How to build a franchise empire? Interview with Jim's Group founder, Jim Penman

Well, thanks for meeting with me today, Jim. For those of you who have tuned in to watch, I've got the privilege of sitting with Jim Penman, who is a mate of mine through church. And I've got to know Jim over the last year. And Jim has been an enormous encouragement to me as we've gone through some stuff in this last year and I've read his book was actually recommended to me. Before I even knew Jim, I was talking to somebody who was helping me work through some anxiety issues, and she actually said, did you see Jim speak at church recently? And I said, no, I didn't even know he went to our church. And she said, you and him would actually get along very well. You're actually quite similar. And she said, I recommend you get hold of his book. So I went to church and I asked, do you have any copies left? And I said yes, took the book and it was funny. It wasn't actually until I met you that I actually picked up and read it. And I started to realize that nearly all the pieces of advice that you've given me over the course of the last year are actually recorded in the book. So one of the reasons why I wanted to reach out and speak to Jim today is not only has he been enormously helpful to me in terms of things like letting go when you've. And just learning the lesson when you've made a mistake, I think that a lot of people can learn from it.

Yeah, well, I had a lot of practice in making mistakes, so you have to keep on doing stupid things and you look at it and you say, okay, all right, that's a mistake. Now how can I learn from that? What can I do different next time? Yeah, yeah, that's the lesson.

Yeah. I think it was funny. The more I dug through your book, the more I realized that so much of the wisdom is collective. It's through the years, trial and error. It's. And one of the lines that I picked up was, no one is a natural born entrepreneur.

I am certainly not. I do so many dumb things all the time. I am pretty obsessive about customers, always have been. But learning how to run a business is really hard. Learning how to stick to what you know, working how to pick the right people, that's the hardest thing of all. Yeah, just. Just constantly driving to do things better. And so much of what we do now is something I had no idea about. If I got to come back and done this interview with myself from, you know, 40 years ago, I'd be a lot further ahead yeah, Much I didn't know in those days.

Yeah. I think one of the themes I picked up as I read through the book is about you becoming so firm on right fit, choosing the right people. What brought you to that place so early on?

Picking the wrong people. Okay. I mean, it's just. You just make so many mistakes and you learn a bit, you learn where they come from. One of the things I've discovered is that one of the best ways to find good people is right under your nose. You look at people who are already within the organisation, whether as franchisees or as staff members, and give people a chance to shine, and they often do. So most of my best people actually come up internally.

Yeah, you did say that's definitely recorded.

It's the old buddy of the mail room. So instead of going out and hunting for people with Masters in Business Administration, you look at somebody who's been answering the phone or working in basic admin job or anything.

Yeah, yeah.

And then get to know them and see who's got the potential to go further.

Yeah, yeah. That's absolutely one of the things, and it's one of the things that I sort of recognized in terms of, in our conversations about really honing in on what I was good at and listening to that kind of natural fact. It was funny. A conversation I had with you, plus also in combination with my wife, was really about honing in on what you're good at. And so one of the things that I also took away from, not only your stories about learning how to look for right fit, was also very much around resilience and coming back to the mistakes thing. I think one of the images I got was you had a job very early on, a mowing job, that you just felt sick and you didn't want to do the job, but you'd committed to the client and it was just one foot in front of the other for the whole job.

Yeah. Until I can go home. Yeah. That's a good thing. You can't think too much ahead. You've got to think in the worst time, what do I immediately need to do now? Otherwise you can get buried under the bad feeling. I mean, like, not just sickness is one, but more likely it's despair, it's frustration. Things go wrong. If you let it overwhelm you, you'll get nowhere. So you've got to say, okay, put that aside. What do I do now? What do I do next? What do I do next? Just focus on things and you start focusing on what you've got to do. Then it clears it.

Yeah. And I also think one of the other joys. One of the other things I thought was great was one of your story about finding, I guess, peace or joy in working in the rain. It kind of reminded me of my grandmother many years ago who worked in a. In the laundry. And she said in summer it was roasting, but in winter it was nice and she had to find joy in what she was doing. How did you come to that sort of place of being able to do that?

