(21min 05) Jim Penman, the man behind Jim’s Mowing, says he loves recessions. They provide a new growth in franchisees who can help to meet the continual demand for gardening services.
In a wide ranging discussion Phil Dobbie asks him about how he started out, what are his measures of success, how he maintains quality and his thoughts on the sharks in the franchise industry.
It’s worth a listen, not just for those thinking of becoming a franchisee or franchising their own business, there’s useful advice for anyone in management.
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- Transcription
Phil Dobbie: Hello. I’m Phil Dobbie, and welcome to BTalk Australia. Today we ask Jim Penman how does your gardening business grow?
So how do you become famous for mowing other people’s lawns? Well, Jim Penman is the Jim behinds Jim’s Mowing. One of the brands that sort of sneaks up on you, doesn’t it? It started as a one-man business in 1982. Became a franchise operation in 1989. And Jim says they are now the biggest mowing and garden care franchise in the world. So the obvious question is Jim, how many franchises do you have? How big are you?
Jim Penman: Just past 2,800 franchisees in four countries.
Dobbie: Which is a lot, isn’t it? Can you have too many? Do you get to the stage where, for example, franchisees are starting to compete between each other?
Penman: Actually, it’s quite the opposite. What we find is that the hardest time to find work is when you’re just starting out. The more franchisees you have, the easier it is to find work. That’s quite consistent because they reinforce each other. Because it’s like a pit full of television advertising. If you put one out you’ll get maybe some response. But if you put ten times you’ll get a hundred times the responses. Same thing with franchisees. You’ve got one trailer driving around you get a certain response. Ten times is a hundred times better.
Dobbie: I guess that’s the advantage for the franchisee? That they’re part of a bigger brand. That it would be impossible for them to replicate themselves.
Penman: Yes, our advertising is at least as ten times as cost effective as that of an independent. We’ve done studies on this because everything reinforces the sheer number of vehicles and trailers on the road reinforces the brand. And also, your reputation reinforces it. Because at least three quarters of the jobs we get now they’re even through the office. Just referrals. People looking up our number. People that want to use us, and that doesn’t count all the ones that go to the franchisees direct.
Dobbie: And there are other advantages. I mean all of those things are things to do with bringing business to the franchisee. Are there other advantages? Sort of, for example, learning how to run a business? Do you get involved in that side of things as well?
Penman: Yes, training is extremely important. We’ve actually found that the really good induction training has a huge impact. At the beginning of 2007, we started a new, much more intensive induction course for mowing franchisees just as an example, and our attrition rate dropped to about a third overnight. Well, not overnight but what we call a one-year attrition rate. Those who fail in the first year typically runs about 17 percent dropped to 11 percent as soon as we put the new course on.
Dobbie: That percentage, is that better than the normal attrition rate for businesses of that size?
Penman: Vastly better. If people go into any kind of business, especially a service industry like ours. So nine out of ten that’ll still be in business at the end of the year is really quite extraordinarily high. I mean I doubt most businesses of this nature you’d find half the people would still be in business.
Dobbie: Right, and is it a fairly quick payback for people who are investing in becoming a franchisee? Taking those factors, the likelihood of success and the incremental revenue they’ll get from being attached to a larger brand — what sort of payback period do you think they’d get for the investment they’re making?
Penman: I don’t know quite how you’d do it in terms of payback. Obviously, any kind of service business like ours has a fairly high return on investment. You might invest typically say in my own business 25 percent. The same business might be double that. But a typical turnover is around about, on mowing, the last time we did a survey was about $1600 per week, so about 80 grand a year. Take out your costs and so forth. That’s what they tell us anyway.
Dobbie: I guess that varies a great deal as well. You must have some star performers and some who really are struggling along the line.
Penman: Absolutely. Our top franchisee turned over $2.5 million. And the bottom one, some people struggle to make a thousand. So it beats me how that’s possible.
Dobbie: Two and a half million dollars! That’s a lot of lawns to mow.
Penman: Actually, that was a paving guy. Our top mowing guy probably would do about a million.
Dobbie: Even so. But a multipurpose operation/multi-person operation I should say, presumably.
Penman: Yes. The bigger ones here they do employ people. We actually encourage that. We don’t charge extra fees no matter how big a person is. That particular franchisee would pay hardly more fees than the average because all their work is based on referrals. They just used the brand to build their business and put people on. But we’ve got no trouble finding work. I mean one of the odd things, people talk about a recession, and we just don’t even know what that means. So far this year we’ve knocked back about 20,000 leads we can’t service. It’s just incredible that the volume of work there is extraordinary.
