Don’t discount: that’s the message from franchising guru Jim Penman. The Jim’s Group founder says service, rather than price, is what attracts and keeps customers. The group, which has about 25 divisions, is set to turn over about $400 million this year.
Penman says franchisees are the ultimate clients, and believes maintaining a good relationship with its 3,250-odd franchisees has underpinned the company’s success.
Saying there are some “shocking” franchise contracts out there, Penman backs further government intervention in the sector to weed out rogue franchisors and contracts.
He also lands a blow on the Franchise Council of Australia, saying it speaks for franchisors only.
Thanks for your time today, Jim. SmartCompany has been following your progress for a few years now – can you talk us through where your business is at right now?
It’s going well. We’re still growing. We’ve got quite a lot of work – in the last year we’ve had 80,000 unserviced leads. We struggle to find franchisees to cope with the growth.
That’s one thing I noticed with your advertising, that you advertise how many leads you miss. Is that just a shout-out for potential franchisees?
Yes, absolutely. Our growth is determined far more by franchisees than it is by clients; in effect, we see clients as being unlimited. If we’ve got good franchisees – which they mostly are – we can find clients.
It’s an unusual situation; it’s very different to any industry I know of. Just to find somebody who has got business and communication skills who is also prepared to work with their hands – that’s not easy.
Where do most of your franchisees come from?
Mostly white-collar jobs. The most successful ones tend to be those who have a sales, management background; they tend to do particularly well. A lot of them are from customer service positions, quite a few from supervisory roles. Generally not your labourers or so forth, but more like the middle and upper part of the market; people who are making fairly decent money in their existing job.
And what is the attraction then for franchising?
Mainly lifestyle, I would say. They might have a good job but you’re working in the city and you see your kids maybe at the weekend because you can be commuting for more than two hours a day, that’s a big stretch of your time.
Whereas if you have a franchise, you can work from home, you can take Wednesday afternoon off to take the kids swimming, work longer hours if you want to and if you’re busy you might work all day Saturday. So mainly lifestyle.
And your franchisee number have reached about 3,250, is that right?
They’re growing all the time; it depends on how you calculate it, but yeah, around about that.
There was one period about six years ago when we declined a little bit, but apart from that we’ve grown continuously since 1989. That’s more than 22 years now we’ve grown constantly.
Well, actually, we do better during the downturns. The problem we’ve got right now is the economy is fairly strong – unemployment is low, so it’s hard to find the calibre of franchisees that we need.
So you consider the economy to be strong?
Well, there’s been a drop-off lately actually, which is bad for the economy but good for us. We’ve seen an increase in franchise leads and a small drop on working coming in.
We’ve had terrific numbers for franchisee training lately – one of the best ever.
Tell us about your training: how long does it last and what do you do?
Every franchisee does a two-day generic induction course, and then you have your divisional training, so mowing is three days, cleaning is a couple of days, whereas fencing is eight weeks on the road, so it depends on the division.
How much does a franchise cost?
It varies widely, and it varies region to region. You might find a low-cost franchise for as little as $20,000 with equipment; the most expensive could be, you know, $70,000. But then you buy a well-established business like a Test and Tag with the clients established, you could be looking at $120,000. So then a person is walking into a business and making $150,000 so it’s quite valuable.
So a maximum is $120,000?
The most I’ve heard a franchise being sold for is $120,000 but that’s not usual.
And how many divisions are there at the moment?
And where is group revenue at?
Somewhere in the region of $400 million.
And where do you fit in in all this? Are you working crazy hours, seven days a week?
I never work seven days a week; you need to have at least one day off. I work longish hours, with the phone going off and email, but I’ve got a young family too.
You have 10 children, is that right?
And what is it that is underpinning demand for services? Is it that people are time-poor and both men and women are in the workforce?
Well, 25 years ago, it was easy to pick up business with leaflets, because we’d attract people who had been let down by a previous contractors. Nowadays, it’s harder to find work.
But really, it’s service, so basic things like returning phone calls and turning up on time. Most service providers can’t do it, or they’re too busy.
Is there’s a cache for brand names in the market?
It’s not so much cache, but confidence. Think about it: if you’ve used somebody before, and they’ve done a great job, and were nice to deal with, who would you pick?
If you’re going to have somebody come onto your lawn, you think this person is likely to have been checked, and there’s company support if something goes wrong, that gives you confidence.
We have a high conversion rate: four out of five people who call us to book a job will get that job done, even though we’re more expensive, maybe 10% higher.
So the talk about price and value being the key motivator for consumers, rather than service, that doesn’t apply to your business?
Price is not driving everything these days, not at all. It’s service, service, service. If we at least satisfy we don’t need to cut prices.
So you’ve never cut prices?
No, and we never recommend it. We don’t consider overcharging a cause of complaints. We have a pretty loose system: we’re fanatical about service and uniform, but liberal in terms of charging.
There are no rules on how much they can charge?
How is the mining boom affecting your ability to sign up franchisees?
It makes difficult, especially in places like Perth where it’s hard to compete. But we see people who’ve maybe gone there a couple of years ago, and yes they’re making a lot of money but the lifestyle is dreadful.
What do you make of the debate on the relationship between franchisees and franchisors?
There are some shocking cases, some shocking contracts that people have agreed to. I know one group – I won’t name who – who say if you walk away after three years, we’ll chase you for the remaining seven years. Why would people sign a contract with that? With us, we don’t to be chasing people. But why would you sign that?
So there’s definitely a case of buyer beware but is it more than that, is there a case for government to step in?
I’m actually a supporter for more government intervention on this.
We ask franchisees a simple set of questions every year about support, satisfaction, income and so forth, and I would like to see that presented to every person who wants to buy a franchise. They should get a cop of that. That would do more than a million pages of franchising legislation to make the system fair. And those shonky, rotten operators who are around would be forced out of business. And frankly, if any of my divisions or franchisors come out bad in that they should pick up their stocks – they don’t deserve to sell a franchise. But I think we do well. I mean, I’m not being entirely altruistic about this: I’m pretty confident we’d come out looking better than our competitors.
And the FCA, to my mind, is a body that speaks for franchisors only and it has no interest in the interest of franchisees. There is so much more that should be done to protect them.
It’s interesting to hear somebody from within the industry saying that.
Yes, the only other person that speaks as a franchisor is Jack Cowin, and the reason for that is he’s a big franchisee as well; he’s got 50 KFCs so he speaks from both sides of the fence.
I am convinced the reason that we’re successful is because we have the attitude to franchise that we do: that they’re the ultimate clients. I think it’s sensible.
There’s a system with the code of conduct which says you must give a list of franchisees – before that came in, there was only one company that did that, and that was us. I’ve done it right from the beginning, said this is a list of my franchisees, ring them and ask them, don’t listen to what I say. It’s just commonsense, good business, good franchising.