Brian Scudamore was sitting in his company's headquarters in Vancouver, Canada, when the phone rang. It was Paul Guy, his first franchisee who had just begun operations in Toronto. \"Brian, my wife's relative just told me that I'm crazy to open here because the city picks up things for free. It's crazy to charge $300 to pick something up when they can get the same service for free! We had never heard of that in Vancouver, but that's a big problem here!\" Scudamore hung up the phone in disbelief. Was Guy overreacting, or had Scudamore made a big mistake? Scudamore had built his junk removal company, originally intended as a part-time job to pay for college, into a profitable and growing organization with a strong focus on customer service. Scudamore had successfully opened a branch in Victoria and had attained a US. trademark by opening in Seattle. He had then closed those two operations to focus on Vancouver and put his resources into expansion through franchising. Scudamore had overcome many hurdles. He had bought out his \"too-fiery" cofounder years before and had managed the business on his own since then. When he became disillusioned with the company's developing culture, he had fired all of his employees and started all over again. Wanting a faster rate of growth, he had experimented with student franchising but had found the model unprofitable and had abandoned it. He was now looking to expand within North America. To do so, he had turned to a professional franchising model and had developed a new brand to help grow the business. The first franchisee had just begun operations in Toronto only to find that the city already offered free junk removal. Scudamore wondered if franchising had been the right growth decision, and whether his first franchisee would succeed. Should he have developed a corporate model for the company instead? Would he have to start from scratch once again? The Beginnings of an Entrepreneur Brian Scudamore was born in San Francisco, California, where he lived until the age of eight. He spent much of his time in the army-surplus store his grandparents owned and managed. He said: My grandparents and my birth father made business fun, and loved what they did. The biggest inuence on me was my grandfather's Army Surplus store in San Francisco. He was a Russian-Jewish immigrant, and he ran it as a family business with my grandmother in a poor neighborhood there. I saw my grandfather's passion for the game of business, for making money, doing deals, making sales. He had so much fun running the business. While they were Victoria, but if we want to start franchising, getting new ideas from new franchisees might become overwhelming if we have to make some changes to the system.\" After much discussion, however, Scudamore became even more set on pursuing franchising: At the end of the day, I chose franchising for one simple reason: I talk about growth all the time, and I want it! Franchising fits better with what motivates me, ts better with the level of growth I want. I believe that with franchising, we can build something much bigger than we can do alone. We've focused on developing a solid infrastructure as the foundation for hyper- growth. With franchising, we would get great people from corporate America, people with military backgrounds, people from athletics, who will follow systemshave them partner with us, get ownership in the company, make a direct investment in the brand. I-BUO-GOT-IUNK prepared its Uniform Franchise Offering Circular (UFOC; see Exhibit 11 for excerpts), ran newspaper ads in Canadian papers for 18 months, and interviewed potential franchisees. However, Scudamore was not excited about any of the applicants, and felt lost as to where to find the best first franchisee. \"I learned thatI needed help and didn't know franchising at all. I needed to sell the first one and build some confidence in my ability to sell. But the wrong people were coming inpeople who didn't have the passion for our business.\" Frustrated, Scudamore looked inside the company for his first franchisee. \"Paul had a girlfriend in Torontohe was flying to Toronto and back all the time. I was frustrated with all the time it was taking. One day, I just said to him, 'We should start the first franchise in Toronto, and you should be the first franchise.\" Guy was intrigued by the idea. He recalled: I already had sufficient knowledge of the business to run one myself, so I could have just started it on my own without having to give anything to a franchisor. But I had a fairly strong loyalty to Brian,- we had a personal afliation. Also, I wanted to see the company be successful with franchising. So I wouldn't have felt too good about starting a Toronto one on my own. Also, the call center was up and going, so] wouldn't have to build it myself. That was the main thing. There's a real need for us to create a high-level experience from when the person picks up the phone. It would have taken me money, time, and people to build that myself, so I believed there was value in using what had been built by Brian. Even though he'd had a hand in developing the UFOC, Guy had a different view now that he might become a franchisee. He wanted to negotiate better franchising terms in certain areas, but faced the challenge of figuring out which were most important. Looking for some guidance, he sent the initial franchising agreement to his lawyer for guidance. Guy recalled: My lawyer was my brother's girlfriend who was doing it for free. She read the agreement they sent and was offended by it. She said, \"This is ridiculous, you shouldn't sign this. What happens if you get to Toronto and hit a home run and they want to take over, they could easily find something in here to oust you and take over??\" It completely indemnified them. It clearly defined my obligations and what I had to do to remain a franchise partner, but with regards to obligating them, it was intentionally vague or non-existent. It would be impossible for me to claim that they broke the agreement, but they could easily claim that I did something wrong. She called Brian's lawyer and said, \"How could you do this??\" He was quite patient, but he must have been thinking, \"Who the hell is this? It's stande stuff!