Dobbie: How are you measuring the success of your businesses? You’ve got a few measures, haven’t you? Because you’ve got your own business that you want to see successful, but you’ve also got the turnover of the collective mass of businesses as well. So what’s the key measure when you look and say this has been a good year? What are you looking at?
Penman: Number one measure is franchisee satisfaction. We survey our franchisees every year and we ask them whether they agree with two questions. The reality of the promise, and I’m positive about the future of my business. Typically, perhaps 75 and 80 percent of franchisees will say yes to that, and about 8 to 10 percent will say no. That is the number one key measure. If our franchisees are satisfied, no matter what their income is. Whether they’re satisfied with $1200 a week or $12,000, then we’re satisfied. Then after that, the second measure is the complaint rate. We monitor the complaints very carefully. Back in my subcontract days, we used to be getting about one complaint for every lead that came to the office. These days it’s about 1.5 percent.
Dobbie: Was that part of the reason why you decided to go down the franchise road? You could have, of course, if you’re under a good thing, just expanded the company and kept all the profits.
Penman: I did try to actually. But you’re right. I had subcontracted up to 30 subbies at one stage, but the level of service was just not good, which really upset me because it was Jim’s Mowing and I don’t like my name being bad out there. But the other thing, of course, it wouldn’t grow. The great thing about a franchise is the margin is actually very, very small. But because it’s successful, because franchisees make money, therefore, it grows enormously, that’s the spirit of every level. Our whole system is based on franchisors. Master franchisees. And they got to be successful too.
Dobbie: It’s easier to control quality that way?
Penman: Absolutely, yes. You get much better people for a start. First of all, anybody who owns their businesses is invested in it and is likely to have more of a commitment to what they do if it’s their own business. And then you put a whole series of systems that guard quality. Like careful recording of complaint messages, warning letters, retraining days. Even our fee system is designed to reduce complaints, because we charge fundamentally for the number of leads we provide. So a franchisee who takes the lead and doesn’t follow it up still gets charged for it. So there’s all kinds of incentives built into the system to drive customer service.
Dobbie: Franchising is a complicated sector, isn’t it? We hear stories of litigation between franchisees and franchisors. And I’m sure you’d agree there are on both sides probably. But there are some sharks out there. Would you agree that’s a reputation that franchising has? And how did you overcome your reputation as being part of that sector?
Penman: I certainly agree with you there, there’s some horrific sharks out there. I believe the government could do a lot more to control the industry and to preserve quality. It’s one thing whenever the franchising annual review comes out, I’m always telling them there’s things they ought to do that would really have a big impact on that. As far as what we do is concerned, one of the really good things about the franchising code is it requires you to give a list of your current franchisees to all potential franchisees, which is something that actually we’ve done right from the word go. But as far I know we’re the only company that did it. That’s a great check. If anybody wants to buy a franchise, the first thing they’ve got to do is get hold of a list of current franchisees. If they refuse that, then the guy’s not worth dealing with because they’re completely noncompliant. And ring everybody. Everybody they could possibly go to.
Dobbie: A long list of references in other words.
Penman: Yes.
Dobbie: In your case, how many again was it?
Penman: In our case we wouldn’t ring 2,800. You’d go to the region you were in because even within Jim’s we’ve got a variation. We’ve got some franchisors, for example, who get 100 percent satisfaction. Every single franchisee, up to 40 of them, would say yes, I’m satisfied. Yes, it’s a great business. But you’ll find some others, not many I’m pleased to say, which might be down to 50 percent. So you really have to ring the franchisees of a particular franchisor or master franchisor you’re after and then check those out. And not just listen to a sales pitch. It just amazes me how many people buy a business without doing homework. Even if you’re only spending $25,000, surely, it’s worth spending three or four hours making a few phone calls and you could very quickly find out.
Dobbie: You mentioned that the government should be doing more. The government, of course, did have a federal enquiry last year. They called for what they called a good faith clause in contracts. Saying that franchise contracts leave franchisees vulnerable to opportunistic conduct, which is what we are talking about. So did the government go far enough? What else could they do?
Penman: No. The government doesn’t go nearly far enough. It’s all bureaucratic and legalese.
Dobbie: It does sound like legalese words, doesn’t it?
