Lately, the modest dream of running a single franchise location
seems almost passé. Multiunit development appears to be taking
over as the primary goal of savvy business owners. For these
ambitious entrepreneurs, franchising is less about making a living
than it is about increased growth, power and money.
"The number-one reason we went to a multiunit agreement is,
obviously, in business you want to make more money," says Bob
Pagani, a 48-year-old D'Angelo Sandwich Shops franchisee.
Pagani and partner Bob Neil, 37, both experienced restaurant
operators, hope to have three stores up and running within the next
two years in Manchester, Glastonbury and South Windsor,
Connecticut. Pagani and Neil aren't alone. A growing number of
franchisees and franchisors see multiunit development as a great
way to expand systems and increase profits quickly.
"We thought by buying in an area where three or four stores
would be concentrated, we would have some benefit to the marketing
of the stores," says Pagani. "There's one newspaper
that covers the market in that area, and that applies to radio
advertising as well. You can cover more with multiunit
locations."
Cream of the Crop
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Fueling the trend is the fact that more franchisors are seeing
benefits in multiunit franchising. One benefit is the caliber of
franchisee that generally seeks out a multiunit opportunity.
"You certainly get people who are more financially qualified,
who have more experience running large businesses or have
experience with other multiunit concepts," says George
Krotonsky, president of Scottsdale, Arizona-based Wild Noodles
Franchise Co. LLC, a fast-casual noodle concept that began its
franchising push last year by seeking only multiunit operators.
"As far as we're concerned, the benefit is that we're
working with people who are more experienced."
Many of these experienced operators turn to franchising as an
alternative to life in the corporate world. "You have a lot of
white-collar workers and middle managers who've been laid
off," says Craig Slavin, president, CEO and founder of
Franchise Architects, a Chicago-area consultancy that
develops new franchises and fixes existing franchises. "These
people come to the table with management skills, financial
resources, business acumen and a lot of drive."
Slavin sees many ex-corporate professionals fitting the profile
of the "achiever," the behavioral match for a multiunit
operator. Where the single-unit franchisee, whom Slavin calls a
"belonger," needs more guidance, the multiunit franchisee
has far greater demands: "They want more sophisticated
business systems, greater measurement tools and ways they can grow
their businesses."
But even with all their abilities, these franchisees can't
realistically find a way to be in all their locations at once and,
in some cases, may be taking on a little too much. "When [I]
see a person take on several centers, [my] big concern is to make
sure they don't overextend themselves," says Robert
Falconi, president of Precision Tune Auto Care Inc. Falconi saw one
of Precision's franchisees open several shops, only to lose
sight of running the business and go bankrupt. "That's
where franchisors [need] the ability to pick good people."
And just because a franchisee may be a top performer in the
system, that doesn't mean he or she can necessarily translate
that success to multiple units. "Sometimes, the success of the
shop becomes a function of the individual franchisee," says
Falconi. "Without him there, the shop would not be as
successful because of his [management] skills."
Before taking on multiple units, franchisees also need to
realize that bigger isn't always better. "People often see
multiunit franchising as this illusion in entrepreneurship that if
you have more of something, it's better," says Scott
Shane, professor of economics at Case Western Reserve University in
Cleveland. "But for many businesses, owning multiple units of
something means the average profit on each unit goes down
dramatically."
Shane points to fast-food restaurants as an example where this
can happen. While opening a second location in the same area would
still be profitable if there is a high demand for your first
outlet, the real issue is how much business the second store will
service. If the second store can relieve the long lines from the
first and doesn't decrease demand, it can mean a boom. But if
you're only cannibalizing sales, that's a bust. And
remember, with multiple units, franchisees are multiplying not only
profits, but expenses as well. Each operation has its own store,
equipment, management, employees and so on.
Originally published in the June 2004 issue of Entrepreneur Magazine
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