Tuesday, April 11, 2006

Making Millions Cleaning Other People Garages

Marc Shuman Story


GarageTek was a no-brainer when Shuman founded it in 2000. He got the idea when he and his father, with whom he outfitted department store interiors, designed and built a set of slotted wall panels with moveable shelves for a retail client. When several of his employees began using the panel systems to organize their own garages and basements, Shuman realized he had a potential hit on his hands. And the timing seemed perfect: The housing market was heating up, garages were getting bigger, and closet organizers were all the rage. Shuman decided to sell the display business and open GarageTek.

Rather than simply selling the panels at home-improvement stores, Shuman decided to build a garage-makeover business. GarageTek would perform in-home consultations, then design and install the systems--complete with shelves, cabinets, bike racks, and work benches. Homeowners, Shuman figured, were likely to pay a premium for the service. The biggest risk was competition. After all, anyone could have the same idea. But if Shuman could establish a foothold in markets around the country, GarageTek had a better chance of survival. Franchising seemed like the best way to pull off such an ambitious expansion.

In early 2001, Shuman placed an ad soliciting franchisees in The Wall Street Journal, and phone calls poured in. His attorney advised him to choose carefully. But Shuman, eager to get started, approved anyone with a business background, a $25,000 franchise fee, and $200,000--which, according to Shuman's calculations, was enough to purchase supplies, buy newspaper ads, and turn a profit within 18 months. Each franchise would pay GarageTek 8 percent of annual sales, a portion of which would help fund national advertising campaigns. In exchange, they received three days of basic training and a manual written by Shuman. "If they had the money and they had a strong sales and marketing background, we felt they were qualified," Shuman says.

At first, everything seemed to go according to plan. In the first half of 2001, GarageTek franchises opened in Connecticut, New Jersey, and New York. By 2003, 57 franchises had sprung up in 33 states, and annual revenue at the corporate office was on track to top $12 million. That summer, however, Shuman began to realize that while many franchises were thriving, 15 were struggling.

He and his team moved quickly to correct their mistakes. The first step was to create more stringent criteria for new franchisees. To pass the initial screening, candidates now need a net worth of $1 million, with at least $250,000 in liquid assets; their proposed territories must boast at least 250,000 single-family homes, occupied by owners. They're also required to run the franchises themselves. GarageTek also decided to administer a 350-question personality test, looking for candidates with traits similar to GarageTek's top performers, who tend to be enterprising and not overly accommodating--a sign of independence. Finally, all candidates fly to New York to meet with Shuman and his corporate team. To identify problems early on, he installed software that enables him to track each franchise's financial performance.

So far, the strategy seems to be working. In 2005, GarageTek's sales jumped 33 percent, to $20 million, even though the company had 21 fewer franchises than in 2004. Now that he has a streamlined system in place, Shuman plans to add 55 new franchises during the next few years, for a total of 100. But he admits that he has more to learn. "We're not, by any stretch, done," he says.