Penman: There’s a big difference between the power. The trouble is that the legal system is so complicated and so expensive that it’s really biased against franchisees who can be treated appallingly and still don’t have much recourse. In the long run you will get caught if you keep on doing such things. And the fact that we’ve got virtually no litigation going is I think a testament to the fact that we do things well. But for the most part the law is a hopelessly clumsy response. What I suggested again and again, and getting completely ignored, that the government actually fund a survey similar to what we do, which is contacting every franchisee every year and asking them a series of standardised questions, and then making that information available to prospective franchisees. The other thing they ought to do is to do a proper legally knowledgeable statement about the contract. Have some franchising law that goes through in plain English simply describe how good the contract is, how fair it is and everything else. Then make that available without cost to potential franchisees. If that one thing was done, it would have an enormous impact on the industry because then so many shonky operators just could not survive and it would encourage the good ones.
Dobbie: Some people, I’ve heard it argued, because very often these franchises are small one-person operations, they should be treated as a consumer buying a service. Does that make sense in the laws that apply for consumers?
Penman: Yes, definitely. We consider our franchisees to be customers. In fact, we consider our franchisees to be our primary customers. You have a code of values. The first thing it says, our first priority is the welfare of our franchisees. And then we are also passionate about customer service. You put franchisees first. That is exactly what a franchisee is. They’re a customer, a consumer. There are some good things in the franchising code. The requirement to disclose franchisee details. I think the mediation system is good. Ninety-five percent of problems get knocked out of mediation when they get to that stage, so there’s some positive stuff. But I think there could be a lot more done to protect people in the beginning before they get into bad systems. What I’m saying is that things about getting contracts checked out, the franchise law should pay for them. Not the government. It shouldn’t cost the government anything. The franchisor should be prepared to fund these kinds of things to make sure people can get a fairer choice of what they get into.
Dobbie: And getting out of it is the other problem as well. For a lot of these operations they’re not going to be businesses for life. People retire. They move house. They lose interest, and it can be difficult to… It seems like this is where a lot of the legal action starts to happen. Is there an easy way of extricating yourself from a business? Should you buy it back? Should they sell it? How do you put a value on it? How do you get out of the business?
Penman: The people should sell. If they’re not making money, they should sell. Actually, when I said before about 11 percent failing in the first year, most of them would sell their business. They don’t just walk away. It does happen, but it’s far less common. So yes, people have to sell. If a franchisor buys back the business there’s no commitment. If the person will say, OK, I’ve had enough of it, I want my money back; your failure rate will become astronomical. One of the things about franchising is that you do invest, and you’ve also gotten an incentive to look after your business. For example, if you were a lawn mowing franchisee and you went in and you knew the franchisor would give you your money, all you have to do is the worst possible service, let all the customers down, swear at them, kick their dogs. Whatever you like to do. At the end of it you just say, “I’m sorry, I’ve got no business. Give me my money back”. There’s no incentive for anything, so that’s not possible.
Dobbie: Yes, so there does need to be commitment. Absolutely.
Penman: People need to repurchase the business. We would have absolute poverty if anybody wants to buy a franchise. The first thing you have to do is show them if there’s anybody in the region who wants to sell their business.
Dobbie: What about in those small number of instances where there is a collapse of the business? I guess that’s where things can turn ugly, because you’re going to have an apportionment of blame, aren’t you?
Penman: You’re talking about the franchisor’s business, or the franchisee business?
Dobbie: The franchisee’s business. So that’s where a business has collapsed. They’re going to say, well, the franchisor didn’t give me the support I needed. They’re going to try and apportion the blame back to you. Does that happen?
Penman: Well, sometimes it is our fault to some extent. I actually have a pretty strong open door policy that every franchisee in the system has my personal direct line at the office, my mobile number and my email address. And I speak to them and I’m always saying, if you’ve got a problem ultimately and you can’t get satisfaction from your franchisor, contact me. So people do talk to me. There’s two things that go wrong with a franchise business. One of them, it’s the franchisor’s problem, at least in part, because they’re not providing proper support. For example, we require franchisors to ring their franchisees at least monthly, hopefully. Respond quickly to their phone calls and hopefully to run regular meetings. So there are certain things we expect. Now if I see that sort of stuff’s not being done and the franchisee is suffering as a result, in our system we have a number of revenues, things that can be done. For example, the franchisee can move to another franchisor if they wish to. The franchisees as a group can vote out their franchisor, which sometimes happens with us. And sometimes in extreme cases where the franchisor’s done the wrong thing, we might even tell the franchisor to pay out the franchisee in some way, but that’s pretty unusual. But probably even more often, when there’s a problem you’ve got a very good franchisor and you look at the notes and they say the franchisees failing. And they say you really need to give better customer service and there’s all the complaints that are coming through. Or you need to put yourself down for work consistently. Or you need to up sell to existing clients. Or you need to start attending meetings again, which you’re not attending. So there’s a whole stack of things that you can see. So the franchisee rings up and says some sob story about how badly they’re doing. And I just say, but look hang on a bit. What about if you attended some meetings? What about if you do what your franchisor’s been asking you to do all the time? What about if you started looking out for your customers properly? So it can be either way. It can be either or both.
