Franchises don’t always begin as franchises. More often than not they start off as a single restaurant, fast-food store, retail shop or, in the case of Chas Everitt, a husband and wife team launching their own real estate agency.
Charles (Chas) Everitt and his wife Tilla started their real estate company in 1980. Mother and father ran the business together, and although their youngest son Berry had been exposed to property all his life as a result, he did not immediately think of joining his father in the family business once his stint in the army was over. Instead, he moved to Durban, the city where he had spent the majority of his childhood before his parents relocated to Johannesburg. Little did he know that not only would he be the Everitt who turned the family business into a franchise, but that he would do it through a unique franchising model as well.
“As a youngster, I wanted to surf and live by the sea,” he explains. “I wasn’t against the idea of working with my father, I just didn’t think about it.” Instead, taking a position as a trainee liquidator at Arthur Young Trust and Management and studying a CIS in Durban, he began to develop his skills in the financial and business arena. These selfsame skills serendipitously ended up taking him straight to his father’s door.
“By 1990 Chas Everitt had grown and was still growing under mom and dad’s guidance, but my parents needed someone to handle the financial side of the business,” says Berry. “Not only was this squarely in my area of expertise, but the financials of a business are not something you entrust to just anybody. Charles and Tilla wanted someone they could trust.”
By this time it was his wife to be, Tracey, who convinced him that it was time to move back to Joburg and join his father’s team. “The first thing I did was help my father computerise the business and develop systems and processes. My previous experience had exposed me to a myriad of business processes that did and did not work, and I used this knowledge to add value to the company.”
By 1996, Chas Everitt had seven successful agencies to its name, and father and son were considering their next move. The industry as a whole was moving towards a franchising model, and while Berry and Chas both agreed that this was the way forward, their opinions on how to get there, and what the model would look like, differed.
Choosing a Direction
“The business was doing well, but in order to grow further we needed to put a structure in place that could be disseminated across a number of businesses. The franchise model was the obvious way to do this, and to secure a national footprint, but I didn’t want to implement a traditional franchise model,” says Berry. “Because we were already an established business, we didn’t need head office owned stores to generate revenue for the franchise.” Berry believes that head office owned stores can create an ‘us and them’ mentality between the franchisor and franchisees. “No one store should hold more value or significance to the franchisor than another,” he explains. “We were in a position to just be a franchisor, and not also a store owner. This gave us a unique opportunity to create a family where all franchisees are equal, with absolutely no danger that other franchisees could assume that the needs and success of any stores are more important than their own.”
While Charles was not wholly convinced in the beginning, favouring a more traditional franchising model, Berry’s persistence and belief in his model won out, and Charles made the decision to sell the company to his son, handing over the reigns to the next generation. An undisclosed sum was agreed upon, and Berry would make the payments over four years, starting in 1997. Charles remains the chairman of Chas Everitt’s board, but Berry is the principal decision maker of the business’s day-to-day operations.
The Franchise Model
Berry’s plan had two phases. First, he wanted to restructure the existing seven agencies into individual business units. This would decentralise the real estate operations’ day-to-day
decision making and focus the core real estate revenues in the franchise operations, allowing for the individual strengths of each business leader to emerge. An agency that was doing very well could use its own profits to incentivise its staff, instead of those profits being used to support another, less successful agency within the group. “This was really step one towards franchising the business. Each agency takes control of its own success, and in so doing becomes more flexible as well. Customer-centric markets require agencies to be able to match their clientele’s specific needs — many markets need many different shoes to fit them. A franchisor offers a brand name, stability and strong, proven systems, but franchisee-owned agencies offer clients flexibility and tailored solutions. And of course, owning an agency and its profits is a great incentive to succeed.”
The first seven agencies were consolidated into five, and Berry offered the managers equity on an earn out basis. “When you find great people you need to keep them, and ownership is one way to do that. Those agencies became our first franchises. I am personally invested in them along with the managers who run them. Our franchising head office has no link to them other than the franchisor-franchisee relationship.”
