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Chapter 3. The Wealth-Creating Power of Franchising

Chapter 3. The Wealth-Creating Power of Franchising

Our first two chapters captured and detailed franchising as both an entrepreneurial vehicle and a systematic risk-reduction tool. We clearly established opportunity assessment as the core function of entrepreneurship and then illustrated how franchising must embody this principle. We also defined what a franchise is and how it is best assembled and/or examined using the franchise relationship model (FRM).

Now we discuss several issues that exist in virtually all businesses of scale: administrative efficiency, risk management, and resource constraints. Franchising can overcome such common obstacles. It is an efficient model for significant wealth creation. While making our case that a successful franchise follows from a highly developed franchise service delivery system (SDS), considerable capitalization, and significant growth, we further propose that obtaining public capital as an additional source of funding can be a piece of an overall successful franchise strategy. The most effective way to expand a concept is to launch and grow a small number of company-owned stores, to subsequently sell several franchises, to concurrently obtain public capital to increase the number of company-owned units, and to build an infrastructure for both. Please see TIP 3-1 for key aspects of wealth creation through franchising.

Tip 3-1 Risk Management: Ownership and Wealth[a]


The average franchisee

  • owns 1 outlet

  • has been in business for 9 years

  • spends 8.5 percent of sales on promotions

  • has $58,000 in after-tax profit

  • has made an average investment of $155,000

    Five percent of franchisees own 30 or more outlets.

    The largest franchisee owns more than 500 outlets.


The average franchisor

  • owns 13 percent of his or her system outlets

  • franchises 87 percent of his or her system outlets

  • has 75 percent of his or her franchisees owning only one outlet

[a] Spinelli, Stephen, Jr. (1995). “A Triangulation of Conflict in the Franchise Inter-Organizational Form.” Ph.D. dissertation. Imperial College, University of London, UK.

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