Welcome to Franchise Talk, the engaging go-to information resource for franchise owners, including those interested in buying or selling a franchise. Franchise Talk is brought to you by Morgan & Westfield, a nationwide leader in business sales and appraisals. Visit morganandwestfield.com. And now, here's the host of Franchise Talk, Emery Orosz.
Emery: Hey, good afternoon Sam, Emery Orosz from Morgan & Westfield.
Sam: Good afternoon.
Emery: For those in the audience this is Sam Thurman, he's the VP of franchise development for Mr. Rooter. And he's also the VP of the Resale Department for the Dwyer Group. Sam, I wanted to talk a little bit this afternoon about Mr. Rooter. They've been around a long time. I believe that they were established in 1970, is that correct?
Sam: That's true. Mr. Rooter, it's a bit of an interesting story how they came to be part of the Dwyer Group. Mr. Rooter, the name itself had been around since about 1970. Mr. Rooter was originally put together by a group of plumbing company owners. They were in the North Texas, Dallas, Tulsa, Oklahoma City markets. These guys were trying to figure out how to create a competing company to Roto-Rooter. At the time everyone's kind of Roto-Rooter, they've been around the longest in this sector. And during the 70's and 80's Roto-Rooter was the only game in town when it came to national franchising at the time. These guys got together. They began to put together some marketing materials. They co-opted some purchasing power and they did some other things. They had built their network to maybe 20-25 locations. But they were really trying to figure out how to franchise it on a national level, and they did know how to do it. They sought some advice. They were trying to find someone locally or nearby who understood franchising, and that's how they came in contact with our founder Don Dwyer in the late 1980's. And they came down to meet him and said, "How do you do this?” Here's what we're thinking. Don, being kind of serial entrepreneur listening to them and liked that idea quite a bit. As a matter of fact Don had already been successful with the Rainbow International Franchise. And so Mr. Rooter ended up being our first acquisition.
We've bought the Mr. Rooter brand in 1989. There were about 28 locations. Interestingly we were the first national plumbing franchise to quickly re-brand ourselves a plumbing company. Up till that time all the plumbing franchises, Roto-Rooter being the only one at that time. But they did not promote themselves as a full service plumbing business. As a matter of fact all they did is drain cleaning. There's a reason for that.
Mr. Rooter was originally put together by a group of plumbing company owners.
Emery: I remember those days.
Sam: Yeah. “Flush, it travels down the drain, I forget to jingle”. But there was a reason for that. Because if you only did drain cleaning it did not require a plumbing license. And that's how they were able to grow. And so we were the first business, down to our survey, the plumbing industry as a whole, looked at the competitive landscape, looked at the business models, and quickly understood and realized that if you're going to truly create a high volume, profitable business, you need to introduce whole service plumbing, so were the first to do so.
Emery: I'm going to be honest with you Sam. I deal with a lot of people that are looking for businesses. And when I mention a business like Mr. Rooter to people they say, "Emery, hold on. I know nothing about plumbing. Why would I even consider a franchise plumbing business?" Sam, what's your response to that?
Sam: I understand that. There are two things that are probably happening. Number one, sometimes when you promote a particular business, a particular investor might see himself in that business. I'm not a plumber. I don't want to be a plumber, right? We understand that. We are not in the business of turning anyone into plumbers, particularly our franchise owners. Actually, we grew the Mr. Rooter historically, predominantly, Emery, to a conversion process. The way we were able to build this brand to its dominant position to today was in the early days, predominantly by reaching out to existing plumbing businesses and having them convert an existing plumbing operation over to Mr. Rooter. One of the key components to that was teaching these plumbing company owners, who are almost only plumbers, how to stop being plumbers and begin to be entrepreneurs. It's the old phrase you hear “working on the business not in it”.
Sam: And we have seen these people, we've seen the transformation of these people that came to us as literally plumbers, but are now extraordinarily successful business people. The first thing I want people to understand is we're not here to make you a plumber. We're here to make you the owner of a plumbing business. Now, we’re to the second challenge that a lot people I think run across working through in their own mind is that, "I don't know anything about this" or "Plumbing business, really?" They don't really understand. Almost all of us, particularly own our own homes and we're at a certain age. We've interacted with plumbers. We've interacted with the HVAC companies. We've interacted with electricians. We spend a lot of money with these people.
