NRD Capital's Aziz Hashim on Unlocking Multi-Unit Growth
As part of the coverage for our upcoming Book of Brands, which provides business advice for multi-unit franchise operators, I’m talking with several multi-unit ‘zees for their take on unlocking smart growth and avoiding costly mistakes. One such interview, with NRD Capital’s Aziz Hashim, was particularly enlightening. Here is an excerpt:
Are you feeling bullish or bear-like about the coming 12 months in franchising?
It’s a combination of both. Franchising did fine during the Great Recession, and did not really contract like other industries did. The reason is franchising is essentially composed of service businesses providing essential products and services consumers need. Franchise businesses usually remain well positioned to withstand economic fluctuations. Having said that, not all brands are created equally in this regard. I would be bearish for brands that don’t have solid unit economics, because those brands are the ones that are exposed when the economy falters.
What advice would you give smaller multi-unit operators looking to grow?
Growth comes at a cost, and the way I explain this to smaller franchisees and growing franchisees is that if you want to add another unit, you have to first borrow money or invest money to build the unit before you see any revenues or profits. You have to invest money in infrastructure, you have to have a personality that allows you to delegate responsibility, a frame of mind that lets you absorb errors made by others on your behalf. If you’re not really sure why you want to grow, then you should not grow, and if you are sure you want to grow, then you should be willing to spend money and, in some cases in the short run, your income can actually go down before it goes up. That’s a concept that is not easily palatable to a lot of franchisees.
What’s your philosophy on putting together a complementary portfolio of brands?
There are a number of metrics that need to be observed when adding complementary brands, and one of them is definitely whether the additional brands line up from an infrastructure point of view. If you have a brand that has an average unit volume of $1.5 million/unit and then you add a brand that has an AUV of $600,000, sometimes that can cause problems because your company’s infrastructure is set up to provide a [certain] level of service ... and now you want to provide the same service to your $600,000 store but you cannot because that store cannot pay you as much. You have to be careful because we don’t want to lower the level of service to one division over another. Why would you do that?
The other aspect is, people may want to get into other brands because of synergies—the word synergy is overused in business. If the operations of this other brand are so complex or so different that you can’t share any HR, then that’s not really synergistic. When you talk about synergies you have to dig deep and find what can be realized, because there are a lot of cases where the synergies do not work.
Do you look at the FDD (franchise disclosure document) of a new brand you’re considering getting into? If so, what are you looking for?
I read it cover to cover several times, and I consult attorneys about it regarding any questions I may have. There are many items, but the standard ones are the history of the brand and management team. Who’s running this thing? What is their capacity, experience and reputation in the marketplace to the best extent that can be gathered? Number two is what is their litigation history. Clearly continuity rates, as well. Is the brand shrinking, is it closing more than it’s opening and turning over franchisees a lot? The numbers of units, the closures, the churn rate, item 19—the financial disclosure—are all very important.