Contractingbusiness 2320 Doylejames

Franchising as a Business Option

July 31, 2012
Contractors claim they're now better business managers.

Speak the word “franchising,” and most people will think of fast food. But franchising in the U.S. encompasses far more than restaurants. According to the International Franchise Association’s 2007 Economic Impact Study, franchise business employed more than 17 million people, and contributed more than $2 trillion to the direct and indirect economic output of the U.S. We spoke with representatives of four of the leading HVAC franchise operations in the U.S. — Aire Serv, Linc Network, GreenHomes America, and One-Hour Air Conditioning — to learn what they look for in franchise candidates, and what they offer. We also talked with some of their best franchisee business owners, to learn how franchising has affected their HVAC businesses.

Direction for the ‘Business’ of HVAC
Doyle James’ HVAC career began in 1982, fresh out of trade school, at his family’s HVAC and plumbing business in Dayton, OH. The business became a Mr. Rooter franchise in 1989. In 1997, James joined The Dwyer Group as a consultant to its Mr. Rooter, Mr. Electric, and Aire Serv franchise operations (;

As Aire Serv sought new franchise candidates, James focused on reaching what he describes as “a neglected population” in the HVAC industry: businesses that were too small to be of interest to consolidators, wanted to remain independent, but were in need of business management assistance.

“We realized that the technical proficiency was already there, so we built our entire model on supporting the business side of HVAC, which includes financial planning, pricing systems, sales systems, human resources, and all the management pieces you need to operate the business,” he explains. “People tend to not have direction or a goal for their business. They tend to go adrift. We provide tools to help them define their long-term goals.”

Aire Serv’s ideal candidates are HVAC contractors who have reached a level of success, but need help in reaching the next level.

“It’s ultimately about making that business a long-term investment,” James explains. “If you looked at your business as an investment, what would you do differently that would make it more than just a place to go for the day?”

James Walker, Aire Serv’s vice president, operations, says Aire Serv brings attention to management essentials that many contractors would readily admit need more focus in their businesses.

“The majority of contractors who have strong technical backgrounds have a mindset that their companies’ value is based on their technical acumen, and that their success is based solely on how they do the work. But in reality, it’s other business components, such as understanding costs, financials, and revenues in relationship to gross margins —that generate revenue and profitability,” Walker says. “That’s the single biggest mental leap people have to make, and we make them aware of in our first conversations; we’re not here to make them better contractors or sheet metal fabricators, but we are here to make them better businessmen.”

Experts Standing By
Aire Serv provides franchisees with an exclusive territory, for a fee, based on the territory’s population. That territory is theirs to grow, with the understanding that an ongoing fee is applied to all system sales. Owners receive access to regular coaching, and to personnel resources that relieve them of the pressure of being experts at every aspect of running it.

“There was a time when our ultimate goal was to make a franchise owner an expert at everything, including accounting and financial management,” James says. “However, we later realized that’s not how to do it with a network. You don’t want one person to do it all.

“We realized we could leverage our size and resources and systems in a way that would allow contractors to work with the experts. So, instead of having to answer the phones, balance the books, and dispatch the technicians, the business owner has access to shared resources who handle the details while he or she grows the business.”

This "expert outsourcing" feature is optional. An owner may choose to train their existing staff to use the Aire Serv methods.

The Aire Serv system is based on training, and the importance of showing value to the customer, not aggressive sales tactics. On the replacement side of the business alone, Aire Serv provides three days of training and ongoing mentoring classes. “The system illustrates you don’t have to resort to customer arm-twisting to be successful. We teach our franchisees how to make themselves more valuable than the competition,” James says.

Aire Serv coaches regularly visit new franchisee offices for team meetings. They review sales numbers, recent successes and challenges, and how to be more successful on the job.

For those who might fear that becoming a franchise will rob them of their independence, James quotes The Dwyer Group CEO Dina Dwyer Owens: “We help people take their company where they can’t go on their own.”

