Their timing couldn’t have been worse. That same year Orange County, their home turf, filed for bankruptcy. Yet, by sheer effort—knocking on doors, handing out flyers and doing the “grunt work” too many people aren’t willing to do—by its third month in business Budget Blinds was doing more than $100,000 a month at 50 percent gross profit.
Within two years of its startup the company faced a momentous decision: continue selling blinds or start selling franchises. The owners decided on franchises. And now Budget Blinds had a vision.
The vision was to teach franchise owners how to sell custom window coverings and to start being successful their first week in business. The vision was to become the market leader by targeting their franchise territories and shaping them to specific parameters. With some 362 franchises sold to date, and going at a rate of about 12 a month, the company looks to add 140 to 200 more franchises this year.
In 2002, this business generated just over $60 million in sales and Budget Blinds’ suppliers tell them they are the No. 6 leading window coverings retailer in the United States.
The five young men are Chad Hallock, Brent Hallock, Tony Forbes, Todd Jackson and David Lewis. It was a strange set of circumstances that brought them together. Let’s just say they once all worked together in a similar blinds business with similar franchise aspirations.
Infighting and a corporate takeover left Chad Hallock without a job and with very little money. He reasoned, “I’ve taught other people how to do this business—because I did all of the marketing and the majority of the training for these [other] franchisees—I guess it’s time I’ve got to go do it for myself.”
Hallock came up with the name Budget Blinds and went out to gather up all the other guys with whom he wanted to surround himself. “Luckily for me they all said ‘Yeah, we’ll all leave and we’ll all do this,” he says.
As suggested earlier, none of the five had deep pockets. But they had knowledge, experience, the right contacts and this vision.
DIVIDE AND CONQUER
Budget Blind’s vision is to have 2,000 franchises in the United States—no more, no less. It is a very specific goal derived from precise reasoning.
“The United States has 100 million households. We sell territories that are on average roughly 32,000 households big,” Hallock explains. “Part of our plan was not to build a territory around every individual who is interested in a franchise so that the United States gets cherry-picked. Instead, let’s make all the territories as close as we can to equal opportunity territories, which means if you’ve done the research we’ve done and looked at the United States the way we have, you’d find about 35 percent of the United States can’t be made into a franchise territory based on waste factors: low demographics, amounts being purchased in the home, expendable income, all those factors. We ended up taking the 65 million households left over and that’s what we’ve built into our program.”
When those 65 million households are divided into 32,000-household territories, you end up with 2,000 territories across the United States. A territory of 32,000 households is not very large. Actually, it’s fairly small, but the territories are grouped into designated marketing areas (DMA), which Budget Blinds has pinpointed through its research, and the vision is based on each DMA being completely sold out.
“We sell smaller territories than most franchise organizations and far smaller territories than other franchises in our business, we think, to the betterment of the franchise owner. We believe that’s the key to success,” says Hallock.
“The smaller territory, the way we’ve done it, is built on the premise of having franchisees contiguous all the way around it in exclusive territories working together as a synergistic group. That makes far more profit, far more revenues going deep within a territory versus spreading these franchisees out so wide and thin and setting it up on a foundation that, I believe, opens it up for someone to come in and take it away from them.”
The key to Budget Blind’s success is synergy based on each DMA being completely sold out. Once that’s done, simple math takes over and the DMA becomes a self-perpetuating enterprise.
Each Budget Blind franchise is contracted to contribute $150 per month into a national advertising fund (NAF). When it reaches a target level of business the NAF is waived, but the franchise is then committed to $1,500 a month for local advertising. If the DMA is not sold out, that $1,500 is used for local grassroots advertising—the sorts of things that got Budget Blinds going in the first place. If it is sold out, then big things start to happen.
Take a DMA with 36 territories of 32,000 households each. Each franchise puts in $1,500 a month for local advertising. That’s $54,000 a month, or $648,000 a year. On an individual basis, each franchise owner spends $18,000 a year on advertising, but gets the benefits of a $648,000 television campaign. It’s the most localized way to purchase broadcast television. “That becomes critical,” Hallock says.
“We’re taking advantage of the fact that the window coverings industry is the most fragmented industry in the marketplace—less than 25 percent of this market is taken by the top 10 retailers. We’re taking those mom-and-pops in the other 75 percent and putting them under one roof, under one marketing umbrella, with a synergistic plan that once they’re in our system and we sell out the DMA, that $1,500 goes to a marketing program that nobody can touch.
