An overseas trip by two mates from university, a couple of beers, a good idea all combined to create a small business in Dunedin which has grown into a multimillion-dollar operation and the third-largest franchise company in the country.
Crest Commercial Cleaning is the Otago Daily Times 2015 Southern Business of the Year.
Grant McLauchlan is Dunedin born and bred and has no intention of leaving anytime soon.
His passion for Southern business values has seen Crest Commercial Cleaning burgeon from one small franchise formed on December 16, 1996, to a nationwide operation with 512 franchises spread from Whangarei to Bluff.
But stepping back, the business was born out of frustration. Mr McLauchlan had graduated from the University of Otago with a bachelor of commerce degree in accounting.
He joined accounting firm KPMG but after two years he left, as he was not enjoying the work.
He and his now business partner Rene Mangnus had become friends at university and had won national surf life-saving titles together. They decided to head overseas surfing and touring but it was in the United Kingdom where Mr McLauchlan realised what could be achieved with franchises.
When the two men returned to New Zealand, Mr Mangnus went to the Bay of Plenty and into real estate and Mr McLauchlan joined the family accounting firm of GS McLauchlan & Co.
While working with his family, Mr McLauchlan still longed to start a business and after attending an accounting continuing education course on franchising in 1991, he decided the time was right. At that time, there were only McDonald's and BP franchises in New Zealand.
Messrs McLauchlan and Mangnus knew they did not want to get into retail franchising and they identified commercial cleaning as a poorly serviced industry with a high turnover and poorly trained staff.
The men bought a Dunedin business for $80,000 and put the owner back as the first franchisee. From there, they set about building their franchise business.
‘‘We built three franchises here in Dunedin and made a small profit in the first year. We lost money in the next four years.
''We always had a vision to build the brand of a New Zealand business and always spent more on the brand than the business could stand. We came close to insolvency at times. We were young and didn't have much experience.''
Perseverance won through and from Dunedin, Crest moved to Christchurch then Hamilton in 2000, Mr McLauchlan said.
‘‘We got serious and decided to give it a go.''
Crest formed a franchise financing business to help people buy into the Crest franchises. Independent directors were appointed and Mr McLauchlan raised a small amount of capital from family and friends
.‘‘That year we were profitable and have been every year from then with 20% compound growth every year.''
Next year, Crest would focus on health and safety as a way of gaining market share, he said. Businesses in New Zealand were behind as the new legislation would change the way everybody operated from April. Crest operated on a ‘‘safety culture rather than safety systems'' and that was a foundation for growth.
A lot of companies were not compliant and there were workplace injuries within the ‘‘cowboy'' part of the cleaning industry.
‘‘People in the cleaning business have a history of cash jobs and being non-compliant. The legislation will take them out of the industry where they are not compliant, under price and it is doubtful if they pay tax. They are better joining a business like Crest.''
Large corporations with hundreds of sites nationally planned to cut off suppliers who were not compliant with the new health and safety legislation, leaving Crest as the company they could deal with, Mr McLauchlan said.
Pest control and school caretaking were also growing businesses for Crest.
School contracts was the largest area of growth potential but corporations needed property maintenance, gardening and general repair work.
If a school caretaker retired, there were not many people available to replace them, he said. The security risk was the component in education and property maintenance, especially dealing with chemicals.
‘‘The new year is ‘full noise' on caretaking. Our pest control has been going for four months. We won't expand our operations further. Our success has been built on the narrow road of cleaning franchises which we have perfected.''
Crest had about 5% of the national cleaning industry and 15 out of 3000 school caretaking businesses. Pest control was a $250million-a-year industry.
‘‘There is no cap to this growth. We can keep running for a long time. Auckland is a ruthless market but our growth is coming from compliance qualifications and the fact we can handle cleaning, maintenance and pest control.''
Crest had NZX A-listers on its customer list and expected to add more next year.
Asked how he and Mr Mangnus decided on the cleaning industry as their franchise business, Mr McLauchlan said they decided to build their franchise model first before finding the industry in which they wanted to work.
The internet was in its infancy but Mr McLauchlan researched and read as much as he could on the cleaning industry and franchising. The late Howard Paterson called the plan: ‘‘Delivering excellence in a deliciously boring industry''.
Lots of modelling was carried out in the formative stages and the men realised there would never be enough money out of royalties. Franchising meant a huge responsibility with other people's money, Mr McLauchlan said. Crest was different from other franchise models as it operated from the top down. Crest provided services to its franchisees such as preparing financial accounts, paying GST, invoicing, collecting the money and providing training.
This year, 800 people had been through Crest's training, which included formal classroom sessions and practical training.
‘‘There is nothing more satisfying - and I get to do this - than handing out an international qualification certificate to people who have never had the opportunity offered to them previously. I have had grown men cry on stage when they receive their certificates because they never thought it possible.''
Home ownership played a large part in the Crest philosophy. The strong cash flows of the business meant banks were keen to lend franchisees money to get into their own homes - even in Auckland. Home ownership within the business was high.
After two years with Crest, the franchisees were next on the list for banks to lend to them, Mr McLauchlan said.
‘‘There is a lot of home ownership happening in our company and I am very happy about it.''
Crest had been recognised as a leader in the industry, according to Mr McLauchlan who this year spent 45 minutes before a select committee on the health and safety requirements needed within the industry.
Told by the committee chairman, a National MP, the new health and safety legislation would fix those problems, Mr McLauchlan asked the MP (to much laughter) how certain he was the cloth used to clean the table he was sitting at was not used to clean the Labour Party toilets. Cross-contamination was a huge issue for the industry, he said.
Looking back, Mr McLauchlan is sure Southern business ethics had led to the success of Crest. The company started in Dunedin, and was modelled in what he called a small conservative city.
‘‘If a business can achieve success in Dunedin, it can achieve it nationally. It is hard to achieve what we have achieved as we are a conservative city and don't take risks easily. In Auckland, businesses can start there and never get out of the city.
''Invercargill's a big business for us, Central Otago and Dunedin are strong. We get about 250 people calling regularly about a franchise and it has been that way for a long time. But yet in Oamaru, Timaru, Ashburton and Central Otago we are desperate for people.''
Crest also tried to give back to its local community through the Dunedin-based head office by using local procurement as much as it could.
It purchased locally insurance, IT services, office supplies, legal and audit services and ran special programmes through the head office.
‘‘We have a good team of people. My aim is to give people responsibility and autonomy. That's the way to run a business.''
The rewards from running a business that way included a high retention rate within Crest, he said.
Crest had a 90% retention rate and the other 10% came from people retiring or selling out to family members.
The cleaning industry in general had a turnover rate of between 60% and a 100% a year. The culture of looking after the people meant they stayed longer. The average franchise age was six years.
Crest offered a career path where people could invest in themselves, become internationally qualified and become successful business people and buy their home.
Crest
• The name Crest came from a bar mat in a British pub.
• 512 franchises in New Zealand, third behind Lotto and Green Acres.
• 8 additional franchises added every month.
• 20 Master franchises nationally, called regional directors.
• Twenty regional offices, nationwide except in Gisborne.
• $50 million turnover a year, expected to double in the next five years.
• International operations are on hold but the plan is to hire someone to oversee international growth.
McLauchlan File
• Grant McLauchlan, age 50.
• Educated at Otago Boys' High School and the University of Otago.
• Married to Tess and has two sons.
• Interested in surf life-saving, rugby and water activities such as water skiing.
