It's the classic Franchisor's Dilemma...
You don’t have the funds or expertise to build the infrastructure needed to achieve sustainability…until…you reach sustainability.
Serving hungry franchisees isn’t like serving hungry diners. Successful restaurateurs who dream of franchising successfully learn quickly how different running a restaurant is from building a franchise system. You need a viable concept, real estate, construction management, marketing, supply chain—the works. In fact, if you don’t provide the system’s first franchisees everything franchisees in 100-unit systems expect, you may never succeed.
But developing the necessary expertise and resources can be daunting. Often the system must expand to 50-100 units before generating the revenue needed to fund both the infrastructure required to fully service existing franchisees and the effort to market the brand to new franchisees.
Meanwhile, the clock is ticking. If the franchisor doesn’t get it right for the first few franchisees, he may find them unwilling to endorse the franchise concept to potential future franchisees, which will make growth very difficult indeed. And getting stuck at 20-40 stores can be a trap that’s difficult to escape.
"The landscape is littered with undercapitalized, under-resourced restaurant brand concepts stalled out at ten, twenty or thirty units (or even more), with flat-to-negative unit volume growth, flat system growth, a band of unhappy franchisees and neither the internal resources nor strategy to kick start the engine again." - Richard Sharoff, FranPoint Partners