Buying in Bulk

Whether good or bad, the surest way to quick growth--for you and your franchisor--is a multiunit deal.

By Todd D. Maddocks

Opinions expressed by Entrepreneur contributors are their own.

"Total global domination." That was one newfranchisee's response when I asked about his future plans. Atthe time, he hadn't even opened his first unit. In fact, Ifigured by his flippant answer that he'd never actually workedin a retail store. Yet this franchisee was on to something: Thedesire to "mint money" by becoming a multiunit franchiseeis commonplace. Franchises are a lot like potatochips-it's hard to have just one.

Adrienne Davis, 46, a four-store owner in the Gymboree chain, isone franchisee who can't keep her hands out of the bag. As aformer Gymboree teacher, she was well-qualified for growth withinthe children's activity franchise, and she learned she neededmultiple units to make money.

"Synergy and economies of scale are the mostcompelling reason for multiple store ownership."

I myself have seen the prosperity that comes from developingmultiple stores. One couple who specialized in opening restaurantsin backwater towns that the company-owned chains wouldn't touchhad a Maserati, a Ferrari and a personal airplane to gain access totheir small empire.

As Davis has found, synergy and economies of scale are the mostcompelling reasons for multiple store ownership. Stores owned bythe same franchisee can share supplies and transfer inventory, andemployees at one store can cover labor shortages at another. Andwhen your stores are not too far apart, you can split the cost oflocal marketing materials. Eventually, with enough units, afranchisee can create an entire administrative infrastructure anddelegate day-to-day operations to managers. Some franchisees havehundreds of units in their personal networks.

Buyer's Market

Fortunately for you, franchisors want to sell multiunitfranchise licenses as much as franchisees want to buy them.It's particularly good news if you buy into a relatively newsystem. Early in the development of a franchise concept,franchisors are hungry for multiunit developers, because it'soften difficult for the franchisor to distinguish itself in theeyes of franchise buyers. Prospective buyers read franchisedirectories like Entrepreneur's Franchise500® to see what's hot. When a concept appears to bestagnant, they stay away.

On the other hand, if prospective franchisees see rapid growth,they assume they're missing out and investigate further.Franchisors know this and love to sell multiunit deals early on.That way, they benefit from the early growth and only have to trainone franchisee to get numerous locations open. Plus, franchiseeswho can afford to develop multiple units have probably beensuccessful in business elsewhere and need less ongoingassistance.

What It Takes

But do you fit the profile of a multiunit franchisee? Accordingto Robert Nathan, who opened his first Mail Boxes Etc. store in1985, "a multiunit developer has to be multifaceted as abusinessperson. When we see a leader who's well-capitalizedwith a strong business sense and excitement about the business, weknow we have a candidate we can grow with."

Nathan knows what he's talking about-he's owned eightMail Boxes Etc. locations, and his organization now providessupport for 138 franchised locations in the chain. He has alsosigned an area development deal with haircutting franchise SportClips. Nathan attributes his multiunit success to having the propermind-set...and the proper staff to delegate to. "The rightperson has to be willing to give up something, including power andmoney, to his staff," he says. "The successful multiunitfranchisee cannot be a total control freak."

You also need the right kind of concept for multiunitdevelopment. "Look for a strong brand with an establishedmarketing system," advises franchise attorney Pamela Mills ofBaker & McKenzie in Chicago.

Are you a people person? If so, multiunit franchising may not befor you. The concepts that play to your strengths are typicallythose that don't work well with multiunit franchising, saysGayle Cannon, an attorney with Dallas-based Thompson & KnightLLP. (See "Will It Work?"below.)

Reality Check

As in any business endeavor, many earnest franchisees havenegotiated development rights and then failed to produce theresults they imagined. Typically, development deals requirefranchisees to develop on a schedule. If you don't open storeson time, the penalty can be a loss of any further developmentrights and a forfeiture of the territory you've already paidfor.

To succeed as a multiunit franchisee, you must have a reasonablegame plan. Determine whether you have adequate capital byresearching when a store becomes profitable. Franchisors typicallytry to negotiate a rapid rollout of territories, but the last thingyou need is to be pondering the deadline for store number threewhen the first two are still losing money as part of their start-upphase.

If you're looking at a younger chain, you may be able tonegotiate an option or first right of refusal for additional units,so you won't part with a lot of cash before you learn whetheryou like being in that business.

And though it may sound paradoxical, a good multiunit franchiseeis able to think small-not necessarily in terms of totalglobal domination. Though your eyes may be on the multiunit prize,every multiunit developer I talk to has the same piece of advice:Take the time to ensure that each location can stand on itsown.

  • Restaurants with simple menus and centralized buying
  • Shipping and packaging
  • Vitamins
  • Automotive services
  • Greeting cards


  • Interior decorating
  • Stained glass design
  • Personal development
  • Furniture repair
  • Other businesses that rely on your artistic or personalinvolvement

Todd D. Maddocks is a franchise attorney, small-businessconsultant and founder of

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