Mark Vandegrift 
Welcome to the latest episode of FranSimple, the podcast designed to make the concept of franchising simple. I'm your host, Mark Vandegrift. And with me is the president of FranSource, an all time expert on franchising and my franchise bro, Steve Vandegrift. Steve, welcome.

Steve Vandegrift 
Well, thank you, Mark. Great to be here again.

Mark Vandegrift 
Good. Well, today we're going to start with the basics because that's simple and what we are calling the core differences between single unit and multi-unit franchising. So, why don't you give us an overview of what that looks like.

Steve Vandegrift 
Well, at the highest level, I would say single unit franchise and simply means a franchisee owns and operates a single unit. Multi-unit franchising, however, is a franchisee and it's also referred to as an area development franchise. It involves basically committing to and operating multiple franchise units under an area development agreement. And it's always within a defined development territory and it also prescribes an opening timeline. So, how soon does each additional location need to open following the previous one. Both are ultimately growth strategies for franchisors, but they serve different types of franchisees and franchisors, primarily depending on both parties' goals, their capital, and obviously experience.

Mark Vandegrift 
So just to make it easier for our listeners, let's say a franchise territory has been defined as a county and I buy one county, so I'm a single unit franchisee. If I buy two counties, that automatically makes me a multi-unit franchisee. Is that correct?

Steve Vandegrift
That's correct, and it would have to be a pretty small county to be just a single unit. Typically those are cities, but yes, that's a great example. Yes.

Mark Vandegrift 
Sure. Yeah, just trying to make it easy for our listeners. Yeah. So if I have two counties or two territories, does that mean that I'm also an area developer or is an area developer usually defined as something larger like the entire state?

Steve Vandegrift 
Great question. Actually, it really comes down to, and we've had clients where this happened, a franchisee commits upfront to basically purchasing two franchises simultaneously. And so they're not really an area developer. There's certainly going to be an extended timeframe for the second to open. It's only when a franchisee is looking to open multiple units over a period of time. So just simply purchasing two. They would sign two agreements, develop one, and then begin developing the second. Under an area development, it could just be two, but there's a timeline for them to be able to open that second. It might be 12 months after the first.

Mark Vandegrift 
Good. Well, why is it important for franchisors to understand both of these models when they're planning their growth?

Steve Vandegrift 
Well, basically, because the model or models that they choose directly impacts the speed of growth, the level of control that they have over the individual units and obviously operational complexities. Most brands don't just choose one or the other. They use a combination and really understanding both types. It allows the franchisor to really get a good sense of they understand the risk, the balancing the risk, the franchise training and support needs, and obviously market penetration.

Mark Vandegrift 
Okay, well we know single unit franchising is still the dominant model and I'm assuming that's because most franchisees come in, they only have a certain amount of moolah to spend and so they're not having a huge amount of investment. But what's, is that the primary reason we have single unit franchising as the dominant model or are there other reasons?

Steve Vandegrift 
No, it really is. I mean, about 80 plus percent of franchisees or single unit operators, mainly because it's more accessible to more people. The total investment is lower, the risk is lower, and it's perfect for first time business owners. The old crawl, walk, run principle. It also allows those owner operators to be very hands on. They're just simply taking care of one location. That helps ensure brand consistency.

Mark Vandegrift
Do you find that there are certain franchisors that come to you with franchise concept and they go, you know what, we just want to do area development and that's it. Is that a common?

Steve Vandegrift
It's not common, but it does occur. We've had a few clients, and I like to say when they're world famous, they're going to be able to start with an area development model. Most franchise area developers, multi-unit operators, they're really looking for the franchise to have scaled before they start getting interested in opening three, five, 10 units.

Mark Vandegrift 
So for them, do they choose an area development model because it keeps the number of franchisees down and it's easier to manage the franchise organization?

Steve Vandegrift 
Great question. We like to say, do you want to have 10 franchises operating 40 locations or 40 individual single unit operators? So it certainly comes down to a managing the network decision.

Mark Vandegrift 
Okay, so going back to the franchisees, what are the biggest advantages for franchisees in the single unit model?

Steve Vandegrift 
Well, obviously the lower startup cost is number one, and it's a simpler operation because the franchisee is simply overseeing a single unit and they're receiving strong support from the franchisor. They're a single unit franchisee. So ultimately they're managing one team, one unit and one market, whether that's a city, county, et cetera. And that simplicity, I think, is really appealing, especially if the franchisee is new to business ownership.

Mark Vandegrift 
Okay, so that's the benefit. Where does a single unit franchise fall short?

Steve Vandegrift 
Well, the biggest limitation is growth for the franchisor. The franchisees, you know, they're capped at one unit unless they elect to expand later. And then the franchisee has to hope that the next area that they're interested in hasn't already been taken. And from the franchisor standpoint, it also can mean obviously slower system growth. There's a heavier training and support burden because every single unit requires that individual attention. With multi-unit operators, they're typically responsible for training team members, beginning with their second in each additional unit they open. So this obviously greatly reduces the franchisor's responsibility and therefore the time involved in providing training and support. So it's just a better allocation of resources.

