Tony White recently shared something that caught my attention: "A lot of franchise brands call themselves scalable. Very few are structurally scalable." He followed with a familiar blueprint: build a prototype, recruit franchisees, collect the upfront fee, and take a royalty on gross sales.

I have seen that playbook work, and I have also seen it wobble when conditions tighten. Tony's point is not that royalties are bad. It is that a franchise built on only one meaningful lever is fragile. What resonated most is his framing of a franchise as a set of reinforcing economic engines, not a single revenue stream.

In this post, I want to expand on Tony White's idea of the "three levers" of a structurally scalable franchise: royalty, supply, and property. If you are a franchisor, operator, investor, or even a prospective franchisee, this is a helpful lens for spotting real scalability versus marketing language.

Structural scalability is different from growth

A brand can grow in unit count and still be structurally weak. Structural scalability means the business model gets stronger as it gets bigger. Cash flow becomes more predictable, margins are less dependent on one variable, and the franchisor can keep investing in support without starving the core.

Tony White highlighted the common early-stage reality: franchising is often cash flow negative at first. You build support teams, training, marketing, and systems before royalties are meaningful. Then you hit a point where royalties catch up and the P&L starts to look healthy.

"But if royalty is your only real lever, the model is fragile. When the cycle tightens, single-engine models stall."

That is the core warning. In a downturn or even a mild slowdown, unit volumes can soften. When franchisees are under pressure, new store openings pause, marketing spend gets cut, and franchisor growth plans slow. If royalties are the only real engine, the franchisor feels the pain twice: fewer openings and lower comparable sales.

Lever 1: Royalty is the baseline engine

Royalties are the cleanest and most common lever. They align incentives when the franchisor provides genuine support: better brand, better systems, better unit performance.

But a royalty-only model has a few structural weaknesses:

It is volume-dependent. A small drop in average unit sales hits franchisor revenue immediately.
It can be politically constrained. Raising royalty later is difficult, and it can create franchisee backlash.
It can encourage underinvestment. If the franchisor is always waiting for more units to make the model work, support quality can lag.

The goal is not to abandon royalties. It is to treat royalties as the first lever, not the only lever. In Tony White's framing, royalty helps a franchise survive. Additional levers help it compound.

A practical test

Ask: if new unit growth paused for 12 months, would the franchisor still have enough margin to support existing franchisees well and keep improving the system? If the honest answer is no, you are looking at a business that is growing, but not structurally scalable.

Lever 2: Proprietary supply adds a second compounding stream

Tony White calls the second tier "where things change": proprietary supply. Think coffee blends, sauces, dough, packaging, equipment standards, or tech platforms that are required under the franchise agreement.

Two points matter here:

The product must protect brand consistency and unit economics.
The economics must be fair and transparent so it does not feel like extraction.

Tony explicitly noted he is not advocating extraction. That distinction matters. A supply program becomes a competitive advantage when it improves franchisee outcomes: higher quality, lower waste, better throughput, more consistent customer experience, and often better purchasing power than a single operator could achieve.

"Now every new unit doesn't just add royalty - it adds distribution margin. Growth compounds in two places."

Let us expand on his example. If a store buys 30kg of proprietary coffee a week and there is $15 margin per kilo in the supply chain, that is $450 per week per store before royalty. Multiply that across 10 stores and it is $4,500 per week in additional margin that is not directly tied to the weekly ebb and flow of customer traffic in the same way royalties are.

Why supply can stabilize the model

Supply revenue often has different drivers than royalties:

It can be more predictable if usage is tied to operational inputs (cups, ingredients, packaging).
It can improve as systems improve (better forecasting, less spoilage, better logistics).
It can create defensibility (unique product, unique IP, consistent experience).

At scale, Tony White makes a sharp observation: you are not just a brand, you are a distribution business attached to a brand. Distribution businesses can be valued highly because they can generate repeatable margin with clear unit economics.

The fairness checklist (to keep trust)

If you are building proprietary supply, I would add a simple checklist to keep franchisees aligned:

Publish the value: quality specs, consistency benefits, negotiated cost savings.
Cap or benchmark margins where appropriate.
Separate the roles: franchising support should not feel like it is funded by hidden markups.
Maintain optionality where possible (approved suppliers) unless true proprietary IP is required.

The best supply programs feel like a shared advantage, not a tax.

Lever 3: Owning the property is a long-term wealth engine

The third tier Tony White mentions is rarely used because it requires conviction: own the property.

This is fundamentally different from the first two levers. Royalty and supply are operating-income levers. Property introduces an asset-based lever that can compound over long time horizons.

"You need capital. You need patience. But over time the operating business services the debt while the asset appreciates."

When it works, it is powerful. If unit economics are strong and locations are chosen well, the franchisee's business pays rent that covers the franchisor's holding costs and debt service. Over time, rent can rise and the underlying property can appreciate.

What must be true for property to work

Property ownership can be a trap if the fundamentals are not there. A few prerequisites:

Strong, repeatable unit economics (site-level profitability that can withstand volatility).
Disciplined site selection (not just growth for growth's sake).
Access to capital and a conservative balance sheet.
Operational maturity (leases, maintenance, compliance, and landlord responsibilities).

It is also important to be clear on incentives. If a franchisor is both franchisor and landlord, transparency and fairness become even more important. Franchisees need to trust that the rent structure supports healthy store economics.

Putting the three levers together

Tony White's framework is compelling because the levers reinforce each other:

Royalty funds support and brand building.
Supply adds margin and consistency, improving unit economics and brand reliability.
Property anchors locations, supports network stability, and creates long-term asset value.

A downturn still hurts, but the business has more than one engine. New store growth might slow, but supply volumes across the existing base can remain resilient. Property cash flows can remain steady if locations are strong.

The foundation: the prototype must be profitable and repeatable

Tony White ends with the most important caveat: none of this matters if the core store model is not profitable and repeatable.

Before thinking about levers two and three, you need proof of:

A customer proposition that wins locally.
A cost structure that works across markets.
A training and operating system that a franchisee can actually run.
Unit-level economics that leave room for franchisee profit after royalties, marketing fees, and required inputs.

A weak prototype plus additional levers just creates a bigger, faster mess.

A closing thought: design for bad weather, not just good weather

What I appreciate about Tony White's post is that it is really about resilience. Many franchisors build for expansion in a favorable cycle. Structural scalability means designing the model so it does not stall when conditions tighten.

A single-lever franchise can survive.
A three-lever franchise can compound.

If you are building a franchise system, the question is not "Can we grow units?" It is "Will our economics get stronger as we grow, and will we still be strong when growth slows?"

This blog post expands on a viral LinkedIn post by Tony White. View the original LinkedIn post →