Solar franchising helps electricians enter renewable energy business
In September 2010, Murphys, Calif.-based electrical contractor Gold Electric, Inc. celebrated 21 years in business with the launch of its new solar energy venture. “It just seemed like the right time,” says Jim Heryford, owner, Gold Electric. “Like a lot of other contractors, we’d seen a reduction in revenue due to just the economy. So we were looking for a way to replace revenue.”
As one of the 21 franchises supported in six states by Solar Universe, Livermore, Calif., Gold Electric now offers installation of a wide variety of solar panels and different types of inverters, in addition to its electrical services for the commercial, industrial, and public works markets. “We’re looking for work like everyone else,” says Heryford. “Now, we’re also actively going after the solar projects.”
Under a typical solar franchise model, franchise owners pay a fee and then set up shop under the company’s brand. “A solar franchise isn’t like a traditional franchise like a Subway,” says Jeff Manchester, VP of operations, Lighthouse Solar, Boulder, Colo., which currently supports 11 franchises. “It’s a highly technical and skilled trade. It’s more of a partnership than a franchise.”
A typical solar franchise program provides training in solar technology and design, and installation; sales and marketing support; financing options, such as leasing; and product distribution. See Five Advantages of Franchises for more information on what makes this an attractive option.
“Those are the core components that are required to get products from the manufacturer to the roofs,” explains Joe Bono, founder and CEO of Solar Universe, noting that the company also provides software to its franchisees. “The software covers all major areas of the solar installation business: lead capture, proposal generation, front- and back-office functions, permit assembly, invoicing, and financing through partners and customer loyalty.”
Ongoing support from both the company and other franchises is also a benefit of buying into the franchise model, according to Manchester. “As a Lighthouse Solar franchise partner, you’re not just going out on your own and trying it,” he explains. “You’ve got the backing of all the other franchise partners for support, so it’s a lot easier to land those first few jobs.”
As an example, Manchester cites the mentor relationship its second oldest franchise in New Paltz, N.Y., has with its newest in Westchester, N.Y. The two offices are approximately an hour away from each other. In following its first leads, the owner of the Westchester office can refer to the experience the New Paltz office has gained. “It can say it has the backing of Lighthouse Solar company as well as the New Paltz office, which is right down the road,” Manchester says. “There’s a benefit of having a support network close by.”
Purchasing power is another advantage of belonging to a franchise group. As opposed to going in alone as an independent dealer and negotiating prices for panels and inverters from distributors, franchise owners can take advantage of group purchasing power. This is especially important, because pricing is what determines competitiveness of the integrator in the solar energy business.
“What made my decision on the franchise is that you can see a four- to six-year payback window for the systems we install, which, in turn, makes it a doable project for a lot of people,” says Heryford.
Every installation company is competing against both the energy prices of the electric utility company and the pricing of other solar contractors. As the volume purchased by the owner network increases, the price paid for equipment by individual owners goes down. Therefore, the franchise model uses economies of scale to give purchase power to its network and constantly reduce costs.
“As we grow our franchise network, and as our existing franchises grow their volume and their scale, our entire purchasing volume goes up,” says Manchester. “Everyone will see prices come down as that happens.”
For a new franchise to become fully operational can take anywhere from 30 to 90 days. In some states, owners must complete any additional licensing requirements and register with their state’s rebate program.
To assist in the process, Solar Universe provides the services of one of its three start-up coaches. “There’s a lot of work involved in getting started and getting to the point where you can sell your first job,” Bono says. “Our goal is to get them up and running within a 30-day period. Sometimes, it takes a little bit longer. Either way, you need a lot of help.”
For Lighthouse Solar franchise openings, the task of opening an office and getting a fleet ready are required before the owner receives any training in solar. “They basically have to do the groundwork for getting their business set up,” says Manchester. “They’re basically hitting the ground running so they can start generating leads and start their business with everything fresh in their heads.”
Lighthouse Solar offers a two-week training program at its location in Boulder, Colo. “All our franchise partners go through an extremely in-depth installation training for one week, and then they go through sales training and system design and operations for the following week,” says Manchester.
Solar Universe offers all of its franchises training through SunPro Tech Training (sunprotraining.com) at its facility in Livermore, Calif. This includes a five-day technical training program, which is certified by the Interstate Renewable Energy Council (IREC) and is concluded by the administration of the North American Board of Certified Energy Practitioners (NABCEP) entry-level exam. This section of the training is offered to the general public as well as Solar Universe franchisees.
Two of the nine employees at Gold Electric attended the Sunpro Tech Training week-long training session. “If you have experienced electricians, the week-long technical training is enough to get you going,” says Heryford. “The learning curve is pretty fast if you’ve been in the trade.”
In fact, as many as half the students in most of the SunPro Tech Training technical sessions are either working electricians or have electrical contracting experience. “We go after electrical contractors, roofers, general contractors, and entrepreneurs, and we give them a proven business model — a delivery platform, if you will — to teach them the business and then help them scale,” says Bono.