Well, you talk about mowing lawns and stuff. It's a job I generally liked. In fact, that's my hobby right now. In fact, tomorrow I'm going up to my farm and I'm going to be digging in my garden and that's my recreation. I've got potatoes and pumpkins, zucchini, berries of all kinds.

Yeah, I've eaten his potatoes.

Yes, they're very nice, aren't they?

They are good.

They are good. If you do something you love, it's not that difficult.

Yeah.

People often ask me, what's the best franchise to go into? And I say, what do you like doing? Do you like dogs? Do you like cars? Do you like gardening? Do you like construction? Do you like. Do you like electronics? What are you keen on? Go into that. Do something that you get enjoyment from, as I did from mowing, Gardening contract. Now, I tried other things, too. I tried to be a carpet cleaner at one time. Now, carpet cleaning is a great profession. A lot of people love it. But I hated it. I really, really hated. I had this big expensive truck mount machine and I just hated the job. So I was no good. It was no good for me. Whereas you put me into an overgrown garden. You know, your grass is that high and it's just like a mess. And I just like to go in and clean up and make it look immaculate. It's just a great satisfaction. And I'm working outside and, well, it might be hot, it might be raining, it might be anything, but it's just satisfaction doing the job and contact with nature and being physically fit. It's all just great positives.

Yeah, absolutely. And I guess that ties into something else that I noticed too was you gave some advice to some guys at one point in time who were running a fizzy drink company.

Yeah, they were from Schweppes, actually Cadbury Schweppes.

Oh, okay. Well, that's who it was. And your advice to them was to get out of the office because they.

Came to me with the question, you know, we're not doing very well at the delivery of business of these, of these soft drinks. And there's this other company which is a lot smaller than us, but local company which is making money hand over fist. What do I do? So I actually clutched them a few questions and I discovered that neither of them had ever done the job. So I said take up your suit and tie because they're all properly dressed, put on some overalls, go out for six months and deliver soft drinks. And I know what to do. And that's which they never did. I'm sure it's not what executives do, but I do find that people who understand like we have franchisors, the best franchisors are those who done the job themselves, generally speaking. They know what it's about, they know what it's like and they can give advice from experience. Oh yeah, you got a difficult client, doesn't pay. I find this is the best option. Or do this well, that's how you handle this kind of job or you know, this. Complaints come in okay. What I used to find with so and so and so and so so working from practitioner experience, it's one thing that a lot of managers and CEOs don't do. They don't actually get involved in the nitty gritty of what the job is. So they can't really look at it and say how do I improve? It's like what Toyota used to have, the constant improvement system where it's the workers on the assembly line were actually able to point to things that were going wrong. You know someone like Elon Musk too, he's a brilliant technologist. There's a wonderful book Liftoff that's just come out about SpaceX. I've also read his biography which was about by Isaacson or whoever it was. But he actually goes on the line and he looks at, he said why are you doing that? Why are we cutting this much off and not that much off? Why using this particular bit of equipment, which is for an aircraft, this one, which is for cars and a lot cheaper and they couldn't give a good reason. He said we'll try it. And they just keep on trying and trying and trying different things. He's just like that. He's a very incredibly hands on sort of guy.

Yeah, he is. I've watched the documentary which was the lead up to his success. I don't know if you've seen it. When he had the three tries and all three of them failed and it turned out he secretly had another billion dollars and what he said when they finally achieved orbit, I can't say here, but it just showed you how hands on and involved he was in the project.

Yeah, he's a brilliant technologist. He does some pretty flaky things at times, but I look forward to seeing what he can do with the Department of Government efficiency, if he can keep on good terms with Trump for a while. Because I tell you what, that's what government needs. I've got a contact who's been doing consulting work with the New South Wales government and they just saved tens of millions of dollars in the most simple ways. It's just so inefficient. Government is so inefficient.

Yeah, tell me about that. Like what sort of things have you heard?

Just getting rid of duplicate situation, merging departments in different sections have it all on one. Just basic stuff, doesn't even take long. You're talking about a couple of months of work. Governments have incredible. I don't know how even in an enterprise like mine, it's easy to get bloated and wasteful. You just have a lot of people on you don't have quite what they're doing and your costs can rise so fast. And this is with the profit motive on you.

Yeah.

