Start Small, But Think Big… Really Big!
The strategy you employ will be one of the key determinants of your result.
There is an old saying: “How do you eat an elephant? One bite at a time.” A similar approach works well when you are trying to build a business portfolio. Know what your goal is and start working your way there, one manageable step at a time.
Many of our candidates come from successful careers as employees in the corporate world and are sometimes frustrated when they look at starting a business with one, or even a handful of units or territories. They want to go from candidate to franchise magnate overnight. Amazingly, some of those candidates never start a business because they can’t start at the top. I wonder if they started as the CEO in their first job!
The key for all candidates is to start where you are, with what you have, and continuously focus on growing your business. There are a number of ways to approach building your portfolio through franchising, but I would like to offer one in particular for your consideration.
In our franchise consulting practice we have seen a number of paths taken to start with a single unit and begin growing an empire. This has been successfully done in the industry time and time again, the majority of franchised operations in the U.S. are now owned by multi-unit owners. One owner I know started with a single unit and now has over 200 restaurants.
As a business owner, you are not artificially limited on how far or fast you grow your income. This is in stark contrast to being an employee where your employer controls the outcome.
Once you have identified your perfect franchise you would outline a plan for growth. The type of business you are going into may have a big impact on the process you build.
If you own a retail or restaurant business, your long-term growth will likely come from adding additional units. Your goal would be to get the first and possibly second units open with a manager(s) in each to oversee the staff. As those first couple units start producing you may begin to leverage those units via a SBA or conventional loan to open more units. You don’t need to be able to fund 10 or 20 units right out of the gate; just the first two then work a very sensible plan for growth.
Generally you will want to open your new units in a geographic area that you can reach easily, but at some point you may have gone as far afield as you want to and may look to add a second brand to the mix. This second brand should be carefully selected and layered over the same geographic area as the first business, making use of any local office infrastructure that you may have built.
If your business is a Business-to-Business (B2B) or Business-to-Consumer (B2C) service concept, such as temp placement services or home repair, then your game plan will differ a bit. When you started that business you may have gone as far geographically as you felt comfortable. In these businesses you may skip adding new territory for the first concept and go straight to adding a second concept.
The challenge with non-brick service concepts could be that to grow the second brand you may need to wait until you are able to replace yourself in the daily operations of the first business before taking on the second. This could limit your speed of growth to some extent.
Instead of adding a second service concept to an existing service brand, you may actually do better adding a semi-absentee or absentee franchise option. This will not require you to step away from your first business, and will not draw a significant portion of your time. You could even ramp up a semi-absentee business while still in the early stages of building a service business.
The easiest businesses to scale into a sizable portfolio are typically brick and mortar for a couple reasons. Brick and mortar businesses are often structured to be manager run, meaning you don’t have to work in that location open to close. They can be much easier to find financing for as lenders seem to prefer brick and mortar operations, and since they are not dependent on the abilities of one person the lender feels more comfortable.
So, what might a compelling portfolio growth plan look like?
I would say that you might want to consider manager run brick and mortar operations with a startup cost below $250K. You may also want to look for businesses that have higher profit margin percentages, often times this excludes food and some product retailers. The franchisor should have very highly developed systems for training and support for both you and your team. I would look for a business where the staff is more professional and less likely to turn over. The ultimate goal of the franchisor should be for 1500, or more, units.
When you find this business you want to look at territories carefully but not get more focused on placing them close to home than in a good location, even if it is a little further away. Many non-food franchisors will discount multi-unit acquisitions; this may be worth considering if financially approachable and will let you tie up future locations to develop.
Focus of getting the first two units up and running, however that comes together, then begin leveraging those early units to open more units. Somewhere between unit three and unit 10 you will likely open an office to put your support team in. This will cause a dip in profits for a short time, but plan for it and you will limit your surprises. Once you have that office it can service almost any concept you will build next.
A very developed version of that plan could be very exciting. What would we build into your ultimate Empire building plan?
Mr. Knauf is a highly sought after trusted advisor to many companies; Public, Independent and Franchised of all sizes and in many markets. His 20 plus years of experience in both start-up and mature business operations makes him uniquely qualified to advise individuals that have dreamed of going into business for themselves in order to gain more control, independence, time flexibility and to be able to earn in proportion to their real contribution.
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