For First-Time Franchisees: Think Like a Multi-Unit Franchisee From the Start Thinking big is a catalyst for better decisions and outcomes. Here's why.
By Alicia Miller Edited by Chelsea Brown
This story appears in the March 2023 issue of Start Up.
Many first-time franchisees start to investigate the franchise business model by looking at concepts they can run themselves: single units with an owner-operator. But that approach can be self-limiting, creating blind spots when it comes to evaluating franchise opportunities.
Instead, do your due diligence and initial business planning with a multi-unit owner mentality. Even if you ultimately buy only a single location, this mindset will help you avoid weaker concepts, reveal the best options for wealth creation, and may even cause you to consider new and more interesting franchise opportunities. Here's how to think bigger.
Related: Why Multi-Unit Franchise Ownership Is Now the Norm
Don't just think big. Plan big.
Owner-operators tend to initially put themselves in a daily management role, and then struggle to lift themselves out of it. In the beginning, they may enjoy the pace and hands-on involvement — it's very tactile and "real." But then they either run out of time and energy to replace themselves with a manager or shift leader, or they settle into a comfort zone of "busy" — too busy to think big. This isn't how you build a large business. Eventually, you need to empower others and delegate.
Franchisees who plan to own multiple territories from the beginning also plan, at the same time, to build the right team. Once that team is trained and in place, the owner can focus more on growth initiatives, creating a great work culture, removing obstacles, and constantly recruiting new team members.
In contrast, some new owner-operator franchisees may even omit manager and shift leader salaries in their early budgeting to "save money." This is a mistake. Owners who are too mired in daily activities don't have time to focus on long-term growth. This approach starves the business and burns out the franchisee.
So how can you avoid that trap? Create a business plan and a budget that will either keep you out of the front-line position from the start or allow you to hire a manager within six months of opening. Many franchisors that sell multipack licenses actually require tight new unit opening schedules to keep new franchisees from getting too entrenched in daily operations. They want franchisees to stay focused on building a successful multi-unit footprint and to always be thinking about the path to opening their next unit.
This approach will also lead you to pressure-test the unit-level economics of each franchise you consider. Can you actually afford a manager if you're running at the system average revenue? What level of revenue is necessary to cover those additional labor costs, and how long will it take to reach that threshold? What profit is left over? If costs increase, can you raise prices to cover them, or will that manager role get squeezed out? Make sure there is enough headroom in the model itself before you move forward with your due diligence. The last thing you want to do is leave the corporate grind to get stuck in a franchise grind.
However, if you're stretching your staffing budget assumptions because you're undercapitalized, then back up. Consider raising more capital before starting your business, or finding a less capital-intensive franchise model. There are many interesting franchise concepts with low startup costs that are worthy of your consideration.
Related: The Unique Challenges and Benefits of Multi-Unit Franchising
Look for other franchisees with a multi-unit mindset.
It's often a positive sign when more than 50% of the locations in a franchise system are owned by multi-unit franchisees, especially if those operators continue to reinvest in growth by accumulating territories over time. As you interview franchisees during the validation phase of your due diligence process, ask about their expansion plans. Are they eager to add new locations or to acquire units from retiring owners? How are they building their team to allow for continued expansion? Why is this franchise worthy of its expansion capital and effort compared to other investment options? Their answers will be revealing.
In comparison, if you're using an owner-operator mindset, you may not even be thinking about future expansion. This may extend to how you're self-identifying. Do you see yourself as a multi-unit large business owner? Or do you feel more comfortable talking to owner-operators? If you envision yourself as a single-unit operator, you may gravitate toward seeking out single-unit franchisees for validation instead of talking to big multi-unit franchisees with great insights to share.
Ask yourself: Why are you investing in a franchise in the first place? What are your objectives as a business owner? If you're only looking to replace income, you run the risk of buying a job and self-selecting a potentially weak franchise. Some owner-operator franchises aren't built to effectively scale. But even if you start with one unit, preserve your future growth options! Really poke at the business case and understand the potential to grow. If others already in the system haven't successfully scaled up, that's a red flag. The only exceptions to this are franchise concepts that are marketed and purposely designed to be work-at-home, part-time, or second-income businesses. But if a franchise opportunity is marketed as a full-time business, and there isn't evidence that franchisees eventually build scale, then there's a disconnect.
If you're specifically considering a franchise with a high concentration of single-unit owners, you still need to figure out how the brand got there. Multi-unit owners possess more than 54% of the franchise units across the industry, because that's how real wealth-building in franchising usually happens. It's also because consolidation yields clear benefits when it comes to costs and efficiency. With multi-unit franchising, owners can share resources across units and create a meaningful local brand presence.
So before buying into a system with high single-unit ownership, ask questions to understand why the system bucked franchising trends. Does it involve such a high cost that franchisees find it difficult to expand? Has the system approved owners who were undercapitalized? Does the brand tend to attract franchisees with less experience? Does management truly believe that only owner-operators on the front line can deliver the best customer experience? Are systems not replicable enough to run the business through shift leaders or managers? Is the system immature and thus not attractive to multi-unit investors? How did the franchise end up organized this way?
Remember that strong franchise concepts are highly systematized. There are methods and playbooks for everything. This allows nearly all functional tasks to be taught and delegated. Then franchisees can focus on making sure the playbooks are being followed and customers get a great experience.
For many people, starting their own franchise business is a way to leave their corporate life behind. So don't bring an employee mindset into your new venture. Think like someone building a multi-unit empire right from the start.
Related: Some Franchises Prefer Recruits Who Want to Own More Than One Location. Here's Why.
