difficult for Mr.
Patrick, whose Dairy Queen regulars aren't necess-
arily likely to patronize the Grease Monkey. Still,
he practices some cross-promotions by handing out
coupons for free Dairy Queen Blizzards to his car-
lube customers, and he scores better deals when he
buys advertising since he is purchasing ads for
two businesses.
Some Catches
There are legal and technical pitfalls that
potential multitaskers should be aware of. For
instance, almost all franchisers bar their franch-
isees from opening a business that would compete
with their existing store. Dairy Queen, for examp-
le, prevented Mr. Patrick from opening a Dunkin'
Donuts franchise at one point because the parent
company of the doughnut shops, Dunkin' Brands Inc.,
also owns Baskin-Robbins ice cream shops.
Franchiser Dairy Queen International Inc. is a
unit of Berkshire Hathaway Inc.
Nor should franchisees see multitasking as a way
to salvage a failing business, especially since
there is the temptation to siphon the more success-
ful store's funds into the shop that's failing.
"It is really hard not to feel like you can rob
one to help pay the other's bills," says Mr.
Patrick. "You kind of have to keep them separate
to some degree, otherwise you could end up losing
both if you're not cautious."
Franchisees typically aren't allowed to use a
franchise brand name to gain customers for another
business. As a result, Mr. Norwood and the Rubins
maintain separate trucks, uniforms, logos and tools
for each of their businesses. Mr. Norwood looks at
the bright side, though. It may cost more to keep
his businesses separate, he says, but it does stop
his customers from thinking "I'm the jack of all
trades." High-end homeowners don't want people who
aren't specialists climbing on their houses, he
says.
Royalty charges are another potential pitfall.
Though not all franchisers charge a fee for use of
their customer base, most do if the piggy-backing
business is considered to be a competitor. Outdoor
Lighting Perspectives takes a cut, for instance,
for every one of its customers who hires Mr.
Norwood's holiday-lighting business to hang their
Christmas lights. The fee: 7% of each sale. Such
fees can be onerous while the add-on business is
still getting started. But Mr. Norwood says his
holiday business has grown enough now that it has
a completely different market from his Outdoor
Lighting Perspectives customer base.
DoodyCalls and 1-800-Got-Junk? say they don't
charge royalty fees to use their existing customer
base, as long as the add-on business isn't a
direct competitor. And a spokesman for Grease
Monkey International says the only circumstances
under which it could envision charging a royalty
in Mr. Patrick's situation is in the unlikely event
that he started selling Dairy Queen ice-cream cones
in the lobby of his lube business.
Watchful Parents
Meanwhile, multitaskers also risk taking their eye
off the ball. Katie Dunsworth, a spokesperson for
1-800-Got-Junk?, says her company wants franchisees
who are committed, not torn between myriad demands.
"People who are running six different businesses
are not really putting their whole heart into our
business," she says. Mr. and Mrs. Rubin are a
special case, she adds, because they had a solid
business before they teamed up with DoodyCalls --
and because they hired a manager for their junk
business once it was no longer their sole focus.
Mr. Norwood agrees that one risk of multitasking
is that you can lose your focus. He says that
beginning each October, his father takes the helm
of Outdoor Lighting Perspectives so that he can
turn his full attention to holiday lighting.
Otherwise, he says, come holiday season, "I'm over-
run with too much to do."
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Lauren Etter is a Staff Reporter for the Wall
Street Journal.
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DID YOU KNOW?
Avoid the temptation to try to treat yourself or
others as contractors with the intention of avoid-
ing payroll taxes. If you don't take them out of
contractor payments and the IRS later determines
that the sums were paid to employees and not
contractors, you will have to pay any back payroll
taxes owed.
So what did you think about this issue? Drop me a line and let
me know at mandi@gophercentral.com
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