When you talk about a government department which is not got any pressure on it at all for anything, they just don't care. I mean, their interest is to spend the money, they don't want to save it. Nobody benefits from that except the taxpayer and that doesn't really count very much. Yeah.

And actually, even by you talking into that, actually one of the other things that I saw in your book, I gleaned the whole concept of systems reporting accounting, because you've had areas there that you weren't known to you. And it wasn't until things actually went wrong that was like, yep, we've really got to backfill this.

You do sometimes need a bit of a credit crunch. You're running short of money, otherwise, it's easy to get complacent. Even. Even in a small business like mine, which only employs about 100 people directly, it's so easy to get fat and complacent and then every now and then you're running short of money. Okay, what are we spending? Where can we cut back, where's our inefficiencies, who's not doing a job particularly well, who's in the wrong role, all that sort of thing.

And the other thing that I picked up too was in terms of, from the early days, there was this working out the correct price in terms of, well, this is the service. And it wasn't just the price in terms of for the client, it was also in terms of the franchisees. To be able to work out, well, we need to be making money, we need to be sustainable. So what's your advice to people who are starting a new business in terms of establishing that look, it's difficult when.

You'Re an independent because most of them fail. Between 90 and 95% of cleaning, gardening, businesses fail in their first year. With us, we still fail times, but it's about 12% in the first year. But generally speaking, you look at your pricing based on your acceptance rate. The only situation where I would tend to advise a franchisee to raise their prices is if they're just starting off and they've got a low conversion rate and getting a lot of knockbacks on price. In that sense, probably no matter what hourly rate you're making, you're probably charging too much because you haven't got enough work. But most of my franchisees aren't in that situation. Most of them don't take much work at all. For them, my advice is always put your prices up for new jobs, put them up 10, 20% over what you'd normally charge, and then you go back to your regulars and start raising those and then constantly keep on doing that and get your rates up and up and up. I do not believe in competing on price. I think it's a mug's game because people think you've got to charge cheap to get the job. But in actual fact, there's a lot better ways to actually compete your conversion rate. One of the most powerful ones is simply when you ring the client back in a service industry. And we found that if you ring the client back straight away, your chance of getting the job is double than if you wait a couple of hours. We've done surveys on this. So you want to cut your price or you just want to ring as soon as you get the message and just contact the client straight away. And then when you say you're going to stop, you turn up on time and give them a bit of a leeway and if you can't be there, you ring them up. It's just basic customer service. And then having a proper looking quote and having uniforms and having vehicle signage and the rest of it, you put the fundamentals in place. Pricing doesn't become so much of an issue. That's the one thing that you don't have to compete on if you're doing your Job properly, which is most of our franchisees do. But even so, most of my franchisees don't charge enough, in my view.

Okay.

I would recommend 50 franchisees to phase their prices to one that I would say, hey, moderate them. Okay, cool.

Yeah, the customer responsiveness thing was actually. When I actually was reading the book the other day, I got to that section there, and it's not the first time I've heard this concept of rapid response. I actually reached out to my team and I said, this is what Jim says. This kind of aligns with what I've known from my iSelect days and my days of working at TAL. And it actually started debate within the team about when is appropriate to reach out. And my answer was, it's appropriate to reach out when the lead is hot, when the customer is ready to talk to you because they've just put the requiry through.

Look, my impression is that most businesses are quite poorly run, Astonishingly poorly run. Even professional businesses like lawyers and so forth, they just don't respond to you, just simply answering. And one of the greatest things that I do is answer my emails. Very easy to contact by email. Now, if it's a junk email, well, it doesn't matter. Just take it off, get rid of it. Only takes me a few seconds. But then if somebody wants to approach me about something like a new division or particularly one of my friends at least wants to approach me about selling advice or something like I'm onto them very, very fast. Usually answer most meals within two or three hours.

And that's one other thing. You give all your people access to you personally. How often does that get invoked?

Half dozen times a day. Somebody would contact me at something, at least I would say less during the weekends. But even then, sometimes franchises will ring because they can't come to the franchise or at the weekend. So they contact me. I can do something for them, some advice and stuff.

Is it usually the same sort of stuff that comes up again and again or sometimes it.

