How do automotive detailing companies start? What makes them work and how do they grow? How do they choose which services they will offer? This is an interesting case study about a test market of a franchise company in the cleaning business and how they went about setting up Auto Detailing Shops. It maybe of interest to your business study and research; I am familiar with this story because it is one of the companies that I founded.

It all started in Reno, NV where we had set up a mobile car wash franchise of the Car Wash Guys for a franchisee there. www.CarWashGuys.com . Because we have significant market share in Reno NV, we wanted to expand into different lines. So we looked at co-branding with Ziebart, yet their corporate culture did not mix with our Entrepreneurial Fiber and the cost of their franchises were quite high. On top of that they had sold so many franchises in the US, there would be a problem later if we decided to roll out our system nationwide or continue buying their units to expand with our current franchisees, still we felt this might be worth pursuing. So instead going thru all the mistakes, which had already been learned we wanted to buy into a proven system and wanted to exhaust this possibility first. They turned us down. So we have decided to take the market, city by city. But first we needed to establish a prototype unit and this is where our Reno Franchisee came into play. Ziebart instead of partner would become a challenge, as they had 216 units already up and running. We visited many of their locations including Hilo, HA at the time.

We decided we would put in co-brands at car washes as well, express detail centers. Also at Park and Flys and High End Parking Structures. These permanent Detailing Centers would provide a wide array of services. We are detailing for large dealerships, adding oil additives, which are guaranteed by Lloyds of London for 100,000 miles, bed liners, gold plating, window tinting, auto accessories, pin striping, Gold Plating, Dent Repair, Windshield Repair, Wood grain and Interior Paneling, Vinyl and Leather Repair, Paint Touch-Up, Engine Steam Cleaning, Rust Proofing, Odor Elimination. The business plan is extensive, and the training intense.

We determined to be able to handle all the services we wished to provide the Centers would have to be 8 bay Detail Shops the largest of all organized Detail Shops. By having other WashGuy.com franchise systems customers to draw from there would be enough customers to allow maximum synergy. This is where the tires meet the pavement. The Super Centers are exactly that. The smaller co-brand version was tested at our fixed site car wash franchise prototype in WA. Now realize we have been in the detailing business for years, www.detailguys.com and we know what we are doing and we are good at it.

This company was founded out of necessity to service the customers. Paul our franchise in Reno of the car wash guys kept getting detailing offers from the dealerships he was washing. One offer led to an onsite takeover of their in-house detailing facilities; a four-bay detail shop, which he grew out of in less than three months. Then he moved into an 8 bay detail shop keeping the four bay for a total of 12 bays in two shops. Before his second year he was on pace to do about $600,000.00 this year. He had only been in business 18 months. He was so busy trying to divide his car wash with all his detail work he had decided to sell part of it. We wanted him to be successful so we allowed the partial transfer and he will be using the money from the sale of one of his car wash guys franchised territories to fund his new detail center. He maxed the old center out and had to move into a bigger shop, and then at one point even that was not enough so he had to keep both. The next year we had set up smaller Detail Guys Centers in other parts of the country and established co-brands in WA, OK, OH, TN, and CA.

The entire business grew out of a mobile car wash operation, without any detailed advanced strategic thinking on our part until we had the customers breathing down our throats yellowing “We need more services” and that folks is how many opportunities are found in the market. You get into business and get tough and follow opportunity, this is why all the text books and business plans are not all they are cracked up to be and why reality based entrepreneurship come from the real world where people can. Not from the academia world where all they know how to do is teach. If you want to go from 0-60 in four seconds sure it is nice to have a venture capital bankroll, but all the real companies I know about started from scratch and then became built to last. From starting small to finishing big is all in the market place and minds of the greatest people on Earth, the Entrepreneurs.

