The company, which now has 205 franchisees, has annual revenue of about $38 million and has grown strongly in the past few years thanks to a merger.
Today chief executive Chris Acret talks to SmartCompany about the business coaching program that lies at the heart of franchisee support, consolidation in the franchise sector and why recruitment remains a big challenge.
Let's start with your award, which you won for the second year in a row. Are these awards just a good reason to go out to lunch to celebrate, or do they have a bigger benefit to the business?
This year it was particularly satisfying because we'd just gone through a merger and with a merger there's a lot of unsettlement, there's a lot of uncertainty and it's a real challenge to keep the positive culture going. So to win for a second year in a row was really, really pleasing. It's almost a barometer of your culture I think and some people would say culture is a warm and fuzzy thing, but does it put food on the table? Well, not directly, but in franchising culture it is absolutely critical. And it's not coming from a panel of independent judges that are looking at some submission that a PR person's written, it's coming from direct feedback from your own franchises.
Does the survey also highlight issues or potential problems or areas that you need to invest a little bit more time in?
We really welcome that sort of feedback on an ongoing basis, so we already have mechanisms in the business to encourage that two-way communication. Because there are either two ways you can look at it - you can try and put yourself in the ivory tower and discourage open feedback as almost as a sense of criticism or you can encourage your people to openly communicate with you.
We have a quarterly franchise advisory council which is made up of about eight franchises from around Australia and present ideas on improvements to the business or we talk through issues. I can truly say it's not a negative sort of forum, no one would really want to be part of it if it was just bringing up complaints and gripes and so forth. But gee, you do get a different perspective. I mean for us, sometimes it's just almost saying "well, we're on the right path".
Talking to the people who put this survey together, they were most impressed with the business coaching emphasis that you had put into franchisee support. Tell us a bit about the origins of that.
We provide a fairly centralised model where we have lending support and we have marketing support and IT and so forth, and we have people in each state to provide general support to the franchise owners. But it's always been sort of a tricky dynamic really - when someone is a state manager or a support manager, are they really adding value, what are they covering in their interactions with a franchise? It's something that I think a lot of franchise companies must grapple with.
You want your people to be able to add value so a few years ago we came across a coaching program, Results Coaching, and we put all our people through it so that they could become accredited personal and business coaches. And it was actually the opposite of what you may expect coaching to be - a lot of people I think have a perception that coaching is about telling people what to do and having all the answers, whereas this was really a way of helping the franchise owner think more clearly about what they needed to do in their business and come up with the solutions themselves.
Is there a delicate balance involved here? I'd imagine there are some business and personal problems that the franchisee might not want the guys in head office to know about. How do you walk that line?
It's a really good question because for coaching to be effective there needs to be a real level of trust between the coach and the person being coached. You've also hit the nail on the head in that our personal life completely affects our performance in business.
So a franchisee will have three objectives that they want to achieve over the coming quarter and one of them will be a personal objective and two of them will be business related, because it's normally something in their personal life that's stopping them in business. If you don't address that, it's almost a pointless exercise.
But you're right, there needs to be that level of trust and that level of confidentiality for the coaching to be success and for the person to open up. Because the way the coaching works, it's a structured one hour conversation. It often works over the phone particularly well which was fantastic from a logistical point of view but it funnily enough gets into quite deep personal sort of areas.
And from your management team's point of view, is there an explicit understanding that some things that are said in those conversations aren't for the ears of head office?
Absolutely, we don't need to know. But what we've found is the coaching has been very positive. It's been embraced by the franchise owners, they enjoy it, it helps them I think just by giving them the space to think about their business. It's almost empowering, I guess. I mean there's a level of accountability as well but it's really themselves keeping themselves accountable rather than a school teacher keeping a kid accountable. But the people that go through it surprisingly, it's almost like going through counselling, they really enjoy it.
It's a really interesting model and I am sure that's one factor driving the good satisfaction scores. But how much do you think the environment for your sector has helped? With the little mini property boom we've had in the last 12 months, they've probably done okay.
Look, 2008-09 were really dark years for us. They were just difficult years in the mortgage broking industry, there was no doubt about it. Our commissions were cut massively, in the order of 30%. A lot of lenders pulled out of the industry, the big banks dominated, the lending criteria's much more difficult. So on one level, the franchise owners have been very frustrated, it's been very difficult dealing with the banks.
Things now are much more positive across the board. I hope it's getting easier, and I think in some ways we've pulled together more as a group, it's been tough at times.
Are you getting a sense that the sector is starting to come through that period? Any movement on commissions?
I think so, although we don't get a sense that commissions are suddenly going to go up either. But you know, it's that sense of uncertainty that's actually worse – having all that negativity around a couple of years ago that commissions are going to be cut and this is going to happen and someone's going to pull out. That emotionally is a lot worse than when it actually happens - you deal with it, you find solutions.
And I think that's where we are now, we're getting alternative lenders starting to come back in to the market, we're looking at our own white labelled loan product. We're introducing risk interest, life insurance into the businesses, you know another valued service to the clients and also another income stream for the franchises. There are good things to look forward to, I think.
We're starting to see the property market cool a little bit, which everyone agrees isn't a bad thing. As rates rise will you guys move into a slightly different area? Will we see an increase in refinancing and people trying to drive better deals? Does that create a different opportunity?
It does. The market's so patchy, it's hard to generalise. You can talk about one area but then there's another area in the same city that's completely different. So it is hard to generalise even on one city, let alone state to state. But the way our business works is we're not mass marketing to a segment of clients, our franchises get their business really through referral. So the whole business is really geared around looking after the clients and then getting that word of mouth referral. And so each franchise owner will have a different demographic, you know the guy in Campbelltown in Western Sydney will have very different client base potentially to someone in the eastern suburbs.
You said earlier you guys did a merger last year and we've been seeing a few franchising mergers and acquisitions in the last few months. Is there a sense that scale has suddenly become pretty important in this sector?
Well ours was probably more related to what was going on in the mortgage industry because we were facing these very significant commission cuts and as a result we said we need more scale into the business and we need it reasonably quickly. We would have survived regardless, it wasn't the case of that. It just did put more pressure in terms of scale and that's what we're definitely seeing in the mortgage broking industry, there's been lots of consolidation and that will continue as regulation comes into the industry.
But it's probably a trend across most industries, that with increasing costs and complexities there is this ongoing sort of pressure to get big. But we're very much a believer that bigger is not better. You learn about economies of scale in year seven in commerce, but what about the diseconomies of scale? There's a certain size that you get too big, you get diseconomies of scale in terms of your communication and your culture becomes much more challenging. So we're not wanting to grow to 1,000 franchise owners. We're striving to get towards 300 franchise owners and we think that will be a real challenge for us. But we're not of the notion that being huge is some sort of massive inherent advantage, but you do need to be a certain size to have good IT and marketing and so forth.
In terms of getting to that 300 number, is there another merger or acquisition on the cards or would you prefer to grow organically?
Look we'd like to be able to pick up a couple of smaller broking companies but it's a challenge to find a company that's going to be a good fit culturally. It's also a challenge for all franchise companies I think to grow organically, it's tough to recruit good people, it always has been.