Multi-Unit Franchising Feature

How to grow your franchise through multi-unit ownership

Let’s say that some of your franchisees who own single locations are eager to own two, three or more. Or maybe some of your franchisees who already own three or more units want to own even more – maybe a lot more.

That sounds like a wonderful opportunity to expand your franchise, and it probably is. Yet in the dynamic world of franchising, the journey from a franchise system rooted in single to multi-unit ownership is filled with both opportunities and challenges. During my career, I have helped many franchises expand in just that way. For example, I was part of the leadership team of a franchise brand that was adding

more than 100 units every year. Initially dominated by single-unit owners, we changed our approach towards favoring multi-unit franchisees, for some very strong reasons. One was that if we encouraged current owners to acquire more locations, we could expand our total number of locations efficiently – certainly more efficiently than if we sold one location at a time to new owners. Another reason was leverage - it was easier to train and support 10 owners who owned a total of 30 different locations than it was to train and support 30 individual owners who owned one unit each. We additionally knew that franchisees were less concerned about opening up near their own location than having another franchisee open up near them; we could thus get greater penetration of locations.

but there are challenges

We found out quickly that just because someone was successful at running one unit did not mean they’d be successful at running two. The opening of the second unit caused the franchisee to take their eye off the ball of their first unit. Causing the first unit business to suffer, ultimately the franchisee would focus on one or the other location and, and one would suffer. Unfortunately many franchisees lost not just their expansion location but their main location too because they were not well suited to be multi-unit franchisees.

Why Problems can occur

• Managing multiple locations requires different skills than managing just one.

For example, a franchisee who is a micromanager can run one unit really

well, but when they add locations, the scale of the business gets so large that they can’t micromanage the whole business. Things fall through the cracks.

• Hiring good managers for multiple locations is expensive. If the franchisee doesn’t invest in hiring the right person to be an effective manager, the locations will suffer and/or go out of business.

• Operational practices are different. If fundamental operating practices are not in place to properly manage the company and its finances, the company will not be in a position to grow. The franchisor should provide the operational best practices in their operations manual.

strategies for success in Multi- unit Franchising

• Understand who your franchisees are and where their skills lie. I am a believer in using personality assessments to identify franchisees’ strengths in either single or multi-unit operations. For example, success in multi-unit franchising depends significantly on excellent people management and

delegation skills, while single-unit success hinges more on attention to detail and process adherence.

• Evaluate market expansion potential. Expansion does not always rely on adding new locations. Service-oriented franchises, for example, can often grow exponentially from a single location, whereas businesses with physical constraints, like restaurants, might need multiple units for growth.

• Consider your operational model. Ensure your franchise model is adaptable to multi-unit operations, with tailored training and operational manuals reflecting the nuanced differences between single and multi-unit management.

• Consider your operational model. Ensure your franchise model is adaptable to multi-unit operations, with tailored training and operational manuals reflecting the nuanced differences between single and multi-unit management.

• Consider how you will best support your owners. Develop specialized support for multi-unit operators, differentiating the assistance provided to them from what you offer to single-unit franchisees.

best Practices for Multi- unit ownership sales

Now I would like to explore a slightly different aspect of expanding your franchise: encouraging new owners to buy multiple locations at a time. Have you thought about doing this? It can be an effective strategy for growing your franchise quickly, but here are some ideas to think about and steps to take . . .

• Tailor your franchise sales processes to attract and properly vet potential multiunit franchisees.

• Get help from a franchise consultant who has knowledge of multi-unit franchise sales, operations and risks.

• Be sure that your Franchise Disclosure Document (FDD) and franchise agreements accommodate multi-unit

operations. You will need to consult an attorney.

• Model your ideal multi-unit franchisee profile and adhere strictly to it during owner selection.

• Set reasonable timelines for new location openings to avoid overwhelming franchisees.

• Incorporate performance metrics as prerequisites for allowing current owners to add additional units.

• Understand and potentially implement territory clawbacks for unmet expansion goals.

• Facilitate interactions between prospective and current successful multi-unit franchisees. Pair new multiunit franchisees with the seasoned in a mentorship program.

• Differentiate single and multi-unit franchisee performances in your Item 19 disclosures.

• Align your sales team’s compensation with the successful opening, not just the sale, of new locations.

summary: Mastering Multiunit Franchise e xpansion

The transition to multi-unit franchising presents a strategic avenue for franchisors aiming to amplify their market presence. However, this transition is loaded with complexities that demand a nuanced understanding of franchisee capabilities, operational adjustments, and strategic sales approaches.

By fostering a culture that supports both single and multi-unit franchisees based on their distinct strengths, franchisors can ensure sustained growth and profitability in the competitive landscape of franchising. v

evan hackel, As author, speaker and entrepreneur, Evan has been instrumental in launching more than 20 businesses and has managed a portfolio of brands with systemwide sales of more than $5 billion. He is the creator of Ingaged Leadership, is author of the book Ingaging Leadership Meets the Younger Generation and is a thought leader in the fields of leadership and success.

Evan is the CEO of Ingage Consulting, Delta Payment Systems, and an advisor to Tortal Training. Reach Evan at ehackel@ingage.net, 781-820 7609 or visit www.evanhackelspeaks.com