Security. Ego. Love. Fear. Greed. That's just what they had hit him with, Skip Kelley thought, staring at the slide on the wall of the rented motel conference room.
"People don't buy on logic," the teacher said. "Psychological tests have shown that they buy on emotion 75% of the time."
Kelley knew that first hand. Last spring he had been independent, free to run Kustom House Co., his $324,000-a-year remodeling business located north of Boston, however he chose. Thomas Tyska, the regional director who sold him his new Mr. Build franchise, had touched four of the five emotions in his pitch.
Look at the problems you face, Tyska had said: mistrusted by the public, caught in a price war, threatened by the entry of such giants as Sears, Roebuck & Co. and Montgomery Ward & Co. into your markets. That was fear. Then came security, ego, and greed. But just imagine. You can be part of the No. 1 team in an $80-billion industry. With a national brand name like Coca-Cola or Hertz. With illuminated outdoor signs like the golden arches of McDonald's, moving billboards like Sears trucks, radio and television ads like Century 21. What, Tyska asked, would that be worth to Skip Kelley?
It was a polished pitch, starting with an 18-minute video on the triumphs of franchising and ending with a textbook handshake, dotted-line close. And Kelley was an easy sell. Kustom House had been growing steadily, if slowly, for the past 10 years, but Kelley's ambitions and frustrations had been growing as well. "Only used-car dealers have a worse reputation than home remodelers," he would lament. "I've built Kustom House into a professional operation, but to the public I'm still not different from the guy running around with a
Kelley started with a Skil saw in a pickup himself but now at 42 with more than half his lifetime invested in his career, he wanted something more. He wanted credibility, visible proof of his accomplishments and standing. "Credentials," he would tell his wife, "I've got to get credentrade journals -- Professional Remodeling and Kitchen and Bath Business -- poring over their glossy pages late at night, after the last nail had been driven and the truck put away, looking for the key. He had even toyed with the idea of franchising Kustom House himself, if he could ever get more than a few dollars ahead of the game.
Kelley stumbled upon Mr. Build International in his reading -- and was instantly sold. But it wasn't the concept that primarily impressed him, although the idea of a national brand name with television advertising and signs and such fit all his dreams. Instead, he bought the chance to associate with Art Bartlett, chairman and chief executive officer of Mr. Build -- the man who built Century 21 Real Estate Corp. into a franchise phenomenon. Century 21 ads had filled Kelley's TV screen for years; the company's signposts and golden go-getter blazers popped up wherever he looked. Starting in 1971 with a single office and $6,000, Art Bartlett had turned Century 21 into a colossus: 7,600 offices coast-to-coast with $20 billion in housing sales. Then he retired in 1979, considerably richer, after selling the system for $90 million to Trans World Corp.
The choice, Kelley decided, was simple. He could get on the bandwagon, or he could get left behind. "I was afraid not to buy," Kelley admits. "What would happen to Kustom House if Mr. Build got a beachhead in my town?"
On October 22, 1982 -- for a $7,900 flat fee, 6% of his monthly gross, and $300 a month for a national advertising fund -- Skip Kelley became the first remodeler in New England to buy a Mr. Build franchise. "We aren't going to teach you to do your business; we're just going to teach you how to market it," Tom Tyska promised. "We're going to teach you to think like a businessman."
Mr. Build was still too new to New England to have opened a formal headquarters by the time Kelley's first marketing lesson was scheduled. There were no regional offices yet, and only two regional staff members: Tyska, a monogrammed and manicured Century 21 veteran who commuted from Connecticut in his Mercedes-Benz; and his secretary. So the class convened in a rented motel conference room instead, and the international offices sent Ira Messing, the designer of the training programs, to teach.
Messing is an anomaly in the system, one of the few Mr. Build International executives who didn't come from Century 21, and one of the few who ever drove a nail for profit. He is also one of the most messianic, fervently convinced of the truth whereof he speaks. "Our remodelers see themselves as craftsmen; most are extremely weak in business sense and don't know how to apply the disciplines," Messing says. "It's very difficult. You can't teach a college course in marketing to someone who has only been through the ninth grade. We've got to take a guy, give him a program, and motivate him to get in his pickup and go try it. We give him the ammunition, but he has to fire the gun."
