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The Joys of Juggling More Than One Franchise

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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."

--------------------------------------------------
Lauren Etter is a Staff Reporter for the Wall 
Street Journal.
--------------------------------------------------

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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