Building Franchise Systems: Mastering Scale, Culture & Economics | Alison McElroy

In this episode of the RevOps Champions Podcast, host Brendon Dennewill sits down with Alison "Ali" McElroy, Founder and CEO of Kaleidoscope Growth Advisors, to unpack what actually separates franchise brands that scale sustainably from those that stall out. Ali argues that scale problems are rarely technology problems first, they're foundation problems: unclear mission and culture, weak unit-level economics, and growth plans that skip the "homework" phase in favor of speed.

Drawing on her background across legal strategy, international operations, and executive leadership, Ali shares concrete examples, including a Minneapolis-based brand's early values work and a striking story from international fitness expansion, to illustrate how decisions made early (franchisee selection, royalty structure, market education) have outsized influence on whether a brand can recover from the inevitable breakpoints of growth. She closes with a grounded take on AI: useful only when it's solving a problem you've already defined, not adopted for its own sake.

This episode is essential listening for RevOps leaders, franchise executives, and B2B growth teams navigating expansion-stage complexity, offering a practical lens for building systems that scale without sacrificing culture or decision-making speed.

Read the full transcript.

What You'll Learn

• Why your customers are your brand
• The case for an anti-AI policy
• What the EOS framework reveals about marketing gaps
• How listening tours shape content strategy
• The hidden cost of AI-generated brand damage
• Working Genius and right-seat leadership
• CAC and LTV as the marketing "holy grail"
  

Resources Mentioned

• EOS (Entrepreneurial Operating System)
• The Six Types of Working Genius by Patrick Lencioni
• Who Not How by Dan Sullivan
• HubSpot
• Culver's Frozen Custard
• Franchise Business Review (FBR) Survey
• Vistage

Listen

About the Guest

Episode Transcript 

Introducing Ali McElroy of Kaleidoscope Growth Advisors

Brendon Dennewill: Hello and welcome back. Today I'm joined by Ali McElroy, founder and CEO of Kaleidoscope Growth Advisors, a franchise advisory firm focused on helping emerging and growth stage brands build scalable, sustainable franchise systems. Ali is a recognized franchise industry leader with nearly two decades of experience spanning franchising, international expansion, operations, legal strategy, and organizational growth.

Before founding Kaleidoscope, she held executive leadership roles at Lyft brands, including serving as President, International, and Chief Legal Officer, where she helped support franchise expansion across multiple brands and global markets. In addition to her advisory work, Ali serves on boards, mentors founders and operators, and is widely recognized within the franchise industry for her leadership and contributions to franchise growth and development. She's a Certified Franchise Executive, CFE, and has been recognized among Global Franchise Magazine's 100 Influential Women in Franchising. Ali, welcome to the RevOps Champions Podcast.

Alison McElroy: Thank you, Brendon. Thanks so much for having me.

Brendon Dennewill: It's my pleasure. It was so funny when we were first connected to find out that we're practically neighbors. We live a couple hundred yards apart, which is kind of nuts.

Alison McElroy: It is pretty nuts. I always talk about franchising as such a small community, even globally, but this might take the cake.

Brendon Dennewill: Yes, it might. Really funny. Well, good to see you. So Ali, you've helped franchise brands scale across international markets. What separates companies that scale sustainably from those that struggle as complexity increases?

What Separates Sustainable Franchise Growth From Stalled Growth

Alison McElroy: That's such a good question, and I wish there were one magic solution we could give everybody. But there are some common lessons and threads you can see when you look at what it takes to build a strong, sustainable franchise system. I think it starts with a few common concepts. One is a real commitment to understanding not just your goal but your purpose in being a franchisor, and the brand's mission, vision, and values, and building a culture around that greater purpose. That's one important foundational concept.

A second foundational concept, in both the ability to scale and the sustainability of what you've built, is really focusing on franchisee unit-level economics. It's such an easy soundbite: we all know the answer. But what truly separates the exceptional is embracing that idea in day-to-day operations and diving into it on a really deep level.

