Franchises

Why You Should Make the Move to a Multi-Unit Franchise

Why You Should Make the Move to a Multi-Unit Franchise
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This story appears in the June 2016 issue of Entrepreneur. Subscribe »

Opening that first franchise store is hard work. It takes nerves, perseverance and resilience, and months of working all day, every day. Eventually, a thriving and sustainable small business is created. And then, you face a question you may never have thought you were ready to consider: Should you operate two stores? And then, what about three? What about 103, like Domino’s pizza franchisee Michael Orcutt? In the franchising world, there’s no limit to your ambition -- but you have to grow smartly.

“I think a lot of people come into franchising and buy a single unit because they want a job,” says Lorne Fisher, the founder of Fish Consulting, which specializes in franchise marketing. “If they get one unit and x amount of income, they’re happy. But enterprise-building franchisees must have the skills to manage multiple units at once and also run a back office. You’re dealing with lots of moving parts, and it’s not for someone just getting into franchising to pay the bills. It requires a radically different mindset than single-unit franchisees’.”

Do you have what it takes? 

Growing for the Right Reasons

Experienced multi-unit franchisees all say the same thing: Before you expand, you need to think hard about why you’re doing it. “Do you have clarity on why you want to become a multi-unit owner? Is it to make money? To diversify your holdings?” says Aziz Hashim, a veteran multi-unit owner with 26 restaurants  and a general partner at NRD Holdings, a private equity firm that invests in franchises. “There are ways to grow beyond buying a higher unit count. If you are able to double the volume of your current unit, that is pure profit. Would you rather have 30 units that make money -- or 100, of which 30 are stagnant and 30 lose money?”

Here’s one good potential answer: You want to grow your business because you’re ready to grow as a leader. With multiple units, you can’t be running the joint anymore. You’ll become a true CEO and be building a true corporation with many different kinds of people to manage -- operations manager, accounting staff, training staff, field managers, human resources and other employees. “You’re not behind the counter anymore,” Hashim says. “You have to have the entrepreneurial mentality that you are working on your business and not in it. You have to find the best use of this newfound time, and you have to learn to trust advisers and your managers. Everything might not be as perfect as if you did it yourself. And you have to be OK with that.”

Bonnie Alcid is making that transition now. She owns three British Swim School territories in suburban Maryland and Virginia but hopes to grow even larger. So, to prepare, she’s building an operation that can manage that larger workload. “I’m restructuring my company from top to bottom and adding on this new layer of management,” she says. “I really think this will help me take things to the next level over the next six years.” She recently brought on a director of operations, who oversees the daily management of the franchise -- essentially replacing herself. That’s cut down significantly on her 60-hour-a-week workload, and freed her up to focus on the parts of the business she enjoys -- training new swim instructors and teaching -- and the parts she’ll soon be taking on.

Knowing When the Timing Is Right

So, your vision is clear and you’ve begun laying the groundwork. When is it time to actually transform into a larger, more complex corporation? “Every business has to reach a critical mass before needing the appropriate systems and staff in place to maintain control,” says Alexandra Myers, who owns nine successful Smoothie King units, most based inside military bases located throughout the mid-Atlantic, the Southeast and Texas. She spent years adding units but only recently started adding employees to her management team so she could keep her focus on growing the business. “Even if you own a few stores, you will still find yourself behind the counter on any given day if a manager or an employee doesn’t show up. But eventually you reach a unit number where you can afford the management infrastructure to handle operations and any emergencies.” 

For Michael Orcutt, the Domino’s franchisee, his 25-person staff is a critical part of his business -- and he built it slowly and methodically. He prefers to keep everything in-house as much as possible, instead of farming out business functions to accountants or PR firms. “I like to do things the right way, and having these people around gives me all the resources I need,” he says. “I don’t have to be the smartest tool in the shed. I’m a collaborator. If you outsource, I think you’re giving up control to firms who aren’t necessarily looking out for your interests as much.”  

Finding great people, however, can be difficult -- so don’t rush it. That’s why Phil Collins, a Maaco collision repair franchisee with 13 units in North and South Carolina, says hiring the right employees is his number one priority. “When you attract people and they buy into your vision and dream, it’s amazing how your business grows from that,” he says. “To create a multi-unit operation, you have to be a coach and sell people on your beliefs, and make sure they carry them through.”

Shaping Your Future

Once a franchisee heads down the multi-unit path, there are some big decisions to make. The biggest: How will you diversify, to protect yourself from the ups and downs of business?

The way Hashim sees it, there are three ways to diversify -- and by opening multiple locations, you’re already taking the first option. “You could have a perfectly good location, then the state decides to do roadwork for the summer and ruins your business. So having more than one unit is a type of diversification,” he says. “The second level is having more than one brand. What happens, for instance, if your brand has a supply-chain issue that causes significant sales decreases? The third level is to diversify with multiple categories. What happens if, because of economic or social pressure, a whole category suffers? This came home to roost during the last recession. Casual dining got hit very, very hard, while fast food held its own.” 

There’s no one right answer, of course: Every option carries risk. But you can pick the one that works best for your business.

And finally, you’ll have to make a very familiar decision -- because it’s the same kind of decision you made when you opened your first unit: What’s the location? “It’s really hard to grow fast unless you have the right real estate opportunities,” says Joey Robinson, who, along with his wife, Cheryl, has 37 Super Cuts franchises in Southern California. He suggests that you pay close attention to local real estate trends and never settle for subpar locations. “There’s nothing worse than being locked into a bad real estate decision for five or 10 years. And our advice is to only look at units you can get to within an hour’s plane flight. If your locations are too spread out, it’s hard to get on-site quickly to handle any problems.”

Brooke Wilson learned that lesson the hard way. In 2004, she opened a Two Men and a Truck unit in Raleigh-Durham, N.C. Then she bought a location in Atlanta, where her husband had family. “After that, we realized we couldn’t just grow organically like that. We needed a strategy,” she says. So she began clustering locations along the I-95 corridor to lessen the chance of trucks traveling empty between jobs, boosting her profits. She now owns seven units between Atlanta and Washington, D.C.

There will be endless other smaller decisions that have to be made along the way, and Hashim stresses that there’s no one path to success. Instead, he says, you should make sure to get away from your single unit for a while: Attend multi-unit franchising conferences, spend time networking and develop mentors in the multi-unit world. “The knowledge to open 80 or 90 units doesn’t just drop down from heaven,” he says. “You have to go out and find the people who’ve done it and learn from them.”  

Edition: December 2016

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