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Franchising

Why is franchising such a powerful economic engine? Because it is a sophisticated, entrepreneurial alliance through which thousands of individuals create vast wealth. This is a book about entrepreneurship. More specifically, it is about franchising as a pathway to entrepreneurship and the creation of wealth. The franchise entrepreneurial spirit in the United States has never been more alive than today. Forty-five hundred franchise businesses with 600,000 outlets crowd the marketplace, accounting for a third of all retail sales nationwide. The International Franchise Association expects that franchise businesses will continue to thrive and prosper for the foreseeable future, growing to account for at least 40 percent of U.S. retail sales in the next decade.

What is franchising? Franchising happens when someone develops a business model and sells the rights to operate it to another entrepreneur, a franchisee. The company selling the rights is the franchisor. The franchisee usually gets the rights to the business model for a specific time period and in a specific geographic area. Franchising is sometimes referred to as business format franchising or product franchising. McDonald’s is the classic business format franchise, and an auto dealership is the classic product franchise. In a business format franchise the way the product is delivered is as important to the brand as the actual product—for example, golden arches and red-roofed building for McDonald’s. In a product franchise, the actual product—not the way that it is delivered—is the focus. An Audi can be sold from a standalone, single-brand store or from a multibranded dealership. While business format franchises tend to form a more rigid relationship, obligating the franchisee, the distinction between business format and product franchises is becoming more and more blurred. If you understand the business format franchise, you’ll have little difficulty with the product franchise relationship. The lessons of this book can easily be applied to both business format franchises and product franchises. The key feature of the franchise system is that the ownership of the brand and the modus operandi for the delivery of the product are retained by the franchisor, and execution is a franchisee responsibility. A wide range of services and products are delivered through a franchise: Some include oil lubrication, gas stations, automotive service, tax advice and preparation, landscaping, cleaning services, as well as the commonly recognized restaurant and fast-food industry. Normally, delivery is through a franchise outlet, or store, although there are several franchises that operate essentially without stores or with reduced real estate constraints. For example, Service Master and Snap-On Tools franchisees operate from a central office that provides support for back office needs and vehicles to deliver products.


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