Electricians, in particular, have been effected by the contraction in the construction industry, says Mike Hynes, head of training for Solar Universe. Therefore, many are seeking new streams of revenue and hope to find their answer in solar. “We definitely see a lot of electricians coming through,” Hynes says. “Our training and our program shortens the learning curve for electrical contractors, and they can step right into the ring very quickly — and then go toe-to-toe with some companies that have been big in solar for a long time. We give them all the tools to get in there and compete against those guys directly.”
Nevertheless, much of the material will be new. With the exception of some electrical basics that are covered in every class, which represent a very small percentage of the overall curriculum, much of the DC-focused content will be uncharted territory. “It makes a certain level of sense in one way to somebody who has electrical training more so than someone who’s coming from another industry, but once we get into the meat and potatoes of doing the solar, it’s very engaging for everybody,” concludes Hynes.
Most, if not all, of the electrical contractors who take the technical training course agree that at the end of the course it was a lot of information, says Bono. “We cover a lot of topics and concepts that they may not have thought about or used in an application in the last 20 years of their career,” he says. “Being on the DC side or the solar side of this business is truly a different animal altogether — a lot different than what they’re used to on the AC side.”
According to Heryford, the mechanical components of the solar install may be the trickiest technical aspect for electricians to master. “We’re not normally exposed to things like roof mounts during our day-in and day-out electrical work, so one of our biggest concerns was not damaging roofs and creating leaks in them. For our own peace of mind, it was important to know that when we get up on somebody’s roof to do our penetrations, we’re not going to cause a problem. The specific problems I thought we’d have were addressed.”
Electricians, roofers, HVAC technicians, and general contractors are all good candidates with technical skill sets appropriate for the solar industry. However, entering the PV market can pose challenges for even the most experienced contractor. “A lot of the business is really sales and marketing,” Bono says. “Not only do you have to be well versed in solar technology, but you also must be very comfortable asking for the sale. If a franchisee can’t sell, then the business doesn’t grow.”
To that end, SunPro Tech Training provides a three-day sales and marketing class, available to Solar Universe franchise owners only. “It teaches both the owners of these businesses, the electricians, as well as their salespeople and employees, how to sell solar,” says Bono, who explains material covered in those three days includes the business aspects of solar, such as kilowatt hours, rate
tariffs, and schedules. “We teach how to sit in front of a customer, articulate a value proposition, and sell solar effectively.”
According to Hynes, a good portion of the electrical contractors that come through have predominantly commercial experience. That’s why training involves sharing a lot of strategies for dealing with the consumer. “In some cases, if they haven’t had that exposure, then they’re picking up a new set of marketing skills,” says Hynes. “We really stress the consultative sell, when talking with clients, especially homeowners.”
Installers often make the mistake of thinking about a solar project as a one-off transaction, says Bono. “They fail to realize the solar system will be operating for at least 25 years — and will require care, maintenance, and other technology that will improve its effectiveness,” he continues. “Solar installers need to take on a mind-set of a long-term revenue relationship with their customers and include yearly cleaning, monitoring/response contracts, or financing arrangements. A well-designed solar system will follow a life cycle of first conservation, then generation, and finally efficient operation.”
Gold Electric didn’t market itself much before it entered the solar market, says Heryford, admitting that his company’s 20-year reputation had given it enough of a client base before the recession that he didn’t have to chase work. “We did the work that came through the door,” he says. “But with the solar, you need to market it. The marketing aspect of the training was extremely valuable. It allowed us to ramp up real quick and get into the solar business much faster on the sales side.”
Additionally, Solar Universe offers ongoing educational sessions to its franchisees. Basically, according to Bono, they are workshops that discuss the variety of issues for solar installers, including changing building codes/permits, product updates, financing programs, and bid-to-close ratios in the 20-to-1 range. “We’ll also bring in vendors from time to time to do updated trainings, so the workshops in the educational series are often conducted by our inverter manufacturers, panel manufacturers, or an accountant,” says Bono. “Once you’re in the field, this space moves pretty quickly, so you have to keep up to date with what’s happening.”
Lighthouse Solar follows up with a hands-on approach as well. The franchise fee pays for two full weeks of on-site training, which could include having lead sellers or the director of training from the Boulder, Colo., office visit your office for that time. “For the first jobs, we hold their hand and help them make sure all the installations are going well and everything’s up to our specs,” says Manchester.
Although a solar franchise may be an easier, faster way to get into the solar business, it’s not immune to risk (see Five Disadvantages of Franchises). In addition, solar franchising can be vulnerable to changes in the economic and political climate. For example, in 2008, Solar Power, Inc. (SPI), a Roseville, Calif.-based manufacturer and installer of PV solar power systems began offering franchises under its Yes! Solar subsidiary. In an industry that had long been dominated by individual sellers and installers, SPI was the first company in the solar energy field to use the franchise model for growth in California. The company hoped to capitalize on rising electricity rates in Orange County, in addition to the California Solar Initiative program, an initiative by the California Public Utilities Commission to encourage homes and commercial building to convert to solar power.
