The Franchise EffectJuly 16th, 2021 by Nathan Hobbs
Whether starting or expanding, tried and true formulas promise to take the sting out of starting a business
By Drew Vass
When Donna Swartz and her husband John relocated to Colorado Springs with $15,000 in their pockets, “there was no question,” Donna says, that they would franchise.
After all, John worked as a door and window installer for more than 25 years, seeing businesses come and go (including those of close friends), the two felt that a “canned” approach would give them a leg up in the process of opening their own place.
Make no mistake about it, Swartz and other business owners say: With or without an existing formula to work from, starting a door and window company is difficult—extremely difficult, some suggest. That’s not to say there aren’t exceptions, but a look under the hood of most immediate success stories often reveals a few key advantages. For example, Wintek USA was launched in 2018 and already the Pearson, Ark.-based company is recognized among [DWM]’s fast-growing dealers (see our July-August 2019 edition). Meanwhile, “We just bought a list [of potential customers] and went to work,” says Paul Echols, one of Wintek’s founders. But the company was launched with some serious business acumen in tow, including a top salesperson, a general manager and an installation manager—all hailing from another successful door and window business. On the other hand, “Not having a business background, per se, with him being an installer and me being a nurse,” says Donna, the Swartz felt they’d be better off with a franchise format. “I’ve worked in offices before, but working in an office and running a business, they’re pretty far removed,” she says. They went with The Window Source.
A Boxed Approach
The concept of acquiring an established formula for a business is one that’s been proven time and time again— partly based on the philosophy of consistency.
“It’s kind of like McDonald’s,” says Dan Wolt, founder of the franchisor Zen Windows. “I don’t care if it’s a 17-year-old or an 85-year-old, if they’re following the formula, it works to a T every single time,” he says.
Following the right plan produces the same results, no matter where you’re located. That’s the message that franchisors and licensing programs market. The “boxed” approach they offer includes many of the key ingredients for success: business plans; sales and marketing plans; training; advertising materials and guidelines; discounts on products. Once they’ve paid their dues, franchisees also receive the benefit of a support system along the lines of corporate leadership, including such things as strategic oversight. Without those elements, their $15,000 wouldn’t have gotten them very far, Donna suggests. But even with those resources, there were still “a lot of sleepless nights and terrifying days,” she says. That’s partly because—franchise or no franchise— you still have to establish yourself as a local business in order to gain customers, she suggests. While the brand recognition of a regional or nationwide franchise might look familiar to the general public, based on her experiences, “When you’re a franchisee in a new location, you have to brand your location versus the company as a whole,” she says. You have the materials and literature to go on, “but then you have to take those tools and still build the house, so to speak,” she says.
In some cases, it’s the trials and tribulations associated with starting up that have led to new franchise concepts—partly on the promise that others won’t have to go through the same.
“We’ve been around and in the window industry like three generations,” says Arlin Kethley. “My granddad did glass. My father did windows.” And yet, when Kethley started Paul Ryan Windows 10 years ago, even with that foundation to work from, “We burned through a lot of money,” he says. “Let me just tell you this—if I was just a regular Joe on the street, trying to start my business, I would be non-existent right now,” he declares. Unfortunately, that prediction held true for his original partner, who “had to go and get a job,” Kethley says, long before the company was successfully established. In April 2018, he joined with a new co-owner, Matt Devereaux, who also serves as vice president of operations.
In the beginning, Kethley says they had a difficult time gaining enough credit to buy sufficient numbers of windows. According to [DWM]’s research, that’s something that some franchises and license arrangements help with. Others expect you to prove and provide your own creditworthiness directly with manufacturers, so if you’re considering a franchise or license arrangement, that’s a detail you’ll want to look into prior to making a selection.
The Right Formula
For 10 years, Kethley’s business focused on the wholesale and commercial sectors, but in 2016, at the urging of a few of his partners, he decided to take a stab at the residential market. It took some figuring out, he says, but once he had his residential segment up and running, now they’re offering the resulting intellectual properties as a packaged franchise, while continuing to operate their own Paul Ryan locations.
After considering expansion through additional locations, “I said, we know how to make a successful business, so you know what? Let’s just make this a franchise,” he says. “Let’s grow the brand by partnering up [with other businesses] and give it a go.”
In the process, his privately-owned company will benefit from increased branding with each franchisee it adds, he figures. That, he says, will help to build more opportunities. But his company also receives revenues from franchise fees and commissions from product manufacturers.
The formula offered by Kethley is similar to the other franchise offerings reviewed for this report. Most include a pre-qualification or pre-screening process to determine that prospective owners make good business material and that they’re capable of carrying enough credit. There’s a buy-in fee (typically in the range of tens of thousands of dollars), after which new business owners undergo analysis to determine their skill sets. Based on those findings, most are placed in anywhere from a week to several weeks’ worth of onsite training at the franchise (or licensor’s) headquarters, where they learn best practices.
