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Many first-time franchisees begin researching the franchise business model by looking at concepts they can run themselves. In other words, they initially investigate single-unit and owner-operator franchise models. But a “one-unit mentality” can be self-limiting and can create blind spots when it comes to evaluating franchise opportunities.
Instead, start your franchise due diligence and initial business planning with a multi-unit owner mindset, even if you end up buying just a single location. This will help you avoid weaker concepts, reveal the best options for wealth creation, and may even lead you to consider new and more interesting franchise opportunities.
Related: Why multi-unit franchise ownership is now the norm
Thinking big really means planning ahead
Franchisees who plan to own multiple territories also plan to build the right team from the start. Once the team is formed and in place, it can focus more on growth initiatives, creating a great work culture, removing roadblocks and constantly recruiting new team members to support growth.
Instead, owner-operators are often initially placed in this day-to-day management role. They often have trouble getting out of this role later. Either they run out of time and energy to overcome that role and replace themselves with a manager or shift leader, or they settle into a “busy” comfort zone. At first, they can enjoy the rhythm and the hands-on participation – it’s very tactile and ‘real’. But that’s not how you build a great business. Finally, you need to delegate and empower your team.
Some new owner-operator franchisees may even omit manager and change leader salaries from their initial budgets to “save money.” This is a mistake. Owners who are too bogged down in day-to-day activities don’t have time to focus on long-term growth. This approach kills the business and exhausts the franchisee.
Think big from the start. Create a business plan and budget that will keep you out of the frontline position or allow you to hire a manager within six months of opening. Many franchisors who sell multi-package licenses actually require opening hours for new units to prevent new franchisees from getting too bogged down in day-to-day operations. They want franchisees to stay focused on building a successful multi-unit footprint and always thinking about the path to opening their next unit.
Pressure test the unit level economics of each franchise you consider. Can you actually afford a manager if you have the average income in the system? What level of revenue is needed to cover your costs, including a manager or shift manager, and how long does it take to reach that threshold? What profit is left over? If costs go up, can you raise prices to cover it, or will that manager role be squeezed out? Make sure there is enough headroom on the model itself before moving forward with your due diligence. The last thing you want to do is leave the corporate grind to get stuck in a franchise.
However, if you’re stretching your staff budget assumptions because you don’t have capitalization, back up. Consider raising more capital before starting your business or look for a franchise model with less capital. There are many interesting franchise concepts with low initial costs that deserve your consideration.
Related: The unique challenges and benefits of multi-unit franchising
Does the franchise concept attract other multi-unit operators?
It’s often a positive sign when more than 50% of a franchise system’s locations 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 looking to add new locations or purchase units from retiring owners? How are they building their team to enable continuous expansion? Why is this franchise worthy of your expansion capital and effort compared to other investment options? Their answers will be revealing.
In comparison, if you use an owner-operator mentality, you may not even be thinking about future expansion. This can extend to how you identify yourself. Do you see yourself as a large multi-unit entrepreneur? Or do you feel more “comfortable” talking to the owners? Any parent can tell you that a child’s peer group can have a massive impact (positive or negative) on that child’s activities, self-image, and career path. This is one of the reasons why entrepreneurial parents often raise entrepreneurial children. If you envision yourself as a single-unit operator, you may gravitate toward single-unit franchisees for validation and miss talking to great multi-unit franchisees with great knowledge to share. It may even lead you to favor a full franchise system full of owner operators.
Why are you investing in a franchise in the first place? What are your goals as an entrepreneur? If you’re just looking to replace income, you risk buying a job and self-selecting a potentially weak franchise. Some owner-operator franchises are not built to scale effectively. Even if you start with one unit, you preserve your future growth options! Really think about the business case and understand the potential you have to create substantial commercial scale. If others already in the system have not been properly extended, this is a red flag. The only exception to this are franchise concepts that are marketed and designed specifically to be work-at-home, part-time, or second income businesses. But if the franchise opportunity is marketed as a full-time business and there’s no evidence that franchisees will eventually scale, there’s a disconnect.
If you’re considering a franchise with a high concentration of single-unit owners, ask questions to understand how the brand got there. The entire franchise industry, more than 54%, is multi-unit biased, and that’s because real wealth creation in franchises is typically based on multi-unit ownership. It is also because consolidation produces cost and efficiency benefits. Team resources can be shared and a significant local brand presence can be created by franchising multiple units.
Before you buy into a system with high single-unit ownership, you need to dig in and find out how the system bucked franchise trends and ended up with a group of individual or small multi-unit owners. Is the cost so high that franchisees have difficulty expanding? Has the system approved owners who were undercapitalized? Does the brand tend to attract franchisees with less experience? Does management really believe that only top-of-the-line owner-operators can deliver the best customer experience? Are the systems not replicable enough to run the business through shift leaders or managers? Is the system immature and therefore not attractive to multi-unit investors? How did the franchise end up being set up this way?
Related: Some franchises prefer recruits who want to have more than one location. Here’s why.
Remember that strong franchise concepts are very systematized. There are methods and playbooks for everything. This allows almost all functional tasks to be taught and delegated. Franchisees can then focus on making sure the playbooks are followed and customers have 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 mentality into your new business. Bring an abundant, empire-building mindset to your new venture. Think like a multi-unit franchisee from the start.