Franchising Basics
Introduction to Franchising
Franchising as we know it today originated with the Singer Sewing Centre developed by Isaac Singer in 1858. After he had invented the sewing machine, Singer encountered two problems when he took it to the market. The first was that customers had to be taught how to use the new invention before they would buy it. The second was that Singer did not have enough capital to manufacture his machine in large numbers. He then came up with the idea of selling the rights to local business people to sell the sewing machine and train those who bought it. Once he embarked on this route, his enterprise expanded rapidly. Fees earned from the license rights helped to fund his manufacturing costs and, because each franchise was self-financed, Singer was able to tap into the entrepreneurial attributes of his franchisees.
This franchise model was copied in several industries. Coca-Cola was able to expand throughout the United States by shifting the burden of manufacturing, storing and distributing its product to local business people who acquired bottling rights. Car manufacturers who had been spending enormous amounts of capital tooling their assembly lines found they could develop retail distribution networks using capital provided by independent dealers. Oil companies such as Standard Oil and Texaco granted franchises to convenience stores and repair mechanics across the US. In the 1950's Ray Kroc saw the potential in franchising a successful hamburger stand. He has been compared to Henry Ford for bringing the assembly line to the fast food industry. Be they coffee and sandwich bars, fried chicken, pizza or taco diners, many food outlets are now franchised worldwide.
What is franchising?
Franchising is a method of product or service distribution that is governed by a contract. It is important for anyone deciding to start a business by becoming a franchisee to remember that in franchising a person is tied into a partnership arrangement for a defined period of time.
The myth of guaranteed success
No business method or industry sector can guarantee success, and franchising is no exception. If the franchise involves a proven product or service with a well recognized brand combined with hard-working, well financed franchisees, the chances of success are very high. If, on the other hand, the franchisor is under-funded, with an ill conceived business plan that has not been tested properly and poorly recruited or trained franchisees, failure is likely. The guidelines here are designed to assist you to ask the right questions, seek the right advice and ultimately make the right choice – remember, it is your investment that is at stake!
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