Contrary to what is generally accepted, franchising is not a modern concept from the 20th century. Depending on interpretation, franchising goes as far back as the 19th century when German brewers would allow pubs to sell their product which was considered by many as early franchising. The first actual company to use a written “Franchise agreement” was Singer Sewing Machines; this was generally assumed to be the beginning of the modern franchising.
Contrary to what is generally accepted, franchising is not a modern concept from the 20th century. Depending on interpretation, franchising goes as far back as the 19th century when German brewers would allow pubs to sell their product which was considered by many as early franchising. The first actual company to use a written “Franchise agreement” was Singer Sewing Machines; this was generally assumed to be the beginning of the modern franchising. Later many others…Coca Cola would franchise it<s bottlers, in 1930 Kentucky fried Chicken then the rest is common knowledge; Dunkin’ Donuts, McDonalds, General Motors and Tilden to name but a few.
Today, almost every type of business from the retail and service industries are franchised as the concept has been found to be attractive to investors of all walks of life. With changes in the legal landscape, today, a simple agreement to share a commission with another party, say the proceeds from a vending machine in a barber shop, could be interpreted by the law of certain jurisdictions, to sophisticated systems requiring large investments.
A franchise is a basic business concept where one party creates a recipe, a formula, a concept or a product that have recognizable benefits. It is an alternative to a start-up in the sense that the Operating formula as well as the steps to getting started and the everyday business support are already existing and the going to market is relatively simple because the franchisor has invested large amounts of capital, time, knowledge and research into the business before going out to offer it as a franchise.
What is required for a franchise to be considered valuable? There are key elements that are required to make it worth the prospective franchisee to consider acquiring a franchise; here are some of the most important.
-The concept is Unique and Innovative
-It is difficult to imitate
-The Brand is easily recognizable in its niche
-It fills a need in the market either on a B2B or B2C level
-It is possible to replicate the basic concept in a wide variety of markets and gain rapid consumer favor
-The profit margins are generally higher than expected from a start-up business
Pros and Cons of franchising
-A franchisor gives up some earning potential in exchange for having access to capital generated by franchisees which allows for more rapid system growth and greater market share.
-Franchisees can expect to have access to a “turnkey solution” to becoming a business owner.
-Franchisees do give up in part the right to act as an “entrepreneur” as they abide by strict guidelines determined by the franchisor. They must also enter into a long-term agreement.
-Franchisees can count on a “safety net” in that the franchisor is there to offer ongoing support and expertise in the operation of the business.
-Investment funds and access to select real-estate are generally easier to source for a franchise than for a start-up business.
Reproduced with permission of Nosco Solutions
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