Should or Shouldn't You Expand Your Franchise Business?
Whether you are thinking of adding a new location or being awarded a new territory, the idea of growing your business is very enticing. But that doesn't mean you should do it. In my years of franchising, I have unfortunately seen many franchisees fail because they were not prepared to expand properly. On the other hand, I have seen much wealth built by growth.
The economics of growing your business are significant. The larger your business is, the more you can spread management costs and overhead throughout the entire company - and the more profitable your business entity will be. Furthermore, it is much easier to sell a larger business if there ever comes a time you want to sell.
Plan Your Expansion Carefully
Your current success is not a good indicator of whether you are ready to expand or not. I know this sounds nonsensical, but it is much easier being successful small than it is large. The fact is, there is only one of you, and if you are going to expand your business you need to be an effective leader and business manager.
Here's the classic story. You are doing really well in your first location/territory, so you open a second location/territory. Your time and attention are focused on your expansion, and all of a sudden, your first location/territory business starts to suffer. Now you're torn. Should you spend your time rebuilding your original business, or continue focusing on your expansion? There is no good answer, because you expanded before you were ready, and each operation relied on you for success.
The key for being ready for growth is running a business that is not dependent on you.
The Ready to Expand Checklist
The following are key things that you need.
- Sales and profits at your current locations/territories should be strong. You want to start from a successful foundation. You need the base of your business to be performing at a high level so that you can focus on the expansion.
- You need a great staff at your current locations/territories. You need people who are capable, experienced, and trained to keep things humming there. You can’t be in two places at once, as they old expression says, so you need excellent employees in your first location. You need to make sure that your compensation packages are strong enough that you will keep this successful team. As you are growing, losing key personnel from your current business can be devastating.
- Follow the franchise systems rigorously. Strong operational procedures are key for growth. You can sometimes get by without them when you're small and you're running the show but when you grow, people really need to be following the system. So your current business needs to be running by the franchise systems so that it will operate successfully without you being there.
- You need a strong manager in the area that you're expanding to - someone who can shoulder a good part of the work in getting things up and running. This explains why many smart franchise owners “borrow” or transfer a strong employee from their first locations and put them to work in the new. This provides you with assurances of the quality of the people you're starting with. Of course, you need to be able to train and develop talent to replace the people that you are transferring. In growth-minded companies, you're always hiring with the idea that the people you are hiring are capable of doing jobs at a level or two above them. That is how you can grow the team.
- Remain realistic and pragmatic. Yes, opening a new location is exciting. But don’t let good emotions lead to bad business decisions. Understand the market, spend some time in the market, create detailed financial projections. Be patient enough if you're expanding to find the right location.
Ready, Set . . . Expand!
If you take the steps in this article, your excitement about opening a new location/territory will be justified. You are much more likely to succeed! Of course, once you successfully complete one expansion, you'll be looking for your next.
The good news? Of course, after one successful expansion the next one becomes much easier.
Evan Hackel is CEO of Tortal Training, a leading training development company in Charlotte, North Carolina, and Principal and Founder of Ingage Consulting, a consulting firm in Woburn, Massachusetts. To learn more about Ingage Consulting and Evan’s book Ingaging Leadership, visit Ingage.net. Follow @ehackel.