Handling Explosive Franchise Growth

Most franchisors would like to have to deal with the problem of explosive growth, i.e. selling hundreds of franchises in the first few years, but this can be a problem.

If the franchise system grows so rapidly that methods, procedures and support cannot keep up, a franchisor can end up with franchisees that are unsuccessful, and very unhappy.

According to trade reports we have seen, it appears that both Quiznos and Cuppy’s Coffee are examples of franchise chains that grew so quickly that the franchisor was unable to provide the support needed by new franchisees, including approving locations.  Cuppy’s reportedly had 168 stores that have been sold, but not opened, before the franchisor closed.

It may seem that they should have been able to keep up with the growth.  However, as sales increase, so does overhead, and if a franchisor is not careful, it is possible to reach a point where the franchise fees have gone into overhead, and taken out as profits, leaving insufficient funding to support new franchisees before and after opening.

So, what is a manageable growth curve?  Many successful franchisors sell about 5-10 franchises in the first year, and then build their system from that point.  We believe it is important to develop a base of successful franchisees, and have the systems in place to support them, before “exploding” the franchise system by adding hundreds of new franchisees each year.

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