The History of Franchising

Many people ask, "Where did it all start?" However, few really know the answer. The original concept of franchising actually began centuries ago. The Pope, in an effort to collect taxes, allowed certain people the right to gather his due within a given geographical area. These "collectors" were allowed to keep a sizable portion of what they collected, and would remit the balance to the Pope. Hence, the very first franchise relationship of record.

During the Civil War, the first modern franchise was developed when the Singer Sewing Machine Company established a system of loyal dealers worldwide to market their sewing machines. Since that time, other aggressive companies have employed the franchising methods to expand into markets that would otherwise be unreachable because of the high costs and risk factors involved in massive expansion.

The modern era of franchising began in the 1950s when Ray Kroc, a milkshake machine salesman, first discovered a San Bernadino, California drive-in restaurant operated by the McDonald brothers. Impressed with the crowded parking lot and the tasty french fries, Kroc bought the rights to franchise the business, and went on to build one of the most successful companies in the history of American business. And he did it through franchising.

The reasons for franchising in those days were no different than they are today. Expansion of any business is risky and requires significant investments of capital and human resources (people) to run the locations. If a company lacks the money required to penetrate new markets effectively, or the people it takes to run new locations, they will seek alternatives to growth, which is what franchising is.

Franchising limits the risk factor of growth, allows expansion to occur without vast amounts of operating capital, and potentially creates an attractive profit picture for the franchise owner at the unit or operating level.

Franchising bridges the gap for the small business person to own his or her own business.

It allows for the creation of business opportunities while doing it "under the banner and guidance" of a larger organization. This relationship helps ensure the potential success of the small businessperson because of joint cooperation with other franchisees and the franchise company in the areas of:

• Purchasing of products or raw ingredients;
  
• Advertising;
  
• Decision Making, problem-solving and networking;
  
• Training;
  
• Research and Development, and;
  
• Much more.

Additionally, proponents of franchising further proclaim, "there is no form of compensation greater than that of proprietorship." It is an established fact that company managers and employees do not exhibit the same degree of motivation as the person who has both income and investment to lose should the operation not succeed.

As a result, the success stories are endless. McDonald's, Burger King, HFS, Midas, Culligan, Century 21, Singer Sewing Machine, Kentucky Fried Chicken, General Motors, and Coca-Cola are only a few of the most visible examples. Today, doctors, dentists, opticians, attorneys, accountants, salespeople, and most other types of operations you can imagine are profiting from expansion via the franchise method.

The benefits to be gained through the proven method of franchise expansion are a matter of history. Correctly designed and implemented, franchising allows for successes to occur, which might not have happened otherwise..

During his testimony before the Senate Small Business Hearings in 1970, John Brown Jr., then of "Kentucky Fried Chicken," estimated that, at the time, over $400 million dollars would have had to be spent to build the number of stores which they had under franchise at that time.

According to statistics provided by the International Franchisee Association, franchising represents well over a third of our nation's gross retail sales. The Naisbett Group, in a 1990 research study, commissioned by the International Franchise Association, indicated, "If the present trend continues, it is predicted that within five years franchising could account for up to 50% of all US retail sales."

The development of modern day franchise techniques have also enabled many US companies to penetrate the distant international markets which were previously beyond reach.

Here are some of the industries where franchising has proven to be effective are as follows:

Accounting and Tax Services
Advertising Services
Automobile Rental and Leasing
Automotive: Muffler Shops
Automotive: Transmission Repair
Building Products and Services
Burglar and Fire Prevention
Business Products and Services
Carpet, Drapery and Upholstery Cleaning
Cleaning Products and Services
Employment and Personnel
Entertainment
Food: Convenience Stores, Specialty Shops and Supermarkets
Food: Donut, Bakery and Cookie Shops
Food: Restaurants and Quick Service
Furniture Refinishing and Repair
Greeting Services
Hairstyling, Hair care and Cosmetics
Health Aids and Services
Laundry and Dry Cleaning
Lawn, Garden Care and Florists
Motels, Hotels and Campgrounds
Pet Products and Services
Photo, Framing and Art Printing and Copying Services
Rental Services
Real Estate Services
Retail, General
Retail: Clothing and Shoes
Retail: Computer, Electronics and Video
Retail: Telephone, Products and Services
Schools and Education
Sports and Recreation
Travel
Water Treatment and Purification