Chiropractic is not only moving into the mainstream, it’s garnering multi-million dollar investors through franchising schemes.
By Jennifer LeClaire
Cory Gelmon began visiting a chiropractor to treat his frequent migraine headaches
a few years ago. Today, he’s headache-free and convinced that chiropractic
is the key to wellness—so convinced that he and his brother Michael have
invested millions of dollars to bring chiropractic to the masses.
Indeed, the Gelmons are pioneering the largest chiropractic franchise system
in the world: Chiropractic USA Inc., a Los Angeles, Calif.-based subsidiary
of Banyan Corporation, a public company focused on investing in and building
a network of innovative companies.
“Frequent adjustments took care of my headaches,” says Chiropractic
USA president Cory Gelmon. “As I discovered the benefits of chiropractic
treatment I also discovered that my chiropractor’s office was always full.
When we realized there were no national franchisors in the industry, we decided
to become one.”
The Gelmon brothers are no strangers to franchising. They are attorneys-turned-entrepreneurs
who discovered a secret recipe to franchising success as owners of the master
Dominoes Pizza franchisor in Canada. The duo sold out of the franchise, but
the experience left them hungry for new franchising opportunities. Little did
they know that a medical problem would lead to a multi-million dollar opportunity.
It all began with the acquisition of a chain of clinics in Louisiana. The Gelmons
renamed the chain Chiropractic USA and set out to revolutionize the industry
with a strategy to make chiropractic a household name. Chiropractic USA now
has about 50 clinics in its system with plans for an additional 100 by the end
of 2004 and an ultimate goal of 5,000 across the United States.
“We are not entering into a tug of war with ‘Dr. Smith’ over
his patients,” says Gelmon. “Our goal is to educate the public about
the benefits of corrective chiropractic treatment. This strategy will create
a bigger pool of patients for the entire industry. There is plenty of room for
growth in this industry with less than 10 percent of Americans visiting a chiropractor
last year.”
As Chiropractic USA gains momentum, respected names in the industry are joining
forces with the company, and other franchisors are preparing to compete for
market share. But still others are wary of the whole concept of franchising
healthcare. Like it or not, experts say franchising will probably play a significant
role in the industry’s future. Chiropractors, then, will be faced with
a decision: compete with them or join them.
“Every day there’s a new industry in America that starts franchising
that doesn’t seem to fall into the traditional franchising model,”
says Steve Hockett, president of FranChoice Inc., an Eden Prairie, Minn.-based
company that provides free consulting to consumers looking for a franchise that
best matches their needs. “There’s no reason that certain aspects
of the medical industry couldn’t be franchised and chiropractic services
are a good fit.”
Anatomy of a Franchise
Franchising is a method of distributing goods and services to consumers. The
franchise system owns the right to the trademark of the business. The franchisee
purchases the right to use the trademark and operating system.
While most people associate franchising with fast food restaurants, franchising
is not all burgers and fries. There is a myriad of other franchised business,
including everything from advertising to automobile repairs, printing services
to party supplies and more. In fact, there are about 1,500 franchise companies
operating in the U.S. doing business through more than 315,000 retail units,
according to the International Franchise Association (IFA).
McDonald’s and Burger King restaurants are among the leading franchised
companies, but service and retail firms like H&R Block and RadioShack are
also some of the most heavily franchised businesses in the country. Emerging
trends in franchising include children’s services and education, telecommunications
consulting, home repair, senior citizen personal care and, now, chiropractic
care.
While the average initial investment level for franchisees is less than $250,000,
existing chiropractic franchises typically require a fee that runs $20,000 or
less. Franchisees also pay royalty fees, ranging from 3 percent to 6 percent
of monthly gross sales, and contribute to a corporate marketing fund.
In 2000, most analysts estimated that franchisors and their franchisees accounted
for $1 trillion in annual U.S. retail sales in 75 industries. Moreover, franchising
is said to account for more than 40 percent of all U.S. retail sales. Industry
analysts estimate that franchising employs more than 8 million people, a new
franchise outlet opens somewhere in the United States every 8 minutes, and approximately
one out of every 12 retail business establishments is a franchised business.
With so much success in franchising and so many chiropractors struggling, the
question becomes: Why not franchise chiropractic?
