The following excerpt is from Rick Grossman’s book Franchise Bible. Buy it now from Amazon | Barnes & Noble | iTunes | IndieBound
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Your franchisor has created a system for its franchise owners to follow and have made the costly mistakes that come with creating a business so you don’t have to. As the franchise owner, it’s your responsibility to apply the tools and techniques given to you to build your business. Here are a few key ways you can grow your business with help from your franchisor.
1. Growing and adding more units
Some of the most successful business owners are multi-unit franchise owners. It doesn’t take long for a successful franchisee to determine that if one franchise works, two is twice as good. Many franchisors will offer incentives for franchise owners who want to add more units since they’re already up and running and will need less training and support. Interested in this option? We’ll cover this more in a bit.
2. Strive to become the “top producer”
Franchise organizations that are run well understand that building the franchise community is a critical strategy for large growth. These franchisors may have friendly competitions and award top producing franchise owners. Strive to be your company’s top producing owner, and you’ll win on all fronts.
3. Help your franchisor grow
The key to success with any franchise organization is a foundation that creates a win, win, win and win. When everyone works together, and looks out for each other, you’ll see that the franchisor, franchisees, customers and employees all win! The give-more-than-you-receive philosophy can really pay off. Franchise owners who contribute to the overall effort of the franchise organization may also find growth opportunities as the company grows.
4. Become a great validator
The validation that you receive from existing franchise owners is a big part of your decision-making process when you’re shopping for the right franchise. You probably talked to franchisees before you made your decision to buy your franchise. Due to the fact that this is a huge part of growing a successful franchise organization, it’s in everyone’s best interest to spend the time necessary to answer questions when prospective franchisees call you for validation.
5. Join the owner’s advisory committee
Many franchise organizations will organize an owner’s advisory committee or council (sometimes referred to as the OAC). This is a strategy to facilitate communication and participation between the franchisor’s corporate team and the franchise community. Participating on the OAC gives you a voice, and even though most are advisory only, you can influence the direction of the company.
6. Take advantage of leadership opportunities
As you grow with the franchisor, you may find a variety of leadership opportunities available to you. These may take the form of the OAC, training, mentorships or speaking/coaching at corporate conventions and events. These opportunities can be very lucrative and may open doors for you. Be sure to balance your time with your franchise business to keep your core business thriving if you pursue these opportunities.
Your business portfolio can grow by first becoming a multi-unit franchise owner. Once you get the hang of your franchise, adding one or more units can make a lot of sense. Consider the following facts:
- If you make money with one unit, you should be able to make more by adding units.
- Banks are far more interested in lending money to operators who have a proven track record.
- Your franchisor built a system of duplication in order to franchise across the country. You can use this same infrastructure on a smaller level to grow your network of franchised units.
- Your franchisor may offer you incentives to add units since you’re already successful within their franchise organization and will grow faster with less strain on their training and support staff.
The franchising business structure offers several options within this expansion model. Following are the different options and applications for each type.
Multi-unit. The multi-unit franchise buyer is usually an individual or business entity that contracts to purchase multiple franchise locations at the same time. Many franchisors require that prospects start by opening and growing one unit for a period of time before they’re permitted to open more units.
Area developer. An area developer is an individual or business entity that signs an agreement to open a predetermined number of franchised units over a mutually agreed-upon timeline. The same entity owns all the units but is given a period of time in which to open all the units.
The area developer will usually sign an area developer agreement (ADA) as well as the franchise agreement(s). This strategy can enable you to secure the territory that best fits your long-term goals. You must have the appropriate infrastructure and financial capabilities for this model and only execute an ADA if you can follow through with all the obligations. You may lose certain rights as well as money in the event that you’re unable to perform under the agreements.
Regional developer. A regional developer (RD), sometimes mistakenly referred to as a master franchise, is a hybrid between an area developer and a master franchise. The RD will usually sign a regional developer agreement as well as the corresponding franchise agreement(s).
The RD is an individual or business entity that usually runs their own franchise(s) as well as taking on some of the recruiting and support responsibilities of the franchisor in a region in exchange for a revenue share. In most cases, the revenue share with the franchisor will include a percentage of the initial franchise fees (IFFs) collected from franchises sold in the regional developer’s region in the event that they were involved with the recruiting and/or onboarding process.
The RD may also share in the royalty stream of the respective franchisees in their region if agreed upon by their franchisor. This percentage is relative to the level of support and training that they provide to their regional franchise community.
The franchisor may see this option as a good way to spread out the recruiting, support and training aspects of the business. This can be a very lucrative opportunity due to the fact that you can “piggyback” on the franchisor’s infrastructure. This is a benefit for the franchisor as well if it’s a good fit for all parties.
Master franchise. The term master franchise is often confused with the aforementioned area developer or regional developer models. A true master franchise is usually an individual or business entity that wants to own and operate a franchised organization in a different market than that of the franchisor. The master franchisee will take on the role of the franchisor in their assigned region. The master franchisee will usually sign a master franchise agreement with the franchisor. This is usually a good model for global expansion of a franchise organization. The master franchisee will need to comply with all applicable franchise and business laws within their country or region as well as agreements with the franchisor.