This is the story of three area men:
Gary Tresner, age 59, released with two other sales veterans a year and a half ago from Culligan Water Systems after learning in a sales meeting that their entire division was cut. Doug Livdahl, 55, an Illinois transferee now living in New Lisbon, Wis., who was downsized after 12 years as CFO for Wheels Clipper, a huge provider of transportation services for businesses, such as Crayola; and Tom Senger, age 51, owner and business ownership coach at The Entrepreneur’s Source, who spent 24 years of his life in the medical diagnostic equipment industry before being downsized in 2003.
All three had their worlds suddenly rocked by corporate America. All three are now franchisees.
In this topsy-turvy (mostly turvy) economic climate that seems to be going nowhere fast, is franchising a trend? It’s part of one. A recent report by the Kaufman Index of Entrepreneurial Activity and carried by The Hill newspaper claims more entrepreneurs launched businesses in 2009 than any time in the past 14 years. It’s not surprising. With more and more people finding themselves out of work or unable to find jobs, more and more are taking charge of their livelihoods.
He’s the Franchise
Once they got over the shock of losing their jobs, both Tresner and Livdahl considered other options. Tresner did the resume/interview circuit for a while, but was hitting a brick wall at every turn. “One idea was to create my own job, but how do you do that? I didn’t want to start from scratch,” he said.
Livdahl, who just lost his job in January, had made a nice life for himself in the Chicago area while employed at Wheels Clipper. After years of vacationing in Wisconsin, he and his wife moved up to their dream home in New Lisbon in 2007 and he commuted to Chicago and Toronto. “Our company had four shareholders and was going through revenue challenges,” he said of his employer. As CFO, he had suggested the company eliminate some positions to cut expenses, only to end up on the receiving-end of his own plan. With job prospects less than ideal from his New Lisbon home base, he knew he had to consider other alternatives.
“I looked at four existing businesses,” Livdahl said. One was a retail establishment with 70 years of longevity behind it. “The good thing about buying an existing business is that it’s there, it’s running, it has revenue and it’s making money. Then you look at it and you ask, ‘where do I want to be 10 years from now?’ and you [realize you’d have to] move mountains to increase the value of that business.” In this case, Livdahl felt revenues would probably have to double in order for him to turn it over in 10 years, and frankly, he wasn’t sure how realistic that scenario would be.
When Senger lost his job, he contacted The Entrepreneur’s Source for guidance, and as luck would have it, ended up buying into the franchise company six years ago, a company with more than 200 franchises worldwide. “We match individuals to business opportunities, franchises, license agreements or businesses for sale,” he said, comparing the process to that of a typical “headhunter.”
Senger and Tresner knew each other from a business networking group they both belonged to, so it was Senger who helped guide Tresner to his next opportunity. “We went through the usual process,” Tresner recalled. “There was testing, and then Tom brought out a list of about 20 franchise opportunities. At first, we ended up eliminating them all.” But upon closer inspection, Tresner narrowed the choices down to three. “I looked at a driving school option, then a company called FiberNew which repairs leather & vinyl, and finally Spectrum Home Services.”
Now called Spectrum Home Services of Dane County, the company provides a wide variety of services for Seniors, primarily [handyman services , lawn care and shoveling, cleaning , packing , etc.] , though anyone can utilize the services. It was the idea of helping people stay in their homes longer that intrigued him about Spectrum, especially noting the aging population in Dane County and elsewhere. “It looked like a good opportunity,” he said. “I wasn’t just buying a job.” He would hire others to do the physical work while he handled the business, training and marketing.
Livdahl, meanwhile, had the same type of dream. He wanted a service-type of business. Something that people would need on a regular basis. He found a franchise management group out of California who sent him some possibilities. “I looked at about six different franchise models,” he said, and contacted current franchise owners to learn about their experiences. In the end, he settled on CertaPro, a painting and power washing franchise, because he saw a need for people to continue to upgrade their interiors and exteriors to keep their home values up. CertaPro, he said, has just over 300 franchises around the country. Livdahl’s first contact with CertaPro occurred in February. He finally decided to bite the bullet in Mid-April, and opened for business on June 1.
Franchise Fits
Both new franchisees — Tresner and Livdahl — fit the typical “franchisee mold,” according to Senger. “We’re seeing a lot more interest [in franchises],” he said, explaining that typically, those more likely to take the leap into franchising are “more mature, stable, and have some financial wherewithal, or sometimes they’re coming out of corporate America.” While Senger has dealt with thousands of clients over the years, he said only about one in 15 of his clients end up moving forward with an idea.