The third piece, when you're growing a franchise system, especially in the early days of emerging, whether that's starting franchising at all or bringing it to a new country or market, is really taking the time to lay the foundation and do your homework in advance. There's an idea of going slow to go fast. Growth and building a foundation aren't necessarily opposite concepts, although sometimes they can feel like it. Really taking the time to set a strong foundation that you can grow from helps you avoid the challenge where, if you have problems in your business, they become exponential at scale. Scale doesn't solve the problems, in my experience.

Brendon Dennewill: Absolutely. That's very congruent with what we typically hear from people who've seen both successful scaling in franchising and brands that stall out, whether it's before they even get to ten units or when they get to thirty. I've heard people talk about a "death zone" between thirty and forty units that so many brands hit and can't understand why they can't get past.

I think a lot of it comes down to what you said about culture being so important, and culture is closely linked to leadership. As we talk about here all the time, the model we use at Denamico for revenue operations is people, process, data, and technology. What's interesting about what you're saying is that when a brand reaches out to us, they typically think their problem is a technology problem: they've outgrown their systems, their CRM, whatever's driving their revenue. Part of our job in building them a system that helps them scale is making sure they're aligned on the people front, including leadership and culture, and that they have the right people to drive that scale.

Then, of course, their processes need to evolve as they go from ten units to thirty to a hundred to three hundred. We call it the rule of threes and tens. So when you talk about unit-level economics, that's part of the data component. We need to know what the KPIs and metrics are. Otherwise, how do we build the CRM to drive the processes that let you measure that data in a meaningful way?

I like the way you've positioned that; it's very congruent with what we're hearing too. We'll talk more about slow and steady growth often winning the race versus trying to grow as fast as possible and fixing things as they break, which sounds painful. So Ali, as organizations grow, where do you most often see alignment start to break down between leadership, operations, and execution?

Where Alignment Breaks Down as Franchises Scale

Alison McElroy: I really like your framing of the rule of threes and tens. Growth often comes in peaks and plateaus and points of inflection. One of the amazing things about franchising is that as you bring more people into the network, you have the opportunity to scale a brand really fast, in a way where scale is different than growth: it's exponential.

When you look at points of challenge, almost as soon as you put a process in place, you outgrow it. Staying ahead of that cycle means thinking through where you'll be in two or three years, which can be really hard when you're just focused on surviving until tomorrow. Finding that balance is where I see organizations build strength through challenging growth periods: when there's a strong focus on mission and purpose, because everyone knows where they're heading.

When you have a mission and purpose you can communicate and rally around, that gives you the framework and guideposts. If you know your mission and can identify strategies to get there, you can use those as foundational concepts to build alignment and move in the same direction.

Brendon Dennewill: Right. Going back to what you said at the beginning, if you combine that communication around mission and vision with unit-level economics, that's really a representation of how you measure success as you scale. The founder or CEO knows the numbers like the back of their hand, but if people downstream don't know how to measure success, it makes it really hard, because otherwise everybody feels like they're on a hamster wheel.

I like the way you've combined culture, mission, and vision with how we measure success as we grow, knowing those measurements will evolve slightly as we go from ten units to thirty, to a hundred, to three hundred, and eventually a thousand and more. That brings us to your third point: how do you balance growth with stability? As processes break at each stage, knowing as a leadership team what's likely to break gives you an advantage: you know it's coming, so you can be prepared to replace or update it. I like how you've grounded those as the core things you have to keep doing no matter where you are in your growth or scale phase.

Balancing Art and Science in Franchise Growth

Alison McElroy: One of the challenging things is that there's a bit more art to it than science. When you've been in franchising and had the opportunity to see how different brands do things, patterns emerge and there are learnings you can pull forward. But there's some art to it; it's not pure science. If it were pure science, we'd all have a formula, our crystal balls would be perfect, and every franchise that ever launched would be on the Franchise 500 list, winning all the awards, and crossing that hundred-unit threshold with royalty self-sufficiency.

So there is an art, not pure science, but there are also frameworks that help guide that art toward the science. If you wait for everything to be perfect, you're not going to grow either. It's about finding the right balance: what are the most important things to get right and stay committed to, and what can you evolve and fix as you go? In my experience, it's a bit of both. If you're too rigid, you'll never reach your full opportunity. But if you run too fast, you can stall because you get stuck in the problems. The magic is somewhere in the middle.