Tested on the first five agencies, the model proved successful, and in 2003 Berry and his team started a national rollout. “Franchisor infrastructure control develops, implements and maintains systems, training and operations manuals,” he says. “We ensure each of our franchisees has the best business infrastructure possible, are kept up to date on the latest industry developments and changes, as well as sourcing, training and retaining great and well looked after agents.”
Even though it is a franchise with 108 franchisees, Chas Everitt began as a family business, and that ideology continues to permeate the way the group does business today. “Existing franchisees in an area are invited to meet a prospective franchisee before we sign any deals with them,” says Berry. “They have a veto right. If they don’t think the person suits our organisation, we won’t sign a deal with them.” According to Berry this has only happened once in the franchise’s history, but it does mean that new franchisees are immediately accepted and welcomed into the Chas Everitt community. “Our strength and power lies in our team of franchisees and agents around the country — we select them carefully and work hand in hand developing and innovating continuously.”
“One of our core focuses is on fostering our ‘family’,” Berry explains. “This means keeping communication channels open between head office and franchisees, agents and admin staff across the country, as well as being available as head office to clients who have questions and queries. If you complain at a franchise level you will deal directly with me, and we sell between 500 and 600 houses a month. Every client is important to the group as a whole.
“Barry Davies, the group’s franchising director, isn’t just head office’s contact with new and existing franchisees. He is available to agents who are having personal problems. He speaks to clients of franchisees and he is always, always available to a franchisee, as are the rest of the support team.”
Riding Out the Recession
Chas Everitt has emerged from the recession, where the industry as a whole dropped by 50%, with its franchisees largely intact, thanks to a focus on consolidation rather than trying to sell new franchises during a downturn.
“Our core focus was to keep our existing franchises open and help them weather the storm,” says Berry. “The last two years haven’t been easy. Our revenues dropped by 45% — but we managed to cut our costs by 55%.”
New technology, a renewed focus on operational efficiency and plain old innovation allowed the group to face the recession head-on and come out on top.
“One of our best moves was approaching FNB and helping them to develop their FNB Quick Sell product,” says Berry. “Today all the major banks have a similar product, but we piloted it.” The idea behind Quick Sell is simple: traditionally, banks put houses whose bonds cannot be furnished on auction. Typically they suffer a 50% loss in so doing.
The recession presented a unique problem, however. Loyal customers who had never defaulted on their loans suddenly could not pay their instalments. The banks did not want to penalise these customers, but they could not simply ignore the fact that bonds were not being paid either. Quick Sell offers a solution to both parties. The bank agrees to let the homeowner remain in the house until it is sold, which means the sell does not look like a forced sale, but a normal sale. The house is put on the market, and the real estate agent takes a very small commission. In exchange for cooperating, the bondholder gets a ‘forgiveness’ package from the bank.
“We sell for less, and everyone in the value chain accommodates the distressed customer, it also means that everyone wins in a bad situation,” says Berry. “It also opened a great new market for our agents. Yes, their commissions are much lower, but they prospered through the slump.” l
Buying the Business
Berry and Charles agreed on the terms under which Berry would buy Chas Everitt in 1997. At the time, market predications were soaring, with economists expecting interest rates to drop from 16% to 14%. Instead the unthinkable happened, and interest rates soared to 25% in the space of a few short months.
“It was probably the craziest time to try and buy a property business,” Berry recalls. “The decentralisation of agencies certainly helped, but on the whole it was a really tough time. I spent between 12 and 22 hours a day at work, and a lot of time praying and believing that we would make it through to the other side unscathed.”
At this point in his life and career, Berry was, in his own words, “a young bull, full of ideas and probably a fair share of arrogance.” He didn’t want to use Charles’s good reputation with the banks or his contacts. He wanted to raise the funds he needed to buy the business himself. And so he approached financiers as an unknown, which required him to put up much higher surety. “In hindsight, I made things much harder for myself than they needed to be,” says Berry. “I was putting unnecessary pressure on myself during a very difficult time. But it turned out to be a phenomenal character building exercise to go through what I did restructuring Chas Everitt during such a massive downturn and coming out on the other side as one of the top five estate agents in South Africa.”