The Advantages of Franchising Multiple Units
January 12th, 2023
In the early 1990s, a man by the name of Greg Flynn had recently earned his MBA and decided to partner with a friend in opening a chain of fast-food restaurants in the Seattle, WA area. Before long, the duo had successfully opened 14 World Wraps branches, just in time to see the hot, new fast-food trend fizzle out from underneath them.
But Flynn didn’t give up on business ownership. Instead, he dusted himself off, learned some important lessons, and fully committed himself to franchising. He went on to become the “Warren Buffet of franchise restaurants”, generating over $2 billion in revenue annually by building empires of multiple franchise units, or territories. This article discusses how Flynn’s strategy works and how to know if it’s a good option for you, too.
In franchising, the term “territory” is commonly defined as “the area within which a franchisee is authorized to establish and operate a franchised business”. Flynn may be the most successful franchise owner in modern history, but he is not the first to get rich by franchising multiple territories at once (aka pursuing a multi-unit franchising strategy). This strategy is at the core of what makes franchising such a golden business opportunity for newly minted franchise owners and seasoned franchise owners, alike.
I’m a prime example. As a young boy growing up in Australia, I remember having a sort of mythological reverence for the United States as a “Land of Opportunity”. And in my case, my own “American Dream” became a reality partially by luck and partially because of the blood, sweat, and tears I put into those early years of building my franchise empire. When I first got into franchising roughly a decade ago, it was entirely by chance.
But as it turned out, I was the right person, and I was in the right place at the right time. As a result, my net worth went from $300,000 to $30 million in less than 10 years, and before I had even reached the age of 40.
To understand the concept of territories, you must first understand why a brand might choose to franchise in the first place. Franchising is a business expansion method where the brand owner becomes a franchisor and enters business relationships with individual business owners (franchisees) who want to open a franchise with the agreement that both parties will abide by the terms of their business contract. By relying on that agreement as a guide for operating their business, franchisees can operate with that profitable franchise business model.
In return, the franchise can scale its business operations faster than the chain expansion method. Franchising is how franchisors delegate responsibility. They are willing to give franchise owners a cut of the profit (usually 80%, and 20% goes to the franchisor). By expanding in this way, the brand claims market share, preventing copycat business concepts from popping up and competing for that market share. It helps the brand to quickly gain a larger share of the market, which in turn helps the company gain visibility and brand recognition, which in turn allows the company to achieve economies of scale, benefiting each part of the franchise agreement.
At Raintree, our average brand owner invests in 2.8 units/territories per agreement, meaning that most of our franchise owners are multi-unit franchisees. While it involves higher total costs, multi-unit franchising offers several benefits and privileges, and it’s also a lower risk investment than purchasing a single franchise unit (and is certainly a much lower risk investment, on average, than starting an independent business from scratch). But now, back to my spiel about amassing wealth through business ownership.
At the end of the day, a good franchisor is a savvy business partner. Because the franchise business model implies a symbiotic relationship, franchisors are always on the lookout for franchisees with high potential for becoming multi-unit franchising tycoons.
These individuals stand out to brands because they have realistic expectations about owning a franchise, they demonstrate an openness and loyalty to the process, and they have the skills and resources to run and manage a number of businesses at once. So, what’s in it for the multi-unit franchisee?
1. More Spare Time
Since multi-unit franchising affords you the option of regional business management, you won’t be required on-site as often, leaving you more time available to open additional franchises in non-competing concepts. If you’re a great manager and have a talent for delegating responsibilities to the right people, then you might be exactly what brands are looking for.
2. Economies of Scale
Multi-franchising also offers franchisees the enjoyment when scaling up operations. As you manage more territories, you have more control and coordination over the systems and processes, overseen by your regional management. If one location is short-staffed, you can temporarily relocate employees from another location. Industries of scale also afford you more supplier leverage and lower operational costs. Additionally, you enjoy lower relative marketing costs.
3. Dramatically Improved Risk/Reward Ratio
But overall, the most important benefit of multi-unit franchising is that it represents a lower risk investment. This is counterintuitive for some, but when you think about it, it makes perfect sense: some proportion of businesses fail without any rhyme or reason. That percentage is low, but non-zero. But purchasing multiple territories, you hedge your bets, in a way, because even if one business struggles, statistically speaking, the rest will do just fine.
Returning to the story of Greg Flynn, it’s important to point out yet again that even the most successful businesspeople can hit a few bumps in the road before finding the right opportunity. Flynn failed in his first dabble into franchising. But thanks to his passion for restaurants and earlier successes in the business world, he stuck with it.
