Franchisors: How to Avoid the Pitfalls of Growing Too Fast

30/03/2018 17:55 | Start a business

Franchisors - the dangers of growing too fast

Itís human nature that when an entrepreneur franchises their business the one thing on their mind is growth. After all, expansion is probably the main reason that they chose to franchise their business in the first place. They want to get franchisees on board, scale up as quickly as possible, and become one of the successful franchises.

Sound familiar? Of course, if your goal is to grow your empire, it shouldn't be seen as a bad thing. In fact, it should be viewed as an endorsement of all the blood, sweat and tears that youíve put into developing your brand and franchise business model.

But while itís great to have ambitions of growth, itís also necessary that any expansion plans are sustainable. Attempting to compete with the famous franchises and at any cost may spell the end of your franchise. Growing too fast is risky for several reasons:

Overtrading

Focusing purely on sales can result in overtrading, which believe it or not, can be bad for business. When the only objective is growth, you'll only define your success regarding new customers and incoming revenue. While you may achieve the sales targets that you set, you may neglect to develop your infrastructure, operations, or other processes that also need to grow to meet demand. Expanding at a more manageable pace allows you to balance sales with the progression of your franchise business model.

Most franchises canít just grow on their own; they need a cash boost to expand. This may mean making a significant investment in marketing and advertising to attract new customers. Or the need to hire more franchisees and employees to meet new consumer demands.

This is when cash flow issues may be encountered. To keep up with the increased demand caused by overtrading, youíll need to invest more. Additional staff, more stock and improved working capital may be required which will cost your franchise money. And because these resources need to be invested in before you see a return on your investment, cash flow may be impacted.

Recruitment

Successful franchises invest a lot of time and effort to ensure that the right franchisees are recruited. For you to succeed, you need your franchisees to become profitable which is the key to effective growth. When youíre just starting out you have the luxury of spending time choosing the right business partner that is a good fit and with your brand and culture. When your new franchisees are on board, youíll also have more time to spend with them. Sharing your expertise and knowledge while youíre building your relationship with them is a huge contributory factor to their success.

But as you start to grow, you need to recruit more franchisees to open additional units. The famous franchises may be able to cope with increased recruitment activity, but this may not be the case for you and your franchise. Chances are the robustness of your recruitment process will be weakened as you try to find franchisees to support your growth. Corners may be cut leading to the wrong franchisees being hired. This puts your whole brand and franchise business model at risk.

And itís not just your business and your customer base that may be affected by bad recruitment choices. Good franchisees that you have previously hired may lose the trust and respect they had for you. If you no longer prioritise the reliability and quality of your franchisees, then they may become concerned about the future of the business in its entirety. You then jeopardise franchisees renewing their franchise contract, and so youíre in a position where you need to recruit even more franchisees who wonít have the experience and skills of the ones youíre losing.

Brand

Poor recruitment processes and no time to spend with new franchisees may also lead to you risking your brand consistency and level of customer service offered. For successful franchises, reputation is crucial. If customers are not receiving the service that they have come to expect, their loyalty will soon wane. Fewer customers mean fewer sales. Fewer sales mean less profit. Before you know it, your whole franchise system is doomed to fail because of your desire to grow at too fast a pace.

Culture

Finally, growing too fast can have a hugely negative impact on your culture. Even if you do manage to train and support your newer franchisees to own and operate their franchises successfully, if they were hired at speed they may not be a good fit for your culture. Unfortunately, your culture isnít as easy to fix as inexperience or lack of knowledge and skills.

A negative culture will see franchisees and employees taking a more rigid and inflexible approach to customer service. This will affect customers and result in low morale amongst staff which can be challenging to turn around.

So, is growth really that important to you?

Growth is exciting. It gives you the potential to become more profitable and push your limits as a franchisor. But this doesnít mean that you should pursue expansion as your only goal or risk reducing the quality of your business offering to achieve it. You can still accomplish growth by developing your business at a pace that can be maintained.

Your franchise business model should be evolved and scaled with due care and attention. When you're rushing to get to the next stage of growth, it can be easy to underestimate your responsibilities and the repercussions of everything coming crashing down. The best way to efficiently expand is to have a robust plan in place, to invest both time and effort into making it work, and putting the recruitment of quality franchisees at the top of your priority list.

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