Brendon Dennewill: Absolutely. So Ali, when you combine art and science, culture and unit-level economics, you're also touching on mindset. What mindset do you see in founders of emerging brands that eventually get past that hundred-unit mark, versus those who don't?

The Founder Mindset Behind Brands That Scale Past 100 Units

Alison McElroy: Such a good question. I'd love to bottle the mindset of some of these successful entrepreneurs. There's a lot of conversation around a growth mindset, and while there's no universal definition, it's a good starting point: being willing to take a step forward and take risks, even when it's not perfect, because you have a vision and a plan and you believe in what you're doing.

A really important part of growth mindset is curiosity and learning, being open, especially in franchising, which is a very open community. I learned a lot of what allowed me to be successful by talking to other people in the industry. That combination of curiosity and dedication is a key mindset, along with a real focus on tying it back to the mission and values of your organization.

In franchising, we're building brands and communities. So there's a shared mindset question: who are you going to invite into the future of what you've built? Are they going to support your mission, vision, and values and work in alignment with them? The numbers drive the business metrics, but alignment matters just as much.

When I'm working with new franchisors, there's a basic checklist: is franchising right for you, do the economics work, do you have the foundation, can you make the investment, do you have the team, what's your royalty going to be. It's regulated: you need an FDD, a franchise agreement, an operations manual. But accompanying that checklist, one of the things we work hard on early is recognizing that when you're the founder, your values and vision are ingrained in everything you do every day, and you're touching it constantly. That just—

Brendon Dennewill: Ali, I'm sorry to stop you right there, but I'm being pulled into something. Can you give me two minutes? I'll stop the recording and start it again when I come back.

Alison McElroy: Yep, no problem.

Building a Shared Culture and Language as You Scale

Alison McElroy: So, looking at that early stage of setting your foundation, it's not just about your royalty rate. It's about taking the founder's essence, what's infused in daily operations, and building that into your franchise planning and framework as you bring people in. What's the common language and common understanding you can build?

One of the early things we do when franchising a concept is build out the brand guides, the basics, like making sure everyone uses the same logo. But we also take the moment to revisit: what is our mission, vision, purpose, and values, and can we articulate them clearly?

I can use the example of a company that recently started franchising called Green and the Grain, based here in Minneapolis. One of the early things we did was quite a bit of branding work, but also took the time to boil down the essence of Green and the Grain's values, and build that into the franchise program: the questions we ask franchise candidates about their goals for becoming a franchisee, and the leadership team conversations about what the brand stands for.

Those are things you experience and absorb naturally when a founder is running the business. But as you expand and scale, more people come in, and you need a common language, both in subtle ways and in more explicit ones, for what you stand for and what your shared understanding and communication is. That's a piece of foundation-building.

Brendon Dennewill: Yeah, that makes sense. It seems so simple, right? That's all you have to do. So why do you think some brands don't get that right? What distracts them from getting the basics right?

Alison McElroy: That's such a good question. I like to believe everybody comes in with good intentions. Some of it is that when your culture is so ingrained in who you are, you're not necessarily thinking about how to translate it into something more explicit. You're caught up in the day-to-day: where's the next sale, is my marketing ready, is my FDD filed. There's a whole checklist of things you need to do to run your business every day, and sometimes the basics fall behind.

Royalty Self-Sufficiency and Early Strategic Decisions

Brendon Dennewill: You mentioned royalty self-sufficiency in passing, which is such an important number. Do you think that's part of this? Are brands that hit ceilings of complexity moving away from the basics because they're chasing that royalty self-sufficiency number at all costs?

Alison McElroy: I definitely think there's an interrelation between the economic realities you're trying to achieve and the ceilings and challenges you face, and the decisions you make early on around royalty structure, initial franchise fee, and franchise development approach. Is it organic? How is your business going to get the resources it needs to invest in the future, and have you lined those things up?

Royalty self-sufficiency is an important concept. For those who don't know what it means, it basically means you can cover the core operating expenses of your business as a franchisor from royalty alone, not from initial franchise fees. A lot of franchise organizations rely on initial franchise fees as a key part of how they invest in the system. That can be harder if you're taking a broker strategy, where a lot of that initial franchise fee cash flow doesn't come back into the business.