In most cases, each franchise is independently owned but required to follow a specific format for how they conduct business. Marketing experts help to establish advertising channels and strategies, including materials, but also ensure the style guides of each brand. In some cases you’re required to pay for those resources (minus the costs for design and development). Most do not provide business or operating software, but defer to product manufacturers, which provide platforms for pricing, purchasing and tracking orders. Though some have existing networks to draw from, in most cases each business owner is responsible for finding and securing its own installers, be it on payroll or through subcontracting.
One key catch to consider—especially for those with an affinity for certain brands—includes the fact that, among all the options reviewed by [DWM]’s editors, franchisees and licensees must agree to sell specific products. “That’s what binds the group together, is a commitment to a certain product,” says Ed Kalaher, owner of Window Depot, an official licensing program. That’s partly to do with a desire for product quality and consistency, which franchisors and licensors say is an important element of their brands. But it also has to do with how they carve out profits.
Powered by Numbers
By tying their companies to specific door and window manufacturers, franchises and licensing businesses generate revenues through what some describe as “product rebates.” But don’t be fooled by the lingo; those rebates are nothing like the ones you send in to get a few bucks back on consumer purchases. For every door or window ordered by one of their independent franchisee or licensees, some franchisors say they get a percentage-based commission that’s paid to them by product manufacturers. Those figures aren’t necessarily displayed on invoices, but they’re baked into the network price that each franchise or licensor negotiates with its manufacturer(s). For individual dealers, those costs, franchisors say, are offset by lower purchase prices.
“Even though my commission is built in, the price that they’re getting through our buying group, 99 times out of 100, is equal to or better than what they can get on their own,” Kalaher says. “It’s just the scale of the economics.”
It also binds them to certain levels of quality and lengths of warranty. In addition to those measures, some franchisors also police for standards pertaining to customer service and installation.
“If you’re going to utilize our brand, then you’re going to conduct yourself in a way that does not tarnish that brand,” Kalaher says.
The concept of conducting your business by a set of key principals and standards is something around which franchisors tend to market themselves, looking to attract individuals with a similar philosophy. When Wolt made Zen Windows into a franchise (after starting as an individual dealer), he says he offered a radically new concept for sales—one that he says he knew would resonate only with certain people.
“I spoke in Philadelphia a few months ago, in front of 2,000 window contractors at this huge convention,” he says. “When it was done, the facilitator came up to me and she said, ‘You know, out of all the speakers, you were the buzz of the entire two-day engagement.’ I said, ‘Okay.’ And then she asks, ‘Do you know how many of these guys are going to change to your model?’ I said, ‘I have no idea.’ And she said, ‘None. They don’t believe a word you said.’”
Wolt began selling windows while studying at the University of Maryland, back in the 1980s, when he decided, “This is the worst industry ever,” he says, partly due to what he saw as unnecessary high-pressure sales. He opted to take a softer approach. Then, his first child was born when he was 40, followed the very next year by triplets. Shortly thereafter, he found himself—partly out of necessity, he says—in the middle of testing what he saw as a new approach to window sales, one that’s based on a web-only format. He expected his efforts to produce a “complete disaster,” he admits. Instead, “I was like, “Wow … I just sold a $20,000 job and I’m sitting here in my pajamas,” he says. Zen’s web-based format also made it easier to duplicate than brick-and-mortar businesses, he suggests.
“This is a lifestyle change, not a get-rich-quick scheme,” Wolt says. “You can make a lot of money doing it, but this isn’t entirely about money. It’s about being there—where you need to be, when you need to be there,” he adds, stressing that a large number of his franchisees work from just about anywhere.
“Technically, each location, because it’s independently owned, has its own flavor and way of doing things,” says Brian Zimmerman, owner of Zen Windows Charlotte. “But really we all try to stay true to the model.” You don’t have to work in your pajamas, he says, but, “We don’t have to tell them the price is only good for a couple of days,” he says. “Sometimes, philosophically, within the industry, I know people have a hard time with that. How are you going to close a sale if you don’t strong arm them?”
Similarly, when Kalaher started Window Depot in 2011, he acquired an existing franchise, then immediately converted its strategies from a low-cost, high-volume sales format to one that he says focuses on fewer sales, but better values.
“I started a $40 million manufacturing business from scratch. I can tell you volume does not cure everything,” Kalaher says. “When I talk to new potential prospective partners, I say, ‘Look, here’s what I’m going to tell you—at your volume levels, you may think that’s really set you up to build an asset that you can be proud of and that you can create some wealth with. But let’s really dig into the numbers … I’m going to teach you how to sell a better product at a fair price and this is how you’re going to build wealth for yourself.”
In this way, it seems that every franchise has its own “flavor,” which, in addition to its fees and other requirements, door and window dealers must match up with to help ensure their success. With the right choice, “going franchise” promises to take a little of the sting out of starting a business.
Drew Vass is the editor of [DWM] magazine. email@example.com
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