Own a business? Want to convert it to a franchise? Here's what you should know.
Seven years after founding his Gaithersburg, Maryland-based travel agency, Travel Discounters, Neal Dembo decided to convert his business into a Carlson-Wagonlitfranchise in March 1999.
Franchise Zone spoke with Dembo about how and why he came to this decision, and got his advice for other business owners considering conversion.
Franchise Zone:Why did you decide to convert your business to a franchise?
Neal Dembo: Basically, we needed to increase our profits due to the decreasing commissions from the airlines. We were losing the leisure clients, as they were going to the Internet or the airlines directly, so I sought to join a franchise.
I contacted Carlson; they had the right program for what I was looking for. They had a small sign-up fee compared to other franchises, low monthly rates, and high cruise and vacation package commissions-that's what I needed to expand my market.
We're an airline consolidator; we primarily do just airline tickets. We have discounts set up for domestic and international, and we were looking to add to our business mix of cruises and vacation packages, but I wasn't doing enough volume. By joining the Carlson program, the higher commissions gave me the extra edge I needed to increase that business.
Why didn't you become a franchise in the first place, or did it never occur to you?
It never occurred to me. Actually, it was kind of ironic-about two years before I converted, the person who signed me up with Carlson was working for [another travel franchise] and came in here out of the blue and asked if I wanted to join. At the time, I wasn't interested. I was on my own, my name was established in the Washington, DC, area, and I was doing quite well. But over the next few years, the industry changed considerably, and I needed to change from leisure clients to corporate business. That's where the profits are.
How did your employees and customers react to this change?
The employees knew we needed some type of change. I have bimonthly meetings with them to keep them informed as far as what's going on with the agency, in the industry and with clients. I told them of my plans two months prior to doing it, and they thought it was in the best interests of the company and for securing their futures as well.
As far as our corporate clients go, they were kind of surprised. Not understanding the [conversion] relationship, they thought we had been bought out by Carlson, even though we sent out a letter to the corporate heads, which may or may not have trickled down to the administrative assistants. When we changed our greeting, they heard the Carlson name and thought we had been bought out. We had to explain it to them, but we did so in a positive manner-we told them we were getting new discount hotel programs they would benefit [from], as well as car rental discounts, which a lot of them use. Carlson has a national car rental program that helped them get better discounts. We didn't lose any business because of it.
Have you gained business because of it?
Carlson receives RFPs (requests for proposals) from corporations; if they're under a certain amount, they pass them out to the local Carlson agencies that can handle them. Not all referrals are fit for my business structure, but over the two years we've been associated with Carlson, we've increased our sales by 59 percent, either by Carlson referral or by using the Carlson name.
The Pros and the Cons
How much leeway does Carlson-Wagonlit give you to design your own programs now that you're one of their franchisees?
We're allowed to do things on our own. Half of Carlson-Wagonlit are franchises, [and] ones that are franchised are pretty much allowed to do their own business [including marketing, promotions and negotiations with vendors].
For example, three months after we joined Carlson, I came up with an idea that instead of opening travel agencies all over, [I thought,] Why not bring the travel agent to the consumer? I had the technology people in my office develop a video telephony concept for travel agents. People can link to us on the Web. We have video cameras set up on our computers, and they're able to see the agents and speak to them over the Internet. We released this program in September 1999. I've hired a business planner, and, as of this January, we've put a business plan together and are looking for venture capital to expand this concept.
What does Carlson think of your video telephony program?
They were happy [to hear about it]. It gave us a niche that no one else had.
Are you planning on being a Carlson franchisee indefinitely?
Yes. I see no disadvantage, even if we were to become large. It's just an enhancement to what we already have.
What do you think other travel agents or business owners considering becoming conversion franchisees should look at when trying to pick the right franchise to join?
Find out, as I did, what's in your budget. You have to figure out if it's worth paying the fee. For example, if your initial fee is $60,000, how much more are you going to be putting out in royalties per month? If you're a $2 million to $3 million agency, you're not going to be able to afford that with the kind of commission you're earning.
Also, choose which direction you're going in. For example, smaller agencies that deal with the leisure market need to convert their entire business over to the package arena, so they're not just selling airline tickets. That's key as far as choosing which franchise you're going into-what they have to offer.
Have you noticed any downside to the conversion?
A very small downside was that they monitor my Web site. We have discounts and our own domestic, international and vacation packages that we have loaded onto our site. They started monitoring the content on my site; at one time, I was told I couldn't list a vendor because it wasn't a preferred supplier. Even though I was doing [well] with that vendor, they insisted I take it off.
Did you go through a difficult transition period in becoming part of a system, having to answer to people for what you were doing, as opposed to being independent?
No, I'm able to run the business pretty much the way I had been. I haven't had to change anything except the name [which changed from "Travel Discounters" to "Travel Discounters-a division of Carlson-Wagonlit" and how I greet people on the phone. I can still put my own programs together with the airlines. We offer our own discounts without having to go through Carlson. Carlson hasn't downplayed anything I do that I was able to negotiate on my own. They've been very liberal.
In their agreement, after one year, if I wasn't completely happy, I could back out with no penalty. I thought that was good, because it showed they stood behind their product.
What kind of research do you suggest people do when thinking about converting?
One of the things I did was I took this book they gave me of current Carlson agencies, as well as past [franchisees] that had bowed out in the past couple of years, and I called people who were and were not in the program anymore. I wanted to know why some people weren't in the program, because if there was something I needed to know about, I wanted to be aware of it up front.