Franchise Success Requires Controlled Growth
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Franchise systems have various life cycles and require time to mature and develop the necessary systems and infrastructure to expand. For franchisors, many times, the biggest strain on their franchise system relates to and is traced back to an overambitious rate of expansion. While there are many considerations, motivations and good reasons why your should be aggressive about unit growth, you must nevertheless proceed with extreme caution and evaluate whether or not your systems are capable of supporting your planned levels of expansion. Some factors to consider, include:
- The current location of your franchisees and whether or not expansion should be reserved and limited to designated geographic locations;
- The capacity and capability of your supply chain and whether or not you have lined up the necessary vendors to supply your franchisees and maintain the necessary levels of quality control;
- The capacity of your management and marketing team and your ability to maintain consistent levels of quality control, franchisee development and overall system development;
- Whether or not your internal in-house legal counsel or outside franchise attorneys have implemented clear quality control measures respecting the delivery of your FDD, the management of your franchise agreements and the constant assessment and protection of your trademarks and intellectual property.
Great franchise systems do not need to be large – they just need a coherent plan and sustainable plan for system growth and a management team committed to quality over quantity.
I couldn't agree more! Anything but controlled growth in a franchise expansion strategy will most likely result in franchise failure at many levels throughout the franchise organization.
Too often, franchisors are excited to have a franchise fee waived at them from a location far away from their core operation. Ultimately, if the franchisor grants the franchise, as typically is the case, a series of events occur that eventually results in franchisee failure and franchisor resource drain. Controlled growth minimizes, and often eliminates these crucial mistakes from occurring.
In addition to what this blog's author has defined above, controlled grwoth should include a well-defined marketing strategy complete with economies of scale to ensure brand awareness in each market being developed. In addition, controlled growth encourages franchisee community as units will typically open within a short period of time of each other and in adjoining markets, creating relationships between franchisees. This close proximity also provides a great opportunity for synergy in operations training and support.
Controlled growth allows for further expansion into logistical markets where brand awareness has begun to spread. For instance, let's assume XYZ franchise brand originated in Dallas, TX and in short order develops several company and franchisee locations throughout the DFW metroplex. Controlled growth into Houston to the south and Oklahoma City to the north is logical. Both markets feel the heartbeat of DFW. Many residents of these cities frequently travel to DFW for business and pleasure, and are exposed to the XYZ brand.
Controlled expansion into these two markets makes it easier to present the franchise opportunity to candidates due to the proximity of the new markets to the core market of operation. Spontaneous visits are a no-brainer. Including new franchisees into the core group of franchisees is easy. Group meetings for advertising and training are easy as well.
I think you see where this is going. Before you know it there's 10 units in DFW, 3 in Oklahoma City, and 8 in the Houston area. Next, there's interest in Tulsa, OK and San Antonio, TX as brand awareness creeps further into adjoining markets, and so on.
Do you believe the above controlled growth would create less system problems than awarding the same number of new franchises across 15 states from coast to coast? Do you believe the franchisees in the controlled growth scenario have a greater chance of succeeding? Would you agree the franchise brand would have a greater chance of succeeding long term in this controlled growth model?
Great blog, Charles. Keep 'em coming!
The classic recent example of this was Taco Del Mar - who expanded rapidly out of the North West, but the resulting supply chain was completely inefficient.