Kelley sat in the front of the room, surrounded by about two dozen remodelers who had also bought the Mr. Build name all scribbling away on their yellow pads. The teachings were basic selling tools Kelley had read about for years but had always been too harried to ever use -- a 90-minute slide show on such basics as "An Rx for Sales" and "What It Costs to Slash Prices" mixed with a generous pep talk. Selling a remodeling job, Kelley was told, was not so different from selling a franchise: Both are intangible, a service rather than a product; both are a deferred sale, with benefits promised down the road; and both encounter initial consumer resistance.
Be confident, Messing preached. Be professional. Wear the maroon blazer that shows you are part of the team. "You see yourselves as competitors, but the public doesn't see you as Mr. Build versus Mr. Build. The public sees one giant company. Right now you don't know each other. But as you share common problems you'll come to respect each other.
"Always remember this: As a Mr. Build contractor, you're on a different plane than you were before. You've got one significant selling tool you didn't have before: You are Mr. Build.
"The whole goal of the system is to increase sales for each and every one of you. We won't succeed unless you succeed. But as each of you grow, we'll all grow together. That's the marvel of synergy."
The education of Skip Kelley had begun.
"I came home and told my wife they used the word 'synergy," Kelley remembers. "I'm a trade-school graduate -- that was a new word to me."
Business synergy, channeling the energy of lots of small entrepreneurs into a marketing system more powerful than its parts, is hardly a new idea; the concept has been at the core of franchising since just after the Civil War, when Singer Sewing Machine Co. is said to have introduced franchising in the United States. But the franchise world -- today estimated to include 465,000 establishments with 5.2 million employees and $436 billion in sales -- is changing, and Skip Kelley is on the crest of those changes.
While traditional product and trade-name arrangements to sell Fords, pump Texaco gasoline, or bottle Coca-Cola still account for nearly three-quarters of all franchises, their numbers are slipping. Since the 1950s, the age of McDonald's, Holiday Inns, and H & R Block, growth has been in business-format franchising, that is, selling not just a product or a trade name, but a marketing plan, operating standards and manuals, start-up assistance and training. And now the golden days of growth for the golden arches may be passing, too. The market is nearly saturated with fast-food and speedy muffler outlets; although food and automobile parts still account for the lion's share of business-format franchises, new franchise growth is in the service sector, in such areas as education products and services (up 28.3%), leisure and travel (up 31.5%), business aids and services (up 2 1.3%), and miscellaneous business (up 48.3%).
Conversion franchising, convincing established, independent entrepreneurs to join under a national banner rather than starting would-be businesspeople from scratch, is the fastest route to franchise growth. With Century 21, the most successful conversion franchise in history, Bartlett blazed the trail. Since then, conversion franchises have spread from real estate to employment agencies, insurance offices, barber shops, and banks; even such traditional start-up franchise companies as Midas International are testing the waters. Growth is the one requirement for success: Conversion franchising offers a low-capital, high-yield, fast path to a national hrand name and market share, if the franchisor can expand quickly enough to generate the marketing dollars to promote the system.
Art Bartlett retired after he sold Century 21, then got "bored." Golf, he decided, was "too time consuming"; he missed the "day-to-day excitement of building a company." When he looked at home remodeling, he saw his opportunity for the '80s, a chance to reprise his triumph in real estate. The home-remodeling business was big, estimated at upwards of $80 billion in sales, although the industry was so fragmented that it was hard to get accurate figures. With most American houses middle-aged and ready for repair, sales could only grow, and there was no brand name yet. Remodeling franchises were not a new idea; several had been born and had died in the '60s and '70s. But, Bartlett reasoned, he hadn't originated real estate franchising, either; he was just the first one to make it work.
He began with a legitimate service to sell. To the public, tired of being ripped off by shoddy or incomplete work, Mr. Build would offer security, not just a brand name and a professional reputation, but a guarantee as well, with an insurance company's performance bond promising that work valued at up to $100,000 would be completed on time and to the customer's specifications. To the contractor -- Skip Kelley and the thousands to follow -- Mr. Build would sell the right to use that name, an image and guarantee calculated to calm consumer resistance, along with training in such basic skills as accounting and lead generation and access to group discount prices on everything from building materials to insurance. The consumer would win; the contractor would win; Mr. Build would win.
"We're going to remodel the remodeling industry," Bartlett announced early in the company's history, predicting 1,000 franchises by the end of 1982. "It's easier this time. We've got money, and we've done it all before."
