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Two Men Boldly Measures Franchisee Profits

Wichita franchisee Garrett Peterman (front) at work. Photo/Two Men

LANSING, Mich. — Randy Shacka takes time to talk with Blue MauMau about an extraordinary area where his company stands out. Franchisor Two Men and a Truck measures performance not only of its own franchising company, but also almost everything at the franchise level, including their bottom line. That puts his firm in a rarified area that few franchising firms can emulate.

Randy Shacka became the president of the moving services company on the first of August at the ripe age of thirty-three.

Shacka stresses that Two Men and a Truck's founders and its executives are big believers in the power of benchmarking. The moving industry has had to crawl back from the big downturn of 2008. For example, he states that industry projections have been 2.2 percent for the next few years. Yet in contrast, Two Men and a Truck grew at a rate of 33% for the past two years. And more than 70% of its franchise locations across the U.S. grew at double digits. He stresses how more than 15 percent of the brands' franchises nationwide had more than 50% growth, which helped the company reach a new milestone in 2011 of revenues at $220 million. And 2012 is off to an even better start with 24% growth last month and an average 21% a month during Q1 and expectation is to hit the quarter of a billion dollar mark by the end of the year.

Two Men is a homespun moving services company that was started by brothers Brig and Jon Sorber. It was later taken over and franchised by mom, Mary Ellen Sheets, when one brother went off to college. At the time, Sheets was a full-time data processor with the State of Michigan.

The company says it now has 228 locations, 3,500 movers, and 1,400 trucks in 34 states and four countries. It has one company-owned unit. Two Men and a Truck plans to add 40 new franchises during the next 18 months. The new president declares, "In 2010, we grew over 15 percent of the system. 2011 was over 17 percent. And, we're trending over 20 percent year-to-date [mid-year, end of June] for 2012."

Shacka thinks that much of this growth is a result of technology and process improvements sought out during the recent downturn in the economy and a company that struggled to find an appropriate response. An engineering major who started as a mover with the company, Randy Shacka led those improvements, implementing an automotive supplier approach (ISO 9000 certification) that forced documented processes and ultimately changed the way the company does business.

The growth is impressive. But the recounting of top line sales is a standard practice for franchising. After all, franchisors receive their income from the royalty fees that are fixed to a franchise's sales. What's truly unusual about Two Men is that they understand their franchises' expenses and bottom-line earnings.

BMM: Two Men and a Truck had considerable financial troubles in 2009. Tell me about that.

Randy Shacka
Randy Shacka, president of Two Men and a Truck

Shacka: Two Men and a Truck was very successful in the early 2000s, especially as the economy boomed. We experienced double-digit growth. Back then, our biggest corporate challenge was supporting the franchises. And the franchisees' biggest challenge was to have enough trucks to put in [customer] driveways because the demand [for moving services] was so high. We enjoyed that for several years as a system.

When you go through such success, details can start to lag. We paid more attention to the topline [revenues of franchise outlets] and just getting trucks into driveways. A lot of issues were starting to creep up that just weren't on our radar because sales numbers were so good. But when we got into the years of 2007, 2008, and 2009, when phone calls [orders from customers] dried up, we were still of the mindset of an order-taker mentality. A phone ringing represents an order. So take the phone call, take the order, get the trucks out, do a great job and be done with it.

When the phone calls started drying up, we were presented with a new paradigm. We had to actively sell our services. That was a complete shock. It hit us from left field. We weren't ready for it as a system. We didn't have the proper training to shift the sales forces of our system. We were knocked on our back, if that makes sense. We looked at and said we have to change if we're going to continue to grow this brand.

In 2008 we let go of 30 people. It was one of the hardest times ever in my tenure at this company. We've always been a successful company. But in 2008 we were down about 6 percent. 2009 we were down about 12 percent of the system. That was a huge wakeup call for our company.

We changed our management philosophy to an accountability based management, which focused on results and better tools to deliver to our system. This change reshaped what our organization looked like, and over the last three years we have begun to see strong growth again.

BMM: The housing bubble popped. People weren't buying homes. What was the effect on the moving industry if few homes were being bought?

Shacka: The moving industry is a multi-billion dollar industry but we were seeing our competitors and some of our franchisees go out of business. It showed the strength of our brand in that we were able to survive. Other companies were down 40 percent. Some down 50 percent. We were maintaining only a 6 to 10 percent decline. Our brand was still strong but it had a huge wakeup call. We dusted ourselves off and asked what Two Men and a Truck should look like moving forward. That's where we've constantly put our efforts in the last three years, defining what our brand should be.

BMM: Going way back to the beginning, what made Mary Ellen Sheets decide on franchising though. Why was that the way to expand the chain?

Shacka: I don't think she went into the business with the intent on becoming a franchisor. She supported her sons Brig and Jon who got it initially in high school. She was responsible for drawing our logo on a napkin, way back in the '80s, which is still the same. But when it was time for her sons to go back to school, she felt this may go somewhere. Calls were still coming in for service so she said I can't let these customers down. I need to hire a couple of guys and keep this going. It wasn't until, I think, the late '80s when she was in a seminar at Michigan State. She had a franchise lawyer ask her why she hadn't looked at franchising the brand.

