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ServiStar News
 By Tom Shean The Virginian-Pilot © June 20, 2010 
Walter J. Ewell called Johns Brothers Inc. repeatedly last summer in hopes of talking with its owner. The Norfolk-based company, whose operations date to the 19th century, delivered heating oil, provided security alarm services, and installed and repaired heating and air-conditioning equipment.Johns Brothers' owner, Dwight C. Schaubach, ignored Ewell's calls, but Ewell persisted, and Schaubach agreed to a meeting. However, "I told him that I had no intention of selling the company," Schaubach said. It turned out that Ewell wanted to talk about something else, and Schaubach listened. By October, the two agreed to fold the part of Johns Brothers that installed and repaired heating and air-conditioning equipment into a new company, one that provided an array of services to homeowners through franchisees. Their company, ServiStar USA, opened in January with a Norfolk office, call center and customer list from Johns Brothers. Since then, it has sold nine franchises, all in Hampton Roads, and made plans for moving into the Richmond area later this year. To finance an expansion into at least 10 new markets, ServiStar plans to raise $3.6 million this summer through a private placement, an offering of securities to a limited number of sophisticated investors. Whether the business model involves fast food, maid service or lodging, the common denominator of franchising is a well-defined format and distinctive brand. A franchise r sells the right to pursue its type of business in a specific territory and promises to provide franchisees with marketing and support. In addition to paying an initial fee and royalties, franchisees promise to follow a detailed set of business practices. A franchise can provide people with the structure for launching their own business, said Jim Carroll, executive director of the Small Business Development Center of Hampton Roads Inc., an affiliate of the Hampton Roads Chamber of Commerce. However, "you are buying into an entire philosophy, and there's very little room to maneuver" when becoming a franchisee, he said. ServiStar is promoting its concept at a time when some franchisers still are wrestling with a weak economy. Meanwhile, prospective franchisees have to work much harder to line up the financing they need. After a steady rise during the past decade, the growth in franchise registrations and renewals in Virginia has stalled. The number of franchises registered with the state's Division of Securities and Retail Franchising in 2009 slipped to 1,617 from a peak of 1,697 two years earlier. A Smithfield resident who grew up in Norfolk, Ewell got his start in franchising with Econo Lodges of America when the motel chain was based in Norfolk. Later, he became involved with franchising at the tax preparation firms Jackson Hewitt and Liberty Tax. Afterward, he helped organize and served as president of Geeks On Call, whose franchisees provide computer repairs. The idea of franchising a business that provided an array of home-repair services was discussed during the early days of Geeks On Call, but it wasn't pursued, said Ewell, who left the company in 2005 before it encountered difficulty and was sold to a new owner. Before teaming up with Schaubach, he spent 18 months refining his plan for ServiStar while investing more than $150,000 of his own money. He pinned down hundreds of details about such things as labor costs, invoice amounts for typical home-repair jobs, and the types of advertising needed to generate consumer awareness. Ewell also locked up the ServiStar name and trademark, which had once been used by a group of hardware retailers and then abandoned. Despite having a detailed plan and distinctive name, Ewell said, he lacked a platform for launching a business that involved repair work. On the advice of an acquaintance who reviewed his plan, he approached Schaubach. As part of their agreement, Ewell became ServiStar's CEO, with a 20 percent stake in the company. Schaubach became its chairman, with an 80 percent stake. "What I've learned in the last five months is how valuable it is to have an existing customer base," which Johns Brothers provided, said Ewell, who wears the company uniform of a dark blue shirt with a red ServiStar logo and khaki trousers. The first two sales of ServiStar franchises involved former employees of Johns Brothers. Rick Terra teamed up with two other veteran employees to buy a franchise for the installation of heating and cooling equipment in part of Hampton Roads. Taking the leap into business ownership made sense because he and his partners had been heavily involved in Johns Brothers' heating and air-conditioning equipment business for the past decade, Terra said. "I had done everything in the business but be an owner," he said. Still, "I had a lot of second thoughts and some sleepless nights," he said. The change "is kind of frightening and exciting at the same time." While the weak economy has hobbled some franchised businesses, it's likely to work in ServiStar's favor, predicted Ewell, 62. Contractors that concentrated on providing plumbing, heating, cooling and electrical services to commercial projects have been hurt by a falloff in revenue from commercial work. Today, Ewell said, they are inclined to enter ServiStar's market. A Peninsula company that also installs heating and cooling equipment for commercial projects purchased seven of the nine ServiStar franchises sold so far. While the pace of its franchise sales is off to a strong start, ServiStar is likely to encounter some hurdles. One is competition from an Alexandria-based home-services company that's building a presence in Richmond and Hampton Roads. Michael & Son, which provides plumbing, electrical and heating-and-cooling repairs to homeowners, extended its reach to Richmond and Williamsburg a year ago. The company recently began doing business in Norfolk and will probably build a facility in Virginia Beach within a year, said Basim Mansour, its president. Because of the turnover in its population, "we think Norfolk is a mini version of the Washington area," where Michael & Son has been doing business for 34 years, Mansour said. Another possible hurdle is the reduced availability of credit for small businesses, including franchisees. In the current financial environment, funding for franchise buyers depends on how much they are seeking and the franchise brand they are buying, said John M. Paris Jr., a Virginia Beach lawyer who specializes in securities law and raising capital for small businesses. "Good deals with good management get funding," he said. However, some buyers in search of financing for a ServiStar franchise could encounter resistance from lenders, Paris said, because the franchise lacks a track record. Compared with the cost of a franchise with a major lodging or fast-food brand, ServiStar's $30,000 franchise cost is modest. It is targeting potential franchisees who already have the tools of the trade. Still, the availability of availability of credit for prospective buyers will be crucial to ServiStar's expansion, Ewell acknowledged. The company, he said, is prepared to work with prospective buyers in need of financing and has relationships with local lenders who can provide it. As part of its effort to reach consumers, ServiStar began a TV advertising campaign in Hampton Roads last month, something that is generating calls from home-owners. With the funds that it expects to raise this summer, ServiStar will gradually expand its advertising to other markets, Ewell said. "I want this to be a national company." |
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