One thing you must understand about these industries, and industries that make up the Dwyer Group, is that our menu of companies what was a very conscious decision of our founder Don Dwyer, because one of the things he quickly realized, when we started looking at the service trades, we knew we were not going to be the sexiest businesses around. But we also knew we were not going to be a fad. We also knew that we were extraordinarily scalable. We also knew that we were in businesses that we're always going to be in extraordinarily high demand no matter whether or not the Dow Jones is, up a thousand points or down a thousand, what the economic conditions were like. We also knew that in most markets the competition was very fragmented and fairly unsophisticated. We knew that with the right processes and the right systems and support, a person could come in and create a dominant business in this sector. We also knew the huge amounts of money that are spent in these sectors.
The thing to remember is when you're looking at one of our types of businesses is their scalability. People can create significant companies with a single location with one of our brands. Just like I said, these are companies... There's no business Emery out there that's recession-proof, but we are proud to say and we will stand by the fact that we are extraordinarily recession resistant. After evaluating businesses, I always tell people until you learn more about it don't discount these opportunities because they'll be some of the best you'll ever find.
Emery: Yeah, and I appreciate the point that you made Sam about it not being a fad-ish business, because there are some businesses out there that they'll run their course for two or three years and then they'll just drop off the edge of the earth so to speak.
Sam: I always tell people something like plumbing has been around since the dawn of man and it'll be around until the end. You look at the home ownership rates in the United States, all the things are working in our favor. You're looking at the age of the homes in the United States, all things are working in our favor. It's kind of a perfect storm at this point.
The thing to remember is when you're looking at one of our types of businesses is their scalability.
Emery: It's a very scalable business as you mentioned. It's something that's going to be around for a long time. Sam, if you don't mind me backing up for just a little bit to the owner. What are the owners' basic responsibilities would you say?
Sam: Sure. For our owners, the primary responsibilities are number one, surrounding themselves with good people. That goes back to something that we may have touched on, which is the licensing requirements within our trade. I don't think we might've touched on this a moment ago, but a lot of people are also intimidated, because to do the work that we do as a Mr. Rooter franchise does require a state plumbing license.
Emery: That's in every State?
Sam: That's in every State, absolutely.
Sam: Which is good, because you actually want that because it limits the number of competitors that can do this type of work. And to achieve and obtain a plumbing license in most States, it's a very hard thing to do. It's not like a contractor’s license in Texas where you can go pay a fee and you're in business. In most States it's a pretty cumbersome thing to go out. It usually requires years of experience underneath a master plumber. It requires rigorous testing. What this does is it does limit typically the number of competitors that can do the work we do.
You said what's the key thing for owners? The key thing for our owners in the case, they came to us as non-plumbers. Number one, the first person they're going to need to find is they're going to need to find that master plumber that they hire. Therefore their business is qualified. They have pretty much taken care of the license requirement to do the work as a franchisee. But the other thing is surrounding yourself with other key employees. It's going to be the back office support, there's going to be other technicians working for them in the business, managing these people. There's going to be also a marketing plan and budget to drive service, to drive customers to our locations. Marketing has become very complex, the customer today is different than they've ever been, they're more demanding. But we knew here with Mr. Rooter how they're making service decisions. They're going to be managing that, they're going to be managing the money. I think one of the key and most important things that our owners are going to be doing, they're going to be the face business and the community, and they’re going to be the ones who set the tone of the company itself. They're the ones to inspire their people, manage their people, manage the system. Remember, when you invest in a franchise, all franchise companies are going to tout that they have a system, and ours is an extraordinary one. Whether you come from plumbing or you do not. But it's working with very closely with our team to manage their team.
Emery: Let me make sure I understand this Sam just to put in a nutshell what you've just said. The owner needs to hire a master plumber, which in effect will make the licensing requirements go a lot smoother, correct?
Sam: It takes care of it.
