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A cautionary tale: Starting over's costly



Eliza J. Kendall almost flushed her hard-earned money down the ...drain. She's since found new advisors.

Three years ago, Franchise Times ran an article announcing that Eliza J. Kendall was launching Leave it to Liza, an upscale portable restroom franchise. This January, we met Kendall at the Franchise Expo South in Miami—where she was launching ElizaJ, an upscale portable restroom franchise.

What happened to Kendall between Launch No. 1 and Launch No. 2 is a cautionary tale for anyone who dreams of turning a business into a franchise. "At best, starting a franchise is a roller coaster ride," Kendall said during a phone interview from her home in Harwich on Cape Cod. "You need to surround yourself with the best possible help. Instead, I aligned myself with someone who was always moving the tracks."

Kendall started as an events planner, planning weddings and corporate events. "I hired magicians and DJ's," she said, "hired caterers and arranged for florists." In the late 1990s Kendall and her husband, Ron, realized there was a need for attractive portable toilets "where a woman could feel comfortable in a formal dress and sit without wincing," she said. Soon the couple was delivering sparkling white portable restrooms to outdoor weddings and parties all over New England. Their rental business was so successful that several people suggested franchising and a businessman friend recommended she hire Andrew Palmer, a Norwell, Massachusetts attorney who did franchise development under the name of the Franchise Institute.

At the time, Palmer was also involved in a business development company called Novidian and shared offices with its president, Ed Mathews. "Palmer walked the walk and talked the talk," Kendall said. In early 2003, she signed a contract with Palmer & Associates, agreeing to pay a $100,000 consulting fee for a list of services that began with a franchise concept assessment, included operations and technology planning, marketing planning and implementation, UFOC and other document production and web site development.

"Andrew brought in some excellent people to design my logo, write my operations manual and set up my Web site," Kendall said. "You can imagine how terrible I felt when I discovered they hadn't been paid." Kendall felt worse when she learned that no one was following through on her sales leads. "It was like jumping into a pool and finding that someone forgot to put the water in. When I asked Andrew for a detailed account of how he had spent my $100,000, he fired me."

When we contacted Palmer, he said, "Eliza was never my client. She worked directly with Novidian. I wrote her UFOC as a contract worker for Novidian, and I was never paid either." But when we contacted Mathews, he said Eliza was Palmer's client (and he sent over the contract to prove it) and that he was the one who wasn't paid. Obviously, Palmer and Mathews are suing each other. We'll report much more about Palmer and other franchise development companies next month. Here's a teaser—the extended story involves indoor ski slopes, foreclosed mortgages, unhappy piano teachers and former clients so mad they've anonymously sent packets of information about Palmer to everyone remotely connected to franchising in the North East.

But back to ElizaJ. Before she "was fired," Palmer had helped Kendall sell one franchise "to a really nice guy who didn't know how to run a business. I finally had to take back his territory," she said. Kendall said she spent a year regrouping, then attended a meeting of the New England Franchise Association (NEFA), where the speaker was Mary Tomzack, president of Franchise Help Inc. an Elmsford, New York, supplier of services and products to the franchise

"I was about to leave when I met Eliza in the hotel lobby and she told me about the bad advice she'd gotten," Tomzack said. She agreed to take Kendall on as a client. "The first thing we had to do," Tomzack said, "was reposition her. Who wants to be a franchisee who rents porta potties? We portrayed her offering as part of the events supply business and designed a marketing strategy around that image."

Kendall also hired Suzanne Cummings, a franchise attorney in Stoneham, Massachusetts, who is an NEFA board member. Cummings said she had to make extensive changes to the UFOC and franchise agreement Palmer had drafted. "I like Eliza's concept," Cummings said, "and I admire her perseverance. She works so hard, you just want to cheer her on."

To find qualified franchisees, Kendall advertised for a franchise development director and found Michael Lett, who had held similar positions at Cendant and Jani-King. Lett, who lives near Greensboro, North Carolina, said, "We have already generated a lot of interest in the franchise, both from people who have other business services franchises and from women who want a franchise that gives them flexibility over their time. I can picture ElizaJ upscale units at golf tournaments, equestrian events and other sporting venues. The possibilities are endless."

Kendall said she was fortunate to have the capital to begin over again. "It's been humbling," she said. "I lost a lot of crucial time, but I gained a lot of knowledge. And now I have people who will support me, any time I pick up the phone and ask for help."

Here's some advice for anyone else who's thinking about franchising a business:"Anyone can hang out a shingle and claim to be a franchise development consultant," says Cummings. "Don't hire one without conducting thorough due diligence." Interview several, check their references and talk to their other clients, she said. 

"Franchising takes a boatload of money," said Jim Coen, the executive director of the NEFA. "It costs $500,000 to $1 million and four to five years to build something of value for your franchisees. To succeed, you need five or six company units and the infrastructure to support a franchise system. If someone says you can do it for less, he's selling you a dream."

"We get 400 inquiries from businesses that want to franchise every month, and work with only three of them," said Mark Siebert, CEO of the iFranchise Group in Homewood, Illinois. "Your business must have something unique about it, a value proposition that gives franchisees a reason to duplicate it. You must have the financial and human capital to provide adequate levels of service, including the money to spend $85,000 to $100,000 a year for a good franchise sales person. If you don't have all that, we try very hard to keep you from going to someone else. But there are always consultants out there who will take your money, even
if you have no chance of succeeding."

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