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- 3 Big Reasons Franchisees Fail to Scale
People who buy a franchise with the dreams of scaling it. They want multiple locations, flexibility & financial freedom.
All of that and more is possible with franchises. Unfortunately, many franchisees have trouble growing beyond 1 or 2 locations.
Here are the three big reasons franchisees fail to scale:
#1 Don't Follow the Process
People spend $50k to $500k to buy a proven business model that someone else has taken years to perfect, then don’t follow it!
You get thoroughly trained when you join a franchise. This training includes online courses, in-person at HQ, on-site in your market, and written ops manuals.
You get ongoing support from the franchisor. This includes weekly or monthly calls, a business coach, and a community of fellow franchisees. You are surrounded by people who want to see you succeed.
As they say, you can lead a horse to water...
It's 100% your responsibility to execute the model. Don't pick and choose which parts you are going to follow. Hold yourself and your team accountable for doing it right.
Franchising works because of the “wash, rinse, and repeat” formula. Look for breakdowns in the process when sales are down. They are usually obvious and should be easy to fix.
It completely defeats the purpose of a franchise when you go rogue.
#2 Poor Management Skills
Every franchise is in the "people business that happens to do ______."
Fix Cars
Cut Hair
Wash Dogs
Paint Houses
Clean Homes
Etc.
You must be able to identify & hire talented people to build a scalable franchise. You must be good at training & delegating tasks. You must lead by example, hold people accountable, and inspire greatness.
Franchisees that fail to scale want to micromanage everybody. They do it themselves instead of letting their employees figure it out.
It's better to have an 80% solution and focus on progress than worrying about every little detail, demanding 100% perfection, which you'll never achieve at scale.
Don't expect much employment help from the franchisor.
Employment decisions are one of the few areas that most franchisors avoid getting involved in. They fear creating a "joint employer" relationship that could make them liable for the franchisee's employment decisions.
Don't worry — this is one of the greatest strengths of the franchisee community. Other franchisees can advise on hiring, managing, comp plans, etc. There are no issues with one business owner helping another.
#3 Lack of Capital
It takes significant capital to scale your franchise. You need cash for new build-outs, grand opening marketing, loan down payments, and working capital while sales grow.
Ideally, all of that cash is coming from your existing units. Compounding your business gives you the best return on capital. When opening or acquiring new franchises, we get 100% to 800% cash-on-cash return. If we put down $50k on a loan, we make back $50k to $400k the first year.
You need to become a P&L ninja if you are serious about scaling your franchise—s tack cash to re-invest in your business.
I'm a huge fan of the book Profit First which helps "transform your business from a cash-eating monster to a money-making machine. I interviewed the author, Mike Michalowicz, on my podcast a few months ago.
If you run a tight, profitable operation, there are many ways to fund expansion.
SBA
HELOCs
Local banks
Owner financing
Private investors
Under The Radar
Multi-unit franchise ownership is the best under-the-radar strategy for generating significant income & wealth. But it's not for everyone. To scale, you must be disciplined in following a process, great at managing a team, and stacking cash.
If you’re new to franchising, consider joining my introduction to franchising program. It includes a franchising 101 course, live weekly group calls, live franchisor webinars, and a private community.
For people serious about finding a franchise book a call with my team. We provide personalized franchise matching based on your budget, goals, skills & location, and it costs you nothing to work with us.
Let's Connect
I have a podcast, Business with Beers, where I interview franchisors, franchisees, & do deep dives into specific topics.
Cheers!