Warren Berger is a New York-based freelance writer.
'Why I Left a Franchise'
Five inside stories
June 1, 1996
When it comes to being in a franchise, is the grass always greener on the other side? Perhaps the best way to find out is to ask people who've been on both sides--which is what we did.
These brokers all worked in a franchise but left to become independents. Some subsequently found they missed the services and support that franchises offer, and they eventually returned to the fold, though not necessarily with the same franchise. Others prospered on their own and now insist independence is the way to go.
Here they relate their experiences in both worlds and the lessons they learned.
Paul Doiron: I Want to Build My Own Image, Not a Franchise's
Back in 1978, says Paul Doiron, "Century 21 seemed like the wave of the future." So Doiron signed on, opening Century 21--We Realty in St. Petersburg, Fla. Within a few years, the company was producing about $20 million in annual sales volume and had become a top specialist in beach properties.
But after 10 years, Doiron grew restless. "For one thing, we were spending $75,000 a year on fees," he says. In addition, in Doiron's opinion, franchises in general "have no qualms about dropping new competitors in your market." Yet Doiron felt he needed the recognition of a national name, so he switched to ERA in 1988, in part because ERA's flat-fee-per-transaction system meant Doiron would end up paying about half as much in fees.
Still, he says, "I began to resent sending that check to ERA, too." Doiron's company was self-sufficient, creating its own promotional materials, managing its own computer system, and turning to local boards for training. "Other than occasional brainstorming meetings," he says, "the franchise was irrelevant to my business."
In 1993 Doiron & Associates became an independent. It cost about $20,000 to make the switch, most of which involved changing signage, but sales have held steady. "If you've got a strong local image, you don't need the national name," he says. "And I'd rather work to build my own image than some big company's."
David Hunt: I Left and Came BackWith a Different Outlook
David Hunt, CCIM, CRB, concedes he was "jumping on a bandwagon" when he joined his first franchise, Gallery of Homes, in the late 1970s. "That was the period of the franchise craze," he says. "It seemed as if everyone was joining franchises."
At the time, Hunt's company, Realty Marketing--Gallery of Homes of Snellville, Ga., had 12 salespeople. Over the next few years, it grew to 35 salespeople, and Hunt believes the franchise's services, particularly its advertising, helped fuel that growth. But by the early 1980s, Hunt began to feel franchise membership was no longer necessary, because his company was entrenched and doing well. He also felt he was paying too much--about 3 percent of company dollar--for what he was getting back.
So in 1982 Hunt left the franchise and stayed independent for the next 13 years. "I liked the fact that you got to control your own destiny and that there was less paperwork," he says.
However, his company's growth tapered off in recent years, and Hunt had trouble getting some of the support services he needed, particularly for computer software. Last year Hunt returned to a franchise, but this time it was ERA. He says he made his decision more carefully the second time around, selecting the franchise that seemed to fit his needs best.
"I liked ERA's emphasis on technology, and I also liked its fee structure, a flat fee per transaction," he says. Hunt has already upgraded his computer system, and sales at ERA--Realty Marketing are up about 50 percent since he joined the franchise. "It makes a difference that I went into franchising this time with goals and a plan instead of for defensive reasons."
Larry Elliott: I Found Other Ways to Get What I Need
When Larry Elliott and several partners opened Tallahassee, Fla.'s, Century 21--Towne Realty in 1979, they felt they had a lot to learn about running a real estate company. "We simply didn't have enough residential real estate background, and that was why we turned to Century 21." The company subsequently grew to 35 salespeople.
But as the company grew, Elliott was paying 6 percent of commissions plus 2 percent for advertising to the franchise, and he felt he could be more profitable as an independent. So Elliott and one of his partners, Randall Chavers, left the franchise and formed their own company, Elliott & Chavers, REALTORS®, in 1991. Since starting over, the company has grown steadily each year and now has 21 salespeople. "Being independent hasn't hurt us at all," Elliott says.
The company has been able to find ways to replace the services provided by a franchise. For example, Elliott now takes the equivalent of the 2 percent fee that went to the franchise advertising fund and uses it to create "our own, more targeted, more localized advertising." As for salesperson training, he says, "you can get that through industry associations."
