HOW TO SUCCESSFULLY GROW YOUR BUSINESS
Patrick Mauser
Innovative Business Expansion | Pioneering Growth Opportunities Across Borders
From the small, independent operator who wants to expand and open more units to the regional chain that is looking to grow outside its local comfort zone to the large chain operators who already have expanded but seek to accelerate, franchising is always part of the conversation.
Franchise operators often struggle with strategy, as their strengths are in running their day to day operations and not managing growth. These are very different skills. So, here are some key commonalities we’ve observed over the years that successful operators have employed in growing their franchise businesses:
Be prepared. Outline a step-by-step approach to site selection, construction design, equipment package, interior decor, signage, training manuals, pricing guidelines, local marketing strategy and operational procedures for front and back of house. Most operators run their business without these written guidelines, so this step can be cumbersome to develop but nevertheless crucial.
Take a cautious approach. Don’t expand too quickly. Opening profitable stores is key to long-term success. Failure means store closures and negative sentiment from your brand’s customers.
Create strong unit economics and partners that will support your business. This means careful selection of suppliers, distributors and service vendors that have an aligned strategy, serving your industry with the capacity to work hard to support your business. The infrastructure for franchise operations is essential to managing a franchise with few distractions.
Qualify your franchise. Best-practice operators select and approve franchisee candidates with experience, capital and, most importantly, passion for service and quality. These requirements are non-negotiable. Focus on multi-unit franchisees versus Single-unit operators and drive for area- development agreements with experienced leaders.
Spend the appropriate time with franchise partners, helping them select the right real estate partners, identifying the best locations and giving them guidance on what constitutes a good lease.
Train, train and train some more. It’s a critical ingredient for a franchise to have the appropriate education and preparation. Getting a store open is just the beginning. Then it’s all about breaking even and driving profits. Good franchisors spend quality time with every new opening and don’t leave until operations are smooth.
Make sure there is a customer-feedback loop to ensure that your franchise is following protocol and building customer satisfaction with a plan to boost positive online reviews.
Lastly, stay engaged and support your operator. Provide positive and constructive feedback on key areas for success and step in when necessary to lend a hand. Listen to your franchise and do your best to address their concerns and to provide solutions to problems as they emerge.
The best opportunity for those looking to engage franchising programs for growth is to work with an expert that has a proven track record to lead the way and provide guidance.
Here’s some must-have advice from AFA:
Growing Your Franchise: It’s a Process
If you don’t know where you are going, any road will get you there.-- Lewis Carroll
You’re a franchisor who has had a growth goal in mind for quite some time. But what happens when you cannot realistically support your growth plans, whether you don’t have the capital to fund advertising efforts or you don’t have the support team in place to cultivate a dozen new franchises in the coming year?
It is imperative to have goals in mind when franchising your business. Perhaps even more important, however, is to be flexible with your franchise goals and how you realistically achieve them.
Set a specific, long-term goal
One of the reasons emerging franchise brands often need to tweak their original franchise strategy is that they never really had a solid plan in place initially. Often, when I’m speaking with novice franchisors, they will offer vague goals like wanting to “aggressively grow while still maintaining standards” or share an arbitrary number of units they’d like to hit in a given period of time. It’s not that those aren’t good objectives to strive for; they just aren’t specific enough to provide a good road map moving forward.
Think about doing a deeper dive when mapping out your long-term goals. For example, take into consideration your exit strategy. Do you want to sell your business? For how much? And provide a specific time frame for meeting those business objectives. Do you want to sell in five years? In 10? Try to be realistic in your goals. Instead of estimating the value of the company in the future, ask yourself “What are the next five or 10 years of my life worth, if I am going to devote them to this business?” And answer with your minimum acceptable answer.
Only then should you translate your goals into a hypothetical business model that can reach them (i.e., 50 franchises paying $35,000 a year in royalties at a valuation of 10 times earnings) and work backward to get to your desired result. That will tell you how many franchises you need to sell each year to get to where you want to be in 2022 or 2027.
Don’t make your first strategic growth plan gospel
One thing worth remembering as you work through your franchise growth plans: a good plan is typically an iterative process. You may need to revisit your numbers multiple times to make them work, based on your current resources.
It is going to take a fair amount of advertising dollars to sell a franchise, as franchisors that have successfully gone through that process know well. According to Franchise Update Media’s annual franchise-development report, the average cost per franchise sale in 2015 was more than $6,000 for fast-growth franchisors. These costs are typically even higher, closer to $10,000, for start-up and newer franchisors. So, if you want to sell a dozen franchises in the coming year, realize that will take a nearly six-figure advertising spend.
Then, once you sell the franchises in your plan, your journey as a franchisor really just begins. It’s important to have the right people in your operations to support the new business owners in your system. If you don’t have the right support staff or are under-staffed based on your growth plan, then adjust your growth numbers to fit your current ability to support franchisees.
Remember, if your franchisees fail, you will ultimately fail as a franchisor, so make franchisee success a priority.
Your original plan isn’t working: Now what?
The good news is that franchisors have a number of alternatives if the first franchise plan fails to provide a productive path forward. Perhaps it makes sense to shift to a more aggressive structure, for example, and change the target franchise candidate to an area developer or even an area representative model. That can allow for more rapid growth and, with the right people in place, potentially allow for better regional support.
Another option is to change elements of your franchise structure to make growth goals more feasible. For example, adjust your fees, product sales and other elements to help reach your goals – but again, do so with the franchisee’s ultimate success in mind. A franchise program that meets your goals but not those of the franchise will be doomed to failure.
One of the most practical ways to make things work is to consider lengthening your timetable for meeting your goals. While you may need to sell 50 franchises in your first five years to achieve your desired goal, perhaps selling 20 or 30 is more realistic in that time frame. If you extend your desired exit date by two years, perhaps you can reach your goal in seven years without sacrificing quality.
On the flip side, to accelerate overall growth, some franchise companies will include a mix of franchise and company growth strategies to build assets and cash flow. This multi-pronged development approach often builds enterprise value the fastest. And it can also help an emerging franchise further fine-tune operations and develop the team it needs to support more franchisees.
If there’s any key in road-mapping franchise growth, it’s this: Start with the end in mind. Determine a specific path to take to get there, and then implement and refine the plan as you grow toward that goal.
Patrick Mauser
Founder
Tel Thailand + 668 3568 5612
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