Expanding without a plan is potentially dangerous because supporting distant, isolated locations is expensive and will absorb precious human and financial resources in your early days. If you stretch yourself too thin, your entire system may suffer for lack of attention to quality standards.
When MSA develops an expansion plan for its emerging franchise clients, they factor in a host of considerations. They begin by understanding the initial and continuing support requirements of franchisees and then determine the franchisor’s financial and human capabilities. Although they explore the company’s contractual obligations to franchisees, which must be met, what is essential is that the company’s initial franchisees are successful.
The goal for a franchisor must be for its franchisees to succeed. This is especially true for a franchisor’s initial franchisees. Keep in mind that your initial franchisees make their investment decision substantially based on trust in their future profitability and your capabilities to support them. Future franchisees will have an advantage in that they will be able to talk to those franchisees about how well their businesses are doing and your capabilities and level of support.
Validation by existing franchisees to prospective franchisees will be the most important element of determining how well you will be able to grow and expand in the future.
In addition, here are the company’s capabilities in these areas:- Financial ability to market for franchisees
- Supply chain management
- Performance of company and franchisee-owned locations
- Efficient enforcement of brand standards
- Franchisor’s goals, culture and exit strategy
- Franchisor’s existing internal assets — both human and systemic — available to support franchisees
Your expansion decisions need to be based on measurable criteria. What expansion methods you target for expansion — single-unit or multi-unit franchisees or even further company-owned development, in addition to the critical mass requirements in different types of markets — should be understood.
Understanding the distance customers will travel to your franchisee’s location and the population (people or businesses) needed to support each franchisee’s business are needed to decide on how many locations are required to achieve critical mass for your brand. Understanding critical mass requirements, among other things, enables a franchisor to better manage its field service and distribution costs per unit and provides the most effective way to capitalize on local marketing possibilities.
The goal isn’t merely to enter new markets, but also to enter them successfully. Distinguish your core market opportunities (in major and secondary urban areas) from tertiary market opportunities (in all other areas) so that you can profitably support your franchisees through effective field support, advertising, and other necessities that will be critical to your success as a franchisor. Knowing your critical-mass requirements enables you to better plan your growth.
Having company-owned locations spread out over a host of markets can drain a company’s resources. If you have company-owned operations that are spread out and causing you strain, you should evaluate whether you should sell those businesses to franchisees. You can then take the proceeds from the sale of those stores to growing company-owned units elsewhere, paying down some of your debt or marketing and supporting new franchises. Following this approach is part of what is called a refranchising or retrofranchising approach.