I'm not sure new founders always know that those early decisions are intentional in terms of what outcomes they'll produce. There's an element of not knowing until you're in it. That tipping point is going to be different for every concept.

Brendon Dennewill: Right. Clearly certain things are simple in theory, but life gets in the way and it's hard to keep up with all the moving parts. That's why getting the right advice from people who've seen success before matters so much. I've heard from successful franchise brands that seeking advice early helped them break through that hundred-unit mark much more successfully, knowing that things are going to break again at least once or twice before they get to three hundred.

Coming back to your experience across legal, operational, and growth leadership roles, how has that shaped the way you think about scaling organizations?

Lessons From a Career Spanning Legal, Operations, and Growth

Alison McElroy: It's played a big role. In retrospect, one of the things that's been really helpful to me in building Kaleidoscope is that my introduction to franchising was from a legal perspective. I got to see, in the background, brands at every stage of development, from setting up their first FDD to selling their first franchise to scaled global operations and international expansion.

People usually bring their lawyers the harder questions; the easy ones get solved in-house. So that breadth across sectors and maturity of systems, and tackling hard questions over and over, revealed patterns. I was able to carry that into business roles, driving development and international operations, and now into working with founders on strategy.

When you've experienced some of these challenges, you can look and say: this really matters early on, this other thing matters but you can deal with it later, you're not at the phase yet where it's critical. You can recover from most things, but some decisions, like which franchisees you bring into your business from the start, how you set up your unit economics for your own success and your franchisees' success, how you think about your supply chain, have an outsized influence on whether you'll be able to recover and move past challenge points.

Having this broad mix of experience has let me see a lot of things happen, and I can take those patterns and say: we're not at the phase yet where we need to worry about this. Yes, it's great advice, but we need to solve problems one, two, and three, and focus on opportunities one, two, and three before we get to that next thing.

Balancing Growth With Operational Discipline and Governance

Brendon Dennewill: Ali, I know we've touched on this multiple times, but let me ask more specifically. A lot of brands focus heavily on expansion. How should leaders balance growth with operational discipline and governance?

Alison McElroy: Such a good question. I'm hesitating a little because I want to say something that's maybe a bit controversial, but I'll go ahead. It comes back to unit economics. When you think about growth at all costs, you can sell your way to a hundred units, two hundred, three hundred, through optimism and a great sales process.

What you can't as easily sell your way past is: are your franchisees profitable? Does your business model work at scale? When you're looking at that balance, it fundamentally comes down to whether your unit-level economics work. If they're in a great place, you have all the options ahead of you for how fast you grow. If they're not, whether that's because of loans, capital, or investor expectations, those economic pieces are really the key.

Brendon Dennewill: Which, again, seems so simple. I'm guessing most leaders listening have heard this before more than once, so if nothing else, it's a good reminder that we may need to slow down in certain areas to make sure unit-level economics are right before we get too far ahead. Because unraveling something at four hundred units, with a hundred or more unhappy franchisees, means you're probably not going to sell another unit until that changes, and it's a lot more difficult at that scale than at twenty or thirty units.

Alison McElroy: Definitely. If I can use an example on foundational decisions: it's easy to give big-picture overviews, and people ask, well, how do you actually do that? One common example: most people beginning their franchise journey have already experienced success in their home market, maybe a decade of consumer awareness and brand recognition.

International Expansion: Marketing, Localization, and Consumer Education

Alison McElroy: When you move into a new market, domestic or international, you might take your existing marketing materials, your new summer campaign, and just send it to all your locations, without thinking through the nuance that in the new market, nobody knows who you are yet. Maybe you overcome the brand-recognition learning curve, but you also need to ask: how did we originally educate customers about who we are, what we do, and how we're different? There's a nuance in localization, but also just in introducing yourself, that if you use the exact same strategy and materials that worked in your core business, you might miss the opportunity to tell people more about who you are so they can get excited about what you're offering.

Brendon Dennewill: That happens in all kinds of businesses, because it's a human thing. When you've been doing something for ten years and moved past year one and two, it's hard to go back to what you did then when entering a new market. But that's what you need to do, because people don't yet know or trust you as a brand.

