Multi Mania: More Franchisees than ever are Adding New Units

Franchisees are an optimistic lot, expansion-minded, on the grow, always alert to new opportunities. And for them, franchising represents one of today's most attractive opportunities. Whether it involves increasing the number of units of their current brand or adding new brands to their holdings, the allure of multi-unit franchising is attracting the best and brightest franchisees in the business with increasing frequency.

During the past 20 years, what began as a trickle has become one of the hottest vehicles for building a business rapidly and sustaining it through the years. FRANdata puts the number of multi-unit operators at more than 34,000, and they control more than 155,000 franchised units in the U.S.

Successful multi-unit operators are a different breed than the single-unit franchisees they are displacing. Light years beyond the old "buying a job" mentality, they are skilled, professional business executives who have chosen franchising as their business model. They possess the skills, capital, infrastructure, and vision to keep adding units to their portfolio--without stressing their organization or their stomach.

Even during the recent economic upheaval, savvy multi-unit franchisees continued to expand, especially in QSR and in services such as hair salons, home maintenance, children's activities, care, and more. After all, if you can make money with one unit you can make even more with two, three, or more, right?

Well, yes--but it takes a certain skill set, dedication, and infrastructure to make it all work effectively and efficiently. If you're a regular reader of Multi-Unit Franchisee magazine, especially our ongoing profiles of successful multi-unit franchisees, you know exactly what we mean.

All the right pieces must be in all the right places for a organization to succeed. If they're not, the results can be disastrous for both franchisee and franchisor. At its best, however, multi-unit franchising allows franchisees (and franchisors) to increase their unit count, market penetration, and profitability more rapidly than a single-unit owner ever could.

Multi-unit franchising already has altered the landscape of franchising in many ways, and will continue to do so. In recent years, private equity has "discovered" the profit potential of multi-unit franchising, buying into multi-unit franchise organizations or acquiring them outright--even doing the same with franchisors. And you know they appreciate the benefits and value of a diversified portfolio!

According to franchise attorney Lane Fisher, "The emergence and growth of multi-unit franchisees is having a profound effect on franchising. It is rapidly changing prospective franchisee screening standards, the quality and substance of existing and operational support, pressuring franchisors to make financial performance representations in their franchise disclosure documents, and affecting the way contracts are written by redefining 'non-negotiable' rights and deal breakers."

Fisher says that although multi-unit franchising is clearly a growing trend, particularly in it is not appropriate for all opportunities. "Sometimes it is a function of timing, as many new franchisors use various forms of multi-unit franchising to grow in early stages; or in other cases the unit economics simply will not support the additional layers of infrastructure to make the investment worthwhile; and in other cases multi-unit expansion is at odds with corporate philosophy, or the lack of expansion capital in a particular industry."

In other words, while multi-unit franchising is the way to go for any franchisee seriously looking to grow their organization, it's not a slam-dunk, it's not for everyone, and it's far from easy. In fact it's hard work, and fraught with failure. Successful multi-unit franchisees must do at least three things well:

  1. You must be able to finance the additional locations/territories. That means deep pockets, or at least access to deep pockets. This often requires business partners and/or lenders who then have skin in the game and can influence the way you conduct your business. This is an important reality to keep in mind if you are an independent thinker and operator.
  2. You must be able to form an organization with a management team and infrastructure to command your expanding empire. You may be able to remain hands-on with a handful of but when you reach 10 or more it's no longer feasible for you to oversee day-to-day operations. At some point, you will need to bring in a team to handle everything from operations to finance to marketing and HR. You must learn to delegate and get out of the way.
  3. Leadership is the final ingredient. You come to the game with vision, ambition, and inspiration. The challenge is communicating these crucial intangibles to your expanding organization and keeping them intact as they filter down to your unit managers and front-line staff through your in-house team. Necessary and achievable; never simple nor easy.

If you have the background, experience, and drive to take on these challenges, then multi-unit franchising offers you a path to achieve your dreams. But you can't do it alone. Rely on people, partners, and delegation--plus a large helping of your own passion, patience, dedication, and hard work--and yes, you can grow a multi-unit empire.

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