Mr. Build was hardly greeted with universal huzzahs within the industry, however. While Dun Alaimo, editor of Professional Remodeling, called Bartlett's team "a savvy bunch with the dollars to stick it out," he foresaw the difficulties it would have selling the idea. "The concept itself is problematic because the entrepreneurial personality is resistant to regimentation. An independent remodeler who has been calling all the shots isn't going to take to the idea of wearing the company colors."
Contractors who are doing well don't need the kind of help Mr. Build claims to provide," insisted Marsha Liebl, spokesperson for the National Remodelors Council of the National Association of Home Builders. "Their claims sound a little too. . . ambitious. . . to believe."
"They're real-estate people," complained Michael Stone, a contractor and business consultant in Vancouver, Wash. "And they ought to stick to real estate. Mr. Build is interested in selling franchises, not in helping the little contractor. Making a lot of promises sells franchises. Keeping them is another matter entirely "
But after one year in the system Skip Kelley is still sold on the idea. By the end of 1983, Kelley had seen his marketing costs cut in half. His sales have increased by 50%. And next year he expects to top the $1-million sales mark.
I ran a business very successfully without Mr. Build," Kelley says. "But since I joined, everything has really taken off. The conversion has changed my perspective; it changed my whole thought process." A taste of growth has quickened his ambitions, too. He plans to open in two neighboring towns -- with two more Mr. Builds.
Skip Kelley's headquarters would do Art Bartlett proud. The new Dodge Kelley bought when he joined up is parked by the door, painted Mr. Build grey and maroon, with the company logo, a muscled and mustachioed handyman, fist clenched in competitive determination, gleaming on its doors. Kelley's new sign, "Mr. Build Kustom House Company," hangs on the building's brown siding.
Inside, the sales office/showroom is much as it was before Kelley joined the system. For the first seven years of Kustom House, while Kelley ran the business out of his basement, he had dreamed of what he wanted; when finally he was big enough to make the move, he decided to do it right, taking out a second mortgage on his house, spending $70,000 to transform an old railroad station into his vision of the perfect showroom. Sun pours in through two skylights. Ivy nestles in oversize windows. The jar on the desk is brimming with hard candy. Stoves and refrigerators, cabinets and sinks, wine racks and wet bars line the walls in the full panoply of woods, finishes, and trims, all examples of the Kelley style of kitchen renovation.
Kelley himself sits in a small office behind his model dining room, gray name tag pinned neatly on his maroon blazer, cheerful, determined, and expansive. His short brown hair and earnestly enthusiastic smile give him the air of a suburban scoutmaster, particularly when he lets his exuberance for life in the franchise world bubble out. Small carvings of Sancho Panza and Don Quixote sit on his desk, "because I've always chased the impossible dream." A mock grandfather clock with a stained-glass rendering of the old Kustom House logo sits behind him, holding his Mr. Build training manuals, "my $8,000 books," he jokingly calls them.
Converting to the Mr. Build system and learning to use those books was "relatively comfortable," Kelley says today, "a substantial change, but an easy one." The regional office gave him a modular conversion program with a weekly timetable, advice and samples for changing his d/b/a and his ads in the Yellow Pages, and a form letter to send to Kustom House customers heralding his rebirth. His only physical problem was the dye in his new maroon socks that ran in the washing machine.
Emotionally, however, the conversion was more difficult at first. Kustom House -- with a K for Kelley -- was the product of a lifetime of aspiration: 10 years of labor over a workbench, turning out kitchen cabinets for his uncle, before Kelley got the confidence to go out on his own; 7 years as a jobber, carrying his Skil saw from house to house, before he took the plunge and built the showroom. He had created a Kustom House logo, chosen yellow and brown for his company colors, ordered uniforms for his staff, and designed a marketing plan.
When he joined the franchise, all that had to change.
"I was really upset," Kelley admits. "Mr. Build wasn't mine. It came from somebody else's mind. I already had my colors; I would never have chosen gray and maroon. I would never have chosen that name, either. I would at least have come up with a name that relates to what I do.
"I already had a name. My name. It hurt a little bit to push that aside and take the back seat to Mr. Build.
"But that's the problem with remodelers. We romance the business to death. We forget we're in business to make money. I knew, if I thought about it, that the mass approach through Mr. Build was going to work -- after all, would people rather buy a McDonald's burger or a Skip Kelley burger?