Multiple Office Groups v. Franchising
While some chiropractors consider multiple offices a form of franchising, networked
practices and franchising are really two altogether different worlds. For starters,
a corporation, or franchisor, licenses its brand and provides operational support
to help the franchisees manage that brand as a successful business owned by
the franchisee. Multiple office groups, on the other hand, are typically owned
by an individual doctor or a small group of doctors who depend on associates
to help keep up with growing patient demand while retaining complete ownership
of the brand.
That’s how Eriksen Chiropractic Centers, a string of six offices in Kentucky,
got started. Dr. William Eriksen founded the business in 1972 and at one time
had seven offices in his network. The offices operate under one brand name and
have an in-house graphic designer and print shop for marketing campaigns. Eriksen’s
purpose is to help talented young doctors learn to run a practice without the
risk factor of investing in a start-up business. He then sells them the practice
after four years.
“My biggest problem with franchising is that a lot of the young doctors
who buy into a system would achieve greatness no matter what,” Eriksen
says. “Franchising to me generally just means here’s some forms,
here’s an X-ray machine, here’s a table, here’s some therapy,
here’s expense overhead for six months. Now go run a practice. I’m
not into that. I want to make sure that the doctor we train here is going to
be a good doctor and an asset to the profession. We want to make sure he has
good adjusting skills and good business skills.”
Chiropractic USA is attempting to address that concern with its internal training
program for franchisees. The company offers teleconferencing and videoconferencing
courses on its business format. For hands-on training, the company brought in
Dr. C.J. Mertz as a director on the company’s board and now sends young
doctors to his Waiting List Practice Chiropractic Organization, a chiropractic
training facility in California. This uniform training is important to any franchise,
says Mertz.
“McDonald’s franchisees don’t get to choose how they are going
to make their French fries,” Mertz says. “You have to buy into the
protocols and do it their way. Chiropractic USA has a set of bylaws that allows
chiropractors to build successful businesses. It is a way to maintain and preserve
the true principals of sublexation-based chiropractic and to educate and promote
those principals to the public. That’s the dream.”
Allied Health of Wisconsin Chiropractic Healthcare has a slightly different
dream. Allied has a string of 59 offices in five states. Company President Dr.
Scott Bautch says he examined both the franchise and the multiple office model
before settling on the latter. “Franchising chiropractic is not like franchising
McDonald’s,” he says. “Franchising healthcare is much more
complicated because each state has specific laws regarding healthcare. Quality
assurance is also an issue. You have to be careful. Look how many lawsuits came
out of the MD-CP trend.” Allied has been successful with its employee-driven
model and is planning to add additional clinics to its growing network.
Entering into the World of Franchising
If you are sold on the benefits of franchising, then you are at a crossroads
in your practice. Should you start your own franchise or buy into an existing
system?
Dr. Fred Gerretzen decided to become a franchisor quite by accident. Gerretzen
was a young chiropractor in survival mode when he launched his own practice
out of a spare bedroom in his rented home. His unconventional chiropractic practice
led to some unconventional business practices. “I always looked at the
practice from the customer’s angle,” he explains. “I decided
to run an affordable, convenient, easily accessible chiropractic office that
removed the barriers for the customers. For example, instead of making people
stick to appointments I just open for business on certain hours on certain days
so the patients can come in at their convenience. I also make the adjustments
so affordable that it’s typically lower than an insurance co-pay.”
With this model, his practice in Tucson, Ariz. sees more than 700 patients a
day on a cash-only business. That’s when he decided to franchise the system
and call it The Joint. His second corporate-owned practice opened up in Atlanta
about five years ago. His goal is to open 10 new franchises in 2004 and the
long-term goal is to franchise 1,000 Joint offices. The franchise fee is $18,000,
which includes site selection, lease negotiation, group discounts on equipment,
proprietary software, a web site, music, forms, brochures, marketing, training
and various other perks associated with franchising. Franchisees pay an ongoing
royalty based on collections.
Chiropractic USA’s Turn-Key Openings includes a similar package, with
professional expertise in site selection, lease negotiations, construction and
marketing of a new clinic at a price tag of $20,000. Turn-Key franchisees pay
an ongoing royalty based on collections. Existing clinics that convert to the
Chiropractic USA brand pay only an ongoing royalty with no franchise fees.
