Four Tips to Maximize Profitability at Emerging Brands

Strengthen your franchise from the inside out and soon, the big guys will be coming to you for advice.

By Sam Ballas

On average, 96 percent of small businesses fail within 10 years. This creates a high level of risk that hinders many from even attempting to launch a business, or a franchise, in the first place. In the franchising industry, those who do take the first step into the unknown and find initial success in the first few years, breaking into “emerging brand” status, are placed in the most vulnerable position to either flourish or fail.

During this crucial stage of business development, franchisors need to take a microscope to their business plan and place an emphasis on profitability to effectively transition into a stable, established brand. Outlined below are four tips on where to shift focus during the emerging brand phase to innovate, boost the bottom line and grow as a franchise system.

Start with a healthy frame

Faster isn’t always better. Launching a new franchise concept is comparable to the process of building a house: Start with the foundation, make sure the framework is stable and only then should you begin to focus on the details.

Start at the corporate level to build a sustainable frame and then work toward adding the muscle tone by awarding franchises. Putting the appropriate amount of time and energy into the backbone will help avoid premature closings and operational mishaps down the road. This offers additional benefits, as creating a strong framework will simultaneously benefit your franchisees and their personal success. Seek out the right people and partners, have structured systems and processes in place and create a comprehensive franchisee training program before ramping up lead generation efforts to ensure long-term prosperity.  

Vendors and operational systems

If the structure of your franchise system is the bones, your partners, vendors and operational systems are the organs pumping life into the system to make it run. At this level of importance, it’s crucial to take the time to audit your vendors and systems in place to determine the best options for your brand.

When vetting the best partners to help drive your concept forward, strive for perfection. Look at each vendor as a long-term investment rather than an immediate price tag. Many brands will cycle through several vendors until securing a relationship with a trustworthy, dependable and honest partner — a time consuming and costly process. Find vendors who are willing to grow and adapt to your ever-changing needs as your brand develops and matures.

Even with phenomenal partners at your side, your company will crumble under the weight of poor operational infrastructure. System-wide profitability is strongly influenced by how smoothly your franchise functions. Streamlined communications between departments, robust franchisee support and integrated software are all elements that can help boost your operational systems so that the franchise runs like a well-oiled machine.

Focus on unit-level economics

Unit-level economics should be the DNA of your franchise, and can be used to drive development, system growth and franchisee success in order to be profitable. When presenting the investment opportunity to a potential franchisee, unit-level economics will be one of your strongest selling points. These numbers are your proof of concept, and represent the health and buoyancy of your brand on a local level.

Think 10 years ahead

No brand is immune to traditional franchise modeling issues, and all brands go through “inflection points.” With that, there is no one-size-fits-all when it comes to structuring a franchise system; what may work flawlessly for one brand may create a mess for another.

Once you’ve established the framework and structure of your franchise model, step back from the immediate needs of the business to forecast five to 10 years ahead. Where do you see the brand and what challenges or obstacles do you foresee? How is your industry projected to perform down the road? With this vision in mind, you can prepare proactively now for potential issues affecting your brand or industry at large down the road.

No room in the budget to implement new technology or systems to combat these potential crises? No problem. Create potential action plans now that you can reference when the time comes. Lay out various scenarios that are likely to affect your brand and create steps on how you plan to handle each issue accordingly. While these plans will most likely need to be tweaked on a case-by-case basis to fit the specifics of each obstacle, the framework will be in place for your team to quickly and efficiently execute in order to minimize damage. 

Emerging franchise concepts typically look at the big, established franchise brands of the world to model their business, but this tactic can prove not relatable for opportunities and challenges facing their own franchise today. At this critical stage of growth, don’t try to mirror the large brands. Put in the time to make mistakes and see what fits for your concept. As the age-old saying goes, “slow and steady wins the race.” Be patient with your business, perfect your operations and hone in on unit-level economics to create a rock-solid foundation to scale your franchise.

Putting it all together

East Coast Wings + Grill is a growing casual dining franchise acclaimed for its wide variety of buffalo wing flavors made-to-order. At only 35 units, the company has every major platform in place for sustaining and growing new markets and its unit level of economics which one would expect a brand over 100 units would have. How did East Coast Wings + Grill, as an emerging brand, reach this level of accomplishment at such an early stage?

To the points made above, the company followed a four-step process to ensure its system was overly-prepared to add franchisees. Movement occurred an appropriate pace with the right partners while maintaining same-store sales by being patient and focusing on helping early franchisees grow first. Rather than waiting for the projected full-service restaurant industry slump in sales, the company opted to ignite East Coast Wings + Grill 2.0, a brand reinvention to recreate all aspects of the brand from the restaurant’s interior, logo, menu, and other factors as a preventative measure.

In an effort to create a more convenient guest experience and reduce liability for franchisees, East Coast Wings + Grill introduced “Freedom Pay,” which allows guests to pay at the table. There’s even a unit level of economics department with job roles dedicated to driving that financial concept. Lastly, the franchise system runs a tight ship, adding double-digit EBITDA that is higher than the industry average to the company’s bottom line year after year, becoming royalty self-sufficient in 2012 and self-funding on most of its brand elevation initiative.

These actions were implemented over several years; they were the result of careful research, planning and lessons learned along the way. Strengthen your franchise from the inside out, and soon, the big guys will be coming to you for advice.

Sam Ballas is CEO of Winston-Salem, N.C.-based East Coast Wings + Grill. Learn more about franchise opportunities at East Coast Wings + Grill at www.franchise.org/east-coast-wings-grill-franchise.