Jim of all trades

Today on Lunch with an Entrepreneur I’m talking to founder of Jim’s Group, Jim Penman about how the bad times have affected him, what’s gone well, new product launches and what would happen to Jim’s if the proverbial bus suddenly showed up?

Hi Jim.

Hi Amanda. Well when you say difficult times, we haven’t had any.

Good on you. Some of our smart companies haven’t. So tell us what did you expect? You must have seen that the economy was going to be difficult?

The thing about franchising and our situation is that it’s counter cyclical. Our worst time was during the boom. We’ve grown continuously for 25 years. The only time that we slipped back was at the height of the boom, when it was difficult to find franchisees. At that time we were getting 60-70,000 un-serviced leads a year.

The only difference the recession’s made to us is that our volume of work has grown by 7% so far this year, compared with the same time last year. But it’s much, much easier to find franchisees. So it’s really very good news for us. Our biggest growth was in the 90s, within the recession era.

A year ago you had 2,700 franchises in Australia, New Zealand, Canada and Britain, with a turnover of $200 million. What’s the difference now?

We’re up to 2,950.

And turnover?

Oh that’s just a guess, I don’t know. About $250 million. I mean with my franchisees, it depends on the division. Mowing guys tend to turnover $1,800 a week. Some of the other divisions like Test and Tag and Antennas might do $3,000 a week. We think it’s about $250 million.

Now you’ve got a very interesting model because you take a very small cut of the franchisees’ revenue and you get extra revenue from running different parts of your system. Has your revenue increased? What’s your revenue personally?

Without telling you my exact figures, we take probably about 1% as a gross return. Franchisee fees are about 8% of turnover, typically of what the franchisee pays the franchisors. We pick up 15% of that and then that’s normally split with what we call the “divisional franchisors”, that’s the different divisions like Antennas and so forth. It’s a very small percentage but obviously it’s a very large pie.

Now the mowing has always been your biggest franchise. Has that grown or decreased in the last year?

It’s growing quite well. We gained the net of 100 franchisees in mowing. It’s still our fastest growing in absolute terms.

And what’s your next fastest growing?

Cleaning probably. The cleaning division alone is well over 300 now and growing very fast.

So the recession hasn’t knocked that about?

Of course it’s helped it. The thing about our situation is that we have extraordinary demand. So far this year we’ve knocked back 20,000 leads in a recession.

So where’s this demand coming from? What are the changes that are feeding this demand?

There’s always a demand for services. Service industries are great industries, if you can go out and give people good service, particularly in terms of timeliness, returning phone calls, turning up on time, etc.

The problem most people have with trades and services, is the work is incredibly easy to find. The thing is, most of our franchisees don’t actually ask for work on any given day. Most of them are completely flat out. So even in the middle of winter for example, if I was to pick up a particular suburb and find that there’s say 20 franchisees covering it, three quarters of them won’t want any work at all. They’ll just say: “No I can’t handle it, I’m too busy”, even in the middle of winter, the quietest time of the year.

So the biggest change has been what, families need more services? How is society changing that has been feeding through to your franchises?

I think that clearly you’ve got more working couples and so forth, people working longer hours, they need things done at home.

The biggest change though is probably that people are changing from independent operators to franchises. More people are inclined to use a name brand company like ours.

Just to give you an example, when I started off, full-time back in 1982 it was very easy to find work. I just put leaflets in about 1,000 letterboxes and I was flooded with jobs. That’s 27 years ago and now if you tried putting leaflets out, they wouldn’t work at all. People need different forms of advertising, a Yellow Pages ad, the web and so forth. So it’s not so much that the demand has grown so much, it’s more that companies like ours have organised it.

It’s like when I was a kid, if you wanted to go out, you went to the local fish and chip shop. These days your kids want you to go to McDonald’s. It’s the name brand companies which come out on top because people perceive a certain level of quality, cleanliness, service, whatever. And they like it and they know there’s consistency.

Are you seeing different types of people wanting to come and run your franchisees? Are you seeing people that are making a switch, retrenched people, professional people? Are you seeing any change in that profile?

Generally speaking most franchisees will tend to come from a reasonably advanced job background. I’m not trying to be dismissive to anybody, but somebody that’s been working on the railways for 20 years is probably not going to make a franchisee because they don’t have the skills. But if they were a foreman for example or the branch manager or were in sales, that would work. The most classic franchisee would be a bank manager. They tend to be very good franchisees, they’ve got a lot of initiative but they’re used to working within a system.

So you haven’t seen any shift in this recession? It’s still the same people applying, that you are happy to take, that work out well?

Yes, generally speaking they are the more capable members of the community, the more capable people in business terms. The problem we had in the boom was that there were so many other jobs around. Especially places like Perth for example, it was really hard to find franchisees in Perth because there were so many jobs and so much money going around and so many offers. It was very hard to compete with that, even though our guys over there can make $100 an hour. It’s just incredibly difficult to compete with the jobs.

These days there is not so much competition. It’s not so much that people are being retrenched, because the people that we’re looking for generally speaking wouldn’t have a problem finding a job anyway. They’re capable enough that they’ll walk into something, but they’re not being offered like $150,000 a year as a middle management job so they’re saying, well franchises are more attractive. It’s more that kind of situation.

Have you changed the way you recruit now that the web is such a ubiquitous tool?

We probably don’t advertise as aggressively as we should actually, in terms of finding people. We’re looking at that but the web is good. Things like Seek Commercial and so forth, we use those sorts of things a lot.

Some divisions have been running radio campaigns. All of our divisions run fairly autonomously. They have the same standards of service and so forth. Probably the biggest difference with us in recent years is that our standards have risen quite a lot.

For example, not only do we get our franchisors when they recruit people to try and screen their franchisees and try them out, but they also have to come to induction, they have to pass an induction training course. Our last course here, we knocked back three people for example, because we thought they weren’t franchising material. So we’re getting tougher on that.

The other big thing that’s changed in recent years with us is we’ve had an extreme blitz on the customer service level. We have a very careful way of recording and monitoring complaints and following them up. And as a result our complaint rate a few years back was about 5%. So for every 100 leads we get one complaint, mostly not returning phone calls. The latest figures it’s 1.3%, so it’s like a quarter of what it was even just five years ago.

What have you put in place to measure that? How did you change that?

If a client rings up and has any kind of problem with a service at all, anything, we register it as a complaint. A message goes to the franchisee, a message goes to the franchisor and we keep a permanent record and we follow up. And if you get more than a certain proportion, which is about 5% these days, then they get a warning letter. And if they continue to do that then they’ll have to come in for retraining. So it’s just a system of follow up and letters and as I said, better selection and also more intensive training.

That’s probably the biggest difference actually if you ask why the market’s so strong for us, we find that if you can improve your customer service, you just increase the number of clients. Probably three quarters of people who ring us, even new customers that ring us, aren’t actually responding to advertising. They’re mostly referrals, they’ve used another service, they just know about us in some way.