There are obvious reasons. First, self-employment can be a great thing but requires extreme discipline. “It’s an interesting mindset,” Livdahl agreed. “Today is Friday, it’s sunny, and I’m in my home office,” he said, suggesting he could think of many ways he’d like to spend the day. “But I could work 14 hours a day, all weekend. The key is to devoting enough time to the business and making sure that everything critical is getting done.”
Another drawback can be the expense. To put it bluntly, it ain’t cheap!
Tresner took out a $110,000 small business loan to help cover the Spectrum Home Services franchise fee, equipment purchases (four vehicles, four trailers, lawnmowers, trim mowers, vacuums, handyman equipment, generators, compressors, etc.). The parent company, he explained, had a list of things that he’d need, though, he admits, their predicted costs of between $76,000 and $100,000 were “way under-estimated.” He also put his home up as collateral, took out a $35,000 line of credit, and has since kicked in about $25,000 of his own money. “The first year of a new business is brutal,” he admitted. “You can see the road, but you’re not making any money. Every day, more money goes out than comes in. It’s not a good feeling.”
Livdahl, who first contacted CertaPro in February, decided to move ahead in mid-April and opened for business on June 1, said his parent company recommended that franchisees have about $150,000 in cash plus what they need to support their living style and household needs. Although he was a CFO for most of his working life, Livdahl learned something new through the process: “One asset people like me would have at this point in time would be a decent 401(k) plan investment balance. I was able to establish a 401(k) plan for [my new business], then I wove my former 401(k) into this plan. So my 401(k) plan invested in my new business! It’s a way of getting the funds out without paying taxes until you sell the business.”
Senger, who said $85,000 is a typical start-up cost for an Entrepreneur’s Source franchise, agreed that using a 401K to fund a business is becoming more common these days. Still, he said, “banks and funding has become much tougher. A person’s liquidity level is key. It’s harder to collateralize a home than it has been in a long time.”
Follow the Work
For the most part, both Tresner and Livdahl seem glad they’ve taken the plunge. After a year and half, Tresner says he’s nearing the breakeven point, and he has a staff including a full-time handyman, three part-timers doing yard care, and two cleaning staff. “It’s always hard to find good employees,” he said. “You wouldn’t think you’d have trouble in this economy, but it’s not easy. We’ve already gone through quite a few.” He sometimes subcontracts his workers, and employees paid a percentage of what the customer is charged. “I can’t pay what some of these people command,” he said. “The only benefit I can offer is paid holidays.” He said his company has benefited somewhat from the high demand for lawn and yard care at foreclosed homes, something he did not originally anticipate. The company, he explained, did over 2,000 “cuts” in 2009, from Madison all the way to Racine, but the pay was low. “Madison is an insulated market. There aren’t as many foreclosures here as there are in other markets.” Like many these days, they needed to follow the work.
Livdahl now spends four days a week in Madison at the Madison home-base he’s established at 6320 Monona Drive. He has hired two part-timers to go door-to-door lead generating, and he pays them $25 and hour to do so, plus they get $25 for each lead. “My most active college student earns about $45.00 an hour. She’s been very motivated.” As for painters, most are subcontracted. “If the business is stable enough, I’ll bring them on board,” he said. “But there are some downsides to that. Some franchisees with staff painters often have to lay them off in the down months (November-January).
“If we treat contract painters as if they were our employees, but let them have their own business, and we just set standards for them, we can keep the cost of labor at a lower level. The advantage for a painter dealing with CertaPro is: Painters like to paint. They’re excellent at that, but not good at selling, marketing and customer service. That’s where I come in.”
Time management seems to be the biggest issue as both acclimate to their new roles. Tresner suggests those wanting to start a franchise go into it with another person. “Someone needs to do the paperwork,” he said, “then someone else needs to oversee the entire company and marketing plan.” Livdahl, who has an ultimate goal of bringing in $1.1 million in revenue in three years, says he still feels like he has a boss. “Everyone I talk to in franchises say, you are on your own, but you’ve spent a lot of money to buy into a system and a way of doing things. You need to follow their lead.”
After all, it’s worked for McDonalds.
Both Tresner and Livdahl are frequently in contact with their respective parent companies. Livdahl attends many training sessions, while Tresner has a conference call with his company headquarters a couple of times a week. It’s a lot of work, but both are excited to be out on their own, and both intend to sell their companies in the future.
As for Senger, who counsels franchisee-wannabes every day, the success, he said, is in the personality and the drive. “Within an hour of meeting with someone, I’ll know if they’re really ready, but they must demonstrate that they want to be helped. Franchising can be very rewarding. I went through the same thing myself.
“There are a lot of opportunities out there. A lot more people are interested these days because of the economy. Still, in times like these, many people think they’re interested but then decide it’s not for them. And that’s okay. It’s an option, and it doesn’t cost a dime to talk.”
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