Multi-unit franchise ownership is an ever-growing trend in the franchise industry with an increased number of owners building their portfolio each year. Of all the multi-unit franchise owners, 87.7 percent own all their franchises under the same brand, according to a study by FranDATA. Many multi-unit franchisees agree that keeping to a few franchise companies is an effective and streamlined way to grow your business. Although franchises generally have a strong growth model, there are many factors to consider when joining a franchise system to ensure you set yourself up for successful growth and avoid common pitfalls many multi-unit franchise owners face.
For a multi-unit owner to build a successful portfolio of franchise locations, it’s much more effective to start small then build out with multiple locations. You don’t have to buy all the available units in your market area just because they’re open. Starting too large, initially, could cause a business to completely derail and ultimately fail. When you open multiple locations at once, numbers grow quickly – a seemingly good problem to have. However, with this extreme growth, it’s difficult to identify the variables that work well for the business and see what really drives each store’s profitability.
A key piece of advice that I used when growing my franchises was to start with one location and take the first six to 12 months to learn everything about the business and see exactly what works in the specific industry. After the initial phase, it’s much easier to extrapolate the success variables to new units. The systematic approach allows for a slow, steady increase rather than working backwards to figure out why multiple locations are successful.
The due diligence process while seeking the right franchise investment can be frustrating and lengthy until you find that perfect match. There are multiple factors to consider that can make it easier to evaluate your decisions with each franchise opportunity. The overall goal of this process is to find a franchise where you feel comfortable with the necessary support and resources to grow your business.
Here are some key factors to evaluate during this due diligence process:
- Franchise Support – Ensure the franchisor provides an established support system for franchisees, whether it is providing the necessary resources, or simply a strong, organized system. Any support that is in place should help franchisees succeed and grow; nothing that would prove to be a roadblock for success.
- Franchise Development – Take a look at overall franchise growth, including the number of locations opened in the past couple years and the markets where these stores are located. Discuss the company’s future franchise development plans, what markets they’re looking to expand in further and what numbers they would like to see in terms of franchise locations over the next year.
- Business Model – Make sure the model coincides with your business values and that it has a proven track record of success.
- Longevity – Choose a business that has proven longevity, not just a trend that risks dying out in the near future.
In addition to selecting an appropriate franchise, the need in the marketplace should be considered before investing. If there’s no need, no one will shop for your products or use your service. I chose to invest in Sears Hometown and Outlet Stores with my first Sears Appliance & Hardware Store due mainly, in part, to the economic conditions of the housing market. During the housing downturn, no one could afford to buy a new home. Instead, they put money into updating their homes with new appliances to give it a fresh, new feel. In the same token, since the market has experienced a recent upswing, consumers are looking to improve and update their homes in any way they can to sell at a higher value. Whether the market is up or down, people will always invest in their homes in some fashion. To me, providing a store that offers homeowners appliances and hardware supplies made the most sense when I invested and still makes sense today.
To identify a market need susceptible for multi-unit growth, ask yourself the following questions:
- Industry – What industry will I be a part of, and what outside factors could affect that industry (e.g. economic conditions)?
- Economic Conditions – What is the state of the economy locally and nationally, and is the future economic outlook forecast positive or negative?
- Consumer Need – Do consumers in the area want or need this product or service?
- Area Competition – Is the market already flooded with this brand, or similar competitors?
- Barriers – Are there any barriers of entry to break into this market, cultural or technological?
After selecting the franchise investment and your target market, the next step is to build the right team. As a franchise owner, it’s easy to get wrapped up in day-to-day operations, taking away from your main duty to ensure proper growth. An effective team includes operational managers, store managers and employees that you trust with running your business. A strong team is important to prevent you from being bogged down by any problems when you should be focusing on key factors for multi-unit build out. Your sights should be set on high-level evaluations of growth and finding the variables that work for your business to be profitable, whereas your employees are in charge of making sure the store runs properly day-in and day-out.
Following these steps in the process of setting up your franchise will allow you to be successful in setting up multiple locations.
Sheetal Duggal is a franchise owner of two Sears Appliance & Hardware Stores in Long Island, which is part of Sears Hometown and Outlet Stores. He has a history in investments and hedge fund management, which helped him to perform his own due diligence process prior to investing in a franchise. Sheetal plans to expand his business even further in markets Sears Hometown and Outlet Stores have targeted as areas of growth for the business as a whole.
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