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What if there were no Franchised Brands? What if none existed? Some believe that might be better, yet others point to the fact that there would be less choice and fewer small businesses. Did you know on this particular point of contention that there are 450,000 or more franchised outlets in the United States? That means a lot of small business owners who may not have had the expertise or know-how to go into business for them selves, now enjoy their American Dream of being self-employed. You can find lists of franchised outlets available if you want to own one;

www.Franchising.org

The failure rates of franchised outlets over the normal small businesses are said to be reduced because franchises come with a proven way to do business, which is duplicated time and time again. There have been studies and some of the research has been debated but most agree that franchising is a safer investment then going it alone in a small business. But what if these franchises were not available and you had to take a risk on your own? Well, many believe there would be fewer small businesses out there and that would not be good for our Nation’s economic engine at all. In fact each one of these franchises hires some 15-30 people on average and that is a huge job base and lots of monies paying into the system. So what if all the franchises disappeared? What would our country do then? Think on this.

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The biggest critics of a franchise brand name come from two groups of people and neither of them are you customers. If our brand is lousy your customers will most likely simply not say anything, after all every day average brand names are a dime a dozen in the market place. No you biggest critics are of course your competition, who will never miss a swipe if you make the smallest mistake; you can bet they will mention it in high-volume conversations, jabs and snickers. But that is to be expected of course and who cares what they think, especially if you a light years ahead of their mediocre best efforts.

Your very biggest critics and the one’s you better play careful attention to is you own team. So each quarter I ask the team to hold nothing back and let me have it, the whole truth and I listen, sometimes it is not pleasant sometimes it is, but in franchising truth about all else is essential for honest evaluations. Here is what one team member asked when I asked about our brand.

“. . . and that is the point. We are different, we are the best, we accomplish what others in this industry can’t. Sparkle Wash can low-ball prices and hit up a handful of fleet accounts, but they can’t detail the car of a construction site foreman and land a well-paying post construction clean up (we did). They can’t make money, servicing offices and open up the doors to whole other kinds of business, which can all be done with the same equipment off the same truck that just cleaned out a cell tower site. We can and this is clear in our presentation and materials. We are here to stay and to dominate our marketplace.”

“But it would not be fair to mention the strengths of CWGs without mentioning your strength, Lance. Your charisma, excitement, vision and energy pours out of the materials. ‘This guy is excited about what he is doing’, comes across LOUD AND CLEAR and is (I think) a large part of what attracts people to the franchise. And when people meet you, they don’t find a fake. You live and breathe CWGs. It’s a mission, a lifestyle and a business all in one.”

Incidentally (CWG) stands for Car Wash Guys, our brand name; CarWashGuys.com . The reason for this example is that when we talk about Brand Names, we must take about “buy-in” and hear the truth straight from the gut of the biggest critics, the one’s who know the inside scoop and lay it on the line everyday for the team. Think on this in 2006.

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Franchise Branding is not like branding just any old product, franchise branding is much more than that. You have to brand your Franchisees as “Service Gods,” The logo and image as a “Cult,” the Founder as a Legend and then you get to brand the product or service. Not an easy task at all, but we did it and you can too. Now before you call me some “get rich quick guru of marketing books and tapes” realize I am not selling anything. But I would like to share this real live and very meaningful email from one of our company’s top franchisees in the Denver Market.

You see I had asked him to participate in the Regional Meeting, but he was too busy servicing customers so I asked him; Brett what do you think is our companies greatest strength in the market place. What sets us apart? Why are you so successful there? Why are you so busy you cannot make the meeting? Tell us what this company’s strengths are? And so he replied and this is what he stated to me:

“The Car Wash Guys [our company brand name] greatest strength is IMAGE. And the trucks are our standard bearers. We get into conversations that end up in accounts based solely on the look of our trucks. Image really isn’t saying enough though, perhaps, presentation is a better word. In any case, the vitality of the franchise and the quality we will give in service is evident in the design of the logos, color choice and equipment. The web site is another presentation (and a very practical one at that) of who we are. It is as clean and sharp as our trucks. It too is a highly valuable and useful piece of equipment. 15 minutes on it today and I have answers to 10 questions. And when a potential customer goes there to check us out, they are blown away. In the same way the CD-ROM projects who we are into the marketplace in an almost irresistible way. One of the local Fed-EX terminal managers was telling us today that he could see we were different from what they were used to from this industry-after looking at the CD.”