“And, if you think about that,” James continues, “most of us have the ability to get to a certain point. Sometimes, people get stuck at a business with five trucks, others at 10, but our goal is to take them to the next level. Aire Serv is the coach. We don’t run the ball, and it’s ultimately their business. We’re there to provide guidance and coaching, to protect the brand for the sake of all of the franchisees, and help them remain independent and accomplish what they can’t accomplish on their own.”

‘Hitting a Wall’
One whose HVAC business has been revitalized through Aire Serv is Michael Knight, president, Aire Serv of The Woodlands & Greater Conroe, TX. Knight began in the HVAC industry in 1976 as a helper for a local contractor. Five years later, he and a partner started their own air conditioning business, and worked together for about 10 years, after which time Knight’s partner left. At that point, in 1991, Knight began Knight Air with his wife Sheryl and a helper.

The business grew steadily, based solely on referrals. A few years ago, however, Knight found that the strain of servicing 900 accounts with two men in the field began to take its toll. He had reached a plateau of $500,000 in annual revenue, but had also “hit a wall” physically. “I told my wife we would have to get smaller, or bigger, and if we got bigger, we’d need some help.”

It was about that time that Eddie Baker, franchise director for The Dwyer Group happened to call. He was interested in bringing Knight Air into the Aire Serv fold. “I was 90% sure I wasn’t going to be interested in what he had to say, but I gave him the courtesy to listen,” Knight recalls. “The more he talked about how other contractors were one-men operations, and had grown through Aire Serv, and then described the system to me, the more I was interested in what he had to say.

That call was followed later by a two-hour phone discussion. Michael and Sheryl attended an Aire Serv annual reunion meeting in 2010, and were impressed by the professionalism of the organization. “

We spoke with other Aire Serv owners who had been in it for various amounts of time, and it was all positive,” Knight says. He was also intrigued by Aire Serv’s foundational business management training, which was lacking in his business.

“I’m great at diagnosing and repairing an HVAC system, and keeping customers happy. But I’m a caveman when it comes to business. I had no business plan and didn’t know how to do build one.”

Knight took the leap, and purchased an exclusive territory of 250,000 homes within his Woodlands, TX service area. Sheryl quit her job as a substitute teacher, and their son left a job with a hotel chain to join the team. He recruited two new helpers, both of whom are performing well in the field, and Karen Law joined as customer service representative.

Knight says Aire Serv has made him feel like a “new man,” and has given him hope for the future. It’s also brought about a total change in his field operations.

“I do a different type of service than before. Before, I might have tracked mud into a home, and was always in a hurry, trying to handle 10 service calls in one day. I’d be blowing through service calls, and leaving behind information that really needed to be discussed with customers.

“Now, our technicians spend more time educating customers, and giving them time to ask questions. The business has significantly surpassed original revenue goals, and is on track to hit $1.2 million in sales in 2012. Knight has established 300 maintenance agreements. “Before, I had none. The Advantage Plan for maintenance agreements has been a huge cog in the wheel,” he says. Aire Serv supplies Knight with advice on target marketing, using direct mail and advertising more effectively, and communication. He uses the weekly coaching Aire Serv provides on a variety of topics, such as the Home Comfort Design system, or how to answer customer objections. He says franchising through Aire Serv has helped him better differentiate his business from competitors.

“If I were just Knight Air, I’d be another ‘Chuck in a Truck’. Now, I’m part of something bigger, and I’m finally getting paid what I’m worth,” Knight says. “We have a very high closing rate, and we’re competitive with our quotes. Our customers like our professionalism.” People write testimonials on how impressed they are with our work.”

The Value of Commercial Service
Bert Kendall is in his fifth year as COO of Linc Network, LLC and in May of 2012 became COO of ABM Franchising Group, which consists of four franchise brands, Linc Service, GreenHomes America, TEGG, and CurrentSAFE. Kendall’s connection to the company began in 1985, when the Wichita, KS mechanical contractor he was associated with became a Linc Service franchise. Its goal was to build its service business as a way to escape the nagging reality of diminishing backlogs in new construction.

