Building your business one cookie at a time

By Frank Demmler

Many businesses are self-contained economic units. Restaurants, retail outlets, day care centers, bowling alleys and movie theaters are some obvious examples. Each unit has a limit to its growth – physical capacity, production capacity, geography, hours in a day, legal limits on hours of operation, etc.

Growth of these businesses is accomplished through opening new units. These are often called “cookie cutter” businesses; the proven formula is repeated time after time. Among the approaches to growth are:

Š      organic growth – one unit at a time as resources permit,

Š      chain of company-owned units – preplanned opening of multiple units, and

Š      franchising – preplanned system that enables others to own and operate units.

Each path is materially different from the others, and should be carefully chosen.

More on that later.

Template for Growth

Regardless of the growth strategy, in my opinion, the initial steps can be very similar:

Initial unit

Develop a plan, get constructive criticism by those knowledgeable in the business, and launch the first unit.  One of the primary purposes for this first unit is to find out what’s right and wrong with your plan.

If you’ve already had profit and loss responsibility for a unit of an existing chain (which I highly recommend), you are still likely to experience some surprises with the start up process, and you will definitely be challenged by cash flow management.

If you have never run a business like the one you are starting (as is often the case with restaurants and retail outlets), you will be on a steep learning curve. You are likely to be amazed by the differences between reality and your plan.

Concept refinement

Now that the real world has infiltrated your dream, you need to make the necessary adjustments and confirm their effectiveness. Depending upon many factors, it is possible (although unlikely) that a second unit is all that will be necessary.

The primary purpose of this step is to determine the “cookie’s recipe,” so to speak.  What needs to be done so that a single unit will financially and operationally attractive.

Proof of Concept

This is the critical step in the process. Your personal involvement in the prior steps will be a significant factor in their success.  In order to grow, you will need to package the process and confirm that someone can be taught to do what you’ve done.

Among other things, during this step you will develop a training program and an operations manual.  The manual will be a “cookbook” for starting and running a single unit. This is not a trivial task. It needs to go into excruciating detail so that a unit manager can refer to it whenever she has a question.

Other infrastructure activities

In order to grow, you will need to put certain resources in place. Someone with experience will have to prepare the aforementioned operations manual and training program.  These might be consultants, or people you hire. Someone has to do the training. Systems infrastructure will have to be selected and installed.  The overall complexity of everything will stress your ability to manage it.

One of the critical skills that you will have to develop is that of site selection. “Location, location, location” will be a critical factor in the success of your operating units.  You may be able to base your first few locations based upon your “gut,” but ultimately you will have to reduce it to a disciplined, data-based process.

Other activities depend on your growth strategy.  Company-owned stores will require sophisticated financial management, for example.  Franchising will require a franchisee solicitation marketing program, and people to implement it.

As I believe you have surmised, these steps require a great deal of effort, advanced planning, and resources (capital).

Next week we’ll take a look at the financial considerations for each path.

Frank Demmler is Associate Teaching Professor of Entrepreneurship at the Donald H. Jones Center for Entrepreneurship at the Tepper School of Business at Carnegie Mellon University. Previously he was president & CEO of the Future Fund, general partner of the Pittsburgh Seed Fund, co-founder & investment advisor to the Western Pennsylvania Adventure Capital Fund, as well as vice president, venture development, for The Enterprise Corporation of Pittsburgh. An archive of this series of articles can be found at my website.