You said what's the key thing for owners? The key thing for our owners in the case, they came to us as non-plumbers. Number one, the first person they're going to need to find is they're going to need to find that master plumber that they hire.
Emery: It takes care of it, okay.
Sam: That's correct, yes.
Emery: That's one objection totally out of the way. Again, your point, surrounding himself with good people, the master plumber, the back office staff. How many people does the average Mr. Rooter need to operate efficiently would you say?
Sam: That's a very good question, here's another thing. I think a lot of people are maybe driven by their own perception of what they think something must be like. In plumbing... I'll really give you an example.
Sam: The average Mr. Rooter location. This is an average location across we have right now about, about 265 locations in the United States. Our average location generates approximately only $1.1 million a year in revenue.
Emery: Gross revenue?
Sam: Yeah, gross revenue. You'll get into our top 50% of our operators. Now you're at $2.3 million, then our top 25% go to $3.2 million, and so forth. Let's go back to just our average operation because a lot of them are thinking, "A million dollars, that sounds like..." No, I think the average McDonald's does about a million dollars and I think they have to hire somewhere around 35 people, 24 hours a day and all. The average Mr. Rooter, at a million dollars, you can literally do that with four plumbers, two people in the office, and the owner.
Emery: So what's that, seven people?
Sam: Seven people.
A lot of the people our guys hire will be just people that are technically adept. They could be past auto mechanics, they could be people working with their hands, they can be in construction. Because people can be trained to work with the vast majority of equipment we use in our trade
Emery: So you've got the master plumber and then you can just hire regular journeyman plumbers?
Sam: That's true. Once they are working under the master, there's really no requirement for the other employees to hold any particular license. But what will happen is over time they'll go from an apprentice, then they'll go to journeyman, and then over time they can actually qualify for their own master plumber's license. But many of the people it depends. A lot of the people our guys hire will be just people that are technically adept. They could be past auto mechanics, they could be people working with their hands, they can be in construction. Because people can be trained to work with the vast majority of equipment we use in our trade.
Once the job escalates to a certain complexity, you go out on a drain call and now obviously, the drain itself, the main sewer line have suffered some type of critical problem that's going to need to be replaced or repaired. That's where the master plumber and more experienced people will come in and oversee that job.
Emery: Okay, got it. If we could just shift gears a little bit Sam. I wanted to talk a little bit about the fact that there's never an overtime charge. If you have a problem on a Saturday night. Let's say your sinks are backing up, your toilet's overflowing and you call a Mr. Rooter and he comes out... First of all is he going to come out on a Saturday night if it were an emergency? So he will come out. But a lot of these guys will say, "I can come out but we've got a weekend overcharge, a surcharge." That doesn't happen with Mr. Rooter at all? There's no overtime charge?
Sam: No, there's not, there never has been. Let me walk you through our thinking there. Because you got to remember a couple of things. In today's environment, most of your customers, they're typically going to be residential homeowners, maybe property management companies, but the majority of them are going to be single family homeowners. Think about when they're going to discover plumbing issues.
Emery: When it's critical, usually.
Sam: Yeah. The husband and wife typically both work, something could happen overnight. You got to remember, a lot of the work that we're getting are going to be after hours. You have to oftentimes accommodate an employee. Listen, water and sewer systems don't care if it's Saturday or Sunday when they break. And we don't want to penalize or be seen as penalizing the customer simply because they need our services at a particular day or time. And so what we wanted to do is treat them as we would treat them as we would treat anyone else and accommodate them. We want to be accommodating. What you're getting at here Emery is really how we are differentiating and separating ourselves from a lot of the competitors out there.
Sam: It's not just in offering things like that, but it's in the way we look, it's in the way that we process services, it's the technology that we're using, it's the tools that we have. Everything that we do here with Mr. Rooter, we understand too that there is a certain customer perception of plumbers. Sadly, they just do.
Emery: I've got the picture in my mind right now.
