Many trace the origins of franchising as we know it today back to Europe in the 1800s, when German beer makers granted pubs and taverns the rights to sell and use their name. In fact, the word ‘franchise’ is a French derivative meaning privilege or freedom.
Some might argue that franchising has been around as long as humans or commerce itself, but the fundamental idea is relatively simple. An entrepreneur can, through franchising, sell part of a business, its methods, and its name, to others who can then increase distribution, volume, awareness, and multiply financial results – for all parties.
As Michael Seid, managing director of Michael H. Seid & Associates points out, ‘Throughout its long history, there have been 3 constants that have fueled the growth of franchising: the desire to expand, the lack of expansion capital, and the need to overcome distance.’
Isaac Merritt Singer, founder of the I. M. Singer & Company, was never one to miss out on a capitalistic opportunity. In the 1850s, Singer needed something to help him with his fledgling business and took note of the German distribution model. At the time, his company lacked sufficient capital to manufacture its sewing machines – and also needed a way to teach people how to use them.
His solution was to charge licensing (or franchise) fees to business people who would own the rights to certain geographical areas. The franchisees would also be responsible for teaching consumers how to use his machines. Using the licensing fees to fund manufacturing, he was then able to afford to build his machines and ship them directly to his newly formed distribution network. He had created a network of dealers.
Many say Singer’s contract was what really sparked the creation of franchises in the coming years, as it would allow business owners to keep some level of control over how their franchisees operated. Not surprisingly, Singer’s idea was quickly noticed.
Over the next several decades, other businesses began to copy and manipulate his business model… Continue reading.
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