Servpro Industries, Inc.

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Servpro Industries, Inc.

801 Industrial Boulevard
Gallatin, Tennessee 37066
U.S.A.
Telephone: (615) 451-0200
Fax: (615) 451-4861
Web site: http://www.servpro.com

Private Company
Founded: 1967
Employees: 140
Sales: $250 million (2006 est.)
NAIC: 561720 Janitorial Services; 561110 Office Administrative Services; 423850 Service Establishment Equipment and Supplies Merchant Wholesalers

Servpro Industries, Inc., a private company based in Gallatin, Tennessee, is a franchiser of disaster restoration and cleaning operations, serving insurance companies as well as commercial and residential property owners. Located in 49 states, the company's more than 1,300 franchises—none of which is company-owned—focus on fire and water damage but are also trained to handle mold mitigation and remediation, respond to damage caused by catastrophic storms, take care of move outs and contents restoration, and restore electronic equipment. Cleaning services include biohazard, crime scene, vandalism, air ducts and heating and air conditioning equipment, drapes and blinds, ceilings and walls, deodorization, and artwork and books. Servpro maintains a state-of-the-art training facility in Tennessee, which includes a four-bedroom house that is repeatedly damaged by fire and other facilities that are flooded, in order to train franchisees and their employees in how to properly clean and restore typical buildings and their contents.

The company also employs a network of trainers to provide additional training around the country. To develop specialized products and equipment to serve the needs of franchisees, Servpro maintains a chemical plant in Tennessee to conduct research and development and provide manufacturing. Cleaning and janitorial services for offices and homes are done under the Servpro Domesticare and Servpro Building Service Maintenance banners. Franchisees, many of whom work out of their own homes, pay an initial fee of $37,000 as part of a total investment ranging from about $100,000 to more than $160,000. In addition they pay an ongoing royalty fee ranging from 3 to 10 percent. The company provides them with a complete business program, two weeks of training in Tennessee, and another week at the franchisee's location. Other support includes a purchasing cooperative, field operation evaluations, and marketing services, such as regional advertising, national media, ad slicks, and co-op advertising. The company also maintains a 24 hours a day, 7 days a week emergency call center for clients. Not only will a Servpro representative be onsite within four hours to start mitigation services, the company's Catastrophic Loss Division Management Team is able to harness the efforts of multiple franchises to quickly respond to the emergency. Servpro is run by the second generation of the Isaacson family, who cofounded the company.

CALIFORNIA ORIGINS: 1967

Servpro was founded in Sacramento, California, in 1967 by Ted and Doris Isaacson and another couple. According to company information, Servpro started out as a painting franchising business. When the founders decided that they did not care for that line of work, they soon turned to cleanup and restoration and franchised their concept in 1969. A 1989 article published in the Nashville Business Journal that extensively quoted the Isaacsons' two sons offers an explanation for why a painting operation might make such a switch. According to the Journal, Ted Isaacson had been the largest franchisee of Chicago's ServiceMaster Inc., a company launched in the 1930s to clean and mothproof carpets and incorporated in 1958. Over the years it franchised and expanded into other areas of cleaning, but the franchisees were limited to one particular type of cleaning and restoration service. Isaacson, who had a franchise for the Sacramento area, disagreed with this arrangement. Instead, he thought a more profitable approach was to offer a range of cleaning and restoration services. He was also displeased with the amount of training ServiceMaster offered to franchisees. He believed a better way was to have successful franchisees train new franchisees. For their efforts they would then receive 60 percent of the royalties paid by the new franchisees to the parent company. In this way, franchisees would have an incentive to provide good training to newcomers and to recruit for new franchisees. According to the Journal article, Isaacson gave up his ServiceMaster franchise to launch his own cleaning and restoration franchise business to put these ideas into effect.

