Fact and folklore often mix through the ages. So it is in franchising, where well-known characters, real and fictionalized, helped write the script for business format franchising as we know it today.
For centuries, even millennia, growing commercial entities have sought, tested and employed mechanisms to help overcome barriers related to expansion, capital, and distance. “Franchising” may not have been the precise label, but in various forms the concept has helped people, companies, organizations and even government systems deal successfully with these three elements.
The Desire To Expand
Every entrepreneur’s dream is to have more and more people, clients or customers aware of the idea, product, and/or brand. More awareness leads to more revenue, and who doesn’t want more revenue?
There are early examples cited by Lloyd Tarbutton, author of “Franchising: The How To Book”. Tarbutton wrote that franchising expansion concepts first surfaced around 200 BC when businessmen in China permitted rickshaw drivers to operate on specific routes.
In the period after the US Civil War in the mid-1800s, Isaac Singerwanted to expand, but lacked capital for manufacturing his improvement on the sewing machine. He was also facing buyer resistance. People didn’t want to buy his machines without training and local options for service and repair.
Singer needed to find an economical way to mass-produce his machines and to provide his customers with after-sales support. He started to license the service and repair functions, for a fee, to local merchants, and later these same licensees also became regional salesmen. The up-front fees helped fund his manufacturing expansion, and the licensees effectively expanded his brand reach.
The Search For Capital
As with Singer, access to capital is a frequent challenge for entrepreneurs looking to realize a growth strategy.
In 19th century England and Germany, and shortly thereafter in the United States, struggling tavern owners accepted financial assistance from breweries in exchange for agreements to exclusively purchase – and then sell – their beer.
In feudal England, where the Robin Hood story is set, royalty would grant land, tolls and tax, and business rights to powerful noblemen. A percentage of the revenue collected was paid to the monarch. This capital allowed the monarch to fund armies, build castles, and maintain a lavish lifestyle. Lords in turn gave peasants access to part of their land for a fee.
Expanding markets and reaching new potential customers often requires breaking down a ‘distance’ barrier. Let’s look at “New World” colonization. Governments used a form of franchising to expand and exercise control as they moved to capitalize on the economic and international trade opportunities that exploration and colonization presented. One example is the Dutch East India Company, which was granted a trade monopoly in the waters between the Cape of Good Hope and the Straights of Magellan between 1602 and its dissolution in 1799.
Business Format Franchising
Franchising continued to evolve in the early 1900s. Gas stations, for instance, were being franchised at a pace to match the expansion of Henry Ford’s Model T franchise dealerships. Ford was one of the franchising pioneers, putting a Ford plant in every country friendly to the US.
Business format franchising became really popular after World War II, when soldiers returning from the front drove up demand for products and services. Between 1950 and 1960 alone, the number of franchises operating in the U.S. exploded. One of the most notorious stories is that of Ray Kroc.
Kroc was selling milk-shake mixers, and he became intrigued by a small restaurant in San Bernardino, California. You see, sales elsewhere were tailing off, and this little restaurant ordered eight machines at once. Kroc visited the restaurant in person to see what kind of place needed to make 40 milkshakes at a time! He found a burger joint run by brothers Dick and Mac McDonald. He was impressed with the McDonald’s quality and efficiency, and pitched the idea of opening more “McDonald’s” to the brothers.
The rest is history: Ray’s first, the McDonald’s second, golden arches opened in 1955. The company went public in 1965. The first Canadian franchise opened in Richmond, B.C. in 1967. Today, in Canada alone, 2.5 million people visit McDonald’s restaurants every day.
The Path To Credibility
Could the Robin Hood story be based on a franchise-type agreement gone awry? If so, Robin Hood helped raise awareness and rid the “system” of unscrupulous franchisors. With each advance toward sophistication, there have been equal advances in building the reputation and credibility of franchising as a legitimate – and successful – business structure. TheInternational Franchise Association, Canadian Franchise Association and similar organizations around the globe have been instrumental in this way, developing codes of ethics along with advocacy, training and support for franchisors and franchisees.
According to the Canadian Franchise Association, thousands of Canadians make a better life for themselves by choosing to become a franchisee. Forty per cent of all retail sales in Canada are generated by franchised businesses, and there are more than 78,000 franchise units in business across Canada. Will yours be one of them?