Now mind you this was a private email and I have always as the founder of our company allowed our top performers to “Sound Off” and let me have it straight up or straight from the gut. I never liked sugar coated pansy ass “yes men” in fact I suffer fools better than I suffer weakness and weak people. I bring this to your attention for two reasons, one if you want to win, really win, in every market. You better think about image and the second reason, if you think this came easy or it was somehow luck or that you can figure all this out by buying a few tapes, marketing books and going to college you are kidding yourself and I advise you to stay out of our market lest you be crushed by our team. Think on this in 2006.

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Why would a franchise company which has master franchisees in charge of regions and those regions in charge of the franchisees and the franchisees in charge of their stores and each store has a manager in charge of the employees? After all doesn’t that represent 5-levels of marketing? Isn’t franchising the duplication and replication of a business method and brand name? Why would Franchisors be angry at a Multi Level Company which basically in “abstract theory” anyway operates in such a similar way?

Well, I am a franchisor so let me explain my beef with this particular situation. You see as a franchisor, I have all these rules of what I can and cannot say. In fact there are some laws, which prohibit things I am allowed to say even if they are true, unless I pay a high priced accountant to do many audits of my franchisees to prove that it is true.

If those are violated or rather if a franchise buyer tells the government I told them something that I was not supposed to, whether I did or not is immaterial, they launch an investigation against my company. The franchise buyer may simply be saying that to break his contract with me, so he can use all my life’s work to do it on his own and then compete against me, it is your basic traitor syndrome. But what the hell some say, deal with it, Jesus had a traitor in his group too. Think on this in 2006.

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When dealing with foreign investors and franchising in another country often language and interpretation of word meanings can get clouded. Additionally tenses or gender of words can change what a sentence says or means in an agreement. In franchising Internationally this becomes a real issue because of the number of potential countries an international US Based, Australian or European Based Franchisor might franchise in.

As we expanded our company into other markets we found this to be extremely problematic due to the fact that a particular country may have different dialects and issues in their own language itself, not to mention the English versions of the words and their meanings. One issue we immediately noticed when trying to deal in multiple languages is that even the topics in the table of contents were at issue. So, I addressed this issue by inserting this clause into our international contracts for franchising our business model;

7.20 Headings and Table of Contents

The headings and Table of Contents used in this Franchise Agreement are for purposes of convenience only and shall not be used in constructing the provisions hereof. As used in this Franchise Agreement, the male gender shall include the female and neuter genders, the singular shall include the plural and the plural, the singular.

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Although this did not solve all the issues it did in fact assist us in some of the issues and helped us from causing ourselves litigation issues over miss interpretations due to language barriers, mistakes or cultural differences in basic word meanings and sentence structures. Perhaps you will consider this in 2006.

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One potential marketing strategy for franchisors is to set up two-year agreements with star franchisees to assist in the expansion of regional areas without selling those areas a master franchises. In doing so the franchisor can have more control over the marketing of new franchises and say over which territories and agreements will be entered into, without giving up any control.

The fee structure could be a percentage of franchise fees in each sale and a percentage of royalties. The duties of the star franchisee [Regional Team Manager] should be clearly defined we decided for our endeavors and so I came up with these set of rules for our company, perhaps this might give you some ideas if you are considering expanding your franchise company. Below is my list of responsibilities and rules that I used in my company;

Regional team manager will not build or maintain a web site on behalf of The Company or the Franchisee. A web site will be furnished and maintained at the expense of the Franchisor on behalf of the regional team manager.

Regional team manager will be responsible for collecting all royalties from franchisees in their exclusive territory and forwarding all such monies immediately upon collection to The Company. will forward the regional team manager’s portion of collected royalties no later than the 30th of each month.

Regional team manager will be responsible for franchisees in their exclusive territory. Regional team manager agrees to visit each franchisee in their exclusive territory no less than once a month. Any marketing, technical, employee or other issue franchisees might have will be addressed by the regional team manager.

For this service the regional team manager will receive 50% of the collected royalties for each franchisee in their exclusive territory.

It is understood and agreed upon that nothing in this Agreement authorizes the regional team manager to make any contract, agreement, warranty or representation on Franchisor’s behalf or to incur any debt or other obligation in Franchisor’s name and that Franchisor shall in no event assume liability for, or be deemed liable hereunder as a result, of any such action.