BEGINNING OF FRANCHISING: 1969

Servpro began franchising in 1969, perhaps leaning heavily on the program ServiceMaster had in place. In the mid-1990s Servpro sued an Illinois franchisee, William W. Schmidt, over missed royalty payments and penalties totaling more than $100,000. In a countersuit, Schmidt alleged that Servpro defrauded him because the company claimed to offer a unique system when it was actually developed "in significant part by stealing, pirating and copying." The Wall Street Journal also reported that in an affidavit supporting Schmidt's contention that Brad Onion, who claimed to be one of Servpro's cofounders said "the company got started in the late 1960s by reading the instruction books for franchisees of a big, established chain, a unit of ServiceMaster…. 'We did nothing more than copy ServiceMaster's manual with a few minor changes.'" Servpro maintained that Onion was an employee, not a founder, Schmidt's allegations had no merit, and that the only issue was Schmidt's underpayment of his royalties.

Servpro was involved in franchising for a decade, and then in 1979 expanded through the acquisition of Bristol-Myers' Domesticare Division. Thus, in one stroke Servpro added 175 franchises and diversified beyond restoration to include the cleaning of homes and offices. A year later the company sold stock to the franchisees as part of a plan to ultimately take the company public. In this way, the founders would be able to cash out some of their equity after years of service and the company could raise cash for further expansion. However, in 1986, according to the Nashville Business Journal, Ted Isaacson's partner attempted to force him out by enlisting the support of 51 percent of the shareholders. He miscalculated, however, and was instead forced out. Isaacson bought his partner's interest and then installed his sons, Richard and Randall Isaacson, who had both joined the company the year before, to run the business.

Before joining Servpro, Rick Isaacson worked in Seattle, Washington, for Mutual of Omaha, while Randy Isaacson was an accountant living in Twin Falls, Idaho. Their father remained the company's president and chairman, but they in effect took the helm while he devoted most of his time to consulting with franchisees. Randy Isaacson became executive vice-president, responsible for administrative and legal functions, and as vice-president of marketing, Rick Isaacson was in charge of sales.

COMPANY PERSPECTIVES

SERVPRO is a company built around one basic purpose: To help entrepreneurs succeed! Since 1967, SERVPRO has helped individuals realize their dreams of owning their own business.

Because the brothers had no interest in running a public company they immediately began to buy back the stock that had been issued several years earlier. By 1989 the Isaacson family owned about 80 percent of the stock. The brothers also took steps to diversify, in 1986 establishing a new franchise, Building Service Maintenance, growing out of a division formed the prior year to perform janitorial work at night at commercial and institutional buildings. Two years later they expanded Domesticare's capabilities by offering Inspectashield spray-on fire retardant.

In addition to diversification, the Isaacson brothers looked to cut operating costs. The headquarters staff was cut from 55 to 40, and executives were paid a portion of the company's profits, making it a pay-for-performance compensation. The company cut costs further by relocating Servpro's Rancho Cordova, California, corporate headquarters. Because 60 percent of the franchisees were located east of the Mississippi River, they decided to look eastward for a new home. Nashville attracted their attention because of the quality of life and its location. Situated within 600 miles of half the country's population, they would be closer not only to franchisees but to suppliers as well. Gallatin, Tennessee, north of Nashville, caught their eye because the price of real estate was more reasonable and taxes were much lower. For the same amount of money that would have fetched two acres of land in Nashville, Servpro bought 16 acres in Gallatin, where it built a 30,000-square-foot headquarters that the company moved into in 1988. In turn, regional offices in Baltimore and Atlanta were closed, further lowering operational costs. When the first year in its new home came to a close, Servpro had $75 million in sales and 647 franchises. At this stage the franchise fee cost $32,500, and assuming a start-up cost of $40,000, franchisees received about $16,000 in equipment as well as the business plan, training, and marketing support.