Mark Vandegrift 
Okay, so from the area development, when we go to multi-unit franchising or area development, why do, well, who do you see lean into this model? Do you ever find that someone that's kind of new or nascent to franchising ends up picking it or do you find it's experienced franchisors that do it?

Steve Vandegrift 
Well, it's typically there's a right time to do it. But ultimately, and we've had clients, we say, look, it's going to take a while before you get an area developer, but it could happen sooner, depending on someone's interest and being willing to be first or second in the system. Franchisors lean into the model because simply put, it's speed and efficiency. With one agreement, a franchisor can immediately add multiple units, certainly developed over a given time period. So it accelerates the market penetration and lowers the franchisors cost of franchisee acquisition. Obviously, in addition to the time issue I previously mentioned. So it's one of the fastest ways to scale a brand.

Mark Vandegrift 
Okay, and then on the franchisee side, it sounds attractive because if I'm an entrepreneur, instead of getting just one, I have the potential to have a lot. What is the benefit for a franchisee beyond that? And then also what are the risks?

Steve Vandegrift
Sure, well, economies of scale, number one. The multi-unit operators are spreading costs across their franchise units. So things like staffing, marketing, inventory. They can also share employees between their franchise units if necessary, which is a huge benefit. And they also typically have extensive business experience, which helps them operate more efficiently from the very beginning. But you mentioned the risk. Well, number one, it obviously increases. It's a more complex operation. They're managing multiple teams, multiple units, and obviously a lot more capital. And then there's obviously, I'd say, operational risk, such as turnover and management, inconsistent customer service, or even cash flow strain during that development phase, each opening of another location.

Mark Vandegrift 
So how do these models impact the franchiseor differently?

Steve Vandegrift 
Well, that's a great question. So with single unit franchises, franchisors have more direct relationships, but higher training and support demands. With multi-unit franchises, they manage fewer relationships, but each one is more complex and has higher stakes for both parties. So if a multi-unit operator struggles, it can impact several franchise units at the same time.

Mark Vandegrift 
Okay, so I'm going to get into a specific example here. We know who this franchisor is and just give me your perspective on it. They currently operate, let's say standard footprint, standard restaurant model, but they also have this idea that they might have like quick drive through kiosks. Okay. When you're doing a area development or multi-unit, are you able to stipulate that in an area you have to have at least one of the standard footprint and then you could have multiple say kiosks or drive-through? Like how much can you stipulate either in one territory or in a multi-unit territory the makeup between types of the franchise like that.

Steve Vandegrift 
And again, a great question. Ultimately, the franchisor has the control. They can decide that they want at least one that's a standard restaurant, and then the area developer could open as many units as they want. For a single unit franchise, depending on the market, they may say you can open one or the other. In other cases, they're going to say no, it's a market that demands a restaurant, not just a drive-through kiosk. So, the franchisor sets the stipulations and it can vary by market.

Mark Vandegrift 
Okay, so I'm going to make it more complex. I'm going to add a food truck into that or, you know, let's say it's a version of that type of model. So I have a standard footprint. I have a kiosk or a drive-through. I have a food truck. Is it all dependent on the way the franchise agreement's written as to what constitutes having a location in that market or that territory and can a franchisee skirt the system and say, well, I want 10 food trucks in this area instead of one location or is that all kind of a give and take as people come into the system and you give them the opportunity to vary between those three types of that franchise location?

Steve Vandegrift 
Sure, there is flexibility there and it could be simply a discussion that's had between the prospective franchisee and the franchisor. But again, at the end of the day, it's going to come back to how does the franchisor best determine or what they determine to be the best model for a particular market. As you mentioned, we have clients that have kind of multiple models, a restaurant model that they can be purchased separately, a food truck model or a combination of both. And in those scenarios, once again,they're going to make a decision that this market is definitely going to demand a restaurant, or you could do a food truck, but you're not required to. So it comes back to, or goes back to, what does the franchisor want to do in that particular market? And then it's a matter of identifying a franchisee that, or a prospective franchisee that agrees, yes, I agree with that, and I am willing to do that.

Mark Vandegrift 
Okay, so now we're going to open it up into the complexity of brand, which that can really make it all over the place because someone experiencing a food truck could have a completely different experience at a restaurant versus a drive-through, right?

Steve Vandegrift 
Very true.

Mark Vandegrift 
And so let's say we're going to say in this case that the position of that concept is community. The idea of community getting together. Well, we can see very quickly that a drive-through doesn't develop community. A food truck can, depending on how it's situated, but even then, that's more of a transactional kind of relationship. So for the benefit of this model where I have three models, or this franchise where I have three models, do you see that it makes sense that beyond operations that we take into consideration, bring in standards.