Sam: There's a lot of that going on. What we are doing, and we are bringing a level of professionalism to this very professional “profession”. I tell you, plumbing is, like I said, at the end of the day there's no more critical system in your home if you think about it. There's not. It delivers drinkable water. It gets rid of all waste. It keeps your home free of bacteria. There are so many things that plumbing does. But I think as a profession, just the profession itself, some customers have this idea. So what we try to do is not only are we raising the image of the industry, when we show up we present ourselves as the professionals we are. And what that creates then is a relationship with our customer that is equal and they treat us as professionals. Doing that separates you by a wide margin with most of the companies they're going to be encountering out there in this trade.
What we are doing, and we are bringing a level of professionalism to this very professional “profession”.
Emery: Yeah, I've seen some of the pictures online of the Mr. Rooter guy showing up in a nice, pressed red shirt. Very professional looking. Do they really come to your house looking like that?
Sam: Absolutely. And the van... Of course, every interaction that we have with our customers from the first phone call to how we interact with them while we're in the home, to the follow-up, absolutely. And all this is to meet what we know are the customer's expectations in today's day and age. Customers have choices. We are an emergency-driven business, which is a beautiful thing Emery because when the customer's calling a plumbing company. They're having a bad day and they're spending money that day. That's just two facts. It becomes incumbent and critically important if you're in this trade, to make sure that your company is now everywhere a customer may go to make a service selection. There's things that a customer goes through when making that selection. So it's how your advertising looks, it's where you are, it's what you are promoting, it's what they see, it's what they hear when they get on the phone. There are many factors and many decisions that are going on in a customer's head when they're making a choice on which service company to come in to their home, particularly the discerning customers. It can range everything from convenience, to price, to safety.
Emery: Safety is a huge issue.
Sam: Yeah, there are all kinds of things that come into that. Once again, what the customer fears the most when dealing with businesses like ours is the unknown. They don't know what's wrong, they don't know how to fix it, they don't know who to call, they don't know who to trust, all of these things.
Emery: Let's walk through a scenario just because of that last statement that you made. I've got a problem. I call a phone number. Who am I talking to? Who answers the phone? Do you guys have a call center? How does that work?
Sam: It depends. If it's during business hours, almost in every case the phone will be answered by an employee of the local franchisee. We call them a customer service representative, correct.
Emery: They answer the phone.
Sam: Who is trained very well on how to handle that incoming call. Now, if we get to after hours or weekends as a franchisor, we do have several different options where our customers can then choose to switch the phones over to a very professional and well-trained answering service, which answers the phone just as if they were there. They still answer the same way. Those call centers have access to your scheduling software, notification software, and we're big users of technology here. There's not a lot of phone calling going on in the... You probably maybe encountered this Emery if you have called a professional company before on the weekend or something. Someone will typically answer the phone and you'll get an answer like "Please hold", or "Ma'am, let me check you availability. I'll call you back in 5 minutes or something." What's going on behind the scenes there is they are managing their weekend staff and getting their availability and all that. So that's kind of going on behind the scenes.
Emery: That makes sense. During business hours, the CSR is sitting in the office, command the phones. As you said, after hours the franchisee has the option of selecting how those calls are going to be handled, correct?
Sam: That's correct.
Emery: Okay. Let's say a person a calls in during business hours and says, "Look, my toilets are overflowing and I don't know what to do. I don't know what's wrong. How soon can you send somebody out here?" This is during business hours. What happens next?
Sam: Ordinarily, what you want to do is you always try to accommodate the customer, what's their availability. What's the most convenient time for us to have someone there to you? Because you got to remember, most of our technicians, the average Mr. Rooter technician is only going on between two and maybe three calls in any given work day. That's once again a perception thing, people are thinking, my gosh, we have to drive all these calls going back to our scenario of the million dollar shop with four plumbers. That plumber is going on two calls and maybe three calls a day. So as little as 12 calls a day generates those numbers we're talking about. But generally we give a two hour window between... Like they may say, "When would be convenient for you?" "I'll be here at 10." "Okay, we're going to put you in between 9 and 11 o'clock and we'll call you 15 or 20 minutes, or would you like us to call you before we arrive in case you need to leave somewhere, to meet us there?" There's all kinds of coordination there.
