The expansion trap most franchisees fall into

Here's a question that keeps franchisees up at night:

"Should I buy another unit, or should I focus on optimizing what I have?"

Most say yes to expansion. They sign the agreement, open the new location, and then reality hits.

The new unit bleeds cash. The existing locations suffer because you're stretched too thin. Your best manager quits because you're never around.

Suddenly you're working 80-hour weeks wondering how this happened.

You said yes when you should've said no.

The 95% Rule

My friend Justin Donald invests with billionaires. He's been part of deals that returned 10x, 15x, even 20x.

But he also says no to 95% of opportunities that cross his desk.

There are more bad deals than good deals.

Only 4-5% of businesses succeed past five years. Those are the odds. 

So Justin starts every single deal with this assumption: "This is a bad deal unless I can prove otherwise."

Most entrepreneurs do the opposite. They're eternal optimists. 

They think, "This looks good—let me see if there's any reason it won't work."

That's backwards. And it's expensive.

When you flip that filter and start assuming every opportunity is bad, something changes:

1. You stop wasting time on mediocre opportunities. 

2. You save your capital. 

3. When a truly great opportunity shows up, you're ready.

What Saying No Actually Looks Like

I know a franchisee who got offered five new territories at a discount. His brand was growing fast, and the franchisor wanted him to lock them down.

He said no.

Instead, he spent 18 months optimizing his two existing units and:

• Fixed his hiring process

• Dialed in his local marketing

• Trained his managers

• And improved his unit economics by 22%.

Then, and only then, he opened three new units in 12 months.

All three hit profitability faster than his first two units did. 

Why? Because he had the systems, the team, and the capital to do it right.

Saying no bought him time to build the foundation. Saying yes would've buried him!

The Three Boxes You Need to Check

So how do you know when to say yes?

There are three boxes you need to check. If you can't check all three, it's a no.

Box 1: Proven unit economics. Your current units need to be hitting benchmarks consistently. Not "getting close." Hitting them. If your existing locations aren't profitable and running smooth, adding more locations won't fix that. It'll only serve to multiply the problem.

Box 2: Strong leadership team in place. You need people who can run the business without you being in the building every day. If you're still the emergency plan for everything, you're not ready to expand.

Box 3: Capital that doesn't strain you. You should be able to fund the expansion without taking on debt that keeps you up at night. If opening the next unit means you can't make payroll if something goes wrong, you're not ready.

Great operators know their capacity. They don't just know what they COULD do, they know what they can do WELL.

That's the difference.

The Bottom Line

Saying no isn't playing small, it's playing smart.

Every time you say no to a mediocre opportunity, you're saying yes to focus.

The franchisees who win long-term aren't the ones who expand the fastest. They're the ones who expand when they're ready (and not a moment before).

Until next week,

Erik

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