Franchise Players: We Put Our Home on the Line to Buy a Franchise
Going into franchising, Josh Kattenberg was aware of the challenges. He knew that most new businesses fail. He knew that franchising was not a guarantee for success. He knew that he would very likely lose his house if his Real Property Management franchise failed. However, with research and support, it’s been worth the risks for Kattenberg. Here’s how he faced the challenges of franchising head on.
Name: Josh Kattenberg
Franchise owned (location): Real Property Management Express in Sioux Falls, S.D.
How long you have owned the franchise?
We have all heard the grim statistics that nine out of 10 new businesses fail in the first five years. We didn't want to be a statistic. Franchising is a way to lower the risk and speed up the learning curve inherent in any startup.
What were you doing before you became a franchise owner?
During my senior year in high school I started a construction company building custom homes. I sold that company five years later to pay for college. I earned undergraduate and graduate degrees in education. Before starting our current business I was working as a high school teacher and principal of a small private school.
Why did you choose this particular franchise?
During the recession, my family and I were learning about investment property and were interested in investing in real estate in the future. Owning a property management business would give us an inside perspective of the investment property world which we could use in our own investing. When researching various property management franchises, we found that Real Property Management was light years ahead of any other franchises in terms of size, systems, and national contracts.
How much would you estimate you spent before you were officially open for business?
Our startup costs were a little under $70,000 for the franchise fee, computers, incorporation, licensing, training, etc. Because we didn't have any assets as collateral, the bank wouldn't loan us money. We used the equity in our home to finance the endeavor. My wife and I had a frank conversation about the real possibility of losing our home if the business failed. Were we willing to risk everything for the possibility of a better future? Because we were risking our savings, we needed to lower the risk of the business failing. We felt that purchasing a franchise limited that risk.
Where did you get most of your advice/do most of your research?
First we hired a business coach to help us do our due diligence, prepare a business plan, and think through the financials for the first two years in businesses. We engaged in grass roots market research. Then we turned to the Small Business Association for a second opinion to look over our business plan and pro forma. Next we received real estate training to become licensed property managers. Finally, our attorney reviewed the franchise agreement and incorporation issues. We completed all these items before signing on.
What were the most unexpected challenges of opening your franchise?
Hiring good people. We were at a point that we need to hire someone, but really couldn't afford it yet. We learned our lesson the hard way by making some poor hiring decisions. Hiring good employees has made all the difference in service to our customers and our company.
What advice do you have for individuals who want to own their own franchise?
Read The E-Myth Revisited by Michael Gerber. Do your due diligence. Not all franchises are created equal. Franchises are subject to market forces just like traditional businesses. Just because you own a franchise, doesn't mean you will succeed. Remember what our attorney told us before we started, "You can't do a bad deal with good people, and you can't do a good deal with bad people." Are the people you are thinking of getting into business with "good people"?
What’s next for you and your business?
We hope to double and triple in size in the next two years. After that we will look at opening additional offices. I am also exploring the possibility of obtaining my doctorate in business administration. This will position me for future opportunities, including operating larger businesses. Since education is important to me, I see myself teaching college level courses. Also, we just published our first book, Rental Property Success: Horror Stories, Insider Secrets, and Disciplines of Successful Rental Property Owners, with the goal of helping new and experienced investment property owners.