Sam: What you attempt to do there is because the way you're going to close the call and book the call is you have to accommodate the customer's demands. That's the secret. Instead of saying, "Man, we can get there 4 o'clock today" that customer may say, "Okay, I may call you back" because they need somebody there at 10 because that's when they can get off for lunch for work.
Emery: Sure. The Mr. Rooter guy, after all this is said and done, the appointment's made. He shows up at the house. He says, "Let me get to work right away and I'll give you a bill when it's done." Is that the way it works?
Sam: No, of course not. And everything about, like I said, the way we look and we present ourselves, we'll put on shoe covers, we'll put down a mat to clean our feet before we go in the home. We'll present the customer with the business card, got the logo on the tool bags. All of our technicians are equipped with the an up-to-date iPad. What will happen is we'll ask to see the area of concern and they take us to the toilet. Obviously, you're educating the customer all along. We've got to define what is the problem. We'll set-up the work area and begin to do the diagnostic. She may have tried to plunge it and that didn't work so we know there's some other type of blockage somewhere. He’ll begin to use the tools of the trade to try to attempt to diagnose the problem. As he's going through, maybe it's a cable machine first. We're going to try that first. We'll go to the menu pricing guide on his iPad and open that up. He says, "Ma'am, first thing I'm going to do and try this. The cost to do this, leaving the toilet in place, bringing the cable machine through would be X number of dollars." I don't want to get too deep into weeds here but what you're doing is all along the customer's approving the job that you're doing and agreeing to the cost of the job.
We've got to define what is the problem. We'll set-up the work area and begin to do the diagnostic. She may have tried to plunge it and that didn't work so we know there's some other type of blockage somewhere.
Emery: Step by step, got it.
Sam: If the job escalates into something more serious, if that's not working now we have to remove the toilet, maybe we have to come down with a camera to go down the line to see exactly what's happening. Once again you're just educating the customer along the way. Once again, they know all along exactly what the cost of the job is before they authorize us to do it. Once again, what customers fear the most is the unknown. You're educating and giving them choices, keeping them up to speed on what's going on.
Emery: Right. No surprises at the end. They take credit cards?
Sam: Absolutely. Not only that, you have to accommodate how customers expect to pay for things today, if they have cash, they have checks, they have credit cards. If the job becomes a much more serious problem, which you do run into in plumbing, more often than you think. If you're having a main line issue and there's route intrusion, or if you’re major line is an old cast iron pipe that is put in at 1947. Let me tell you, it's cast iron. It will eventually...
Emery: Yeah, rust...
Sam: Yeah. If that needs to be replaced, this drain call could potentially turn into, depending upon the length of the run, and the depth of the pipe, it could turn into a $3,000, $7,000, $12,000 job.
Emery: Well, there's no knowing when the Mr. Rooter guy walks in the door, that's the beauty of this system, is the customer is educated step by step. And at any point they can say, "You know what, I can't afford to go any further."
Sam: And we can make it work. Oftentimes we can get the water flowing again through a bad pipe, but that's a solution done sometimes. But to your point earlier, when you do run into these more significant issues and problems we also have financing options that are extraordinarily simply.
Emery: I was going to ask about that. So you use an outside bank to finance just like a place, discount tire store...
Sam: Absolutely. It's about a 10-minute application done over the phone. I could share a quick experience.
Sam: Last summer, I’m a very loyal customer to the Dwyer branch here Waco and of course here in Texas, I'm sure like New Mexico, you see your HVAC guy particularly every summer, right?
Emery: Pretty much.
Sam: He was out during his regular August or July trip, and sure enough my house is 19 years old so my air handler had pretty much, it was gone. My coils had rusted out or something. But they come out and they do the whole diagnostic, they send a person out to present me with options. I was able to put a new state-of-the-art air handler so it saved me money. I upgraded my filtration system. But the job was expensive. It got up to about a $4,500 bill by the time he was done putting it together. He said, "How would you like to pay for this?" I said, "I don't know. What are my options? Am I going to have write a check for this or what?" And which I could've done. But it was interesting. He said, "We've got a bunch of options depending upon your credit worthiness. We can do zero interest for 24 months, it's the same as cash." And I go, "Okay, try that one." I talked to this lady on the phone for 10 minutes and got approved. They were out the next day, put the equipment in and it was $117 a month.