A lot of franchisors are actually choosing the right person in the first place. Some people just should not be in business of any kind, even in a franchise. Even though there’s better support, some people just shouldn’t be in business.
Dobbie: When we started talking about quality control I guess that’s the key. That’s what you’re looking out for, isn’t it?
Penman: Absolutely. When a franchisee does go there and it’s clearly their fault, one of the things I always say to the franchisor is, how could you have picked this person that wasn’t suitable? And sometimes they’ll say, look, really I should have known better. I should have seen the signs early on. I should have picked it up. There were certain things that rang a warning bell about this person. That they’re the kind of person that wants a job. They’re not ready to be in business.
Dobbie: Now, very quickly I want to ask you about the economy. You’ve said that the signs are still looking good. People are still wanting their lawns mowed, at least for the moment. We’ll see what happens over the next six months I guess. But I guess it could also be good for recruiting franchisees as well, couldn’t it? Because we’re getting more unemployed people. Perhaps with the redundancy package that they’re looking to invest and are looking for a change. So positive on both sides perhaps.
Penman: Probably of any company in Australia, with the possible exception of liquidation of specialists and pawnshops, we are benefiting from the downturn because we have such an enormous surplus of work in the first place that it’s hardly being dented. But we are now finding it a lot easier to attract and keep franchisees. In fact, our attrition rate at the moment is almost very, very low because people haven’t got alternatives.
In the past, we used to use the mines and all kinds of places. But now, you know, you’ve got a good, secure job with a good client base it’s not a thing you chuck away lightly. And we’re attracting quality people. We actually like recessions. I’m a Labor voter because I love recessions and I love incompetent Labor. No. Not really.
Dobbie: I was going to say. Well, you won’t be disappointed at the moment, with at least in New South Wales you’d be having a marvellous time.
Penman: Yes, incompetent hacks in government which destroy the economy is good for us. I’m not in favour of it in principle, but it’s good for the business. No doubt about it.
Dobbie: I know what you’re saying. So what are your next steps from now on? Do you keep growing globally? Do you diversify? Or are you happy where you are? What’s in your head next?
Penman: I don’t know any other way but growth. In the whole history of Jim’s there’s only been about a tune of a few months when we slid backwards a little bit. We had about 25 franchisees. Otherwise, continuous growth.
Dobbie: I thought you were all about cutting back growth. At least that’s what you’re doing to people’s gardens.
Penman: The better you cut it back the more it grows. It’s like pruning. If you want to have a great fruit tree you’ve got to prune it, which is like with franchisees too. You’ve got to solve the problems of these poor franchisees. So getting them pruned and getting them out. That’s why you can grow. It’s about selection too. The more tough you are in selecting franchisees, the faster you tend to grow. And that’s what we found too. But we had 3,000 this year which we’ve got a very good chance.
Dobbie: There’s lots of gardening analogies there. I love it. So more expansion overseas as well? Is that on the cards?
Penman: Yes. Nothing overseas has done as well as Australia, I must admit. Australia’s system is an incredibly booming market. We’re actually growing new divisions a lot at the moment. That’s a terrific thing for us. We’re doing licences for things like electrical services and so forth and we’ve got a great plumbing, Jim’s Plumbing, section now which is a licence deal. So we’re looking at expanding a lot of sorts of areas. And we’ve started a new training and conference centre, so Jim’s Training is going to start in the next few weeks. So people can come and learn direct from me and from my people. How to run businesses successfully, as well as other trainers. We’ve got lots of things planned.
Dobbie: Sounds like you’ve got a bright future ahead of you. And one of the few people who is actually going to enjoy 2009. Jim, thank you very much for your time today.
Penman: Thank you.
Dobbie: Maybe it’s just a sign of how lazy we are. No matter how little money is flowing in, you’re just not going to get us out there to mow our own lawn.
