Beware the Multi-Unit Franchising Love Affair

Most franchisors have probably at some stage looked lovingly at their best franchisees and wished they could clone them, especially given the current worldwide shortage of high caliber franchisees. So it’s not surprising many franchise systems now have multi-unit franchising programs that enable existing franchisees to take on additional units.

While the theoretical benefits of multi-unit franchising are seductive - a quick way to multiply sales, profits and market share – the reality is often quite different.

In the USA franchisors commonly use area development agreements to build their multi-unit operations. Often the area developer will also be the franchisee and will be expected to quickly open a regional cluster of franchised units, usually at least one or more a year. This can end in tears because the franchisee lacks the capital, competence or commitment to keep up with the predefined development schedule and thus loses their area development rights. Or the failure of a regional cluster of stores due to poor management can result in a right royal mess for the brand.

In Australia and other countries with a relatively smaller franchise sector, an evolutionary approach to multi-unit franchising is more common. Typically high performing franchisees are incrementally offered additional units as they are able to demonstrate their capability to expand.

This raises a mind set challenge.

Let’s take the case of a successful franchisee who wants to open another unit. No problem, especially if the extra management load is shared between family members.

Now they have whet their appetite, and are making a bit more money, they want to open a third unit. And here’s where, if they do not have the right mind set, the trouble begins. Because when you get to three or more units everything changes. Just working harder no longer works.

From now on our multi-unit franchisee needs to operate from a different set of management rules. At the risk of using a cliché, they need to now work on, rather than in, their business.

Prompt financial reporting, real time KPI dash boards, performance management systems and staff engagement programs now all form an essential part of the multi-unit franchisee’s business. And as their business empire grows, their transition from a hands on, to a hands off manager, will become even more critical.

The next danger zone of the growing multi-unit franchisee involves the management of their ego, which can cause them to mistake being a hands off operator with being an absent minded business operator. As their business interests continue to grow they can become distracted with golf, boats and holidays. A taste for the good life can result in complacency and serious operational problems which can quickly bring their empire crashing down.

For these and other reasons, it is important that franchisors keep a close eye on their multi-unit franchisees and how they are managing their businesses.

Another factor franchisors need to consider before embracing a multi-unit program is that these people need a different type of support.

For instance in a research study by our team at the Franchise Relationships Institute involving 870 multi-unit franchisees, we found they were significantly less satisfied than their single unit counterparts with the support being provided by their franchisor.

Higher caliber field support managers are needed to add value to multi-unit franchisees. If this is not possible, senior franchisor executives should be prepared to spend regular time with them.

Multi-unit franchising offers exciting opportunities for franchisees and franchisors to expand their businesses. Just let’s make sure both parties are clear on what they are getting themselves into.

Greg Nathan is Chairman of the Franchise Relationships Institute and author of several popular books including The Franchise E-Factor. The Institute is running a special Multi-Unit Summit in Melbourne on March 10th and 11th, 2011. For more information go to www.franchiserelationships.com.