related diversification in a franchised service business

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USASBE_2012_Proceedings-Page0189 Related Diversification in a Franchised Service Business: Case Study of College Hunks Hauling Junk Academic Abstract College Hunks Hauling Junk (CHHJ) was founded in 2005 by two friends from Washington, D.C. By 2009 the company had moved its headquarters to Tampa, FL, and had appeared on the Inc 500 list of fastest growing companies in America. Its founders had appeared on TV as guests of Oprah, Shark Tank, and Millionaire Matchmaker. However, by the end of 2009, CHHJ had lower revenue than 2008 and many franchisees were not earning the income that they expected. This case presents the decision about whether CHHJ should consider diversifying its range of services to continue growing its revenue.
USASBE_2012_Proceedings-Page0190 Related Diversification in a Franchised Service Business: Case Study of College Hunks Hauling Junk Executive Summary College Hunks Hauling Junk (CHHJ) was founded in 2005 by two friends from Washington, D.C. By 2009 the company had moved its headquarters to Tampa, FL, and had appeared on the Inc 500 list of fastest growing companies in America. During its first three years, the company’s revenue had grown about 65% per year. During the Great Recession the growth ceased and system wide revenue in 2009 was 19% less than 2008. But even before the slowdown, many franchisees were becoming disillusioned that they were not earning as much money as they had hoped. By early 2010 the founders of the company, Nick Friedman and Omar Soliman, knew they needed to reassure the franchisees that the company would return to its growth trajectory that had looked so promising in the early years. The sole service of CHHJ has junk removal. Franchisees contracted with customers to clean out their attics, basements, garages, or offices. After the junk was removed, it was sorted according to its worth. Useful items were donated to non-profit organizations, plastics and metals were recycled, and the rest was delivered to the municipal refuse collection system. For franchisees, the weakness in CHHJ’s business model was that most customers did not need frequent junk removal services. Even when a customer was completely satisfied with the company’s service, he or she was not likely to become a repeat customer within the same year. During 2010 the founders of CHHJ acknowledged that they needed to help the franchisees earn higher revenue. The case provides a description of the CHHJ business model and asks students to devise a plan for the company to diversify into at least one other service that will provide the franchisees with a more consistent source of revenue. The case is targeted for use in undergraduate courses in strategic management and entrepreneurship. INTRODUCTION Nick Friedman, co-founder of College Hunks Hauling Junk hung up the phone. “Omar, I just got off a conference call with several franchisees. The frustration among them is growing. If we don’t help them raise their revenue, I think we might be facing a revolt early next year.” Omar Soliman was Nick’s business partner and co-founder. He expected this kind of news. During 2009 system-wide revenues for the company were 19% lower than 2008. Even before the Great Recession impacted the company, only a few of the franchisees were generating the revenue that they expected. Even if the recession ended tomorrow, Omar and Nick needed a plan to restore the franchisees’ confidence and grow the revenue of their young company. Background In 2003 Omar Soliman was a business management major at the University of Miami. During the summer after his junior year he started a business to make money for school. The concept was simple: identifying customers who would pay for junk to be hauled away from their homes
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