Steve Vandegrift 
Most definitely. Yeah, you need that consistency, right? And, you know, in the kind of the question between single unit and multi unit from a brand standard point, single unit operators, because they're hands on, it really helps with that consistency. But experienced strong multi unit operators also maintain high standards if they have a solid system and leadership in place. So it really comes down to the quality of the operator, but there is no question that those brand standards have to be maintained across multiple franchise models. And again, that consistency, whether it's a food truck, whether it's a restaurant.

Mark Vandegrift 
Yeah, I know we've given some advice to this particular franchise concept and saying, no, you really need to have an agreement in place where it says your first model installation is that full restaurant concept only because you're about community. That way the brand is established in that area where it wasn't known before. And then there's always going to be people that want to transact with it and so it's not too different from a Starbucks, if you will, right? Where Starbucks has a brand, but sometimes you just want to run through the quick location. You're not looking to hang out there. So I think as long as brand understanding is part of the equation beyond just the operator of it, then I think we're safe. Let me, any other thoughts on that before I shift back to single unit, multi unit.

Steve Vandegrift 
Well, no, I think you made some excellent points there. And again, if they're community minded, they're going to require that restaurant at least first and then potentially adding that food truck second.

Mark Vandegrift 
Yeah. So we're in a day and age where obviously, I mean, when we were growing up, food truck was not a common thing. Kiosk drive-throughs, those weren't overly common. But you take the complexity of the models and now you take the complexity where area development is maybe a little bit more common. But we have a lot of newer franchisors that come through, right? So where do you recommend they start and what are the, I guess, the circumstances around which they determine which way to go with it.

Steve Vandegrift
Okay, well, almost all of our clients, and I can't think of a client in the last 10 years that hasn't done that, we start with both models in the franchise disclosure documents. So from the legal standpoint, so both the single unit and multi-unit models are permitted to be offered in a single FDD by including both. If one of our clients happens to have a prospective franchisee that really wants to purchase rights to a multi-unit to have more than one unit, the client already has the legal basis, the documentation to be able to discuss that and grant that to that individual. Now, we always explain, as I mentioned, that the majority of area developers, they tend to purchase area development rights from franchisors that already have a number of franchises operating. In other words, there's already success within the system. Area developers really want to know the business model and system are dialed in, it's working well, and it's evidenced by the brand having multiple franchises who they can contact and actually discuss their experiences working with the brand. So the reality is most startup franchisors will initially grant single units, which is good for all the reasons we've discussed so far, because it enables them to refine their systems, test various markets and build a strong foundation and then ultimately learn firsthand what it means to be a franchisor before scaling more aggressively. It requires more support, more hands-on deck, so to speak.

Mark Vandegrift 
So let's say you touched on something there which is let's say there are 10 or 15 franchisees in, right? And the franchisor goes, you know what? I'm established. This is working great. I have a lot of interest. Are you able to pull single unit options off the board and then going forward, adjust the FDD to say we're only offering area development?

Steve Vandegrift 
Most definitely, and franchisors will do that. Obviously, dealing with one franchise who's operating three or five locations is simpler from a franchisor standpoint than having five individual units. So as they grow, as the brand is getting recognition, as area developers are coming on board, yes, they can certainly update their FDD and cease offering the single unit. We've even had a handful of clients that were well known enough that they launched their franchise with a minimum three location deal as an example. And they've been very, very successful. But again, you have to have that brand recognition and the demand in the marketplace for your model. Now, it also attracts, obviously, individuals that have more capital and invest, et cetera. But yes, franchisors at any time could say we're taking single units off the table. Of course, those single units that are still operating you know, they're welcome to add more. They're not going to get kicked out of the system. But it is something that franchisors sometimes elect to do.

Mark Vandegrift 
Okay, so I guess in summary of what we've been discussing for a new franchisor you would just recommend have a have it written so that single units are taken care of have it written so that multi units and area developments taken care of so that way depending on how things shake out you have the scenarios taken care of is that right?

Steve Vandegrift 
That's right. Yes, they can theoretically offer both models right from the get-go. And it occasionally happens.

Mark Vandegrift 
Okay. Yeah. So in this regard, what's one takeaway, cause we're trying to keep things simple. What's one takeaway you would like to share with our listeners in regard to single unit versus multi unit versus area developing.

Steve Vandegrift 
Well, since I only have one, I'm going to say it's there's no one size fits all model. The key is really the franchisor aligning their franchising strategy with their goals, whether that's steady controlled growth or rapid expansion. And in most cases, as I've shared, the winning formula is really a mix of both.

Mark Vandegrift 
Good. Well, these are good insights. This really reinforces that franchising isn't just about growth. It's about growing the right way, right? Good.

Steve Vandegrift 
That's right. That's the critical thing. And each franchisor is going to handle that and it's correct to do so. They're going to handle that differently.

Mark Vandegrift 
Good. Well, let's wrap up today's episode of FranSimple. Thanks for joining us. And as always, please like, share and subscribe to FranSimple. And we're just here to make the concept of franchising simple. So if you have questions, reach out, go to the FranSource.com website, send in a question or two, and we'd be happy to cover it sometime. And until next episode, may your business expand through the power of franchising.