"That's one of the things they taught me in the training session. I shouldn't care what they call me. As long as they call me. If you don't get away from the romance, you can't survive."
Kelley went to all three of the series of classes Mr. Build scheduled for franchise owners, coming home at the end of each day with his yellow pad filled with notes and his mind bursting with ideas on how to sell, how to price, and how to profit. Each class was built around a thick maroon and gray workbook, step-by-step instruction with examples, models and forms he could use himself, order forms for the maroon uniforms for his staff and site signs for his jobs, billing sheets and stationery with the Mr. Build logo, camera-ready adHouse as much as he had, but they, too, were sold by the training sessions. Now a customer coming into Kelley's showroom gets a uniform selling pitch Kelley wrote after class, beginning with the eight-minute video presentation of the Mr. Build concept and warranty and ending with a carefully rehearsed close.
"It's just a giant selling tool," Kelley says. "They didn't teach me anything new; they just reminded me of everything I had forgotten. But as far as I'm concerned, Mr. Build is the only way to fly."
For all the Mr. Build sermons Ira Messing preached in class, nothing convinced Kelley of the value of the franchise as did his own success. His marketing costs dropped from 8% to 4.5% of estimated gross sales, and his sales soared, from an annualized volume of $320,000 to an annualized volume of $500,000 in the first six months. Sales are expected to be over $1 million by April 1985 -- "good business by anyone's standards," Kelley says.
"I used to shoot a shotgun with my marketing. I'd do jobs all over, miles apart, trying to get all the work I could. But Mr. Build taught me to narrow my focus. I got out a compass, I got a map from my wife, and I drew circles 5, 7, and 10 miles away from my showroom, and decided to concentrate my marketing there. I sent out 5,000 pieces of mail in that area, all to homeowners making over $30,000 a year, and got a full 1% of inquiries actually walk into my showroom.
"As Kustom House doing business out of this showroom, I used to close 1 out of 10 that walked in. Now I'm closing 1 out of 5. I get fewer walking in, but the size of the job has doubled. I've changed my demographics; my customers are older and more experienced, rather than first-time buyers. I got out of the 30-year-olds and into the 40-year-olds. Now I get two-income families, people who live in a $200,000 house. So instead of adding an $8,000 kitchen, it's a $15,000 kitchen. Converting their cellar is worth $20,000 instead of $5,000.
"That's the kind of business you have to do if you want to grow. If you want to get off the wall and behind the desk, that's what you need.
"Somehow in my mind now every customer is worth, say, 12% more, too. I used to try to cut my prices, figuring that was the best way to get the business. Now I can charge a fair price, enough to make a profit. And now I know I deserve it."
Confidence, Kelley says, is the real payoff of Mr. Build.
A mid-morning site visit -- a $66,000 job to frame, insulate, and finish a basement as a family room, bathroom, and sitting room, moving the old kitchen downstairs and putting in top of the line upstairs -- helps explain his glow. His Mr. Build site sign, slightly askew, hangs on a tree in front of the large, white colonial house. The day after he hung the sign he sent a computer letter to 50 of the new customer's neighbors, inviting them to check out their friends' addition. If there were any inconveniences from the work, or if they wanted to discuss renovation possibilities for their own homes, they were invited to call Kelley personally. If he gets calls from them, Mr. Build has taught him how to close the sale.
When Kelley arrives, five different subcontracting teams are on the site, cutting concrete, putting up walls, working on the heating and ventilation. Kelley got two of the five subcontractors from his Mr. Build pool. Not too long ago, Kelley would have been down on his knees with them, T-shirt sleeves rolled up. But no more. He steps gingerly down the stairs, picking through the effluvia, careful not to get dust on his blazer or mud on his shoes. Now it is just a look see and shoot the breeze before he heads upstairs to check with his clients.
He could never have gotten the clients without Mr. Build, either; he knew just the chord to strike to calm their fears. Financing? As a Mr. Build contractor Kelley can write a loan for up to $100,000, at competitive rates, and get approval within 72 hours. Guarantees? "If you're worried about anything," he told them, "we're bonded -- and that bond will be at your door before we get there."
It was, he decided, the performance of a complete remodeling professional.
