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Often, franchising is the best way to expand

You've got a nice little business that makes you a decent but nothing-to-write-home-about living.

You'd like to expand it across the country, but you don't have the capital.

That's no reason not to grow, say Carol and Paul Collis, co-founders of Red Rock Chili Co.

The Collises managed to open a fast-food restaurant in Southern California in 2002. Even with the proceeds from selling two sandwich shops, they didn't have enough money to launch that venture and only managed to get a state-guaranteed business loan on the strength of Carol's 30 years of restaurant management experience and Paul's construction background and flair for creating tasty recipes.

Three years later, the Collises have sold 15 franchises with plans to open 300 nationwide over the next decade.

Franchising was part of the Collises' strategy from the beginning. It is the growth avenue of choice for many companies that lack the money, personnel and time to grow internally.

Despite the early financial struggles, the Collises knew they had a good concept because customers at the original Red Rock Chili site kept inquiring about investing in the company or buying a franchise.

''We were also approached by a dozen consulting companies that wanted us to give them $15,000 to do a feasibility study," Paul said.

One restaurant-franchising company considered buying Red Rock Chili but decided against it, Carol said. ''They thought our concept was too complicated. We were making all the chili on-site from scratch every day. They decided we needed to be more established."

But the Collises learned something from every encounter, which strengthened their company.

''From the franchising company, we realized it is easier to grow through other people's money than through our own," Carol said.

But in order for Red Rock Chili to franchise, it had to have written systems and simplified operations.

To assure uniformity and quality, the Collises set up a central commissary to prepare its different styles of chili and soups and seal them into 10-pound pouches that can be shipped to each restaurant. That also solved a personnel problem.

''The hardest position for us to fill is the cook to make the chili," Carol said. ''We either have to pay a lot or have high turnover, and that's unacceptable in a franchise."

Carol used her management experience to write a 3-inch-thick operations manual that details every step. Paul oversaw the restaurant.

The Collises couldn't franchise on their own.

They hired an attorney who specialized in franchise law to do the necessary paperwork required by the Federal Trade Commission and several states. There are too many regulatory pitfalls not to have expert help, Carol said.

The Collises sold six franchises before contracting with FranSmart to sell as many as 300 franchises by 2015. FranSmart helps fledgling franchisers with construction, site selection, and franchisee screening.

''It keeps our overhead low because we outsource everything," Carol said. ''We're not multimillionaires yet."

The Collises eventually expect to sell Red Rock Chili to a major restaurant company, but only if a buyer comes along before Red Rock Chili grows too large to benefit from such an alliance.

''You have to sell it before it gets to 500 units -- or there would be no reason to sell it," Carol said.

Jan Norman is a columnist for the Orange County Register.

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