It never really occurred to her that this was a possibility until she looked into it further.

Sheets was always adamant from day one that Two Men and a Truck would be a transparent company. She came from a systems analyst background with the state of Michigan. She emphasized that numbers were important and that the objectiveness of data can substantially help a business. So she shared numbers from day one. That's carried on for 25 years.

BMM: Why should the moving business be of interest for those investing in a franchise?

Shacka: If you have a passion for people and service, our model is set up to be successful regardless if you've ever moved yourself, had a professional mover move you or know anything about the moving industry.

If you look at housing statistics and housing starts, you'll see that they're still pretty anemic. But if you look at our growth trends and same-store sales over the last three years, we're still growing at 20 percent. People are always going to need to move. There is a huge market share opportunity available. We've got great marketing areas still available in the U.S. and abroad. If you look at, our FDD (franchise disclosure document), our Item 19 earnings figures are very, very strong.

BMM: Why did you decide to benchmark your franchise outlet performances and when did you start doing it?

Shacka: It goes back to founder Mary Ellen Sheets. She wanted to be transparent from day one. As we've evolved over the last several years, especially the last three years, we've really invested in business intelligence [software]. We monitor performance at the franchise level. We looked at data being a driver for improvement and growth. We've been able to convert relevant data into dashboards to give information about a franchise. So they can make decisions much faster in a day-to-day environment that they're in.

Internal confidential satisfaction survey panel. 0:Dissatisfied. 5: Greatly satisfied.

We can drill down to actually the mover and driver level at a franchise to see how they perform based on our customer satisfaction reply card. We know, generally, who is the best of the best of our 1,400 trucks and 4,000 movers out there. Who is doing their best and which areas can we look at that need improvement. And conversely, for a franchisee, they can drill down and see which one of the staff is holding back or who the top crews are and how we can improve our service based on the objective feedback of customers.

We also look at franchises from a sales perspective. From our data, we can drill down into each franchise and look at revenues, whether it'd be local moving, interstate moving, packing boxes, or packing supplies. We can drill down to each operation and see where they're at from a sales perspective. They in turn can compare themselves to any other franchise in the system with a click of a mouse.

If I want to compare myself to a similar operation, I can look them up, find it and see how we compare to each other. If there's a major difference to the better, I can call him and say, hey, what are you doing? That's working. We can compare each other by regions to see, regionally are we seeing any different or nuances that are setting ourselves apart or that we really need to focus on to improve.

On the financial side, we recently converted everyone to a hosted QuickBooks environment. So we're in the process of having an operating system that will integrate QuickBooks into our front-end. The service delivery software can reduce a lot of manual entry and will make franchisees much more efficient. It gives us benchmarks that can be posted daily to the system, where it can flag our top 25 percent of franchisees. Here is how they are performing from the key expenses in the operation. How does your franchise compare to that?

We can start setting goals and measure improvements and growth at each of the operations. For franchisees, the information is in real time. They can look at the benchmarks and compare themselves to others. Not a lot of franchisors are transparent, where they share numbers across the board. But as for Two Men, if I'm a franchise in Orlando, Florida, I can compare myself to those in Lexington, Kentucky and see where I rate compared to my cost of goods sold as a percentage of sales and really where the red flags are, and what are the best practices where I can improve my business.

BMM: How many franchises are now on the QuickBooks system so that you, the franchisor, can monitor a franchise's profits?

Shacka: All of our franchises are on it, which was a major project in 2011. It took great efforts from our franchisees and our home office staff to convert everyone to a standard set of accounts with few exceptions. Being on the same chart of accounts allows all to be standardized and to bring consistency from a training and support perspective. Two Men and a Truck has invested heavily in resources to support our franchisees. We have a 24-hour helpdesk. If a franchisee has a question related to QuickBooks or accounting or anything, they can call and get it answered. And we're all on one financial platform now. So we are all talking and comparing apples to apples.

Reporting has historically been yearly for financial statements. But moving forward, we'll be able to do that monthly. We can pull certain financial information daily to benchmark.

It's about getting the numbers faster. Historically, it would take about 30 to 45 days to get key franchise financials regarding key expenses. We should soon be able to give that to franchise owners daily when we get the front end hooked up later this year. We're actually going to integrate our operating system on the front end with QuickBooks integration in the back end. That will make us as efficient from customer information going into QuickBooks and the ability for us to pull information to give it back to the franchisees via the dashboards to compare themselves, honestly, on a daily basis, in the future, to see where they are off or where they are trending in the right direction.

BMM: Are you using a third party to compile the business intelligence?

Shacka: We are doing it all in-house. Two Men and a Truck has a consultant that works with us to help build out our data warehouse. But our Business Intelligence tool is done through our analyst here at corporate office. It's been a huge undertaking. One of the biggest investments we've made from just data. It is fun to see the evolution of where we were five years ago and where we are today with the type of dashboards that we can give franchisees to monitor key areas of their service, sales and the franchise's profitability.

