Operationally speaking, business minded individuals have long recognized that efficiency and effectivity are desirable objectives when striving to develop and perfect a product or service that ultimately represents “value” to consumers, and, derivatively, results in profitability for the organization.
Consumers seek out “value” when deciding to purchase a product or service. While value always has a dollar component, “value” should not only be based upon the best price or least expensive product or service. The value proposition must necessarily include multiple factors, including quality, reliability, functionality, and the softer, more intrinsic component, the satisfaction metric, which may include emotional or intellectual elements such as enjoyment, security and comfort.
In deciding to franchise their business, Franchisors have determined that their business model is “franchisable” because they have quantified an existing market demand and have responded to that market need by developing the essential ingredients, processes, procedures and protocols whereby consumers will continue to find value in their product or service. Further, the franchisor knows that, provided their franchisees strictly adhere to their prescribed methodology, their customers can confidently expect the consistent high quality service that has become the brand standard. In an effort to distinguish their brand from the competition, the Franchisor should have concurrently developed a recognizable branding concept that quickly enables the consumer to identify their brand from the competition and which conveys the desired corporate messaging.
The franchise industry is typically characterized by awarding exclusive and protected territories in a geographic area, typically by assigning zip codes, though other gerrymandering techniques may be appropriate (and negotiated) depending upon circumstances. Most attractive, for the “right” franchise in the “right” niche, are those franchises where territories are relatively wide open. Franchisees are generally not permitted, under their franchise agreements, to offer services or products to consumers outside their assigned territory. So despite the franchisee having a contact network and service “reach” beyond their territorial constraints, opportunities outside of their assigned territory are off limits. A disappointing reality if your franchise is in the right place at the right time in the right market. One of the most interesting strategies to counteract territorial restrictions involves the possibility of securing multiple contiguous territories.
A Franchisee who is able to secure multiple territories, or said another way, operate a multiunit franchise system in an area where he or she is well established and well connected, affords that Franchisee the opportunity to seize the benefits of both synergy and economies of scale. The most obvious synergistic opportunities involve cost savings resulting from minimizing overhead redundancy. For example, a business’s administrative functions, such as accounting, invoicing and payroll, or other support activities such as purchasing and human resources could be centralized, enabling core staff to service the multiple locations.
Similarly, economies of scale could be realized by the multiunit franchisee. Negotiating for required products and support services are always enhanced when your organization represents a larger volume opportunity to your vendors. Economy of scale is nowhere better demonstrated than in looking at your advertising dollar expenditures. Advertising in area publications, where you are only permitted to service those consumers in your “assigned territory” becomes an advertising dollar inefficiency victim. Your advertising dollars are aiding non owned, but adjoining, “sister” franchisees or, worse yet, benefits your competition in the territories you cannot serve (the halo effect). Owning and controlling all of the territory falling under your advertising umbrella enables you to achieve lowest cost per “touch” results.
While a multiunit franchise system enables the franchisee to attain both synergistic and economies of scale benefits, the multiunit franchisee must be cognizant of the potential downside and incumbent risks associated with the multiunit operation. Everyone acknowledges that an organization is only as good as its people. Accordingly, a multiunit player must have high quality management at each franchise location. Unfortunately, hired management personnel are not likely to have the same vested commitment to the success of the operation as you do. That said, you as the manager of the multiunit franchise system, will have to recruit, hire, train and manage your leadership team, consequently diluting your attention and focus across a wider spectrum of activity.
The risk associated with the franchise owner diluting his attention is that the quality and consistency of the product or service suffers. This is a real “no-no” in the franchise world, as any franchisee who erodes the stature of the brand is a detriment to the entire system. Consequently, the franchisee who besmirches the brand will, under the terms of their Franchise Agreement, quickly find themselves in “hot water” with their franchisor, who has the unswerving responsibility to protect the brand.
So if you are considering a multiunit system, and you are up to the expanded managerial challenge, you stand to be rewarded financially in multiples. To be successful in this environment, maintain your focus on quality by implementing strict quality controls. Hire right, train extensively, implement checks and balances to insure service integrity and consistency, in essence mold your culture to your own high standards.
Jeff Krueger is a tenured business professional with a track record of success, growth and expansion spanning 40 years. He has held positions as CEO, COO, CFO and Corporate General Counsel for various entities, both public and private, with annual revenues ranging to over $200 million. Mr. Krueger recognized the emerging need of seniors and launched SAFE HOMECARE to provide high quality Support Assistance For Elderly (SAFE).