Emery: Sure, it's a free loan for two years. It's interest free. I did the same thing when I bought my tires. I said, "Can I pay for this on my credit card? What are my options?" "You've got two years same as cash." I said, "That's a no brainer."
Sam: It's the same thing. We have the same options with all of them.
Emery: That's good to know. But Sam, how would you summarize our conversation with someone that... Help me out a little bit here. Someone coming to me saying, "Emery, I'm considering a business. I've got a couple hundred thousand dollars cash." I say, "Well, let's take a look at something like Mr. Rooter." We've already gone over the objections but why would someone choose Mr. Rooter over all the other opportunities that are out there?
Sam: What I've seen Emery doing this as long as I've done this, a lot of the folks that you're talking about, because I've talked to a lot of them across many of the Dwyer Brands often these are people that are needing to replace fairly significant incomes. I think oftentimes, once again, they kind of get maybe drawn to some shiny objects over there that they think, and really what I think evaluating an opportunity like Mr. Rooter where it separates itself is……investor. The opportunity to build an extraordinarily valuable company with an extraordinarily strong income potential. What I would encourage them in the industry like I said, that we often say that the success of the business, and we talk about this in our plumbing industry. The success of our business is never based upon the potential of the business, it's the potential of the owner. What I mean by that is there's endless opportunity to grow extraordinarily scalable businesses here. I think that we touched on this…these aren't complex businesses, they're not complex management operations. There's not a ton of people involved here. And what I would ask people to do is, if they're going to make the decision to go into business for themselves do not discount the service trades and do not be intimidated by perceptions you may have in your mind about them. Take the time to look at them. Do some due diligence. You still may come to the conclusion that this just simply isn't for me and I understand that. But I would hate for them to miss an extraordinary opportunity to put themselves in the business that I believe ….We're one of the premier opportunities out there to where they can I believe achieve financial success that they're looking for.
Let me leave with this too, and this is speaking from my years of experience for having done this. When I look at my Mr. Rooter network today, and like I said we are about 260 location-strong.
Emery: You just said something that I think is very important. You said take the time. Because a lot of people just immediately dismiss things without looking very closely at things. So I think this conversation that we've just had Sam is going to be very valuable for those people that are just looking for a business. Maybe they don't know what they want. So listening to this podcast... We weren't doing a sell job here, I think we were educating people on what it is going to take to be a Mr. Rooter franchisee and we've addressed the objections.
Sam: Let me leave with this too, and this is speaking from my years of experience for having done this. When I look at my Mr. Rooter network today, and like I said we are about 260 location-strong. We began to promote Mr. Rooter and build Mr. Rooter. We predominantly did conversions. We were dealing almost exclusively with plumbers in doing this. And that is to where we are. But an interesting thing happens as these businesses begin to mature and they begin to grow, and we begin to help people who've been with us for 20 years and sell these wonderful operations. And interesting things happen, they're never bought by plumbers, they're bought by people just like the people who are going to be listening to this podcast.
Emery: Good point.
Sam: Right now, we call then Top Gun here at Mr. Rooter. We recognize them within our system. These are the top 10% of our producers. And it’s just not revenue, there are several criteria that go into this. You go back 10 years ago, the top 10, our Top Gun, 95% of them were still plumbers, they owned Mr. Rooters. Last year half of them were business people who haven't owned a Mr. Rooter.
Emery: That's an interesting statistic.
Sam: No plumbing experience.
Emery: Half. That should tell our listeners a lot. That's an excellent point. I'm glad you brought that out in closing. Sam, I appreciate the time. I know you're a busy guy. You've got a lot going on but I appreciate time you were able to set aside for not only me but for all of our listeners. I think this is a great educational conversation that we've enjoyed this afternoon. So again Sam, I appreciate your time.
Sam: Absolutely Emery, anytime.
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If you would like additional information on Five Star Painting, please call Emery Orosz at 928-793-3000.