Kendall joined Linc Network’s corporate office in 1988, and has served as its director of business systems, vice president of technology development and support, and senior vice president. Now, as the COO, he oversees the day-to-day operations of the Linc Service franchise network and its efforts to expand its commercial HVAC service reach to others.

“Service gives you an opportunity to build a reccurring revenue model that is sustainable over time, ” Kendall says. “The service emphasis was helpful to his former employer in Kansas, as it is to many companies today. Numerous construction businesses have a customer base however are unsure how to price and deliver, which is what makes the Linc system attractive. Linc Service’s preventive maintenance agreements provide building owners with fixed cost accounting, and fewer variable costs, which, Kendall says, “align” the client with the franchise.

“When you think about it, if you’re selling a maintenance agreement that includes only testing and inspecting, and then charge the client every time you find something broken, there is not much incentive to properly maintain that equipment. However, if you offer a maintenance agreement that is all-inclusive and carries no extra cost, the client’s goals and the Linc franchise’s goals of quality preventive maintenance are aligned. That’s the model Linc has survived and thrived on.”

Linc Service has also become popular among HVAC contractors that specialize in building controls. Linc Service offers maintenance agreements that guarantee continued operation of equipment, from full coverage to whatever the customer is looking for based on need and budget.

“If building equipment is near the end of its useful life, Linc provides the franchisee with systems that can evaluate the projected value in operating costs and can often times save the client money by replacing the unit and putting it under a long term maintenance agreement. One of Linc Service’s goals is to improve the customer service and sales cultures of a company in ways that will win the company more “raving fans,” and improve its sales culture beyond an expertise in engineering and technology.

“Sometimes, business owners want to hire a sales person and develop a sales culture, but don’t know how to do that. From a business standpoint you have to develop a solid business plan, know where you are and where you’re going. Linc has software to develop your business plan, and we have area vice presidents who have run service businesses. They serve as consultants to work directly with franchisees, to develop their business plan and monitor it on a monthly basis. We conduct mid-year reviews to keep that location on track. Our franchisees develop it with the software, use the consultants we provide, and then we benchmark it all, to provide owners with the key performance indicators," Kendall explains.

Best Value, Not the Lowest Price
Brothers Mike and Robert Miller are Linc Service franchise owners in eight cities in Alabama, Florida, Louisiana, Mississippi, and Texas. They started as HVAC servicemen for their father’s business, Star Service, Inc. that was formed in the 1950s. Star Service was a plan-and-spec mechanical contractor up until the late 1970s. Then, the Gulf Coast oil industry crashed, taking many businesses and new HVAC construction with it.

“We decided service was the place to be, so we got out of mechanical contracting and rolled our resources into our service department,” Mike Miller explains. Several years later, Preston Bond, founder of Linc, came calling, with the offer of a franchise opportunity.

“We took advantage of it, not knowing the magnitude it would have on the business. It turned out to be the best thing we ever did,” Miller agrees. Star Service had what Linc, and other franchise organizations like to see in candidates: solid reputations, and the desire to change.

“We had a reputation for doing the right thing, for being proud of what we do, and that seemed to play into the marriage somewhat,” Miller says. “When we were in the construction business, we may not have done the largest jobs, but they were the best-looking jobs. The lines were straight, the jobs were clean. We showed up on time, paid our bills and took care of any issues with customers.”

The Millers wrestled with the Linc methods for a couple of years, but eventually relented, all for the best. The realized the method worked, and they just had to readjust their way of working.“It required a lot of discipline, formality, paperwork and record keeping, and things were weren’t excited about doing. We tried to use parts of the system that we liked, and then did other things our way. It took us a couple years to find out that didn’t work. You buy and use the system, or you don’t.”

Miller says that since becoming Linc franchisees, their business has seen 10 to 12% compounded annual growth. It’s a full tilt win-win.

