Introduction
For franchisor leaders and their teams growing a franchise system is challenging. According to the 2016 Franchisor Database Breakdown by Rob Bond, 34.2% (1378) of franchisors in North America have 5 or fewer units, and 51.6% (2081) of franchisors have 20 or fewer units. This data highlights the significant number of franchisors operating on a smaller scale, underscoring the importance of effective growth strategies to navigate expansion challenges successfully.
Premise
- Franchise Structure: Imagine a 10-unit fast casual franchise restaurant concept. This brand operates 10 franchise locations alongside 1 company-run restaurant. The company-run restaurant serves multiple roles: it’s a training ground for new franchise owners to develop management, technical, and in-store proficiency skills. It also functions as a hub for R&D, equipment testing, marketing initiatives, and corporate services.
- Franchisee Composition: The franchisees are a mix of first-time owners and experienced small multi-unit operators. These operators have signed development agreements to own and operate an additional 40 locations.
- Franchisor Management Team: The franchisor’s core management team consists of just 3 people.
Problem
- Operational Strain: Initially, the operations of the 10 franchise locations and the company-run restaurant were managed effectively by the franchisor’s small but dedicated management team. They invested more than full-time effort to ensure quality, cleanliness, and adherence to operating standards.
- Expansion Challenges: With commitments for over 40 new units from franchisees with Multi-Unit Development Agreements (MUDAs), the franchisor faces a significant challenge. The timing of these new openings is uncertain, creating strain on the franchisor’s headquarters team. Franchise fee revenue and royalties are currently insufficient to cover the costs of experienced talent necessary for managing this expansion, leading to a classic “chicken and egg problem” where investment is needed to grow, but growth is needed to justify investment.
- Resource Constraints: Faced with cash flow and capital constraints, the franchisor might be tempted to hire less experienced leaders to fill crucial gaps in operations, support, marketing, real estate, construction, and supply chain management. While this might seem like a cost-saving measure in the short term, it is ultimately shortsighted and could undermine the brand’s standards and future success.
Discussion
- Scaling Pains: The scenario described is a common growing pain for many franchisors. Managing initial success while planning for substantial growth is a delicate balancing act. The franchisor must invest in infrastructure, talent, and systems that can support a larger network of locations without compromising the quality and consistency that made the brand successful in the first place.
- Investment Spending Dilemma: The franchisor is stuck in a dilemma where investment is needed to fuel growth, but the current revenue streams are insufficient to justify this investment. This situation often requires creative financing solutions, such as seeking external investors, securing loans, or finding strategic partners who can provide the necessary capital for expansion.
- Risk of Underperformance: Hiring less experienced leaders to save costs can lead to suboptimal performance across various critical functions. This can result in inconsistent franchisee support, poor execution of marketing strategies, delays in real estate and construction projects, and supply chain inefficiencies. All of these issues can erode the brand’s reputation and hinder long-term growth.
- Progressive Difficulty: These problems become progressively harder as the franchisor grows to successive levels—20, 50, 100, 250, 500, and 1000+ units. Deviations from operating standards and compliance will be even harder to fix. Additionally, franchise owner and team happiness and satisfaction with the franchisor’s leadership team will suffer, causing more relationship disputes to manifest.
Modern Solution
Cloud-Based Operations Manual and Unified Communications Platform:
- Cloud Operations Manual: Implementing a cloud-based operations manual can revolutionize how information is distributed and accessed within the franchise network. This manual is broken down into roles with secure permissions, ensuring that each team member—from entry-level staff to C-suite executives—has access to the information they need to succeed in their roles. It includes:
- Checkpoint Routines: Regularly updated routines that outline daily, weekly, and monthly tasks.
- Refresher Videos: Easily accessible videos for staff to review standards and procedures whenever they need a quick refresher.
- Role-Specific Content: Tailored content for different roles ensures that everyone from entry-level employees to regional directors has the resources they need.
- Unified Communications Platform: Integrating a unified communications platform allows seamless communication across all levels of the organization. This platform supports:
- One-to-One Communication: Direct messaging between individual team members.
- Group Communication: Team-specific channels where members can collaborate and share updates.
- Company-Wide Announcements: Important messages from the C-suite can be broadcasted to the entire organization, ensuring everyone is aligned.
- Secure Permissions and Compliance: The cloud-based system ensures secure permissions, so only authorized personnel can access sensitive information. It also helps maintain compliance with operating standards by providing real-time updates and ensuring everyone is informed of the latest protocols.
- Support and Training: The platform facilitates ongoing support and training through interactive modules and real-time feedback, enhancing the overall efficiency and effectiveness of franchise operations.
Additional Insights
The example in the article is a 10-unit fast casual franchise restaurant concept. Left unaddressed, these problem areas get more demanding of the franchisor’s resources of time, talent, and budget. This problem example of a 10-unit fast casual franchise restaurant concept demonstrates how these issues can scale faster than the franchisor leadership team’s ability to address them. Reaching royalty efficiency—where royalties are greater than the franchisor’s operating expenses for mission-critical support, marketing, and new unit development functions—is crucial. Once this efficiency is achieved, the focus can then shift to maximizing profits built on consistently increasing franchise unit-level sales.
Franchisor Imperative
It is imperative for franchisors to utilize best-in-class cloud-based technologies for their franchise brands to grow, remain competitive, and be profitable for franchise owners, the franchisor team, and investors. Having a Cloud-Based Operations Manual and Unified Communications Platform will accelerate franchise unit growth since franchisee teams will have better operational consistency and confidence to add new restaurants. Without this, franchise owners may pause their growth even if they have development obligations under their MUDA, as they know that franchisors are almost always reluctant to default, let alone terminate, MUDAs as a matter of practice.
Conclusion
Managing the growth and expansion of a franchise is a critical juncture for any brand. Implementing a modern, cloud-based operations manual coupled with a unified communications platform can provide the necessary support to navigate this complex phase. This solution ensures consistent quality, improves operational efficiency, and fosters clear communication across the entire franchise network. By embracing these technologies, franchisors can overcome the challenges of scaling and pave the way for sustainable growth and success.
Joe, Ned and Mike guide franchisors to get Operations Manual & Unified Communications Platforms in place for their franchise system email joe@franchisorsales.org or direct message Joe on Linkedin.
