Franchising

Have you developed the perfect model for your home medical equipment business? Franchising could be the way to grow your business utilizing the monetary and intellectual contributions of other people. This might just be the perfect solution for growth and profitability in a tight economy.

Before mandatory accreditation, every HME operated according to the owner’s desires. Most have been “bootstrap” affairs that succeeded despite themselves. However, accreditation has forced HME businesses to standardize their business practices. This standardization, in turn, makes the business easier to duplicate and, thus, franchise.

This will be especially attractive to outside parties (potential franchisees) if they have a very profitable model.

We are continually receiving calls from people outside of our industry who want to start their own HME company. The first question they ask is where they can go to learn more about this niche business. Unfortunately, there is no university or trade school that teaches people about the HME industry. You have to learn by doing in our profession.

What better way is there to jump into HME than by implementing the best practices offered by a franchise system? And who better to ask about franchising than Scott Purdy, former CEO of Canadian HME franchise MEDIchair Ltd., headquartered in Calgary, Alberta? From 1987 to 2005, Purdy grew the franchise from a single unit to 59 stores with sales in excess of $60 million.

Why franchise now?

There is a saying in the franchise industry that “in franchising, the worst of times can be the best of times.” When the economy takes a turn for the worse, many highly capable, educated and ambitious people are squeezed out of their corporate executive positions.

Often these same people have had enough of the impersonal corporate world. They are looking to become their own bosses and control their destiny the next time around. Most of these same individuals have also received a golden parachute package. This lump sum is not usually sufficient for retirement but may easily fund a new franchise business.

(Which brings up costs, another question potential owners ask. While there will no doubt be a range of costs related to each specific situation, a franchise fee basically covers legal work for creating the system, usually around $20,000 to $40,000 per franchisee. The larger the franchise, the higher the fee due to the increased level of support needed. Monthly royalties cost approximately 5 percent, and some franchise systems also charge an advertising fee around 2 percent.)

Why franchise the HME business?

Many of these ex-corporate executives have a deep-seated need not only to make money but to “give back” now that they have been monetarily successful. They want to participate in an industry or to do something they perceive will improve society. In other words, money alone is no longer their only motivating factor.

We have watched many former corporate executives attain a level of personal satisfaction in the franchised HME industry that was totally unknown to them in their former corporate lives. They have achieved their longing to do something so at the end of the day they can say, “I made a positive difference in someone’s life today and I feel good about it.”

The second most-quoted reason for choosing to buy an HME franchise is the perception that selling HME to an increasingly aging population is somewhat of a recession-proof industry. Most people understand that wealth preservation becomes a distant priority during times of illness. Caregiving is a top priority regardless of income or socio-economic level.

What is the difference between an independent HME and a franchise system?

You can easily turn a single restaurant operation into franchise operation, because a hamburger is a hamburger. Food lends itself to a systematic approach of preparation and delivery. But you cannot make McHMEs!

In HME, almost every individual requires special equipment modification or adjustment to make the equipment meet the specific needs and challenges of that individual. And almost every community has a different demographic mix that requires a complementary assortment of specific — and different — HME products.

The “system” is what makes a franchise both unique and successful. During Scott Purdy’s near 20 years of experience developing the MEDIchair HME franchise system, this was a continual challenge. Over time and with a lot of franchisee input, MEDIchair developed a system in which the company was able to offer uniformity of products and services from franchise to franchise.

This system-wide offering achieved several critical goals for franchising:

• They met consumer expectations of a franchise system.
• They awarded MEDIchair’s franchisees and their employees enough individual control to satisfy the unique needs of each client.
• The franchisees were highly motivated to increase their sales and profit margins every year.
• Both franchisor and franchisee were profitable as a result of this income stream.

Is there a secret to franchising HMEs successfully?

There is no best type of HME, but retail definitely lends itself more to benefiting from a franchise system.

According to Purdy, MEDIchair’s approach was “to build a corral rather than put a rope around each franchisee’s neck.”

What the company didn’t foresee at the time was the incredible intellectual boost it would receive from the brain trust of former corporate executives who gravitated into the system to become franchisees. The resulting innovation, from this collaboration between new franchisees and the franchisor’s management team, helped to create a long-standing, successful, yet flexible franchise system.

The few HME franchise systems we have seen, either past or present, have all started with an independent store that offered the base upon which to grow the system. MEDIchair, Homecare American and Women’s Health Boutique each grew over time from one successful business into profitable franchise operations. And they were driven by HME veterans who understood how to delegate and run self-sustaining, profitable businesses.

The reality of franchise systems is that 95 percent of the mistakes you will make in franchising happen within the first two years of operation. Then you will spend the next 10 to 20 years trying to correct them. This reflects the truism, “Those who fail to plan, plan to fail.”

Jack Evans is president of Malibu, Calif.-based Global Media Marketing, an HME consulting firm specializing in retail sales, layout and operations. You can reach him at [email protected] or 310/457-7333.

After the sale of Canada’s MEDIchair operation, Scott Purdy turned to consulting as CEO of ReInventUs, which consults on the creation of new business structures. Evans and Purdy are in the process of creating an HME franchise in the mid-East.

How do you create a franchise?

Here are some issues to consider in developing a franchise operation. When your considerations get serious, you should involve a franchise attorney or consultant who specializes in franchising.

• How do I award a franchise and at what price?
• How do I brand the franchise so that the brand continues to increase in value?
• How do I ensure that franchises operate in a consistent manner regarding:
  • Standard level of service and products
  • Marketing and advertising programs

• What educational polices will provide maximum benefit to both the client and the business?
• What do franchise marketing and advertising programs look like, and how are they funded?
• What are royalties based upon, and how should they be reported?
• What type of support services do franchisees need to be successful?
• What is the pricing strategy for the franchise stores?
• How do I set the royalty policy without penalizing aggressive bidding on contracts?
• What type of reports will I require from franchisees to ensure compliance and success?
• At what point will I need a franchise advisory council?
• How and to whom do I award authorized supplier status?
• What consumer and professional events will drive business, and how are these events organized?
• How do I create store layouts that will provide consistency in different markets and volume sizes?
• What do the employee manuals for the franchise and the franchisor look like?
• Can I operate both corporate and franchise stores in the same chain?
• What does the organizational chart look like for the franchise operation?