“The primary product we sell is the fixed-cost maintenance agreement, by which we assume the cost and liability if something breaks. We repair at our expense. So we find ourselves in a win-win arrangement with the customer. When we do a good job of maintaining the customer’s equipment, he’s more comfortable, his utility bills are lower, his equipment lasts longer and is more reliable, and we make more money.“We’re able to get business because we bring value, not because we have the cheapest price,” Miller says.

Additionally, he says the common Linc terminology and structure have been the keys to keeping the eight Star Service business running in high gear, and competing toe-to-toe with larger, national firms.

Energy Savings at Home
In the residential arena, the GreenHomes America ( franchise network is another of Bert Kendall’s responsibilities. GreenHomes America was founded in 1995 as a national provider of Home Performance Contracting (HPC) services. GreenHomes America contractors provide home energy assessments and services that improve overall home performance and efficiency in ways that look beyond loads, SEER ratings, and BTUHs. GreenHomes America contractors consider the entire home as a system that may need efficiency improvements.

“Imagine a client calling about a room that’s always hot,” Kendall says. “Normally, the contractor may say, ‘I’ll put a bigger unit in and cool it right down.’ But that might not be the solution. A more comprehensive home efficiency analysis could be in order, to find where the home is leaking out precious energy dollars.”

GreenHomes America expands the number of services that a residential HVAC company can provide, by offering air sealing around windows and doors, or adding insulation, in addition to any appropriate equipment changes.

“GreenHomes America solves comfort issues and energy issues. The end result of sealing up the house is reduced energy costs,” Kendall says.

Each franchisee receives a territory of 100,000 homes, along with marketing expertise on how to generate leads and ensure profitability, as well as access to extensive technical training related to testing and insulating. “We have the tools to price correctly, and increase gross margins, and instructors who will train on-site,” he adds. GreenHomes America provides assurance to homeowners that the people coming into their homes are qualified. “We become the turnkey solution, and we also help contractors and clients navigate through various energy rebate programs,” Kendall says.

New Opportunities in Home Performance Contracting
“I’m approaching 40 years in HVAC, so you’d think I’d have figured it out by now,” says Jerry Unruh, owner of ABC Cooling & Heating, Fresno, CA. But when home performance contracting (HPC) through GreenHomes America caught Unruh’s attention, he recognized the opportunity it would mean to many of his residential customers and his 70 employees.

ABC had a nearly 50-year history in Fresno and Hayward, CA when Unruh purchased it in 2003. Its specialty is predominantly residential service, repair and replacement, and some light commercial work. It has a strong customer base, and Unruh wanted to capitalize on the growing importance of home performance contracting. As a real “idea guy,” Unruh says he wasn’t necessarily interested in a move to a franchise. He simply wanted to add a new and beneficial service.

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“I was reading about home performance, and a holistic evaluation of the home ‘envelope,’ and it made a lot of sense to me,” he says. “California was starting to focus in on it, and utilities were offering rebates for improved home efficiency.”The specific methods involved in HPC were eye-openers for Unruh.

“We were installing top-of-line systems into homes that were leaking air, and the homeowners weren’t fully benefitting from the systems we were installing,” he says. So, he sent three technicians to the Building Performance Institute for home performance training. Then came another development.

“I spoke with a friend who was with GreenHomes America, and it looked like the way to go. They said they could get us up and running in 90 days. They provided 300 hours of training, and worked on-site with us on our first HPC jobs, to make sure we were working correctly.”The change in the company’s focus has been dramatic.“Now, we can fix the entire home envelope, with wall and ceiling insulation, ventilation, and zone control. We’ve totally transformed homes. People are comfortable and they’re saving money,” he beams. Safety is also of greater importance, as Unruh’s teams perform carbon monoxide testing, gas leak detection and repair, and combustion monitoring.

“I now know how to go from the home energy audit to providing something to the homeowner that makes sense, with guaranteed energy savings.”Unruh appreciates that his identity is still ABC Cooling and Heating. The partnership with GreenHomes Amercica is visualized on trucks and company literature, but he’s still his own man.“GreenHomes America changed our culture, by helping us see that we need to look at each home differently,” Unruh says.