We also are very big on measuring the utilization of our analyzing tools. As we roll out new tools to support the system, we also roll out the analytics to see who is using it and who might not be. That helps us to understand and educate the system on leveraging the return on investment of these tools.

Our online training platform that we rolled out about a year ago, which is web based, can be accessed 24 hours a day, 7 days a week.

We can pull the analytics to see how many locations yesterday, last year, and how many users are in it. We can see what classes are being taken and which top five classes are being taken the most. If classes haven't been taken at all, we want to know why not and what can we change to make them more relevant.

Numbers are powerful.

BMM: Two Men and a Truck can know a franchise's financial ratios, the operating margins of the average franchise, and can compare the business performance of various outlets, correct?

Shacka: Uh-huh. I can consider a specific franchise to any size operation, big or small, multi-unit, West Coast, East Coast.

BMM: You mentioned that franchisees under your brand use a networked Quickbooks software to view expenses and operating income. There are almost no franchisors that I am aware of that measure the bottom-line income of outlets unless they own quite a few. [If there is one, please contact BMM. We think franchise investors will be quite interested.] And yet, there is now Two Men and a Truck. How much detail are you able to receive? Can you monitor earnings before income tax, depreciation and amortization (EBITDA) for each franchise?

Shacka: We're getting there. Right now Two Men is focusing on cost of goods sold and operating margins. The information we get the more we are going to be able to share that with franchisees. We are engaging in a phased approach where we are looking at direct labor, cost of supplies, moving trucks, and other key areas first as a percentage of sale. And then, eventually more of the key ratios will hopefully be in place later next year.

We have been blessed in that we have stressed the benchmarking of franchise activities since day one. It is probably difficult to make these sorts of monitoring changes mid-stream for many franchisors out there. But from our perspective, it's the best thing that has ever happened to us. By focusing on measuring performance, we are able to provide critical information to our franchisees to help them make better decisions about their business investments.

I would encourage all franchisors to look at measuring franchise performance.

BMM: Do you plan to reveal a franchise unit's bottom-line earnings in your franchise disclosure document [Item 19]?





Franchise Financial Performance

Avg Franchise

% of Sales

% Zees >= avg

Revenue

$ 1,327,945

 

36%

Direct Labor

$ 409,672

 

38%

Cost of Goods

$ 42,594

 

37%

Truck Expenses

$ 212,906

 

39%

Ad Expenses

$ 44,465

 

41%

Operating Fees

$ 122,288

 

38%

SG&A (General Adm)

$ 301,835

 

41%

Total Expenses

$ 1,133,760

85%

36%

Operating Income*

$ 194,185

15%

 
Source: 2012 Two Men & a Truck FDD. Avg revenue/expenses of 146 franchises from 2006-2010.

Shacka: We have completely reshaped our Item 19, not to the complete extent that we want it yet, but what we have information on. We have looked at the ability to incorporate more specific information on the top 25 percent of our performers versus systemwide franchise average. There is a full wealth of tools at hand to compare a franchise's performance to the top 25 percent.

The one thing that is great is the obvious transparency of our company that we've strived for from day one. We have a close-knit group of franchisees too. So there is no hiding of numbers because our numbers are already out there. Our franchisees are very, very open to the sharing of ideas and best practices with each other since the numbers are so transparent.

BMM: I assume that if you, the franchisor, ask franchisees to do, for example, a new marketing activity or an operational upgrade, you should be able to track how that activity impacts a franchise's bottom line. Do you do that and has that made a difference?

Shacka: You nailed it. When you break activity down to numbers, a lot of planning can be based on objective numbers versus arguments from guesses and not really knowing.

It's a continually evolving project too. It allows Two Men and a Truck to step back and see the overall picture of the franchise system. Moreover, we also can know that these tools are being utilized by this percentage of franchisees. We can look at the growth and profitability of those that are utilizing the tools versus those that don't.

In May of last year at our annual convention, we started sharing who are the top performers, what percentage of the utilization are using the tools and how different are they compared to the rest that might not be. It's pretty astounding when you start sharing objective measures - not opinions. It's not someone's guessing. It's not subjective. It's an objective measurement. One can see that these top five are using these tools. Look at their growth and look at the improvement in profitability of that franchise compared to somebody who might not be engaged.

It's pretty powerful.

From the franchisee's perspective, as we get bigger we've had more multi-unit operators out there who love the fact that they can drill down to see which one of their six outlets are not using the tools that are there. They can have a specific conversation with their management on why they are not using the tools of the franchise system and what is the plan to get engaged. So it's really been a two-fold benefit not only for the franchisor but also for franchisees.

*Editor's note: Operating income is the operating profit before interest, taxes and extraordinary items. The operating income is estimated by Blue MauMau from Item 19 of Two Men and a Truck's franchise disclosure document, Item 19. It is simply revenues minus total expenses for an average new franchise with at least five years of experience with at least one of those years falling between 2006 and 2010. Operating income would exclude interest, taxes and principal debt service. Two Men does not vouch for the accuracy of the numbers, saying that it is the franchise owners that have contributed the information to the franchisor.


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Two Men and a Truck 2012 Item 19 from Franchise Disclosure Document45.24 KB
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