Why Franchising Is Becoming So Dominant
Franchising has become an ever-present feature of the American economic landscape. One-third of the U.S. gross domestic product flows through franchises, and they employ one out of every sixteen workers. But how did franchising come to play such a dominant role in the American economy?
Three factors seem to have fueled the growth of franchising. First, there are people who have some sort of business on a small scale, say, a restaurant or a bakery, and they have designs to expand to a national market. Franchising affords an opportunity for the aspiring entrepreneur to reach a national market in relatively short order, with little capital outlay, and with minimal risk. While there have probably always been people with grandiose ideas, the business owner today can work with a specialist franchise consulting company to take his or her idea or product and make it "franchiseable." These franchise consulting companies essentially sell a "franchise package" that includes the legal requirements to franchise, marketing plans to sell franchises, and business format plans that take an idiosyncratic and unique business and standardize it. Even services that seem to be impossible to standardize, like a haircut, are widely franchised through essentially this process of desire on the part of the entrepreneur, and means through a consulting specialist.
A second factor that increases the dominance of franchising is demand by individuals to be their own boss, to operate a business, or to otherwise work independently. These people believe that owning a franchise will allow them to achieve that goal. The idea of owning a business seems to be a fairly persistent demand in the American economy, and there is a rich sociological tradition, from Eli Chinoy's Automobile Workers and The American Dream to Nicole Biggart's Charismatic Capitalism, that documents the aspirations and realization of that demand. Franchising Dreams follows within that broader sociological tradition. Also, it is interesting to note that demand for franchise units increases in inverse proportion to the health of the economy. When the economy is roaring franchise demand is down, but when the economy languishes-because of corporate layoffs, corporate downsizing, or other factors--franchising becomes more attractive.
A third factor that drives franchising is consumers who either prefer to purchase goods and services from franchised outlets, or are at least not averse to doing so. Franchised outlets are ubiquitous in the economy-they are located in the strip malls, in small towns, suburbs, urban areas, in fact, one can hardly escape franchising. As long as these three factors exist and remain strong, franchising will continue to grow.
--
©Copyright, 2006, Peter Birkeland, Ph.D. For more information visit my site.
- Franchise topic:
Michael Webster PhD LLB Psychology of Compliance and Due Diligence Law www.bizop.ca
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
I'm not familiar with what is being referred to here.
"The idea of owning a business seems to be a fairly persistent demand in the American economy, and there is a rich sociological tradition, from Eli Chinoy's Automobile Workers and The American Dream to Nicole Biggart's Charismatic Capitalism, that documents the aspirations and realization of that demand. Franchising Dreams follows within that broader sociological tradition."
Bogdat
Hi Michael. Thanks for your kind words. Franchising Dreams should be updated because there have been many, many changes since I conducted my initial research. When I began my research franchisees were not allowed as members of the International Franchise Association, there were very few franchises sold through brokers, co-branding was just coming into play, and there were few multi-unit franchisees.
My purpose in writing Franchising Dreams was to shed light on how franchising works from the franchisee's perspective, and to cut though all the hype surroung the strategy in terms of "success rate." In fact, I first pointed out the idea of franchise units staying relatively stable but significant turnover (i.e. "failure") of franchisees.
As you know, I worked over a three-year period alongside franchisees to understand their challenges. To date no other book provides a detailed account of day-to-day life in a franchise.
I am working on a second book that focuses on business models that create wealth and the principles I uncover apply to franchisees, distributors, dealers, as well as to the companies that create services and products. Franchising Dreams is a reality check for franchising; the new book provides advice on how to be more successful.
Finally, I have written a number of articles in various publications (found on my website, www.birkelandinstitute.com) that focus on improving franchise operations, and I was host of a radio show, "Peter Birkeland's Franchise Boot Camp" that may still be archived at www.worldtalkradio.com. Each show featured a franchise thought-leader or expert, such as Michael Seid, Lane Fisher, Ken Walker (CEO of Meineke), and others.
Until I get the second book published I will be writing here at Blue Mau Mau on some of my findings.
Bogdat,
The paragraph you are referring to highlights some of the sociologists who have studied workers in the economy and have found similar motivations and aspirations to what I found and documented in Franchising Dreams.
Eli Chinoy worked on the automobile factory floor in Detroit during several years in the 1950's. He got to know the workers there and asked them, "if you could do anything, what would you do?" and to a man (sorry, no women on the factory floor in the 1950's) they responded that they wanted to own their own business, open a little hardware store, or a restaraunt.
Nicole Biggart studied "direct selling organizations" in the 1980's--basically, MaryKay Cosmetics, Tupperware, or something like that. She wouldn't say. Nicole was very skeptical of these types of organizations but during her research she became a true believer in the American Dream of owning a business.
Franchising Dreams follows in this tradition. I worked with franchisees over a three-year period and let me tell you something: It's incredibly hard work. It takes total commitment to be a successful franchisee--long hours, difficult decisions, multiple tasks--the whole thing needs to be executed very well. So I asked the people I worked with, "Why did you buy a franchise?" and I got results similar to Chinoy and to Biggart: They wanted to be their own boss, wanted to run their own business, wanted to see if they could "do it."
Chinoy wrote from the 1950's, Biggart from the 1980's, and me from the 2000's. It seems that there is a persistent dream of owning a business and franchising is a huge avenue that allows people from all walks of life to pursue this dream.
In a future article I'll post on here I will look at why it is that the United States produces more productive entpreneurs and business operators than other countries, because there are many business owners in India, China, and other parts of the world.
Hope this clear things up for you.