Accuracy in Pricing
Clockwork One Hour Heating & Air Conditioning, Inc., ( owned by Direct Energy since mid-2010, establishes and builds nationally branded franchises for the home services contractor market. Led by a senior management team comprised of entrepreneurs with collective expertise in marketing, branding and franchising for home services, Clockwork aims to build national brands for nearly all services that are performed in or around the home. Clockwork provides contractors with extensive training to enhance both customer services practices and technical acumen while also providing tools for better business management.

Michael Reardon, head of marketing and sales development for the U.S. and Canada for Clockwork Home Services, says he finds most new One Hour Air Conditioning franchisees need the greatest amount of guidance in areas related to pricing.

“I would say 80% aren't pricing correctly. We have a pricing coach who does nothing but look your market, your overhead, employee count, all of the costs,” Reardon says.“We provide budgeting goals and inventory guidance. We break everything down and show contractors what they need to be properly priced at to reach their goals.

“As the price of equipment, gasoline, and insurance creep up, you have to adjust your price, or it kills you. It’s hard for them to watch all these little things.” Reardon adds that Clockwork Home Services is looking for long-term brand growth rather than rapid franchise additions.

“We’re not a ‘turn and burn’ business,” he says. “You can’t come in with a lot of money and say you want to buy a franchise if Clockwork One Hour doesn’t feel you’re positioned for success.”Reardon says he has seen what would be considered “successful” HVAC businesses burnout on the cusp of real success before Clockwork enters the picture, because they don’t know how to manage sudden growth.

“Contractors will jump up to $1 million in sales, and even reach $1.3 million, and then fall back down. They’re trying to do too many things, and they don’t know how to manage the growth,” he explains. “They buy more trucks, take on extra bills just as the season starts to drop off, and they don’t know how to assign tasks and manage others. So they need to start letting people go, but instead they thin out the jobs, and the best technicians go to find work someplace else.”

Clockwork also provides assistance in tracking calls and turning them into sales. “Everyone thinks they have a 90% closing rate, but when you look at it more closely, it’s more like 50 to 60%. We help contractors understand the importance of something as small as a 5% higher call conversion rate,” Reardon says.

Clockwork franchisees learn the importance of a daily management report as the most accurate roadmap for an HVAC business.“We don’t let contractors wait till the end of the month and hope their bank account is in the black,” Reardon asserts. “Our franchisees know every day how many calls they must have, because they know everyone’s average ticket price and closing ratios. If it’s 3 o’clock and you’re at 20 calls, but you need 30, what procedure do you have to make up for it? Who’s responsible for making sure this takes place? We share best practices, systems, and procedures to help them hit their goals.”

Reardon says his greatest satisfaction comes from helping HVAC contractors build their own success stories, and reap the benefits that come with it.

“I believe in helping people. I’m very passionate about this company, and I love what we do,” he claims. “A franchise is really not about money. It’s about giving them their lives back, reduced stress, and increased personal freedom of time. I’ve seen a grown man cry because he was able to write a check for his daughter’s college education, and he never knew how he was going to be able to do that.”

Network Support at Every Level
David Cox comes from a third generation HVAC family. His grandfather worked for Johnson Controls, and his dad owned a commercial HVAC service business in Tennessee. Cox, 31, took a different route: first, as one of the youngest pilots to fly for Delta Air Lines at the time, then as director of transportation for NASCAR driver Mark Martin, and later in software development. Today, Cox is blazing a trail as the owner of the first One Hour Air Conditioning franchise to be started from scratch.

That trail is hot: under David’s guidance and help from the corporate team, the franchise was the fastest growing One Hour location in 2008, 2009, and 2011. Today, Cox and his brother Ryan own several One Hour franchises serving three major Florida regions.