Well this is what we did in our company of course I cannot give you legal advice as I am not a two-fit, lying, thieving, scoundrel, attorney. So, you need to get with one of those professional parasites and sit down without shooting them and ask them their advice on how to run your business and pay them $300 to tell you what you just learned here from me, someone who actually has had to make a payroll and who has actually done it. Consider this in 2006. If you are an attorney; go screw yourself. [in a nice way].

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So often franchisors look for faster ways to expand their systems and extend their brand name. One of the common ways to do this for franchisors is to sell regional franchising rights or master franchising. This is where the franchiser allows for sub-franchisors to do the franchising in a specific region or with a certain sector using the franchisor’s brand name, products and services.

We looked at this in our franchising company and came back under whelmed by the initial results after rolling out two major master franchise areas one in the Northern Midwest and another in Arizona and New Mexico. We found our selves with less control over our brand name and use of the marks than we had hoped for and unable in many cases to enforce our master franchise agreements due to various inconsistencies in state laws. The United States of America is a sham when it comes to consistency of law and the court system and acts more like the United Countries. It is for the most part a complete lie to the business community to call it the United States, which is too bad really.

We decided instead to make our star franchisees who were interested Regional Team Managers and sign agreements which were only 2-years in duration, thus if performance was not so hot, we would not lose out long-term with under developed areas. Here is the basic two-year concept I came up with below;

Regional Team Manager Exclusive Territory:

Regional team manager agrees to pay Franchisor for the rights to be assigned as a regional team manager in their exclusive territory. This fee is due and payable upon the signing of this Agreement in the amount of __________________ dollars or if the Franchisor consents due and payable at the rate of _______________ dollars per new franchisee for the next __________ franchisees in their exclusive territory. Franchisor agrees not to compete with the regional team manager in the regional team manager’s exclusive territory while this Agreement is in force. Regional team manager agrees to place _____________ franchises in the regional team manager’s exclusive territory within twenty-four (24) months of opening the exclusive territory. If the regional team manager does not meet the required number of placements in the first twenty-four (24) months, Franchisor will, at a reasonable cost to the regional team manager, come into the exclusive territory and help the regional team manager sign up new franchisees.

It seemed to work okay and we did in fact have two under performers using this method one in Pennsylvania, which only added one franchisee and another Regional Team Manager in Colorado, who did not provide the needed services to the franchisees in Fort Collins CO, or Colorado Springs, CO. and luckily for us by that time the 2-year agreements were coming up for renewal and we simply did not exercise that right and thus there was no disruptions or legal issues for us.

If you own a franchising company this might be something to think on and something to ask your franchise attorney about, as every business is a little different and the laws change faster than most people change their tires. Consider this in 2006.

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Why would any franchisor want to terminate a franchisee who pays royalties into the system, assists the franchisor in extending his brand name and helps the franchise system gain market share, growth and profitability? Indeed all good points to the question; why? Well often a franchise outlet is under performing, undermining the system or not accomplishing those objectives.

It is for this reason as a franchisor and often feeling more like a grandfather or coach, I had to come to terms with when it was time to sever the franchise relationship. I therefore put this clause into my franchise agreements;

6. TERMINATION AND DEFAULTS

6.1 Termination by Franchisor

Franchisor may terminate the Franchise Agreement at the time indicated, if any of the following events occurs, each of which shall be deemed a default:

(a) immediately, if the Franchisee or the Franchised Business is declared bankrupt or judicially determined to be insolvent, or all or a substantial part of the assets of the Franchisee or the Franchised Business are assigned to or for the benefit of any creditor, or the Franchisee admits its inability to pay its debts as they come due, or the Franchised Business is seized, taken over, or foreclosed by a governmental official in the exercise of his duties, or seized, taken over, or foreclosed by a creditor, lienholder or lessor, provided that a final judgement against the Franchisee remains unsatisfied for thirty (30) calendar days (unless an appeal bond has been filed), or if a levy of execution has been made upon the license granted by this Agreement or upon any property used in the Franchised Business and is not discharged within five (5) business days; or