\" The problem was that she did not have experience in franchise agreements. As it turns out, the agreement was more or less standard. Standard ones are largely one-sided. The key in standard agreements is to set expectations and to protect the franchisor. She had never read one and didn't know that was standard. In the agreement, asking Brian to change the indemnification clause would have been useless. At the same time, a \"plus\" is that if I have a lawyer who's nitpicking the agreement, it provides me with more leverage in the discussions. There's much more potential for exibility in the agreement. It took us months to hammer out the terms, but the two things I tried to use my leverage on were the franchise fees and territory size. With the fee, I didn't have much money, so if he wanted a lot of money for the fee, it would have hindered my doing it to begin with. In the end, Brian told me, \"I won't charge you a franchising fee, as long as you keep helping us build out the program.\" Asking him to change territory size was big for me. Your territory size is what your franchise's potential is. Toronto was three times the size of Vancouverif this can become a million-dollar business in Vancouver, I should be able to be at least that in Toronto. When Brian started, he envisioned the company being across North America and around the world. If] said, \"Hey, I want all of Toronto,\" he would say, \"I have all the rest of the world, what do I need Toronto for? It's all yours.\" So I ended up with a franchise of four million people. With the royalty, it really bugs a lot of people when they have to give a royalty to the franchisor. Would I get value for my royalty? I would denitely get some value out of the call center piece. But otherwise, I probably would not get full value for my royalty. If I had really pushed, really used my leverage, maybe I could bring down the royalty rate. ButI also knew that the one thing that they would refuse to negotiate with me was the royalty. I might have been able to get it down from 8% to 7%, but then they would have their second franchise saying, \"I'm only the second oneI'm right after the first, give me the same thing.\" The third is \"right after the second.\" [And] the 250"" would say, "In your materials, you say you'll have 1000. I'm one of your early ones!\" There just isn't a break on the royalty. Those are the rules of the game. You don't take a basketball down the court and run with itthat's not negotiable. The referees won't let you do it. Guy became the company's rst franchisee in May 1999, moved to Toronto, and began setting up the operations there. However, on Guy's first day of operations, Scudamore got a frantic call from him: \"Brian, my wife's relative just told me that I'm crazy to open here because the city picks up things for free. It's crazy to charge $300 to pick something up when they can get the same service for free! We had never heard of that in Vancouver, but that's a big problem here!\" IV 31\working, they would be playing music in the store, bringing in lunch to have together in the store; it really had that small business feel to it. My uncle, aunt, and cousins would help. With my father, he drove an ice cream truck, and I would go out on the truck with him. It had the feeling of a very small business and reinforced my sense of business as a fun game. In HTS Scudarnore's mother remarried, and they moved to 1ii'ancouver, Canada. But Scudamore returned to the surplus store every summer. "1 was a 12-year-old kid,\" he recounted, \"selling bomber jackets to adults, selling sleeping bags and leather jackets, and saw that l was good at it. I learned that sales means asking questions, listening, learning people's needs, and responding to their needs.\" to seventh grade, Scudamore started a carwash in his parents' driveway. Neighborhood kids saw his success and started their own carwash. Scudamore quickly learned about price wars as he and his competition tried to garner business by offering the lowest price. He described another experience: In ninth grade, I went to an allboys boarding school. Each boy was given an allowance each week$5 or $10, depending on your grade, and that was it for the money you'd get. I decided to start a business to get more money: I would go to a nearby convenience store and would buyat prices between wholesale and retailchocolate bars, drinks, and things, and bring them back in a big cooler. Every day after homework time, I'd open my store in my room, and the kids would spend their allowance. Most of their allowances were going to me. Scudarnore made a lot of money very quickly, but the school shut down his business because it was affecting sales at the competing school-operated store. The Birth of an Idea As Scudarnore prepared to start college in 1989, he wondered how he would pay for his education and living expenses. The idea for Rubbish Boys was born that summer. He remembered: I was in a McDonald's drivethrough, and a beatuup pickup in front of me said "Mark's Hauling" on the side. I thought, \"If I need a way to pay for college, maybe that's my ticket.\" I took $1000 I had saved in the bank, bought a pick-up truck for $?53, and started driving down alleys looking for junk. I would knock on people's doors and offer to take their junk away. The name \"Rubbish Boys"r came from watching a TV show that was quite popular called \"thirtysomething," about two execs running their own advertising business called \"Ad Boys.\" It seemed to fit, just with swapping "Rubbish" for "Ad." Also, I wanted a name that indicated something bigger; \"Boys" meant the company was bigger than just myself. Our slogan was, \"We'll Stash Your Trash in a Flash!" The first summer, Scudarnore made SING in profit, enough to pay for his first year of college. Wl-ren he restarted the business the following summer, Scudarnore's girlfriend suggested he contact the local news station and ask them to do a story on his junk removal service. He called the local stations, and Rubbish Boys ended up being featured on the highest-rated news station in Vancouver, sparking a wave of new customer calls. \"It was crazy, but it gave the business a big boost and opened my eyes to the potential of the business. It also showed me that PR could be a huge lever for us." In the summer of 1992, as the business was growing and Seudamore wanted help managing it, he brought in a friend from college named john. The two split the eguitl of the company 50(50