Oh, it's about complaints quite often, or troubles with their franchisor or don't like their complaint system in some way, or they're not doing very well, they haven't got enough leads. That's a common one, of course. And a lot of things I can do for them, too. Yeah, just an extra. The franchise always supposed to provide the counseling, but sometimes have extra ideas. For example, one of the things I often do is I point out leads in other divisions they could do. Like there was a cleaning franchise. He contacted me yesterday and he wasn't getting enough work. So I did a bit of a list and I said, well, you've got a whole lot of services in your area, unserviced for car cleaning and carpet cleaning and window cleaning. I said, you know, surely you can do those. He said, I don't know how to clean a window. I said, well, it's nothing. You use a squeegee, you buy one, it cost you 20 bucks. He said, I've got a squeegee. So. And car cleaning, I mean, basically speaking, it's cleaning, but a car.

Yeah.

If you can clean a house, you can clean the car. You might not know how to wax and polish and stuff, but even that you can learn. So take some of those jobs. There's actually more than enough leads to get him flat out. He just hadn't thought of it. Even though we talk about the trainings franchise or hadn't mentioned it. So I just said, let's do it. I don't obviously know whether he has done it. I haven't heard from him so far, but that's kind of simple advice.

Yeah, it is. And I think that was one of the things that I picked up as well. In terms of. You talked about the story of adopting that process of value. Add that you had one gentleman who.

Upselling. Yeah.

Who was upselling all the time. And is that a huge part of the revenue of the business?

If you look at top earners, they invariably upsell. I've sold jobs as good. That's when you go into mow somebody's lawn, you suggest you're going to clear their gutters or move some rubbish or weed the garden or if you go into a house to clean it and you offer to clean the window or the. Or the, you know, whatever, clean the oven. Anything, anything at all. It doesn't have to be even related to the actual job. It could be changing light gropes for an elderly client. Just what else can you do? And that's got multiple avengers. One is that you're already there, so there's no travel. Secondly, extras you normally charge a higher hourly rate for. You might be charging say 70 bucks an hour for mowing the lawn and like $150 an hour effectively for cleaning out the gutters. And the 13 clients like it because you do more than one job, so you're actually more valuable to them. They don't have to have different people come in. You can do everything for them. So it's a very powerful thing and we teach people how to do this. Too. There's actually a way of approaching clients. You don't go and ask them, do you want so and so done? Because that invites a no. What you say if there's anything else you ever want done, like you know, gut is cleared, gardening rubbish reel, happy to help. So you put it as a offer without asking a direct question. So the client doesn't feel pressured and you don't feel the risk of rejection. We teach them phrases like that. So it's similar. How do you get referrals, do brilliant work and then you hand the client three business cards. So you say, here's my business card and here's a couple of extra in case you know anybody who wants work done and you don't have to ask a direct question. You simply show them that that tells them, hey, I need more work. Hey, do you know anybody?

Yeah.

So you can you teach these little tricks of the trade, these little phrases, ways of doing things that people don't. Well, I never picked up on those people smarter than me. I'll work them out. But you learn from other people.

Yeah. There's no endorsement like a personal endorsement. Absolutely. Now you've got a whole chapter there, almost dedicated education. In terms of the week long, which looked like you were fairly insistent about bringing in this week long induction program for anybody who was looking at doing. Because I noticed that it's not just franchisees or potential franchisees who are allowed to come and do it. There's other people can come in. What sort of things could a person expect to hear about?

I talk about customer service. That's a big issue. Let's talk about service to franchisees, which are relevant to franchising only, of course. But you talk about resilience, bookkeeping, use of computer software, occupational health and safety, dealing with difficult clients, upselling, putting down for work effectively to increase the flow of leads, self marketing, social media, those kind of subjects too. We found that actually has a major impact. When we started before we were running organized training sessions, we were losing about 1 in 6 in the first year. Now it's more like 1 in 8 or 10. The actual attrition rate dropped dramatically as soon as we started doing that.

That's really good. Just having a look at my list just for whoever's watching. I read Jim's book and I've gone through pretty much almost chapter and page by page looking at the different things that really stood out to me. And I think one of the overall concepts that kept coming through was this whole concept of customer delight. And it was funny Because I did an assignment when I did my MBA on this and I was looking at going, okay, who came up with this idea first? Was it the Bezos principle, as they sometimes call it, or Jim, because you actually started before Jim.

