Industry Insider: Cheeseburger, Cheeseburger, Pepsi

Franchises. The custom-installation purists will say it can't be done. Not in this industry. How can you franchise a custom operation? I'm sure they said the same thing with every emerging market. Those McDonald's hamburgers were custom-made way back when. Skeptics probably thought Ray Kroc was, well ... a Kroc, when he said he could package his business and sell it to a bunch of entrepreneurs who had no burger-building experience! The fool!

Truth is, no franchise in the home-systems industry has ever come close to succeeding. Performahome was never really taken seriously back in the early 1990s because its products were rather silly, and its operation a little slimy. (Honestly, I saved some of the original collateral: "Would you like to improve your life and increase your income? Get in on the ground floor of the business opportunity of the new millennium.")

Later, Smart House was taken seriously because it had a ton of money and a longtime home builder at the helm. But it spent way too much on infrastructural and operational initiatives without really focusing on business basics.

Most recently, LifeStyle Innovations looked like it had a shot. But the franchisor was forced to please investors by showing significant growth, which it could only achieve by buying and/or setting up its own stores, which it could scarcely afford.

Today, we have two new efforts underway -- Saavihome in Louisville, Colo., and TheaterXtreme (TX) in Newark, Del. (see story, pg. 112). Both have similar business models, but TheaterXtreme is in the lead with a few franchises already sold and at least one up and running.

Already, custom dealers are damning these businesses because "you can't franchise custom installation." But I think you can.

Thankfully, there will always be a nice chunk of consumers that wants to handpick their products, services and feature sets. But an even larger chunk just wants to get a projector aligned with a screen and have a universal remote that works every time.

At the same time, some pretty savvy business owners don't want to manage dozens of manufacturers and scores of SKUs. Nor do they want to have to train low- wage techs on every new gadget that comes to market. They just want to present a handful of packages that they know are profitable.

True, many dealers have tried and failed to implement a good cookie-cutter semi-custom business. One key reason is that it costs a lot of money to figure out how to make a high-volume, lower-cost installation business work. You have to experiment with product selections, showroom design, sales tactics, advertising campaigns, high-volume installations, inventory management, yada yada yada. By the time you have the answer ... you're out of money.

Saavihome and TX are sinking a lot of money into figuring out the business models for a franchisable home systems business. As TX CEO Scott Oglum says, "Our first store cost us $1 million."

TX has managed to replicate the stores and has already sold the concept to a handful of franchisees that are paying only $25,000 and a percentage of revenues for TX's million-dollar learning curve.

Julie Jacobson

editor-at-large

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