Be a Millionaire Franchisee How to build your franchise into a big business
By Jeff Elgin
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You want a franchise business, but not just any old thing--you want something big time. We're talking about a multimillion-dollar enterprise. So how do you go about accomplishing that goal?
The easiest way to do this is to simply start at that level. Buy yourself a multimillion-dollar operation from the get-go, and you've already arrived. Of course, the challenge with this approach is that most people don't have the capital available to purchase such an operation or the experience to run it effectively once they buy it.
For most of us, if we want to "hit the big time," we're going to need to grow to that point rather than start there. It may take a little longer that way, but the advantage is that you'll have learned everything you need to know to run the big operation along the way. You'll also have built a huge equity stake that belongs to you, because you created it with your own sweat and perseverance.
You can use a number of different strategies in this building process. First you have to decide what type of franchise business model you want to be involved with. Most franchises fall into either the "owner-operator" or the "executive" model of business. In the former, the assumption is that the owner will work full time in the business, managing an individual unit and/or delivering the product or service to the customer. In the executive model, the assumption is that the owner will hire a manager to fulfill these tasks at the individual unit level.
To build a really big owner-operator business, you'll need to make sure the concept you're starting with has the potential to grow a single operation to this level. If it's a territory-based service business, for example, you need to know that the territory has sufficient population to support a multimillion-dollar volume of sales. Even though, in this circumstance, you're focused on an owner-operated business, you should be aware that most owners who grow such an operation to this size end up adding more layers of management into their business over time to help deal with all the volume.
The more common form of business model for franchisees wanting to build a huge business is the executive version. In this situation, you'll probably build a number of units that operate independently of one another to deliver product or services to the customers, each managed by different people who report to an executive up the organizational chart (probably you, at least in the early stages of growth).
The advantage of the owner-operator model is that it's usually easier for you to exert greater personal control over the operation of the business while it's growing, and it almost always requires significantly less capital to grow the business big, though the process may be slow. The advantage of the executive model is that it's specifically designed to grow big, and it usually does so much more rapidly than an owner-operator model, though it may require more capital.
Either of these models can provide you with the opportunity to potentially build your business over time into a very large operation, but the path will be different depending on which one you select. The tradeoff between these two strategies often comes down to a simple question of time versus money--which is the critical path for you in terms of reaching "big" status.
Though it might sound obvious, another very significant consideration if your goal is to build a huge business is the typical amount of profit produced by the business. The fact is that most people who decide to grow a huge business rather than just buying one immediately make that decision because they don't have enough money to buy it now. That means they must depend on the business to generate profits, in excess of what they need to live on, in order to fund their expansion.
Many franchises are designed to provide a very nice income to the franchisee, commensurate with the level of capital and time commitment the franchisee invests in the business. Nothing wrong with that--a trillion-dollar industry has been built mostly on that premise!
The challenge is, if you want to build something really big, you'll probably need a business that both supports you and provides additional capital to grow. Those types of businesses exist, but they aren't common, and you need to conduct a careful analysis to make sure any business you contemplate has the ability to get you where you need to go within the time frame you're willing to allow.
Start by figuring out how much capital you have to work with, how much you need to support your lifestyle while you're building your business and how long of a time frame you're willing to allow for the business to be built. Now you have the parameters to determine whether a concept can meet your goals.
For example, let's assume you're evaluating an executive model business. Each unit costs $100,000 to open, has average revenue of $300,000 and makes $50,000 per year in profit. Your research shows that aggressive franchisees can open one new unit every six months, assuming they have the necessary capital. Your goal is to build a business that generates $1 million per year in profits, which will require opening 20 total units. Is this business the right one for you to meet your goals? The answer depends on your resources, needs and goals.
If you have a total of $500,000 in capital to invest, need to take no more than $50,000 per year out of the business for lifestyle support during the first three years and want to build a business to the point of making $1 million a year within 10 years . you're all set with this business! If, on the other hand, you only have $200,000 to invest and need to take out $100,000 per year to support your lifestyle, you're never going to grow this business beyond two units.
There are lots of great franchise businesses that can be used as a platform for building a very large and successful multimillion-dollar business. If this is your goal, the secret to finding the right one for you is to take the time to understand what you have to work with in terms of your resources, what you want to accomplish in terms of your goals and what you need the business to contribute to meet your goals. Then you can determine whether a specific franchise is the vehicle you can use to reach the destination you seek. Good luck on the journey!
