It’s difficult in most franchise systems to open even a single unit, opening multiunits creates a sizeable responsibility not only for the franchisee making the investment into the franchise system, but also for the Franchisor who sells the multi-unit franchise model.
Many new franchisors who enter into Multi-Unit franchising, have a difficulty traversing this aggressive franchise expansion model.
Recently, my team exhibited at the Multi- Unit Franchise Conference in Las Vegas where over 2,000 Multi-Unit franchisees came to visit, review and evaluate over four hundred different franchise brands. Several of the Multi-Unit franchisees owned and managed in excess of 300 franchises, several industry segments, multiple brands and across several states. When meeting with several of these large franchise investors, we asked questions related to their decisions to invest in certain brands and industry segments. There were some extremely interesting answers and what I took as insightful as to how to market to this group of high powered franchisees.
“People, Products and Processes…..these are the three elements of what make a successful franchise model.” We look for this in any franchise brand before we make an investment. I’ve heard this saying on the show ‘The Profit’ and it makes sense, but it was interesting to hear Master Franchisees and Multi-Unit franchisees follow the same line of thinking when evaluating which franchise brands they would be interested in investing with.
“We only invest in concepts we see the opportunity to scale. If we can’t open 10 or more of a franchise model efficiently, we aren’t interested.” This seems to make sense and be logical when interacting with a Multi-Unit franchise investor, but should shed some light on your own franchise brand. Does your model allow for absentee owners…do you have the systems in place that have true enterprise capabilities…is your brand scalable and will it attract investors of this size?
“We never guess, it is a careful evaluation of numbers, time and energy put into the ROI and a detailed analysis of what kind of bottom line we are looking at for the franchise investment.” Out of the three answers up to this point, this seemed to be the least surprising….Multi-Unit franchise investors are just that…investors…and typically are very good investors. They will scrutinize the financials, bottom line, ROI and total financial picture of a franchise model from every angle before making the move. If you don’t have the numbers in place, you will have some difficulty marketing to Multi-Unit franchise buyers.
When speaking with a Multi-Unit Franchise investor who owned over 170 franchises across 4 states and over 6 different brands, I accepted his card and looked over the logos on the back of his card proudly displaying his array of franchise investments. The logo in the bottom right corner of the card was an Italian family restaurant brand I had never heard of. When asked why this brand along with Wendy’s, Subway, McDonald’s and Dunkin Donuts, the response was interesting…”I just loved the food…their breadsticks were amazing and I knew this could work well in Sioux Falls South Dakota.” This seemed out of place for a Franchise investor of his stature. I thought that only individual franchise unit buyers made decisions based on emotion and petty reasoning such as the breadsticks being good, but not the case. Multi-Unit franchisees make investments based on
just plain liking the concept in some cases as well…so don’t lose the train of thinking regardless of who the buyer is that people buy emotion and excitement when evaluating franchises.
“We look for a solid support system, although we create and develop our own internal support staff, we want to leverage any possible resources and advantages from the franchisor we can. The people and quality of the support model is something we put a great deal of weight behind.”
“We want brands that haven’t expanded too quickly and have great unit level economics. What’s the point of operating four mediocre units that make only as much money as two outstanding ones?” This answer is similar to one that I’ve heard several times from Venture Capital professionals considering investing in franchise systems and has logic behind it…a franchise system who sells units just for the sake of selling units isn’t going to attract a large volume of Multi-Unit franchise investors if the units are showing performance and validating financially.
Tom DuFore is the Chief Operating Officer for Franchise Marketing Systems. In his critical role he is responsible for the oversight of Franchise Marketing Systems Operations and consulting with and advising FMS Clients. Tom has personally worked with and advised hundreds of businesses ranging from the largest companies in the world to start-up.