Growth is the goal — but it can also be the biggest risk. For emerging franchisors, the early stages of expansion are critical. These first few deals you do, and performance of those franchisees, set the tone for your brand and your franchisee relationships. Moving too fast (or too loosely) can create cracks that are hard to fix later.
Here are some of the most common — and avoidable — mistakes we see early-stage franchisors make:
1. Growing too fast, without the infrastructure
Just because you can sell franchises doesn’t mean you’re ready to support them. A strong operations manual, onboarding program, and field support structure should be in place before you start awarding units. Otherwise, it is likened to building the plane while you are already flying – it will be hard to catch up and ensure consistency within your system from the start.
Tip: Stress-test your operations manual with your first franchisees. Feedback is gold – and the opportunity to work out any kinks in the system earlier is a lot easier than trying to gain consistency later.
2. Inconsistent franchise sales messaging
Your Franchise Disclosure Document (FDD) is the blueprint. If your website, sales team, or brokers are offering a different story than what’s in the FDD, it is ripe to create problems — both legally and operationally.
Tip: Make sure your sales process aligns tightly with your FDD. Everyone on your team – not just franchise development – should be trained on what it says.
3. failing to define what makes a good franchise
Most brands that are ready to start franchising know exactly who their customer is when it comes to their core business. We recommend that franchisors go through the same process when it comes to defining who its franchisees are – viewing them as a customer and stakeholder in your business. This process involves defining objective qualities such as available capital, operational experience, geographical requirements, and evaluating the need to work hands on in the business versus hiring an operator. It also involves evaluating the softer qualities – cultural fit, ethics and ability to follow a system are equally as important. Awarding franchises to underqualified or culturally misaligned operators may get you short-term wins — but long-term headaches down the road.
Tip: Define your ideal franchisee profile early, and stick to it. It is far better to say no than to bring in someone who won’t follow the system or represent the brand well.
4. over-negotiating early franchise agreements
Early franchisees are often viewed as taking a larger risk than those entering into an established system – and may, in turn, request changes to the franchise agreements or other agreements they sign. Staying firm to the core elements of your agreements – fees, royalties, territory assignment, development schedules, etc. – will set the tone for the system. Many times, if a provision is negotiated once, you can expect that other prospects will identify the negotiated term, and it will become the new norm. In addition, certain amendments to your franchise agreement will trigger FDD disclosures in the future.
Of course, a deal must work for everyone, and some prospects may have particular circumstances that require modifications to your core agreements. We suggest working with the prospect to identify and focus on discussing 2-3 “business” issues that are applicable to that particular franchisee.
Tip: Treat every deal like it’s going to be audited. Stick to your processes, keep good records, and update your documents regularly. When you go to sell your system down the road, the buyer will be doing exactly that.
5. failing to evolve early
As you grow, the needs of your system will change. Vendors that worked well at five units might not scale to 25. Your initial field support person may be overwhelmed before you realize it. Many franchisors need to bring in infrastructure early to support future units coming online – which can be an investment in the system and the future.
Tip: Reassess your vendor relationships and internal support team on a regular basis, and seek ongoing feedback from your franchise system about what is working and what is not.
fINAL THOUGHT: GROW WITH INTENTION
Sustainable growth in franchising doesn’t happen by accident. It takes planning, discipline, and a willingness to slow down when needed. Avoiding common mistakes early gives you a better shot at building a franchise system that’s both profitable and respected — and that’s the kind of growth that lasts and holds its value.