I think it goes way beyond that. Way before that. It's been around forever.

Yeah, yeah.

Amaze the customers. Don't just give them what they expect. That's the minimum. Try and do more. You want, you want. Wow. Okay, that's great. Clients saying to me, I never knew my lawn could look this good. It's one of the first contractors in Australia back in the 70s to have a brush cutter because it used to frustrate me that I couldn't do all the edges perfectly, like around the trees and retaining walls and bugged me. Nobody ever commented. But it annoyed me so that when I. About this machine, the first time I ever saw one, I bought it and I started to use it and you could do a job better than people could do for themselves. And people were just, wow, okay. Because they know what they can do for themselves, but they can't do what I can do.

Yeah. And that was actually one of my points here about you being a first adopter of new ways and solutions of doing it. Is that still something?

Yeah, of course. We're always looking for new stuff. We're big into electrical stuff these days. Batteries is the future. Some of our guys are completely electric. Some just use it for the, like the brush cutter and the lighter machinery and they use the mower's petrol and some don't, of course, stay with the old petrol stuff, but we're shifting across. It's also. It's good from various points of view. It's actually. They're more expensive, these machines, but they're more durable, they're quieter. They don't have so much vibration, which is a concern for some people because they can get reflective strain injury from. From things like mowers vibrating. Yeah, just. Just better. I, I'm a great fan of that. My only. Yeah, I don't, I don't have any petrol mowers. I have a battery powered mower I use sometimes and also a hand mower on my farm which I use but not, not petrol. And I have a electric car which I really like. It's.

Yeah, yeah.

I've had more than two years and haven't had to had any work done there at all. Yeah.

Now talking of mowers, when I was sitting in reception waiting for, waiting for you to, to be available, the mower you've Got there is exactly the same as what my dad had back in the day when and he used to get middle motor lawns back at home. Have you still got it? No, I was just wondering.

I didn't keep any old stuff. It's. It's. You never know with these things what's going to be history.

Yeah.

You know, all sorts of stuff I did in the audience which is just so trivial. For us it's just a bowing business, but we never. I never thought it'd be quite a successful. My daughter Sylvia's just started. You've met Sylvia, haven't you?

No, I'm not sure.

She and Danny are partner have started gymnast removals. And I said, listen, document everything because I know they're going to be great. I said, you put your what it's like in the beginning. Get proper records of everything you're doing because one day you'll look back and say, wow, that was the early days.

Yeah, absolutely.

I got a pretty good sense they're going to be a nationwide business one day. But I didn't know actually for a long time I thought moan was just a sort of a sideline until something more promising came along. It kind of surprised me. I really didn't think that. I knew I had to try and get money to fund my research, but I didn't really think it would be the moan business that did it.

Yeah. And it's interesting because that was one of the things also too, when you say early on in the book that what really is the driving force behind all of this is the Institute, your real passion. And when I was reading that, I was reminded of what Robert Kawasaki says in terms of know your real business. Like you might use real estate or you might use whatever it is, but know what it is really that's driving you. So that's. That's been a passion. It's been with your life long. Ever since your studies, correct?

Yeah.

Yeah.

Got a reason to get up in the morning, Certainly. My research is very important to me and we're funding it. We're spending something over $3 million a year these days on basic neuroscience research. But also my franchisees too, to a large extent. I feel very committed to them. So you have to have a reason, a sense of purpose in what you do, for sure. Otherwise your life is fairly. I could never be involved in a business that I couldn't see a moral purpose behind something like Bitcoin, for example, or cryptocurrencies. To me, they are horrible. Business people do get rich and they do Lose a lot of money too. But crypto doesn't, doesn't have any function except if you want to, you know, if you want, go in the dark web and pay for child pornography or something like that, it's great for that. But I can't see any worthwhile social function. So I would never want to be involved in it. I want to buy crypto. I would never be involved because I can't see the value. I have to see that I'm doing something in my, in my, in gyms. I can see real value in what I do. Yeah, I, I'm helping to create a great livelihood for my franchisees, which is the main thing, and I'm giving great service to customers and we do look after them very well. If they have a problem with the job, we'll fix it. No matter what it takes, no matter what it costs, we will fix it.

