Multi-Unit Franchise Ownership: How to Succeed

Tom Monaghan, chief development officer with Green Home Solutions, has over 30 years of experience in the franchise industry. He has a well-rounded outlook on multi-unit franchise ownership, having started his career as a multi-unit franchisee himself before transitioning to the franchisor side. 1851 Franchise recently interviewed Monaghan to glean some of his knowledge on multi-unit franchise ownership.

The allure of multi-unit franchise ownership lies in its potential for scalability and increased profitability. This scalability not only leads to greater income but also results in higher equity in the long run. The ability to sell multiple units collectively or individually enhances the valuation of the business, presenting a lucrative exit strategy.

Moreover, cost-sharing and economies of scale play a crucial role in the success of multi-unit franchise owners. Monaghan emphasized the importance of efficient back-office operations.

"Sharing costs with multiple units reduces expenses on a per-unit basis," he said. “All of the back office is going to need to have an accountant or a bookkeeper or a CFO and if you're sharing that with one size unit versus multiple, that gets the [costs] down on a per-unit basis.”

With non-brick-and-mortar concepts like Green Home Solutions, owning multiple territories also allows franchisees to cover a larger service area without significantly increasing infrastructure costs.

While the benefits are clear, Monaghan acknowledged that there can be significant challenges associated with multi-unit ownership. One major hurdle is geographic dispersion, as franchisees may struggle to effectively manage operations in locations separated by long distances. Monaghan explained the importance of limiting driving times for his franchisees, for example, to ensure that franchisees can maintain oversight on their units without compromising service quality.

In the same vein, he cautioned against the pitfalls of irresponsible multi-unit sales. Giving away large territories without proper infrastructure in place can lead to operational inefficiencies and customer dissatisfaction. The pressure to sell multiple units quickly, especially in brick-and-mortar businesses, can result in franchisees lacking the skills and financial resources to open and operate successfully.

“You might have a franchisee that is kicking butt with one unit and you're thinking you should really get this individual to expand into more units, but they might not be the right person for that,” explained Monaghan. “They're a really good operator/manager of the unit, but they may not be the [person] or infrastructure leader that you need to build a multi-unit franchise. It is a very different profile.”

Transitioning from single-unit to multi-unit ownership requires a shift in mindset and skill set. Monaghan emphasized the need for franchisees to become effective people leaders, focusing on recruitment, trust-building and accountability. Luckily, these skills can be learned.

“You have to not only recruit for that but be willing as the franchisor to train on those skills, building accountability and leadership skills in multi-unit franchisees so they can effectively manage that multi-unit business, which is very different than managing one location,” said Monaghan.

The onus is not completely on the franchisor, however. As the business expands, the franchisee's role evolves from hands-on management to overseeing teams that deliver consistent standards. The challenge lies in maintaining these standards across multiple locations. Monaghan views this as a collective responsibility, with both franchisors and franchisees actively working to ensure customer satisfaction. He suggested utilizing data-driven key performance indicators, real-time analytics and frequent interactions to maintain consistent standards.

Ultimately, for a franchisee to be successful in multi-unit franchise ownership, the match between franchisee and franchisor needs to be just right. Franchisors are responsible for selecting the right franchisees for multi-unit ownership.

“Multi-unit franchises in the hands of responsible franchisors and strong franchise owners is one of the greatest vehicles that build equity in a brand and for franchisees and their families,” said Monaghan. “It really needs to be handled in a manner that is in everyone's best interest. A franchisor should not make the sale just because they get a big initial fee or they really want to own all of one market; you have to be willing to say yes to the right franchise operators and no to those that you don't think have the right skills, attitude, resources or commitment to your values that they need to be successful.”