Alison McElroy: I spent a lot of my career in fitness, including global expansion. As US consumers, we grew up with gym class, the presidential fitness challenge, sports; we know what a pull-up or sit-up is. That's part of daily life. But in some emerging markets, instead of twenty to twenty-five percent of the population having gym memberships, you might have less than one percent.

One of my favorite stories from international work: someone went into a gym in an emerging market with modern equipment, and found a weight plate set on the floor being used like a step platform, and someone using a bar while smoking a cigarette during their workout. There had clearly been no introduction to how to use the equipment or conduct an effective workout. If you've moved past the basic "here are eight starter exercises" stage in your home market, you might need to reintroduce that education in an emerging market: here's a workout routine, why we do it, how we do it, how you use these weights.

Brendon Dennewill: And I'm guessing you're talking about a specific fitness brand there. You forget how long that education can take when it's something that never existed for that population before. It can take a very long time.

Ali McElroy: It can. It can also happen quickly, but you might not see the same uptake in membership retention if people aren't seeing results, because they didn't come in with the same fundamental knowledge. Understanding your process and your marketing together matters. Again, more art than science.

Brendon: Right. One of the things we say a lot around here is you're either winning or learning. What I like about that example is that if you take your fitness brand to an emerging market and see that uptake is slow because people don't know the equipment, that tells you something for the next market you look at: seek one where people are already familiar with the equipment, so uptake won't take as long.

Alison McElroy: Potentially, or you incorporate that education, understanding there's a strong desire to learn but the approach needs to be different. That's a pretty extreme example, but it shows up everywhere: cooking at altitude if you're a food brand, for instance. There are things that come up in expansion where you've defined a very successful way of running your business, hopefully the foundational question if you're going into franchising, but you need to revisit those learnings over time and incorporate them into a thoughtful growth plan.

Brendon Dennewill:I have a lot of thoughts on international expansion because I've lived in five other countries before moving to the US, and my mind is already making connections. But let's bring it back. Ali, from your perspective, what role does leadership development play in long-term franchise and business performance?

The Role of Leadership Development in Franchise Performance

Alison McElroy: A huge role. When you look at brands and franchisees that are successful in the marketplace, you often see really great leaders joining those brands. As your business grows, you have amazing opportunities to develop existing team members and give them new roles, and to bring new insights and people into the organization. Needs change so fast that leadership development at every level, and bringing in talented people with real experience, makes a transformational difference in the journey.

Brendon Dennewill: Yes. The reason I asked is that there seems to be a constant: when a brand hits a ceiling at ten, thirty, a hundred, or three hundred units, the first thing that breaks is that they don't have the right people to support the existing infrastructure. You touched on it: you often have people within the brand you can promote into a new critical role for the next stage. But in many cases, you need to add a role that didn't exist before, because it wasn't needed to get from ten to thirty, but it's essential to get from thirty to a hundred, or a hundred to three hundred.

The more leadership training you provide as you go, the easier it should be to scale, because one of the main roles of leadership isn't just franchise development, it's supporting franchisees. Do you have the right people and leaders, and are they properly trained to help franchisees succeed? That seems to be something you're passionate about.

Alison McElroy: I am. That's one of the things I love most, and it's what's kept me in franchising: the domino of opportunities that come from growing a brand, from the franchisees who become business owners, to the teams they hire, to internal opportunities. When you hire someone as an intern and they grow into a director or VP role, either of your business or another one, those stories, the opportunities that come from delivering a great product and building a brand, are exciting. I think we're all interested in opportunities, learning, providing value, and earning value.

AI, Technology, and the Human Element in Franchising

Brendon Dennewill: Which probably comes back to what you said at the beginning, around culture and mindset. One of the things we hear more and more about now, in the franchise space and every other industry, is how AI is going to impact franchising or a particular brand. What you see in a lot of successful cultures is a core value or mindset of continuously making yourself irreplaceable. I think what AI is doing is shining a light on the parts of your current role that AI could do, and that you don't even really like doing, which pushes you to keep elevating yourself. But to do that, you need the right culture and mindset.