Yeah. I mean, this is what I picked up on there. The three tasks of the business is find customers, sell service, build the business. But then it was also tied in about love your staff, put your people first, keep open channels of communication with respect and gratitude.

I find the Chicago school of Milton Friedman, that kind of idea that the only service of a business is to the stakeholders, to the shareholders, I find that obnoxious. Yeah, it's morally obnoxious. I don't even think it's good business in the long term. And you look at someone like Jack Welch, who was at one stage the most admired business leader of the 20th century and made an absolute fortune for himself, but sacked people, cut back on research, moved, got rid of experienced staff and went to non union states and all kinds of things that he did. And after he left, GE just collapsed. This is great, magnificent company, well over a century old. He basically destroyed it, he really did, by putting the money first. And I just don't believe that's the way to run a business. You've got to have an interest in it, you've got to be able to make profitable, you've got to be able to make money, but it should never be your first priority.

Yeah. And that was one of the things that when you and I first started developing a friendship, I started to admire that aspect of your personality because I've met a few highly successful entrepreneurs before and have found that the driving force has always been profit. And whilst I am so far from being a socialist, it's not funny. I certainly see that the role of business is about creating benefit, not just money.

Yeah. It's one of the nicest compliments anybody who paid me. I'm nothing like Kantowitri Putin. I love that. I wouldn't like to be.

Yeah, well, that's good. And I think that part of that comes into your faith as well. I don't know how many other entrepreneurs stuff I've ever read that they were brave enough to put in there in terms of their faith. So that's an important.

There. There's a few. There's some good books I can recomm to about people who are Christian entrepreneurs. I actually do think Christian values has a lot to do with successive gyms because I'm not extraordinarily capable in business sense. There's so many things I do badly. So you're trying to understand why the business succeeds. A lot of it is basic Christian ethics. It's like really caring about your people and it just has to be genuine, not just for the sake of money. It goes far beyond that. You know, you've got to be emotionally committed to your people, emotionally committed to your customers. And that doesn't. That's not a rational calculation. So many of the best decisions I ever made were made contrary to what seemed to be my own personal financial interest. But you do it all the time. You get into a situation where somebody's left the business, for example, you decide, I'm sorry it's failed for you. Wipe off any fees out. This kind of stuff. We just do a lot of things of that nature. Yeah.

That's almost unheard of outside of this business, from what I understand.

Yeah. Which is good Christian morality. But in another sense too, I think in the long run, it's probably fairly good business sense because even a person who fails is still out there talking about it. And if they've been dealt with in compassion and with some care for them as an individual, some express sorrow and doing everything you can to make life better for them and life easier for them. Then they're talking to somebody or their friends or anybody else. They're talking about their experiences. There's another element come across. You can't quantify that. Exactly. You can quantify the fact that I've just given away $2,000, but you can't quantify the potential beneficial effects. Yeah.

I mean, that also comes back to. You've got a section in there just circling back to the whole. The choice of a person that you will allow to come into the business. And I like the fact that in your training days you'll go through the. Why would I be so. For the want of better words, cutthroat why would I be so discerning? And the answer ends up being the right answer, is because it's the right thing for the person to be told, this isn't the right thing for you. And I think that's one of the hardest things to learn in life, is you're not always right, fit. And if something does fail, it's not that you're a bad person, it's that it just wasn't right fit, wasn't the right place for you to be.

You haven't done that training, have you?

No, no.

You should do it sometime.

Yeah, absolutely. I'm saving up for it so I can come and do it.

It's only a few hundred bucks because you live locally, so you wouldn't stay overnight.

But I'm looking forward to.

I can make that quite open to people. People who want to start even competing franchises like to come to our training, do all the training. Franchisee franchisor, pay the same fee as anybody else, which isn't a lot, learn everything. We've actually had two people who went through our full franchisee and franchise or training and went off to try and start their own franchise network.

It's in the book. You talk about it.

It's in the book. Yeah, yeah.

The lady rang you and she said, thank you so much. I've started my own franchise.

Well, actually, no. What she said, I want you to congratulate me. I signed my first franchisee.