Adding Units: More of the Same, or Diversify?

One of the early decisions that aspiring multi-unit franchise owners will have to make is whether they should grow multiple units of the same brand or diversify with several brands. There are pros and cons to each. Ideally, you will make this decision before investing in your first unit, otherwise the decision may be made for you.

Benefits of growing one brand

If you grow multiple units of the same brand, you are able to enjoy many benefits from the synergy created by the multiplication of the same business model. These are some of the benefits:

• You get to learn that business model very well.
• You are able to move employees around from unit to unit seamlessly.
• You are able to transfer product when needed.
• The financial model is the same for all of your units.
• Creating a bench plan is easier.

If you make the decision to become a multi-unit franchisee after you purchase your first unit, you may not have the ability to grow more of the same brand in the area in which you live. This may be the reason you are forced to diversify.

Benefits of diversification

While you do lose a lot of the synergies from having several of the same brand when you diversify into several brands, there are some benefits to doing so. These are some of the benefits:

• You minimize risk if one of the brands is underperforming.
• You minimize risk if the industry of one of the brands is underperforming.

As you can see, the benefit of diversification is more around the mitigation of risk and not business efficiency.

Time and distance considerations

One of the important elements that you must consider when deciding to stay with one brand or diversify is the time and distance that you will have between your units. Many franchisees underestimate this element and it is the cause of loss of efficiency, effectiveness, and profit. The closer the franchise units are to each other (without cannibalizing each others’ customer base) the better it will be for the operations and the profitability of the business.

Consider the drawbacks of having franchise units that are too far from each other. I would consider too far from each other to be any time a unit is one hour or more away from the others. These are some of the drawbacks:

• Harder to borrow employees between units.
• Harder to share products if needed.
• Multi-unit leader is unable to support a store in case of emergency.
• Much higher cost of supervision considering mileage paid or gasoline.
• Reduction of the number of units that can be visited in a day.

My recommendation

My recommendation is a combination of the best of both worlds. First, invest in a brand that will allow you to be a multi-unit leader in one area where you can have at least six units within thirty minutes of each other. Ideally, you would be able to grow more in an increment of six franchise units. I consider six units to be the ideal number of units for one multi-unit leader. This allows them to visit one unit per day for six days and, if they are close enough, they can visit two units per day, one for lunch and a second one for dinner. I recommend that before you look at another brand that you reach eighteen locations or three multi-unit leader areas. This creates the most efficiency for your business.

Of course, every franchise business model is different, and this recommendation may not apply to all of them, but I believe that it is a good rule for these types of industries:

• Food
• Dry cleaners
• Car washes or car care
• Gas stations
• Hair care, etc.

If after having those eighteen units of the first brand you desire to invest in another brand to mitigate risk, then you should look for another brand that would allow you to have at least six units within thirty minutes of each other. Again, this is to be able to have the most efficient structure for multi-unit supervision.

This is an excerpt from Multi-Unit Mastery: Transform Your One-Unit Franchise Job Into a Successful Multi-Unit Enterprise, by Aicha Bascaro and is used here with permission from the author.

Aicha Bascaro is the founder and CEO of the American Franchise Academy. She started as a delivery driver and, through the years, was promoted to area supervisor, franchise consultant, director, and brand vice president. She ran a multi-unit/multi-brand organization for a franchisee and built her own prototype brand. She has directly managed multi-unit organizations from 7 units up to 63 units in 3 states, has worked in domestic and international operations, and has lived in 14 countries throughout her career. Contact her at aichab@afamail.com.