Opening one franchise is hard enough, but opening multiple raises several issues. There are a lot of things to consider with multi-unit growth, but these five things stood out. 1851 Franchise spoke with Sumit Bansal, who operates 12 Great Clips units across Michigan and Abdul Hamideh who owns nine International House of Pancakes (IHOP) with his father throughout Texas, to get their perspective on issues facing multi-unit growth.
Funding multiple franchises at once has proven to be a big issue for multi-unit growth. Franchisees lacking in experience have found themselves in too deep when signing on for three or more stores at once.
“They don’t realize it takes 2-4 years to start making money. Then they burn their hands. I know multiple franchisees who actually lost their business after the first year of operations because they couldn’t survive the financial load,” said Bansal.
Hamideh has seen a similar struggles with franchisees. “I know some franchisees that are in so much debt that they don’t even know when they will make money. People get in over their heads. It’s sad to see it, because they think they will be able to take out a loan to pay off another one,” said Hamideh. Both Bansal and Hamideh recommended that a franchisee get their first store up and running, and use the income from that first unit to fund their expansion goals.
It is not uncommon for first-time franchisees to associate cash flow with success. Instead of taking a hands-on approach, they buy multiple franchises and hire a manager to run the store.
“They need to be personally involved with running the business for the first six months to a year, if not more. You might find franchisees that have a bunch of money and give it to someone to run their units, but it doesn’t typically work out that way in the beginning,” said Bansal.
With multi-unit growth, it is important that a franchisee spends adequate time in each unit to make sure it can survive on its own, before turning operations entirely over to a general manager.
Hire the Right People
Finding the right employees is a key factor in the growth of stores. When opening a new store in a market where there are already a number of existing units, finding the right employees can prove to be challenging.
“It’s not going to stop the growth of multi-unit franchises, but you have to be aware about how you grow and who you bring on as part of your staff. Having the right people working at the unit-level impacts the growth of the individual store. If you ask me, one of my biggest challenges in running a multi-unit network is finding the right employees for the stores,” said Bansal.
Hamideh realized the importance of filling his restaurants with the right people and established a process to follow for further growth.
“I teamed up with organizations like LinkedIn and Monster in order to find the qualified candidates I was looking for. These types of solutions are a great resource, especially when I am looking for candidates that are more professional,” said Hamideh.
Once the hiring process is down, multi-unit growth comes with much more ease for a franchisee.
Price of Rent
When a franchisee looks to expand a territory, location is vital to success.
“We were originally going to develop in Houston, but then we saw how expensive the price of land was. The price of land was better in the valley and it made more sense for us to develop there,” said Hamideh.
Finding the perfect mix of location and price prevents a franchisee from getting in over their head financially, while subsequently stimulating more opportunities for growth.
Strength of the Brand Culture
Brand culture is vital to your happiness within a system. The way you are treated by the corporate team and fellow franchisees is an important factor when making a large multi-unit commitment to a particular franchisor.
“When I was talking to other franchisees, their staff, employees - they were happy, which was a very important part of why we expanded,” said Hamideh regarding why he chose to continue to grow with IHOP.
It is a common misconception that clusters of the same franchises in an area will compete against each other. However, through proper spacing and real estate choices, they actually complement each other by maximizing brand exposure to your target audience.
“This can be interpreted as unity of neighbors. It is important that franchisees are always working with each other instead of against growth in the market,” said Bansal. “Growth drives awareness and marketing efficiencies.”