History of Franchising
The franchise business has been around a long time; in fact they go back as far as the 1850’s. The notion of selling off a business or a part of a business in order to expand into new areas usually came from the lack of investment funds from the business owner.
While the business of franchising has grown over the years it all had to start somewhere. The concept of franchise businesses started with the Singer Sewing Machine Company in the 1850s. Isaac Singer had two problems that were keeping him from being successful. One, he didn’t have the capital to build a sales force, two, no one would buy a machine unless they were trained to use it. Singer’s solution was to charge a licensing fee to business people who would own rights to sell and train in certain geographical areas.
His licensing program was a huge success and was noticed and copied over the next several decades by many of America’s finest companies, such as Coca-Cola, KFC, McDonalds and Burger King to name a few. By the 50s and 60s franchising achieved almost mystical stature exploding from the confines of food and beverage to Dry Cleaners, Carpet Cleaners, Hotels, Rental Cars, Commercial Cleaning and the entire range of Automotive aftermarket.
The growth in franchising did not come without problems. By the latter half of the 1960s many franchisors had begun to focus on the sale of franchises, rather than the operation of their franchise systems. This lead to widespread abuse, misrepresentation and unfounded earning claims. It wasn’t until the summer of 1979 that the FTC issued rules on franchising that required minimum disclosure requirements throughout the United States.
As popular as franchising has become over the past 50 years, franchising is fairly new in the world, as business opportunities go. Prior to the early 1950s, franchising was virtually non-existent, but by 1980, the Department of Commerce estimated franchising’s total gross revenues at $350 billion. Five years later, that number rose to $530 billion. And now, according to the International Franchise Association (IFA) there are well over 3,000 franchisors and over a half-million franchisees, and franchising companies and their franchisees accounts for more than $1 trillion.
How do we account for this tremendous success and explosive growth in franchising? The need to own and plan for your future has always been the driving forces in new business growth, but most franchise buyers are people that are not your typical entrepreneur. We call this type of buyer a “forced entrepreneur.” If they had the choice, they would take the corner office and retire after 30 years, but very few people have that choice. Over the last 50 years, corporations have figured out it is much more cost effective to get rid of employees than to pay out all the benefits of retirement. There is no employee loyalty, only investor loyalty; it is more important to drive stock than to protect employees. Most companies start cutting people lose when they are between 40 and 50 years old and it is almost impossible for this person to be rehired in there same field, unless they want to move to another city or state.
35 to 50 years old, $80K liquid, $450 net worth, retirement plan under $150K, corporate mid-management or above, married with children and firmly entrenched in their community. This is also the profile of a franchise buyer. They are looking for ongoing marketing, training, support and a business that will allow them to stay in their community, take care of their families and let them retire with dignity. Franchising supplies everything that these people are looking for, but the trick is to sort through the 3,000 plus franchises and find that franchise opportunity that fits a particular family’s needs.
Small business is the cornerstone of the American economy and will be for the foreseeable future. With this in mind, franchising will continue to grow with great new ideas coming to the business marketplace on almost a daily basis. The future of the franchise industry will always be bright as long as people continue to fulfill the unseen urge of personal ownership!