In fact, Elliott does his own networking with brokers he's met in other markets. "With today's technology, you can use E-mail to create your own net-work," he says. And he's been able to get superior computer software and support by going to outside vendors.
Elliott's conclusion: "A franchise does offer services, but there are other places to get those. A franchise is good in the early stages of a company's development, but as you grow, you can put the money to better use by shopping for yourself."
Ron Kohl: As an Independent, I Felt Isolated
"When I first belonged to a franchise, I don't think I took full advantage of it," says Ron Kohl, president of RE/MAX--Optimum Group, Greeley, Colo. After a taste of the independent life, Kohl recently returned to a franchise and plans to stay.
His first franchise experience was with Coldwell Banker in 1985. "I joined to get the training, networking, and exposure that come with a national name," he says. He reaped the benefits of all of that as his company became one of the most productive in the Coldwell Banker network. Kohl felt that the downside was paying the franchise dues, about 5 percent of company dollar.
Kohl sold his company in 1988, and later, in 1991, he became a partner in Austin & Austin, an independent. The company was successful, but Kohl missed the franchise support. "As an independent, the structure and technology you need aren't always there," he says. "It can be harder to maintain consistency in your advertising. You can't share things, whether it's ideas or software. I felt isolated."
So last year Kohl gave franchising another try. RE/MAX--Optimum has been growing quickly and today has 12 salespeople, he says. Remembering that he didn't like the percentage-of-commission fee because he felt it penalized high producers, he opted for RE/MAX's flat-fee-per-salesperson structure.
Kohl says he's now more involved in the franchise network: "I go to retreats, and I share ideas and software. The key with franchising is that you get back only what you put in, so you have to work the system, not take it for granted."
L.D. Jones: I Miss It, but Not Enough to Pay the Price
When he opened his company in Fayetteville, N.C., in 1980, L.D. Jones figured that the training and collateral support a franchise could provide would be a powerful lure for salespeople. So he opened Hobgood Jones Real Estate as a Realty World franchise.
And over the next eight years, Jones affiliated 22 salespeople and established a solid presence in the market. "Without the advertising and training from the franchise, we'd have had trouble reaching that level," Jones says.
But by the time Jones' franchise agreement came up for renewal in 1988, he wasn't sure he wanted to stay, in part because the fees his company and salespeople were paying--6 percent of gross commissions, plus 2 percent for advertisingwere growing as quickly as the company. Besides, Jones says, "at that point, I felt we were established enough to carry ourselves."
So Jones left Realty World, hired a training director, and signed on with a relocation network. To help cover the added costs, his salespeople agreed to pay Jones a fee for the next year that was less than they'd have paid the franchise. Today the 25 salespeople at Hobgood Jones & Associates pocket all of their commissions, and business has never been better.
Nevertheless, Jones admits he misses one aspect of being in a franchise: "I really liked the quarterly sales rallies. They were great for networking and just sharing ideas and tips." But he adds, "With the size of my company, it's not worth the fees I'd have to pay just to go to a few rallies."
The Franchises Respond
Brokers who leave franchises to go independent often cite the following general complaints about franchise systems. Here, some franchises respond.
- Since fees are often based on company sales, high-producing companies end up paying too much to the franchise. "For the larger real estate company, the value of a franchise multiplies in direct proportion to its size and market share. Even if it had the ability to duplicate the advertising, programs, services, training materials, and other benefits it receives from a franchisor, the cost would be prohibitive."---Yvonne M. Corrigan-Carr, executive vice president, Realty World
- Franchise services are more valuable to newcomers, who need help getting set up, than to established companies. "That can be true if the franchisor provides only entry-level services. A successful franchisor must continue to provide services above and beyond entry level. That includes advanced training programs or computer software programs designed for larger operations. We have programs aimed at all levels of companies. One size doesn't fit all."---Daryl Jesperson, executive vice president, RE/MAX International
- Franchises just want to grow, even if that means adding competitors in your market. "One of the most effective ways to develop a franchise system is to start in areas where there are large concentrations of brokers, then grow outward from those markets. By focusing on specific areas, the brand gets established and builds name recognition. This creates more of a demand for the product." ---Michael Field, senior vice president of franchise sales, ERA Real Estate
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