Behind the Scenes of a Business Franchise

Franchising is a path to fast growth 
for owners, and an immediate support system 
for entrepreneurs, but there’s no such 
thing as instant success.

Jim Bodden had more than 15 years of painting experience behind him when, in 2006, he wondered if there wasn’t a better way to grow his business than just finding new jobs. The renovation market was booming – British Columbians spend more than $7 billion annually on home improvements – and Bodden wanted a bigger slice of it.


He found a way to differentiate his service by offering one-day paint jobs: his crews would arrive in the morning and leave by suppertime, the house painted and back to rights. Depending on the labour required, an interior paint job would cost $1,000 to $1,500, while an exterior job would run from $2,500 to $4,000. The idea caught people’s imagination and work began rolling in.

Bodden quickly realized that the approach was a franchise waiting to happen, and the answer to his growth dilemma. Although his own start in the painting business came in 1990 via College Pro Painters Ltd., a franchise launched in Thunder Bay in 1971, Bodden hadn’t considered the franchise route for his own painting business until it was well established. Organic growth was good, but a franchise offered him a network of associates in exactly the same line of work, something most entrepreneurs never have.


“I wanted to be part of a group, working with other people,” Bodden explains. “I previously had one person working with me, a general manager. [Franchising] gives me the opportunity to be able to cultivate something and grow it into something that’s way larger than I could have done as a single unit.”


His company attracted the attention of Brian Scudamore, founder of 1-800-Got-Junk?, and the two joined forces last year to launch 1-888-Wow-1Day! Painting. The franchise has 10 locations across North America, from Vancouver to Tampa Bay, with aggressive growth plans for 2012.


“I really think we can grow our franchise system into 300, 350 units and do $200 million, $250 million in revenue one day,” Bodden says.


It’s a familiar story for Lorraine McLachlan, president and CEO of the Toronto-based Canadian Franchise Association. The number of franchise brands in Canada has increased 10 per cent in each of the past five years. There are now more than 1,200 active in Canada, and 78,000 franchisees. McLachlan’s organization represents about 450 brands.


Much of the growth has happened because entrepreneurs like Bodden wanted an opportunity to grow an established business, while participation by franchisees has been spurred by a tough economy that’s made many think twice about taking control of their financial future.


“People were looking for ways to control their own financial future, and being able to run your own business is a key to that,” McLachlan says. “There is continued interest in becoming a franchisee, and for a business owner – a franchise brand owner – it allows them to grow the brand perhaps more quickly than they would be able to do if they were doing corporate expansion only. It’s a symbiotic relationship that works well for both sides.”


The sector is too diverse for the CFA to track specific ownership trends, but McLachlan says a significant number of franchisees are younger – one-third of people attending The Franchise Show, which runs in Montreal and Toronto each winter, are 34 years old or younger, and many are women. While food-service establishments represent one of the single largest blocks of franchises, at 36 per cent of CFA members, many professional and commercial services businesses are also embracing the franchise model.

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Franchise growth

Commercial and residential services – such as Wow-1Day! – saw 47 per cent growth in 2010 compared to 2009. Advertising, marketing and promotional products and services posted the second-greatest growth, followed by children’s products and services. Following closely were business consultants, services and training and seniors’ home-care services.


The typical franchise owner is today less likely to be a recent immigrant than an individual with some business experience, or at least a desire to be self-employed. While no statistics exist documenting demographic trends among franchise owners, veteran Vancouver franchisor Gary Charlwood, founder and principal of the Charlwood Pacific Group Ltd., says professional service firms like the ones he operates require strong communications skills and specific expertise. These requirements set it apart from many of the food-service franchises that attract recent immigrants as investors.


Charlwood himself is an immigrant to Canada, having arrived in 1966 from England and entering the franchise business a decade later with Century 21 Real Estate Canada. Charlwood Pacific now boasts 1,800 franchise locations worldwide under the Century 21 and Uniglobe Travel banners, as well as the fledgling Real Canadian Property Management brand (licensed from Layton, Utah-based Property Management Business Solutions LLC).


Charlwood saw people laid off in the early 1970s as director of consumer affairs for CP Air, and thought, “I never want to be in that position.” He struck out on his own, a tack he believes isn’t uncommon during poor economic times. Others want a change of pace, and the promise of greater control over their lives.


“You could fail, but that’s your destiny. But at least you’d be responsible for your failure, as opposed to being a faithful employee somewhere and suddenly have some quirk of circumstance . . . and you get to be a victim,” he says.


But franchisors are unique from many entrepreneurs because many have a desire for collaboration that’s equal to the desire to be in control. It’s this collaborative impulse both Charlwood and Scudamore believe contributes to the success of any particular venture. “The pooling of many talents under one brand makes you more sophisticated, just simply by business logic,” Charlwood says.


And Scudamore, focusing on the financing needed for growth, points to the infrastructure an established franchise offers that may be beyond the reach of any single company. “Rather than going public or raising millions of dollars, you are bringing people into your system, you are selling off a licence, if you will, for a price, you’re taking that money . . . to build and grow the entire system or network,” he says.


