Is there any doubt that "franchising" as a business model has transformed the way business is done? When was the last time you ate in a non-franchised local restaurant, visited a non-franchised coffee shop, or hired a non-franchised lawn service?
Franchising as a concept has been around since the middle ages,when medieval courts or lords granted others the right to operate ferries, hold markets, and perform professional business activities. In the early 1900s, Henry Ford franchised dealers for his Model-T car, and following that, oil companies franchised local gas stations. But it wasn't until Ray Kroc came along that we saw the transformational power of that model on our economy.
Ray Kroc, the founder of McDonald's, was a pioneer in the franchising business model. Originally a "milk-shake mixer" salesman, Kroc became fascinated with the speed of the machines that he was peddling, and equally fascinated about a certain Mom & Pop style hamburger stand run by two brothers, Dick and Mac McDonald. The original "McDonald's" had no indoor seating and had a limited menu of burgers, fries, drinks and shakes, Ftce math but could serve customers in Henry Ford assembly line fashion in under 60 seconds. Kroc saw the business potential of replicating that model in hundreds of stores. The original owners wanted nothing to do with it, so Kroc worked out an agreement to replicate the McDonalds's method.
Kroc agreed to duplicate this model by selling franchises nationwide, and would collect 1.9% of the sales of each restaurant. While the franchisee incurred the expense of starting a new location, they were able to use the proven business model and brand name recognition to lower their risk.
Kroc knew that the success of this enterprise was in the process and not the product. He developed procedures for every aspect of the business from how much onion to use to how each restaurant should be cleaned. Kroc even developed "Hamburger University" as a training center for new franchisees to learn how to run a successful business. Today there are over 25,000 McDonald's restaurants world wide.
Over the years the federal government has had to adopt laws to regulate the franchise model, in order to protect potential franchisees from scams and also to ensure anti trust laws were not violated. Twenty-two states have also adopted their own legislation, mainly focusing on disclosure and regulating "fairness" between the franchisor and franchisee.
With the legal battles largely over, franchising has grown in the US (and throughout the world) as a proven business model that mitigates risk for the potential business owner. Note however, that the start up costs are still prohibitive for the average American and the success of the business is certainly not guaranteed.
Entrepreneur.com ranks the top 10 franchises in the U.S. for 2010 and their potential start up costs):
1) Subway ($84K - $258K)
2) McDonald's ($995K - $1.8M)
3) 7-Eleven ($40K - $775K)
4) Hampton Inn ($3.7M - $13M)
5) Supercuts ($111K - $239K)
6) H&R Block ($26K - $84K)
7) Dunkin' Donuts ($538K - $1.76M)
8) Jani-King ($11.4K - $35K)
9) ServPro ($102K - $161K)
10) ampm Mini-Market ($1.835M - $7.6M)
The failure rates of new franchises are based on many factors (competition, support of the franchisor, franchisee's management skills, etc.).
A 2007 survey taken by the U.S. Small Business Administration (SBA), which guarantees loans for business startups, offers some examples of franchise failure rates as indicated by individual franchise brands (which have been rendered here generically). I would expect that if they were to take the survey again in 2010, the numbers would be much worse.
* Transmission service business: 10 percent
* Hardware store chain: 6 percent
* Ice cream shop: 0 percent
* Second ice cream shop: 7 percent
* Bagel store: 26 percent
* Real estate company: 4 percent
* Fried chicken restaurant: 10 percent
* Mobile computer repair: 8 percent
* Hair styling salon: 5 percent
* Second hair styling salon: 7 percent
* Smoothie store: 23 percent
* Home plumbing service: 4 percent
* Pet supplies chain: 15 percent
* Pizza restaurant: 15 percent
* Second pizza restaurant: 0 percent
* Third pizza restaurant: 19 percent
* Tanning salon: 14 percent
Franchising as a business model has transformed our economy. It is a business model that mitigates risk while providing a proven business model to the business owner. However, the start up costs are still prohibitive for the average American, and the success of the new enterprise is by no means guaranteed.
Michael Shaffer http://www.21st-century-market.com
No comments:
Post a Comment