For Skip Kelley, businessman, the greatest luxury is time. The phone at the showroom rarely rings for him personally these days; he has learned to delegate, and the calls are usually for his production manager or his office manager. Last winter, for the first time in 10 years, Kelley took his wife on vacation. And this winter, for the first time in his life, Kelley will attend a remodelers' convention.
So why not take an hour for lunch, Kelley asks himself. Time to think. He strolls around the corner to the neighborhood cafe for two vodka and tonics, onion rings, and London broil, blood rare.
In truth, at the end of his first year in the system, Kelley is starting to feel personal qualms. When Tom Tyska sold him his franchise, he painted a glowing picture: thousands of franchises, thousands upon thousands of signs, trucks, and blazers, a national television ad campaign -- the miracle of synergy. But the sales haven't come as fast as Tyska had promised. Instead of thousands of franchises, as of December 1983, there were only 500 open and operating. Although Mr. Build is the fastest-growing franchise in America, with a rollout pace far ahead of Century 21's, it has never come close to any of the early, glowing predictions.
"Mr. Build has made me more money than I ever thought it would," Kelley admits. "But they haven't given me what they said they would. The way we were going to gain national brand name recognition hasn't happened yet. I've given more to Mr. Build's name than it's given to me.
"It's the marketing plan that concerns me not on my end but on their end. The ability of those guys polished executive types, to talk to a remodeler who has been losing money for the past three years isn't strong enough. How can they relate to him; they don't know what a tough row he has to hoe. But it's not only the rate of sales that shakes my confidence, it's the methods. Mr. Build taught me a legion of lead-generation methods, and they all work. Why don't they use those tactics more to sell franchises?
"When I bought the franchise I bought the big-bang theory, with Art Bartlett as the big gun. I didn't need to know how it worked then. I didn't need to know where he was going with it. I just had to use it. But that's not true anymore. Whatever he does will reflect on me. My company name and my personal name are involved."
Kelley, on the bottom end of the franchise pyramid, sees only shadows of what is happening in the larger system, glimpses snatched from the uniformly self-congratulatory company newsletter or from the uniformly critical trade press. He knows Mr. Build is losing money -- $3.3 million in the first 18 months, according to the auditors -- most of it Art Bartlett's. And he knows the company has regrouped to boost sales, although he is not sure what that will mean for him. "Teamwork" has replaced "synergy" in the selling pitch, and there has been a change in advertising agencies. The new slogan of the quarter -- not one Kelley would have chosen -- is "Mr. Build, the Team America Trusts."
The other changes have been structural, all calculated to accelerate the pace of the roll out. The company has changed its service charge, in Kelley's case from 6% of gross to $350 a month; that should broaden the franchise appeal to larger and more professional contractors. It expanded its potential market a dozen times over by changing "Mr. Build Remodeling" into "Mr. Build Total Property Services," open now to specialty contractors in 32 different trades, such as plumbing; landscaping; and heating, ventilation, and air conditioning. And it has put some regional offices up for sale. When Mr. Build began, regional directors were Art Bartlett's employees, directed from the international office, but they didn't seem to have that selling drive. Now there are regional directors who own a territory -- just as they did with Century 21. They are Bartlett's partners, independent entrepreneurs who have bought into the system; Ira Messing, the original designer of the training program, bought a region, and so did Tom Tyska, Kelley's own New England director. "Art Bartlett made a lot of millionaires with Century 21," Tyska explained simply.
The thought gets Kelley's juices flowing: security, ego, love, fear, and greed. He is still sold on Mr. Build. But why, he asks, should he settle for a million in sales? Or even for buying two more Mr. Build franchises? Why shouldn't he buy a region himself? Isn't selling a remodeling franchise like selling a remodeling job? Who knows the market and the customer better than a lifetime remodeler? Hasn't his selling success over the past year shown how well he understands the system?
Passing on dessert, he orders a liqueur with his coffee instead, savoring the possibilities while he waits to sign his bill. Why not the impossible dream? He has already talked with a couple of potential backers about the $250,000 region fee.
"Thank you, Mr. Build," the waitress says, smiling over her 20% tip.
"I'll be damned," Kelley marvels. "I bust my tail for 10 years to get my name recognized, and after 12 months it's been forgotten. Soon people won't know my real name. I'll just be Mr. Build.
"The next step is for me to meet with Art Bartlett personally. 'OK, Mr. Build,' I'll tell him. 'I'm hitching my ponies to your wagon. So where are we going?"