Episode #35 - The Challenges of Scaling to Over 50 Units

My Podner in this episode is Tom Wells and he’s going to talk with us today about the challenges of scaling a brand over 50 units. It’s a moving target and things change, and he’s going to share some REALLY COOL stuff with us today.

 

Time Stamps
Tom Wells Intro	00:00:31
Segment 1	00:02:13
Get to know Tom Wells
Segment 2	00:27:05
Topic Segment – Challenges of Scaling to Over 50 Units
Segment 3	01:06:27
Quickdraw Questions

 

Topics Discussed in this Episode

Key areas franchisors miss in their first year:

• This ultimately comes down to People, Process, and Prioritization. Many entrepreneurs didn’t become entrepreneurs to focus on process and structure – the most successful ones hire around this need. 
  • People: You ave to get the best team and figure out where to hire over time. Requires culture of accountability which sounds easy but is difficult to implement. Additionally, the founder(s) need to manage their people, but also give them authority to execute. 
  • Process: What works at 10 units or 20 units, doesn’t work at 50+ units. A leader or team can run around putting fires out at 10 units, but you can’t do this at 50+ units. Many organizations never think about what process is needed to make better decisions over time. Additionally, need to want to get and understand the right data which is hard with limited resources.
  • Prioritization: Everyone has a day job; can only take on a few big strategic initiatives at a time. Most founders have a list of 20 major initiatives they want their team to do at any time. Some get done, some don’t – all of them are not done at the highest level. We spend a lot of time focusing each year on what are the main ones to provide the biggest benefit to the business (this is very hard) and then helping the teams focus on these items. Do this repeatedly and the business constantly evolves nicely.
• Being Ready to Grow: To grow from the concept stage, you need the below but I always start with “If it’s a great investment for the franchisee, the brand will generally do very well”:
  • Great unit economics: This is almost impossible to fix along the way. If the concept doesn’t work from the start, it’s unlikely to have better unit economics along the way. Our view is 3 year or better payback is top 25%. Anything better is best in class. We also look at store level margin as it provides insight into cushion for franchisee performance (ie: very low margin has limited room for error).
  • Differentiation: It’s important to have something that sets a brand apart from its competitors. This applies to all concepts regardless of industry. Tons of competition in restaurants, how are we getting a competitor to pick us vs their 100 other options (product, service, experience, technology). In services, there are tons of local companies that can do plumbing, why pick a franchise (marketing, service, answer phones, clean looking techs, technology, etc.)
  • Structure / Process : This is different from the process above. This is being able to sign franchise agreements knowing that you are growing a repeatable concept (ops manuals and guides, trade design, product, branding). You don’t want different menus at different locations, different store designs, etc. Key to have something where there is benefit of scale and franchising.
• How brands scale: Most grow without a lot of thought of who the franchisee is and where they are growing. Need to be thoughtful here.
  • Who the franchisee is: Over the first 10 or 20 locations, you really figure out who is the best operator for a brand. Additionally, you learn who is not a fit. These need to be addressed thoughtfully otherwise a brand will struggle with bad franchisees as it gets larger.
  • Where you grow: It’s easy to sign franchise agreements with interested franchisees that are far away. This depends on complexity of the concept. For example, restaurants require distributions centers and are hard for corporate to help with when far away. Generally easier to go concentrically with restaurants, especially with brand loyalty.
  • How you develop: Growth is great, but ultimately the franchisee needs to succeed. It’s better to make sure you have the right operator and right site, rather than compromising just to grow. We see so many brands that are great, but have struggling units where they compromised early – this doesn’t show up for a few years.

 

Books Mentioned

The Hard Thing About Hard Things

by Ben Horowitz

 

Unbroken

By Laura Hillenbrand

 

Tom Wells

www.10pointcapital.com

[email protected]

404-444-3110

 

Kit Vinson

www.franman.net

[email protected]

214-736-3939 x 101