(b) immediately, if the Franchisee abandons the Franchised Business by failing to operate the Franchised Business for five (5) consecutive calendar days during which the Franchisee is required to operate a business under the terms of this Agreement or any shorter period after which it is not unreasonable under the facts and circumstances for Franchisor to conclude that the Franchisee does not intend to continue to operate the Franchised Business, unless such failure to operate is due to fire, flood, earthquake or other similar causes beyond the Franchisee’s control; or

(c) immediately, if the Franchisor discovers that the Franchisee has made any material misrepresentations to the Franchisor relating to the acquisition of the Franchised Business; or

(d) immediately, if the Franchisee is a competitor of the Franchisor or a competitor of an affiliate of the Franchisor or a competitor of any sister or co-brand company of the Franchisor or a competitor of a vendor of the Franchisor. In such case the Franchisee will be terminated, the Franchisee will forfeit their mobile truck/unit(s) and their associated equipment which will be transferred to other Franchisees to assist with community fundraiser events and the Franchisee will be required to pay a misrepresentation penalty of five (5) times the franchise fee to the Franchisor that will be distributed to charitable organizations so designated by a Franchisee committee convened for just this purpose. The Franchisee will be liable to the Franchisor for reasonable attorney’s fees and court costs incurred by the Franchisor in any litigation related to this matter; or

(e) immediately, if the Franchisee is convicted of, or pleads nolo contendere to, a felony, commits any criminal misconduct relevant to the operation of the franchise, a fraud, any act or crime involving moral turpitude, or any other crime or offense that Franchisor believes is likely to have an adverse effect on the System, the proprietary marks or the goodwill; or

(f) immediately, if the Franchisee, after curing any default after notice and opportunity to cure, engages in the same noncompliance, whether or not corrected after notice; or

(g) immediately, in the event the Franchisee attempts to transfer any interest in the Franchisee of the Franchised Business in violation of Section 5; or

(h) immediately, in the event that the Franchisee violates the provisions of Section 3.19 or 3.20 hereof;

(i) immediately, in the event that the Franchisee does not notify Franchisor of Franchisee change or discontiuance of use of address or change of telephone number or change of e-mail account address within fifteen (15) calendar days of such change; or

(j) immediately, in the event that the Franchisee fails to perform the required car wash fundraisers or community service projects; or

(k) immediately, in the event that the Franchisee operates the Franchise in a manner that creates an imminent danger or threat to public health or safety; or

(l) upon ten (10) calendar days’ written notice to Franchisee of its failure to pay any fees or other amounts due to Franchisor, any affiliate of Franchisor or any other Franchisee that is not cured within such ten day period; or

(m) upon thirty (30) calendar days after notification to Franchisee of noncompliance with any national, federal, state or local law or regulation applicable to the operation of the Franchised Business unless cured within such period; or

(n) upon thirty (30) calendar days after notification to Franchisee of failure to secure and maintain in force all required licenses, insurance, permits, registrations and certificates relating to the operation of the Franchised Business, or failure to operate said business in full compliance with all applicable laws, ordinances and regulations, including, without limitation, all government regulations relating to occupational hazards and health and environmental regulations, worker’s compensation insurance, unemployment insurance, withholding and payment of national and state local income taxes, social security taxes and sales taxes or fail to maintain liability insurance; or

(o) upon thirty (30) calendar days’ written notice to Franchisee of any failure of Franchisee to perform any obligation under this Agreement that is not cured within such thirty day period; or

(p) upon thirty (30) calendar days after notification to Franchisee of failure to have sufficient supplies to meet customer demand; or

(q) upon thirty (30) calendar days after notification to Franchisee of failure to hire and maintain sufficient staff in order to handle customer volume at all times; or

(r) upon thirty (30) calendar days after notification to Franchisee of failure to pay your employees and staff the required wage described in Section 3.5, or

(s) prior to the opening of the Franchised Business, if Franchisee or any of its designated employees fails to complete the initial training program described in Section 4.1.5 to the satisfaction of Franchisor; or

(t) upon ninety (90) calendar days’ written notice from the date hereof, if Franchisee does not secure premises for and commence the operation of the first Location for the Franchised Business within such period; or

(u) immediately at any time following one hundred eighty (180) calendar days from the date of this Agreement, if Franchisee continues to operate another business in violation of Section 3.3 hereof following such one hundred eighty day period; or

(v) at such time as Franchisor and Franchisee mutually agree in writing to terminate this Agreement; or

(w) if Franchisee is convicted of drunk driving while driving a car wash truck or while driving a vehicle while towing a mobile car wash unit.

