How to Handle Rapid Growth
Rapid growth can be positive and greatly expand physical footprints, elevate brand awareness and generate further interest from investors.
There are many catalysts that can spur the rapid growth of franchise systems: economic changes, shifts in consumer behavior or simply being the “it” brand in a hot industry. How franchisors react to the sudden demand from prospective franchisees can have profound, long-lasting effects on their business.
Handled incorrectly, growing too quickly can damage your brand, sour relationships with existing franchisees and eventually lead to disinterest from prospective franchise candidates, which may be difficult to overcome down the road. However, rapid growth can be positive and greatly expand physical footprints, elevate awareness of a brand and generate further interest from investors wanting to join hot, high-performing concepts.
Here are three firsthand lessons learned from franchise executives who have recently experienced accelerated growth with their brands.
Grow With Your Base
If growth is organic, such as existing franchisees or so-called brand fans wanting to open their own favorite restaurant, as has been the case with Tropical Smoothie Café, it behooves the franchisor to stay the course. After all, these franchisees have self-selected themselves as ideal prospects. By focusing franchise development efforts on recruiting like-minded individuals, franchises can efficiently continue clipping along toward growth goals. When Tropical Smoothie Café realized the majority of its new franchisees were loyal customers who wanted to join the system, it doubled-down with strong franchise development messages targeting prospects who were already in the cafés.
Franchises should be especially interested in growth from within the system because these individuals have most likely proved themselves to be trusted, productive franchise partners. One way franchisors can maximize this type of development is by helping ambitious existing franchisees go from single- to multi-unit operators. This can be achieved through incentives offered only to existing franchisees, such as discounted franchise fees and financing programs that bypass banks, which provide the resources needed to open additional units quickly.
A significant part of healthy growth is ensuring existing franchisees are as profitable as possible.
These types of private loans do not have to be reserved only for financing new locations. A significant part of healthy growth is ensuring existing franchisees are as profitable as possible, so franchisors should consider funding purchases for new equipment, store upgrades and so on. In addition to making it easier to attract franchise candidates, ensuring franchisees are maximizing their earnings potential makes sense for the bottom line. Smart franchisors know the resources that propel brands to the forefront of their industries come from ongoing royalties, which increase as franchisees consistently earn more money − not from one-time franchise fees.
Enhance Infrastructure Along the Way
Franchises that grow quickly will undoubtedly need to enhance their infrastructures to support and maintain rapid development. Although it seems like common sense, it can be difficult to make sweeping adjustments, such as adding new corporate personnel to handle a larger system or beefing up support for existing franchisees, amid brisk expansion.
Recognizing trends that point to significant growth can help franchisors invest in the right people and programs to support a much larger system before growth accelerates.
Recognizing trends that point to significant growth can help franchisors invest in the right people and programs to support a much larger system before growth accelerates. Estimating growth can be achieved by analyzing franchise leads and backgrounds of new franchise partners. For example, a franchise can expect rapid growth in the future if it suddenly begins to sign multi-unit deals with high-caliber franchisees when in the past it had typically only attracted single-unit operators. That’s because these types of deals will create momentum for further development as awareness of the franchise opportunity increases in networks of established prospects. Moe’s Southwest Grill saw the writing on the wall two years ago when experienced restaurateurs and multi-unit operators with other fast-casual brands expressed interest in becoming Moe’s franchisees. That trend allowed the brand to prepare in advance for the upward growth trajectory that followed.
As the franchise system expands, franchisors should strive to maintain consistent levels of support for their existing franchisees. One good measure of support is the ratio of field support employees to units. The exact ratio will differ across industries and even by brand but it’s safe to say franchisors will want to bulk up their field support staff as they grow. Moe’s Southwest Grill has found a ratio of about 35 restaurants for every franchise business consultant provides adequate support for franchise partners, but that clearly will not fit every franchise.
Know When to Slow Down
Nearly all franchises strive for rapid growth. The very defining characteristics of franchising encourage it, such as turnkey business models and already established brand awareness that lets franchisees hit the ground running from the first day. So it may seem counterintuitive that, in certain cases, it’s in the franchisor’s best interest to scale back growth.
The decision to proactively slow down growth shows both current and potential franchisees that the leadership team has its sights set on long-term success. Franchises should not wait until disgruntled franchisees hurt validation efforts or unit-level sales plummet before they make the decision to halt expansion.
In certain cases, it’s in the franchisor’s best interest to scale back growth.
Preemptively pumping the breaks on new development allows franchises to bolster the system from top to bottom. While not in the throes of breakneck growth, franchises can put forth resources for everything from enhancing franchisee training and support programs to adding corporate employees to maintain healthy levels of support for each unit. When a franchise system’s time and energy are not maxed out on merely keeping pace with growth, it can make positive changes that can forever alter the direction of a company. For young brands experiencing newfound success, for example, a breather from rapid expansion can let them recruit and hire top talent in their respective industries and offer the respite needed to properly articulate their vision for moving forward.
Paul Damico is president of Moe’s Southwest Grill and Mike Rotondo is CEO of Tropical Smoothie Café. Find them at http://fransocial.franchise.org/Home/ via the directory.