A few years later In 1999, he purchased a set of eight Applebee’s franchises. As the franchises became more successful, he was able to reinvest his earnings into additional franchise purchases, creating an upward spiral of wealth and businesses until he had developed a franchise empire. He continues to break records in the franchising industry.
While I don’t think that you should necessarily expect to earn $2 billion annually by replicating Flynn’s multi-unit franchising strategy— there is still something to be said for being in the right place at the right time and possessing the right abilities. But statistically, we can look at multi-unit franchisees and see that they follow the same path to generational wealth that most other millionaires do—with their investments concentrated around their franchise empires.
When someone purchases a single-unit franchise territory, they’ve just bought themselves a job, because the day-to-day management and ownership responsibilities keep them busy. But when an individual purchases multiple units or territories, they can begin hiring upper management and delegating responsibilities, giving the franchise owner the spare time to begin reinvesting profits and potentially building up a franchise empire.
Brands are on the lookout for franchisees who will be competent and successful business owners, as well as able to successfully purchase and operate franchise units in multiple territories.
While franchisee candidates interested in purchasing a single franchise unit are always welcomed to apply, brands will quickly home in on multiple-territory franchising tycoons. These are appealing not only because they can more quickly claim market share and the brand feels confident those units are under the control of a great franchise owner, but also because multi-unit franchisors tend to be far more successful overall for the same reasons that the franchisor chose franchising in the first place: economies of scale lead the way to more lucrative operations.
While franchise ownership does give skilled business owners a cut of the financial success earned through each franchise unit, what results in generational wealth is the ongoing reinvestment of profits into either additional franchise units or other financial investments.
Franchising multiple units is a useful financial investment tool because it allows you to select a strong, lower risk franchise opportunity and rapidly scale it up. This essentially overlaps your entrance into business ownership with the reinvestment and investment scaling process, allowing you to achieve economies of scale as you reach your high ROI. In short, you get rich in the same way that most other people get rich—you find a great investment strategy and you keep reinvesting your returns.
The average franchise opportunity offers a nice compromise between the risks of starting a business and the rewards of owning a business. A quality franchise opportunity offers you minimized start-up costs and risks while maximizing the potential rewards. And this is important, because once you’ve settled in on the right franchise investment strategy, you can continue reinvesting your wealth, potentially amassing a fortune in less than 10 years like I did. But it requires that you work smart and have realistic expectations about what will be involved.
Furthermore, it’s important to point out that small business ownership is only a stepping stone to amassing a personal fortune. We know that almost 90% of millionaires are self-made and that a significant number of them credit their business ownership pursuits as the catalyst for the types of life changes that ultimately led them to wealth. But believe it or not, although a significant number of our country’s millionaires start out as small business owners, less than 3% of millionaires’ income comes from their small businesses.
As one researcher put it, “The company [that a millionaire opens] wasn’t necessarily the one that ultimately made them rich, but it marked the official beginning of their entrepreneurial path.” It’s taking that initiative and that first step to developing those entrepreneurial skills and trusting their instincts.
So, if millionaires don’t get much of their income from their small businesses, where does it come from? What does that journey entail? The wealthiest Americans see business ownership as an investment, and as they earn money, they reinvest that money into their business. And that means working hard at the beginning.
Once this happens, self-made millionaires secure a varied income that comes in from a number of sources, including investments, rental properties and other sources generally grouped under the term “passive income”. These opportunities allow individuals to benefit from their investments without actively focusing their time and resources into that opportunity. The faster that people scale their low risk, high reward investments, the faster those investments pay off.
At Raintree, we include only the highest quality franchise opportunities in our brand portfolio, and when we’re not working to vet franchisee candidates, we’re working with our brand partners on their internal operations and franchise development. As brand growth experts, we appreciate the importance of finding select, multi-territory franchisees, and we understand that just as a perfect candidate can thrive in this role, a poor fit will do just the opposite.
On the one hand, at Raintree, our expertise lies in vetting emerging brands and picking winners. On the other hand, our expertise lies in selecting the right franchisees to partner with each brand in our portfolio. Without those two areas of expertise, we wouldn’t be an industry leading franchise development company. But plenty of franchisee candidates come through the doors either: 1) expecting to become rich overnight from one franchise unit or 2) expecting that by owning a franchise, they can skip the responsibilities of owning a small business. Those are unrealistic expectations.
Individuals who want to open a franchise, and especially those interested in multi-unit franchising, should look at our winning methodology for bringing together top-tier brands (like the Voodoo Brewery Co. craft beer franchise and Toastique gourmet toast and juice bar franchise) with multi-unit franchisees. To learn more about Raintree brands and franchise opportunities, visit our website or give us a call today!
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