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Obviously I am not a lawyer [would not be caught dead being a lawyer in fact]. I am an entrepreneur and this is what I felt I had to do in my company. If you own a franchising company you may wish to contact a franchise lawyer and ask them to consider what is the best way to protect your company in such a potential eventuality. So, perhaps you should consider this in 2006.

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As a franchisor often one will be presented with relatively simple transactions, which on paper have significance but in reality will not change the franchise relationship between the franchisor and the franchisee. Even so such changes could be significant down the road. For instance, take the assignment of the franchise agreement, which is transferred into a newly formed corporation or LLC. A franchisee may do this, to limit its liability, for tax purposes or other legal reasons.

A franchisor must consider how this will effect his operations in dealing with the franchisee and making sure that the new corporation as the same partners and legal entities behind it, because a franchisee might be bringing in monies from a competitor, someone who has not signed the franchise agreement and is not bound by its stipulations or they might be trying to dodge tax laws, and thus jeopardizing the company brand-name if something wrong. It is for this reason that I modified our clauses in our franchise agreement regarding assignments of the franchise agreement to a corporation or LLC. Below is the clause that I came up with for our company;

5.3 Assignment to Corporation or Limited Liability Company

If Franchisee is a partnership or individual and hereafter desires to conduct the Franchised Business in an incorporated or limited liability company form, Franchisor will not unreasonably withhold its consent to the transfer of this Agreement and Franchisee’s interest herein to any corporation or limited liability company formed for that purpose; provided that Franchisee and such corporation or company must, prior to such transfer, satisfy such reasonable requirements as Franchisor shall impose, which may include, without limitation, the following:

(a) Franchisee or its partners will at all times be the record and/or beneficial owner of, and will have, by law or by written agreement satisfactory to Franchisor, voting control of, not less than fifty-one percent (51%) of the issued and outstanding shares or membership interests of each class of the capital stock or membership interests of such corporation or company;

(b) No other person or entity, except members of Franchisee’s or its partners’ respective immediate families or trusts for the benefit of such family members, may own or have any right to acquire any capital stock, membership interests or other securities of such corporation or company;

(c) The form and content of the articles or certificate of incorporation, organization or formation of such corporation or company and by-laws of any such corporation or operating agreement of any such company must contain provisions enforceable under applicable law restricting the issuance and transfer of capital stock, membership interests or securities of the corporation or company to such extent as Franchisor shall reasonably require;

(d) Franchisor must have been furnished in writing the names and address of all existing or prospective shareholders or members of the corporation or company and Franchisee or its partners and (if requested by Franchisor) each such shareholder or member, or prospective shareholder or member, must have guaranteed in writing (in form and substance satisfactory to Franchisor) the performance by the corporation or company of the obligations of the Franchisee under this Agreement; and

(e) Each shareholder or member must have executed and delivered to Franchisor a non-competition covenant in form and substance satisfactory to Franchisor, containing the covenants not to compete required by Section 3.20.3 hereof. After assignment of this Agreement to a corporation or limited liability company as above provided, or, if Franchisee is a corporation or limited liability company at the date of this Agreement, the sale, transfer, assignment or encumbrance or change in rights of any class or series of capital stock, membership interests or other securities of such corporation or company, whether by operation of law or otherwise, will be deemed a sale by Franchisee or (if a partnership) its partners or its or their interest(s) in this Agreement and will in all respects be subject to the limitations set forth in this Section 5 on the sale of Franchisee’s interests in this Agreement. Any merger, consolidation or reorganization by any corporation or limited liability company having an interest in this Agreement will be deemed a sale of such interest and, unless the prior written consent of Franchisor has been obtained, will constitute a material breach hereof.

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It is interesting how something so simple can become so problematic. It is for this reason that I suggest that you consult an experienced and knowledgeable franchisee attorney and ask them how such a clause would best fit your franchise in company. I hope you will consider this in 2006.

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