“From a franchisor perspective, that cash flow starts pretty early in
the process because the franchisor engine is driven off of franchise fees and
royalties,” says Ed Mathews of Hanover, Mass.-based management and technology
consulting firm Novidian Corporation. “The franchisor’s focus is
to get a group of franchisees up and running and successful. Once they get a
handful of successful franchisees, then the franchise system can really grow.”
The multiple office owner that is considering becoming a master franchisor has
to consider the capital involved in setting up the system. Mathews says becoming
a master franchisor is more profitable than owning a multiple office group in
the long-run, but it takes a lot more capital to build a brand and a franchise
infrastructure than it does to open up a few individual offices one by one based
on consumer demand.
Hockett says the decision to start a franchise or simply open additional offices
in a network requires self-analysis. “Do you have the time, energy and
money to start a franchise from scratch? Or would you rather be part of a franchise
system and take your time, energy and money to build a business under a franchised
brand?” he asks. “Those are two very different things. In one scenario
you are creating all the systems and in the other you are just applying them.
You have to make an assessment as to whether you think you are going to be better
at creating or applying those systems.”
The IFA offers a myriad of resources to individuals who are considering starting
a franchise.
To Franchise or Not to Franchise?
If you are sure that starting a franchise system is not the path to success
for your practice, then maybe buying into a franchise is. Experts say the biggest
advantage of joining a franchise system is the branding power. Brand names resonate
with consumers because the speak of value, consistency and quality.
“The secret in franchising is that you are supposed to be getting help
with running the business so that you can focus on what you were trained for,”
says Rhonda Sanderson, president of Sanderson & Associates, a consulting
firm in Chicago. “Franchising gives you a brand name and a corporate partner
who is going to help promote that brand name.”
In franchising you are in business for yourself, but not by yourself. Experts
say there are many advantages to following a system of proven, established procedures
for billing, advertising, operations, training, etc. You also reap the benefits
from other people’s mistakes so there is no need to reinvent the wheel.
With a network of businesses, information sharing becomes vital to success.
Sounds good, right? It sounded good to multiple office owner Dr. Robert Graykowski.
He converted his Carmichael Chiropractic in Carmichael, Calif. and Community
Chiropractic Center in Orangeville, Calif. to Chiropractic USA franchises. Graykowski
will open up to 100 more locations in Northern California as an area representative.
“This is a bigger mission for our profession,” he says. “To
be on the leading edge of what I think will bring chiropractic to the masses
is exciting.”
Of course, experts say franchising isn’t for everybody. A franchisee has
to be willing to embrace the franchisor’s system. Consequently, the franchisee
loses some control over the way they run the practice. “The franchisee
that doesn’t embrace the system will struggle,” Hockett says. “The
biggest reason people are not successful in franchising is because they don’t
follow the system. If you are going to invest in a franchise and want the benefits
of a franchise system, then you need to be willing to compromise your freedom.
If you want to reap the benefits of someone else laying down all the systems
and just focus on making money, then franchising is a beautiful thing.”
The Future of Chiropractic?
Like any business opportunity, there are always pitfalls. Franchising does not
guarantee success. And careful investigation of a potential franchisor is recommended.
“Investigate before you invest,” says IFA spokesperson Abbe Daly.
“The franchisor is obligated to give you a disclosure document called
a Uniform Franchise Offering Circular that contains the background and history
of the franchise and also the names and phone numbers of past and present franchisees
in the system. Contact at least 30 and find out what their experience has been,
both the positive and negative, to help you make your decision.”
Investigation or no investigation, some chiropractors still aren’t sold
on the idea of franchising healthcare. “There’s a lot of dangers
to franchising,” Eriksen says. “The parent company can get sued
for the actions of the franchisee. McDonald’s by and large has its business
down to a science. Franchising works well in that market, but I am not convinced
that it works as well in healthcare because different doctors have different
skills.”
Still, most in the industry agree that the industry is ripe for a revolution
in the way it does business and concede that franchising may be the wave of
the future. “We need an ethical business model that allows us to work
together instead of competing,” Bautch says. “We should be doctors
and let somebody else worry about running the business aspects of the practice.”
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