Alison McElroy: Yeah, it's really interesting. We're at such a pivotal moment with all the conversation around AI and people. In the businesses I'm working with, we're thinking about how technology has transformed business up to this point, what lessons we can carry forward, and how to approach this with curiosity.

If you're a growing or emerging franchisor, it's a great moment to think about how your approach to AI will impact your organization, positively or negatively. So many franchise organizations are customer-facing and human-centric, especially in services, and that human element doesn't have to be lost. It's about thinking of AI or other technology as a support for the people already in the business, letting people do what people do best, and taking things off their plate. When you're growing a business, there's always more you can do, and if you can find ways to be more efficient while preserving the customer service and human element, that's the right balance: enabling people to do what they do best, even better.

Brendon Dennewill: Which is something a lot of experts are talking about right now: that's really who we are at our core. What we're good at as humans is very different from how we've been educated for the last two hundred years, primarily since the industrial revolution. We've been trained in school and at work to behave like machines, doing the same thing over and over. But now we've realized machines can do many of those things better than we can. So what can we do as humans that only humans can do? That's a different conversation for another day, but if it's helpful to anyone thinking about delegating tasks better done by a machine, even though that's not how we've been trained to behave, that's really not where the opportunity lies going forward.

Alison McElroy: There's definitely something there, but it also goes back to technology adoption. We've been adopting technology for decades, really throughout human history, and there are lessons we can learn going forward. AI is exciting, I love it, I'm exploring different models and using it in different ways. But when you're running and growing a franchise organization, it's important to ground the conversation in your goals and the business outcomes you're looking for, and let AI help solve the problems you've already identified, rather than deciding you need AI and then looking for a use case. If it's not grounded in the problem you're solving, it's not going to serve you well.

Brendon Dennewill: Absolutely. That's really good advice.

Building Systems That Scale Without Losing Agility

Brendon Dennewill: So Ali, as we wrap up, let's talk about systems. At Kaleidoscope, your role is advising brands as they scale. How do you help growing brands create systems that scale without losing agility, culture, and decision-making speed?

Alison McElroy: That's the magic and the core of why I founded Kaleidoscope, and what I love to do every day. As we talked about, there's some science, but also some art. What we've developed at Kaleidoscope are pathways to work as a strategic advisor with brands, really diving in to understand both sides: we know franchising, we know the patterns, and we're always learning. When we work in a long-term partnership with a brand, it's combining that pattern knowledge with a deep understanding of who they are as a brand, to develop an operating playbook and an evolutionary framework tailored to where they are in that moment, warts and all.

Brendon Dennewill: That has to be incredibly valuable to whoever you work with, because even with all the great advice that exists in the franchise space, there's no playbook that tells you exactly what to do at every stage of growth and scale.

Alison McElroy: That's what's fun about franchising. Each business is unique. Franchising is really about developing systems and processes, and you hear people say it's cut, paste, and repeat. There's some truth to that, and there are lessons you can carry forward, but if you just cut and paste without adding the overlay of who you are, what's happening in the marketplace, and what phase you're in, you miss what's really important for distinguishing the next right step for your organization. I'm really passionate about meeting a franchise brand where they are and developing a plan as a thought partner for taking them to the next level, using that track record and experience.

Brendon Dennewill: I love that. That's essentially where we started: coming at this from a cultural, vision, and mission starting point, which is the one constant you can always return to as everything else evolves. That's what you want if you want to grow: knowing who you are, what the mission is, and how you bring people along on the journey. I like how you've wrapped that up, connecting where we started to where we're ending.

Closing Thoughts: The Future of Franchise Growth and Operational Leadership

Brendon Dennewill: Ali, one last question, because I know we could chat for hours. Looking ahead, how do you see franchise growth and operational leadership evolving as organizations become more technology-driven and data-focused?

Alison McElroy: I'll polish my crystal ball. I think we're at a transformational moment, but there are also universal truths we can learn from history. As we move forward and adopt new technology, the opportunity is to mesh the core magic you have in your brand with the support of that technology.

Brendon Dennewill: I really like that. Great advice. Thank you so much, Ali, for being here today. I really enjoyed the conversation, and I know we'll have many more. Thank you.

Alisoon McElroy: Thanks for having me.

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