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Tipping points of multiunit restaurant growth

Jim Sullivan is a speaker at foodservice leadership conferences worldwide. His book, “Fundamentals,” is used in over 90,000 restaurants. You can get his product catalog and additional insight at Sullivision.com. Follow him on Twitter @Sullivision.

The term “tipping point” comes from the medical field of epidemiology: the study of the causes and transmission of diseases. It refers to the moment in time when an infectious disease reaches a point beyond any local ability to control it from spreading more widely. The tipping point is a turning point  the critical time in an evolving situation that leads to a new and often irreversible development.

A tipping point can tilt in either a good or bad direction. Like when an emerging foodservice brand grows with gusto to a certain level, and then collapses into ignominy because of outside forces, inside ineptitude or both.

Sometimes when brands die, it’s beyond the concept creator’s control. But most times it is not. Let’s examine predictive tipping points in brand growth and detail five questions companies should ask themselves to help them successfully navigate the peaks and valleys of growth.

Having worked both with and for brands that have grown to more than 1,000 units, I’ve studied the fault lines of successful multiunit growth keenly. Why do some brands outperform others doing the exact same work in the exact same markets? At which unit number do brands commonly stumble or fail? Why?

While it’s impossible to identify exactly where infrastructure stress fractures commonly occur as foodservice brands grow, the following ballpark metrics are reliable gauges for unit growth tipping points. Concept or process breakdown is most likely to occur at the following junctures: between four and eight units, 19 to 24 units, 48 to 53 units, 99 to 104 units, 150 to 160 units, 490 to 501 units, and 990 to 1001 units.

That’s not to say that everything is smooth sailing in between those ranges, but these unit numbers reinforce the importance of periodically assessing your strengths, weaknesses, opportunities and threats as you near each milestone. Improve the strengths and seize opportunities in systems and process, and mitigate the weaknesses and threats.

The figures are based on discussions I’ve had over the last three years with successful concept developers, foodservice investors and the consultants who guide them. It’s not difficult to surmise that early brand expansion  units one through 53  is actually more challenging than opening units 150 to 290. The reason is that menus, systems, processes, scalability, teams, leadership, vendors and franchisees are more rigorously tested, strained and stretched during the initial stages of any enterprise. You’re laying track while the train is rolling. Finding balance, focus and resources in that early-stage whirlwind is a rare but critical skill for concept founders.

Asking the right questions

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We routinely advise emerging brands on smart growth strategies to avoid those potentially negative tipping points. Here are the five key questions we suggest they ask themselves as they prepare to launch their brands:

1.     Are the concept founders the right people to take the brand to successive levels? Many owners manage to grow the business through a couple of tipping points, but then collapse under the weight of their own success, limitations or hubris. You’ve got to first be smart enough to know what you don’t know. Then study industry success stories, which show you what to do. Now study the train wrecks, which show you what not to do. One thing you’ll likely learn is that while the early bird may catch the worm, it’s the second mouse that gets the cheese.

2.     Is the brand competing with itself or the industry? It used to be that successful brands could measure their growth in terms of how well they bested their own performance in key result areas like same-store sales, marketing, food safety, turnover, etc. But since you’re competing against the industry’s best, shouldn’t you also be comparing yourself against the industry’s best? Benchmark industry best practices, not just company bests.

3.     Do you have a talent pipeline and a talent scaffold built in to each unit and each market?  If you have dreams of building a 1,000-unit brand but have never worked for one, you’d best start by hiring smart. Are you promoting and developing the best people in your company and simultaneously enriching the talent pool with outside performers who bring along expertise you haven’t learned yet? Are you retaining your best people?

Why did once-iconic foodservice brands rise and then fall? Brain drain, pure and simple, time after time. We don’t build brands; we build people. People build brands.

4.     Are you judicious in choosing and vetting your franchise partners, or greedy to collect and amass franchise fees? Are franchisees your most valuable asset? No. But the right franchisees are. Ask any failed — or even successful — concept creator what their biggest regret is, and “Choosing the wrong franchisees” is the most common refrain. Collecting a franchise fee from the wrong partner is the worst transaction you’ll ever make. What you earn in fees will be wasted in time and money spent arguing over sites, standards, quality, marketing, contracts, vendors, licensing, etc. Franchising your concept in order to expedite quick growth and broad market presence is a smart strategy when done right. And that means choosing well-capitalized partners who clearly share your values and vision.

5.     Do you have the right vendors and support partners in place? Almost as important as the franchisees you choose are the vendors you use. Are your current suppliers able to both help you grow and grow along with you? Do they integrate your company’s objectives into every contract? Roughly half of your company’s revenue goes to vendors, so roughly half of your strategies should go to actions that make those vendors more efficient and better partners. 

What are you doing to keep your company on a strong growth track? Tell us in the comments.