That money includes the cost of buying a franchise, as well as ongoing royalties and other fees that work out to approximately 10 per cent of gross franchise receipts. The funds support a central call centre and other marketing support, which have allowed 1-800-Got-Junk? to grow to 186 locations worldwide, and gave Scudamore a model for launching Wow-1Day! Painting. “We’re growing much more quickly than with the first brand because we’ve got all the infrastructure to leverage,” he says. “We spent 22 years building the formula, if you will, and getting that to a $100-million business. This one has the potential to be far, far greater.”


Franchising is by no means a sure-fire formula for success. The involvement of other people and the delicate balance of obligations between franchisor and franchisees have made the sector vulnerable to critique. In instances where a franchise doesn’t live up to the franchisee’s expectations, it’s not uncommon for the disillusioned entrepreneur to blame the franchisor for poor brand marketing and other support, and to cite unrealistic promises about earning potential. Franchisors often push back by citing a lack of energy and interest from the franchisee, taking action to defend the integrity of their brand from sub-standard operators. 


To ensure a baseline for the franchisor-franchisee relationship, Alberta followed California’s lead and in 1971 introduced legislation governing disclosure to franchisees. The legislation was revised in 1995, following which Ontario, New Brunswick and Prince Edward Island debated and then introduced their own franchise legislations. Manitoba is expected to adopt franchise legislation this year.

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B.C., however, has not legislated disclosure requirements. And while Charlwood and Scudamore don’t shy away from disclosure, both frame it as a matter of best practices rather than calling for government intervention.


“We welcome regulation of the industry. We think it’s part of the course, it’s what needs to be,” Charlwood says. He adds that he believes disclosure requirements “have been good, because it requires very spelled-out responsibilities for the franchisor, very spelled-out responsibilities for the franchisee and a contract that is clear – and there’s nothing better than clarity when it comes to relationships.”


Scudamore also supports the existing regulations in other provinces, which ensure franchisees know what they’re getting for the fees and royalties they pay for affiliation with and support from brands such as his own. This hasn’t always been the case, he acknowledges. “The regulation is there, I think, to police and set minimum standards in an industry which has often had some challenges,” he says. “We’re always trying to be a step ahead of the regulations.”


While he doesn’t like to think about what disgruntled owners and ex-owners might say, Scudamore looks at the positive side. “Some might not be happy with us, some might not be happy with themselves,” he says, adding that potential owners “are going to hear the truth and they’re going to hear a mixed reaction, but you know what? If it scares someone away who potentially wasn’t going to be successful, then that does us a favour.”


Having worked up to be a team leader in the call centre at 1-800-Got-Junk?, 30-year-old Australian ex-pat Leigh Adler was confident in what he would be getting when he bought the Fraser Valley franchise of Wow-1Day! Painting. “I’ve always wanted to run my own business,” he says. “When this opportunity came up, I thought this was definitely a great start and a great opportunity for me to get involved. And I knew that if I got involved with this brand, I would have the same support and guidance that franchisees from 1-800-Got-Junk? have.”


Which isn’t to say the support is without hiccups. Bodden candidly admits that launching Wow-1Day! was expensive, and is glad to have Scudamore, with his franchising experience and established system, as a partner. And recruiting franchisees wasn’t easy. “People don’t just come knocking on your door. You need to have a strategy in place, and [ours] wasn’t going all that well,” he says. “I was going through a lot of money really quickly.”


And even an established franchise like Got-Junk? saw discontent among owners increase during the recession, something Fraser Valley franchisee Rob Watson considers a natural response to tough times. “I wouldn’t suggest 1-800-Got-Junk? does not have its challenges, because the economy presents some amazing financial challenges, but it’s not so much what happens but how you deal with it,” says Watson, who bought in 2001. “1-800-Got-Junk? has done a fantastic job of trying to keep their eye on that ball,” he says. “There has been a sincere intention to address the concerns and the challenges that have been going on. And there are some unresolved issues that continue to this day.”


The CFA’s McLachlan downplays the incidence of franchise litigation in Canada, something her association doesn’t track. It has to be disclosed in members’ documents, but it hasn’t warranted a separate study. “There is not a sense that there’s a significant problem,” she says.


She points to a 2008 report for Gowling Lafleur Henderson LLP that found just five per cent of franchisees were dissatisfied with their decision to purchase. “The majority of franchisees (70 per cent) are very satisfied with their decision to buy, 25 per cent are somewhat satisfied,” the report states. “This result supports the conclusion that individuals view franchising as a viable alternative to employment or independent business operation.”


Watson is happy enough to have recently jumped, with his business partner and Seattle 1-800-Got-Junk? franchisee, Nick Wood, into another new venture, Men in Kilts, a pressure-washing company. The two expect their experience under Scudamore to stand them in good stead.


“The old axiom, ‘The whole is greater than the sum of its parts,’ really applies when you get the right people and the right systems together,” Watson says. “Once you’ve experienced the ability to collaborate and to learn lessons from people’s failures and successes, it’s very hard outside of a franchise system to sit down with a group of business owners in the same business and compare notes. It just doesn’t happen.”