The Yes! Solar Solutions franchise operations were expected to make up the majority of the SPI’s national distribution network, serving homeowners and small- to medium-size commercial customers with clean, renewable PV solar electric systems that would also provide a hedge against rising electricity costs.
At its peak, SPI boasted 17 Yes! Solar dealers throughout the United States. However, Fannie Mae and Freddie Mac put a stop to the California Solar Initiative program, according to Mike Anderson, VP marketing, SPI. “The program came to a screeching halt at about the same time that equity values began to plummet,” says Anderson.
Clients who previously were to pay for solar projects through home improvement loans by leveraging the equity in their homes could no longer do so. “All of that led to a kind of a double whammy in our particular area, for the residential side of the business,” he says.
As a result, SPI sold its residential business, including its franchises, to other companies. In August 2010, it sold its Sacramento, Calif.-based residential business to Paramount Energy Solutions. “The residential solar business can be challenging in the current economic climate, especially with respect to financing residential solar systems through conventional means,” says Steve Kircher, chairman and CEO of SPI.
After pulling out of the residential side — and out of the franchise business — Anderson explains that the company’s focus is now strictly utility-scale installations and distributed generation systems for commercial and industrial use. As for the Yes! Solar franchises, they are now independent. “We set up dealer relationships with them, and then they went off on their own,” Anderson says.
This is the reality of the business, according to Manchester. Therefore, before even setting up a franchise, Lighthouse Solar makes sure the market is viable. “It’s one of those things you always have to have in the back of your mind when you’re in an industry that’s heavily dependent on subsidies,” says Manchester, who brings up an incident when a Colorado utility halted an important rebate. “It just completely crippled the industry for a couple of months until they came to a resolution and released it again.”
To mitigate that risk, Lighthouse Solar researches areas for proposed franchises. “We want all of our franchises to be successful so we’re not going to let them start on some pilot rebate program when there’s only $3 million worth of funding, which will be dried up in a couple of months, and then what?” Manchester asks. “We discuss this with an potential franchise operation throughout the entire process.”
Certain states also put limits on the kilowatts for systems, which will determine the potential for solar demand in the commercial market. For example, Michigan restricts its rebates to systems ranging between 0kW to 20kW. “That’s as big as you can install and get a rebate,” says Manchester.
New York caps it at 50kW. In Colorado, there is a rebate for systems as big as 500kW. “So, it’s really driven more on the rules of the rebate program,” Manchester says. “It’s really more location specific and where the best market is. Everybody has to be an expert in their own network. They can’t just rely on the franchise company to know what’s going on with all the rebates. We’re all in it together, but it’s your business at that point. ”
Training and support: Franchise businesses will give new franchise owners plenty of training and support in the beginning. Franchisers get a fraction of the profits, so it’s in their best interest to ensure that the spin-off franchises do well. Smaller franchises offer people consequential support.
Purchase company model, not just name: The big reason franchises tend to last and thrive is that the business model is already working. It’s not just about the name or the brand; it’s the model itself that helps to make this franchise successful.
Bargaining power: When you have a franchise, you have some bargaining power with your suppliers. Independent, new business owners don’t have this kind of power or luxury and must earn it, unlike a franchise.
Expert support: When you get involved with a franchise, your business is not alone. If you ever have problems or questions, then you have resources to seek out some advice. Whatever business franchise you go into, you’re bound to have hundreds of people you can turn to who would love to give you advice to help you succeed. Many larger franchises will also give individual training and support.
Well capitalized: Most franchises are well capitalized, which gives them a high survival rate. Most startup businesses don’t have this luxury. People who want to get involved with franchises usually have just enough requirements to buy into the business.
Source: Eric Fernandes at http://EzineArticles.com/3076882
Loss/lack of control: Independent franchises often have to follow the guidelines set forth by the franchise, including what kinds of tables to use, wallpaper, and more. If you don’t want to give up that control, this won’t be the business for you.
Less long-term profits: Franchises are a big business, but making it rich isn’t always there. You’ll earn a decent income but nothing like Microsoft or any other Fortune 500 company.
Hard to sell: When you have a franchise, it’s harder to get out from underneath the investment, especially if it seems the parent company is having problems.
Possibility of parent company going out of business: It doesn’t matter if your business is doing well or not; if the parent company goes under, so will you. Make sure you choose a company that’s been doing well, both in good times and in bad.
Possibility of getting a bad name: When a franchise fails to do well, you could be indirectly affected by it. Your reputation will be tarnished just because of the name you’re associated with.
Source: Eric Fernandes at http://EzineArticles.com/3076882