While flying was his first love, Cox says he realized the airline’s seniority processes would prevent him from making serious money for a long time. After helping to develop and sell a software aircraft maintenance tracking program, and as the father of newborn triplets, he had to choose his next venture.“I was extremely passionate about customer service, and I saw One Hour as a ground floor opportunity to gain wealth. I realized that if their operational guidelines work as described, I would be able to start up several locations quickly.” He started the business in 2008, with one office employee and one technician, and handled sales for the first six months. His younger brother Ryan, 29, who previously worked for Clockwork’s corporate office as a General Manager, moved back east to help him grow this very promising enterprise. After eight months, the office had posted $1 million in revenue. Today Cox employs about 40 people, and operates 25 vehicles.

Cox says One Hour offers great opportunity for contractors who want to be more profitable, or who are in need of a well-planned exit strategy for now or later in life. He also appreciates the strength in Clockwork’s portfolio and its helpful support network.

“In today’s economy, I don’t under any circumstances want to be in business alone,” he admits. “You’re exposed, and there’s no protection. Franchising has taken off because there’s power in numbers. You’re part of a group; with similar challenges every day, common solutions, and accountability. The greatest benefit is the network itself. Everyone is focused on similar goals. If you have challenges, you pick up the phone and call a consultant or another franchise owner, and they instantly help you. They’ll do whatever needs to be done to ensure you’re successful, at whichever level you happen to be.”

Though Cox started without any in-depth knowledge of the HVAC industry, he had his past experience to rely on somewhat, but most of all, he had an understanding of how business works. He believes the best franchise candidates are those who know how to run a business, and are business-minded. “That type of person isn’t going to second guess the system. They’ll see that it works, will implement it and get it up and running.”

Cox belives the HVAC industry is ripe for serious change, a change that has transformed other major consumer offerings.“I believe the air conditioning industry is one of a few left that hasn’t been completely revolutionized. The auto industry, software, and fast food industry have all done it,” he offers.“I think clients are tired of inconsistent service offerings. They like to shop at Lowe’s, Home Depot, and McDonald’s because it’s a consistent experience. They don’t have to fear that things will change from one provider to the next.”

Franchising’s benefits are clear, as shown by the various success stories presented in this article. If these contractor scenarios sound familar, carefully consider franchising as an option, because it’s a big decision to make. If you’re in it for the long run, you’ll ultimately want to look back with pride at the successful business you built, not with regret over choices never made.

Proceed With Caution, by Matt Michel
Michael Gerber said the system is the solution and he’s correct. However, the system doesn’t work itself. The harder the franchisee works the system, the better the system works for the franchisee. Contractors considering the franchise route, should be certain they’re willing to follow — not fight— the franchisee’s system, and be willing to work just as hard, if not harder, than they would if pursuing the independent route.

There are two basic types of franchises in operation in the industry: conversion franchises and add-on franchises. The conversion franchise involves converting your company identity to the franchise identity. This works best for start-up or pure RNC contractors, who lack brand equity (i.e., brand recognition and trust) in their markets. Established contractors should assess whose brand equity is greater in their market, theirs or the franchises. If the contractor has the more established brand name, the independent alliance route may be the better option.

Add-on franchises involve the addition of a new, often related business under the franchise’s brand. This doesn’t affect the contractor’s existing business. Contractors looking for a fast way to enter a new market segment may find this to be an attractive option.

Finally, before making a decision, do your due diligence. Becoming a manufacturer’s dealer is like dating. Becoming a manufacturer’s preferred dealer is like going steady. Joining an independent alliance is like getting engaged. Buying a franchise is like getting married. A good marriage can last a lifetime, but divorce is emotionally painful and financially expensive.
— Matt Michel, CEO, Service Roundtable

Common Mistakes that Kill a Business
The following ‘10 Hidden Traps that Kill HVAC Businesses’ have been provided by Michael Reardon of One Hour Air Conditioning. For a free copy of the entire "Common Mistakes" E-Book, call 866/672-0314.
1. Not taking a salary from the business.
2. No systems in place.
3. Not knowing the costs of doing business.
4. Not having an exit plan.
5. Not running daily reports.
6. Not having a budget.
7. Not receiving monthly financials.
8. Not having any inventory controls.
9. Not knowing how to price.
10. Not refunding unhappy customers.