There is one word that resonates when somebody refers to franchise opportunities: ubiquitous. Wherever you look, you'll find one. Maybe you are in one right now, enjoying a latte or a burger, buying supplies, sending a package, or even learning something new. It's an undeniable fact that franchises play a significant role in our lives, whether we are conscious of it or not.
The concept of franchising has a very long history, but its current form is the ultimate American business invention. Given the perks it offers entrepreneurs and franchisors this, business model has become the go-to option for many expanding businesses around the globe.
But how did franchising become the system that many business owners use to expand their businesses and numerous entrepreneurs turn to for great business opportunities? Well, it all started a very long time ago.
From the Middle Ages to Colonial Times: Early Franchising Opportunities
The Middle Ages were tough times. There were famines, plagues, and unsanitary living conditions. Life was hardů unless you were a landowner or part of the nobility.
The concept of franchising sort of appeared during this era, as landowners granted some people of high stature licenses to maintain order, assess taxes, or develop commercial ventures in exchange for a percentage of the profits.
This was expanded during colonial times as European monarchies started granting licenses to individuals to establish colonies, which would then pay taxes to the crown.
Even though these systems weren't exactly the same as today's franchise model, it planted the seeds of the modern franchise system in America.
1880s: Singer and His Sewing Machines
Just before the turn of the 20th century, Isaac Singer had a revolutionary product. At that time, the textile industry depended on industrial sewing machines and manual labor. However, he had invented a sewing machine that was not only compact, but could also do 900 stitches per minute.
So what was the problem? His sowing machines were outrageously expensive. Very few people and businesses could afford them.
This would have spelled a dead end for many people, but not for Singer. He was determined to sell his machines, and one day, one of his partners came up with an idea to do just that: a pay-in-installments plan. Singer used the plan to get customers interested in his product. But that wasn't enough. He wanted to sell loads of sewing machines.
So what did he do? He entered into licensing agreements with businessmen who were interested in selling his product. This meant that businessmen could purchase the exclusive rights to sell Singer's sewing machines in specific territories, which allowed Singer to reach a wider market at a fraction of the cost.
General Motors and the Car Dealership
Around the same time that Isaac Singer was trying to sell his sewing machines, General Motors had perfected the art of the assembly line and wanted to get its automobiles in every American household that could afford them. Yet the company hadn't had much luck selling cars through the mail.
The executives at General Motors wanted to find a more cost-effective way to sell their cars than opening a chain of stores themselves, which would require the kind of capital they didn't have at the time.
Like Singer, GM's executives found an inventive way to deliver their product to the masses. They decided to grant privately owned businesses the right to sell their cars. These businesses came to be known as car dealerships.
This strategy allowed GM to reach a wider market, but the success of this business model didn't stop with the automotive industry.
The 1960s and the Golden Arches
To a large extent, franchising grew out of the need to find innovative ways to distribute products. But how do you go from sewing machines and cars to a whole restaurant, recipes, and work ethic? Ray Kroc had the answer.
In 1954, he heard of a pair of brothers who had the art of a fast hamburger down to a science. He drove out to California to see it, and once he did, he was convinced that their model could be reproduced in restaurants all over the U.S. and beyond. This was the beginning of the largest fast food empire in the world.
Ray Kroc wasted no time, convincing the brothers to trademark their company and let him become their "franchise agent" to sell the restaurant's image and work methods to a handful of entrepreneurs. By 1959, McDonald's had 102 locations.
Today, McDonald's is a world-spanning fast food empire and had nearly 36,900 locations worldwide at the end of 2016. It is also one of the most profitable franchises.
Why Has Franchising Stayed So Popular?
The simple answer is that it is a win-win for business owners who want to expand and entrepreneurs who are looking for a good investment.
Franchising can help a business grow quickly and expand into territories that it may not be able to reach otherwise. Selling the rights to use a trademark may not only give companies extra capital, but it can also diminish the financial risks of opening new locations, as the franchisee will be responsible for running the location and turning a profit.
Franchising is also beneficial for entrepreneurs, as it is easier to market a recognizable brand than it is to start from scratch. Also, you're not only buying the rights to use the name of a franchise, but also its business model. Buying a franchise often gives entrepreneurs access to high-quality training that can make them feel more secure managing their business. At the end of the day, the best thing about being a franchisee is that it is still your business, and you can make it grow as much as you want with the support of the franchise.
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