EMERGENCE OF SUSAN STEEN AS CEO: 1995

In 1990 Randy Isaacson succeeded his father as Servpro's president and served on the board of directors. In that same year Rick Isaacson was promoted to executive vice-president and also gained a seat on the board of directors. Further, in 1990 their sister, Susan L. Steen, was named to the board. She was well familiar with the operation, having grown up with the business. In high school she worked part-time in the shipping department, and upon graduation she continued to work there while earning an undergraduate degree in business administration from California State University, Sacramento. Ultimately she became the head of Servpro's accounting department. With her degree in hand she left to take a position at the accounting firm of Coopers & Lybrand in Boise, Idaho. Nonetheless, she remained involved with Servpro, helping her husband, Marty Steen, who ran a Servpro franchise in Boise for five years, before Susan Steen was transferred to a Coopers & Lybrand office in Des Moines, Iowa. When her parents decided to retire in 1995, they asked her to join her brothers at the company. Because of her 18 years at a major accounting firm, where she focused on business assurance services and financial management consulting, Steen was well prepared to head the company. In June 1995 she was named the company's new chief executive officer, while her brothers continued to fulfill their roles as president and executive vice-president. In addition, Rick Forster stayed on as chief financial officer, a post he had held since 1986.

By this time Servpro had established an excellent reputation with insurance companies and other clients for its mediation work. For example, in 1991 Servpro was called in when two million gallons of water flooded a large section of the Pentagon. In all, a dozen Servpro franchises from Virginia, Pennsylvania, and Ohio were enlisted to remove the water. Within a week the Pentagon was dried out. A year after Steen was named CEO, Servpro returned to Washington, D.C., to restore the 150-year-old U.S. Treasury Building after a roof fire caused extensive soot and smoke damage to most of the inside. Other major disasters that required the services of Servpro franchises included Hurricane Andrew, which ravaged Florida in 1992; floods that covered the Spirit of St. Louis Airport with six inches of mud; and the El Nino flooding in the 1990s that affected wide swaths of the United States.

KEY DATES

1967:: Company is founded in Sacramento, California.
1969:: Franchising begins.
1988:: Headquarters moves to Gallatin, Tennessee.
1995:: Susan L. Steen is named chief executive officer.
2005:: Company moves into new headquarters.

Servpro revenues reached the $200 million mark in 1997 and the number of franchises topped the 900 mark. In addition to developing innovative chemicals and procedures for its cleaning and restoration efforts, Servpro also turned to the Internet to improve its capabilities. In September 1997 the company began using ServproNET, a nationwide online service to process insurance claims electronically. After the system was rolled out to the franchises, Servpro was able to leverage it to help in the quick response to emergencies, whether it be a single franchise or a collective effort. Timeliness was especially important to Servpro's key customer base, insurance companies. The faster Servpro franchisees responded to cases of water or fire damage, the less damage there was to contend with, and as a result the amount the insurance companies had to pay out in claims was greatly reduced.

In the late 1990s Servpro, under Steen's leadership, established a 2009 goal of reaching $1 billion in gross revenues and 2000 franchises. The bulk of that growth was expected to come from insurance company clients, such as Allstate Insurance Company and Travelers Insurance. To better serve them, in 2001 Servpro introduced its ScanER electronic claims software program, which allowed franchisees to create an electronic job file that included digital photos of the property, an estimate, and all the necessary documents needed to process a claim and track its status.

Servpro made progress in reaching its goals in the new century. The company set a record in 2002 when it sold 100 franchises, ending the year with 1,142 franchises in the United States. The pace fell off, but remained steady over the next four years, as the number of franchises increased to 1,165 in 2003, 1,216 in 2004, 1,270 in 2005, and 1,310 in 2006. In order to bolster revenues beyond insurance companies, Servpro also sought to build its image in the consumer market. In 2003 it hired Nashville's Buntin Group to develop a national marketing campaign anchored by television commercials, which in 2004 won six Addy Awards, a prestigious honor given out by the American Advertising Federation. The campaign helped Servpro to continue its steady progress. Having outgrown its headquarters, in April 2005 the company moved into a new 106,000-square-foot headquarters, offering enough room to accommodate further expansion.

Ed Dinger