How to Grow Through Multi-Unit Expansion

Just a couple of decades ago, franchising was still characterized by "mom and pop" operations where franchisees opened and operated a single unit for years - maybe even for a lifetime. The focus was simple and the operations not complex. But that model has changed in the past few years. Consider these research findings:

According to FRANdata, a franchise industry researcher, 82 percent of all franchisees are single-unit operators. They control 48 percent of all franchise units. Another 15 percent of all franchisees own between two and five units and control 26 percent of all franchise units. Most significantly, 3 percent of all franchisees own more than five units, but they control 26 percent of all franchise units. Combined, 18 percent of all franchisees control nearly 52 percent of all units.

There are many factors that have led to the shift towards multi-unit franchising. If you think the idea of expanding your empire beyond operating one or even two units sounds enticing, take heed of the following factors and dynamics.

At its most effective, multi-unit franchising can allow for the franchisee (and franchisor) to expand more rapidly and increase profitability. After all, if you can make money with one unit you can make even more with, two, three, and so on, right? Well, perhaps, but it takes a certain skill set, dedication, and infrastructure to make all this growth work. All of the right pieces need to be in the right places to make the multi-unit franchise model work. If done improperly and with poor planning, an attempt at multi-unit growth can be detrimental to both franchisee and franchisor.

For franchisors, successful multi-unit franchising begins with finding talented franchisees - who may have spent years working for mega companies elsewhere gaining experience and knowledge in how to operate a business. A deep understanding of business principles and dynamics is critical. Often, today's franchisees come from complex business and sales backgrounds and many of them can parlay this experience into building the necessary infrastructure to operate multiple franchise locations. They know how to hire divisional and level managers, delegate responsibilities, maximize marketing efforts and dollars, and generally just have a very thorough understanding of how business operates. This kind of franchisee is very attractive to franchisors.

It's important to point out that there may also be talented existing franchisees who have what it takes to expand and grow.

Regardless of where they come from, successful multi-unit franchisees have to do three things well. First, you must be able to finance the additional locations/territories. That means you need deep pockets, or at least access to deep pockets. This is often going to involve business partners and/or lenders who now have skin in the game and can influence the way you do or do not conduct business. This is an important reality to keep in mind if you are an independent thinker and operator.

The next component is the management and infrastructure of the expanding empire. You may be able to stay hands-on with operations at one or two units. But when you get to 10 or more units, it's simply not feasible for you to oversee day-to-day operations. At some point, if you're serious about multi-unit franchising, you will need to bring in a team of people to handle everything from operations to finance to marketing and beyond. You'll need help and you'll need to be able to delegate to these individuals and then get out of their way.

Finally, multi-unit operations means more employees and more employees can lead to more headaches and myriad of other staffing-related issues. For example, part-time employees are notorious for high turnover, which in turn leads to lots of ongoing training.

If you have the background, experience, and inner drive to take on these challenges, then multi-unit franchising could offer you a number of benefits. Rely on people, partners, delegation, and hard work and you can grow a multi-unit empire.

Published: October 13th, 2009

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