“Picture this; what do you think would happen to your business if you could have advertising to your target market—ages 25 to 54—on Oprah Winfrey every day of the week twice, on Dr. Phil every day of the week twice, on “Good Morning America” every day of the week twice, “The Young and the Restless” every day of the week one to two times, and the five to six o’clock evening news every day of the week one to two times with a 30- and 60-second TV spot telling people not only that we do all the measuring and all the installation and all the service, but we do that at the same price or better than what they can buy anywhere else? Do you think that would make an impact?”
The TV advertising that this money purchases is generic Budget Blinds spots. The 800-number shown in the ad will route callers to their nearest franchise. “That marketplace is there, ready for the taking,” Hallock adds.
Once a territory is established, the next question is: What is the best way to go after those 32,000 households? Budget Blinds’ advertising is aimed at reaching top-of-mind awareness in each DMA. If a business can get a third of its target market thinking of it first when it’s time to buy, that’s all it takes.
Hallock believes no one else can do this except another franchise, but Budget Blinds has had the advantage of getting out of the gate quicker than the others. “We’re getting there faster than anyone else,” he says. “When you’re the market leader, which is what we’re looking to become, nobody wants to be with a me-too company.”
But getting the calls is only half the job. The next step is making the sale, and that’s part of Budget Blinds’ vision, too. Franchise owners go through a two-week training process. What do they get? “The incredible education, the leadership and most importantly the vision,” say Hallock.
“We’re going to teach them how to be in the business, we’re going to teach them how to do well, and while they’re in there working in the trenches every day—and I know it’s hard work because I’ve been there and done it—they are working for a bigger goal, a bigger purpose so ultimately they don’t have to do that anymore. Ultimately, their business, by way of a marketing program that’s synergistic with franchisees connecting to them, they’ve got something they can never have on their own.”
The training is as detailed as learning the first five words they should say to a customer. They also learn which customers to go after and to sell at profitable margins. “We have taught our franchisees how to do this business, I believe, better than anyone else. They average a 50 percent gross profit margin, they average a $1,000 per ticket sale, they average a 75 percent closing ratio,” Hallock says.
Another part of the vision is keeping overhead expenses as low as possible. Budget Blinds franchisees work out of their homes, they sell in the customer’s home out of a van and there is no inventory. “We’ve got everything as streamlined as you can make it. So there are very minimal expenses associated with running this business when you do it correctly.”
Doing it correctly includes knowing who to go to for business. Too many small independent retailers go after what Hallock calls “the low-hanging fruit,” such as new housing being built. “Everybody thinks that is where the market is. That is where all the competition goes. Do you realize that six out of seven window coverings that are sold in America today are sold into an established home?
“That’s why we built this whole master plan—our vision—to go into the market and, yes, we’ll get the low-hanging fruit, but really it’s designed to get into the mind of the consumer who’s in the established home. Why? Because of a higher ticket per window and higher gross profit margins.
“This industry is so concentrated—over concentrated—on price and under concentrated on value and selling. Price is always going to be more in the mind of the seller than it is in the mind of the buyer. Perception is reality. If I made a sale with 70 percent gross profit, but the customer thought they got the best deal of their lifetime, did they get a great deal? Absolutely.”
There are advantages to being under the umbrella of a larger organization. Budget Blinds corporate office, for example, negotiates contracts with window treatment suppliers and each franchise can buy directly from the supplier using the corporation’s discounts.
There’s an advantage in working with a company with the knowledge and experience to know when to make changes. Mid-month Budget Blinds rolled out a new marketing campaign with a new image, new graphics and a new product line. Although the company began by selling blinds and has had great success with it, it has added shutters and draperies. All of them, like their blinds, custom ordered, nothing ready-made. The tag line on the company’s new TV commercials is, “A style for every point of view.”
There’s an advantage in working with a company that has a big picture in focus. “Part of our vision is to have a diversified organization of direct sales in what we call the gray areas and franchisees who sell in their contracted territories,” Hallock says.
There’s also an advantage in working with an organization whose vision extends beyond the immediate horizon. Budget Blinds’ is looking to form a direct pipeline with suppliers, which Hallock describes as a win-win situation for everybody.
“What we’re looking to do is take away all the expense for manufactures in working with us,” he explains. “Every manufacturer has a sales force whether they want one or not that has to be covered. Every manufacturer has a customer service department. We’re looking to build a pipeline where we are the sales force for each of the manufacturers that are on our primary vendor list; we are the customer service force for all of the manufacturers on our primary vendor list. We do it all and the manufacturers never have to talk to a single franchisee because we’re doing all that for them. By taking that approach we can offer pricing to franchisees far better than anyone else.
“For the manufacturers, we’re going to take all the billing problems off their plates. If our franchisees want to order from a particular manufacturer they go right through our pipeline and we go to the manufacturer with one account and they bill us.
“That’s what we’re striving for this year.”