When the visionary North American inventor Isaac Singer (1811-1875) patented his improvements to the sewing machine and combined the sale of this efficient device with an innovative credit system for users, he did not know that he was giving rise in the United States to the system forerunner of modern franchises that we know today.
Patent No. 8294, dated August 12, 1851, paved the way for the mass production of a versatile, efficient, home-use sewing machine that could execute up to 900 stitches per minute, with a retail price of $120 order. Singer's genius, creating a revolution in the textile, fashion and leather industry markets, would come to benefit millions of households around the world.
But the admirable technical achievements would have had no effect on the world economy had it not been for the innovative marketing system created by the Singer Manufacturing Company which consisted, on the one hand, in devising and implementing an installment payment plan, accessible to individual users, and, on the other hand, in establishing a distribution and sales system supported by a brilliant licensing scheme.
On this new platform, Singer created a dealer network in assigned geographic areas; with exclusivity agreements and use of the mark; with an initial payment for the license; with royalty payments on sales; and with training formulas for users of sewing machines. He was born that way, back in the 1860s, the first known franchise system in the US.
After Singer, new actors joined the world of franchises. The Ford Motor Company opened its first sales concession in February 1903, Hughson Ford Sales in San Francisco, California, ahead of Tenvoorde Ford in Saint Cloud, Minnesota by a scant month; Gulf Refining Co., for its part, opened the first service station in Pittsburg, Pennsylvania in December 1913 and managed to sell 30 gallons of fuel on its first day of operations at a rate of US27 cents per gallon. What a good times!
And it wasn't until 1955 that the franchise fever took off with the addition of McDonald's Corporation to the fast food industry scene. McDonald's based its philosophy on growth in integrating under a single shared business vision to three essential elements: its network of franchisees, its network of suppliers and its workforce.
Thanks to its devotion to innovation and efficiency, McDonald's has become a management school and a must-read for academics and entrepreneurs interested in franchising.
Although the dream of most would-be franchisors is to own a McDonald's store, there are multiple franchise possibilities in the most varied economic activities. It is enough to know that in the US there were a total of 2015 establishments at the end of 781,794, generating more than 8,816,000 jobs, with revenues of over US$889 billion and a contribution of 5,1% to the GNP.
In any case, dear reader, if you are interested in setting up a franchise unit, we recommend that you ask the franchise promoters that you choose the information report on the franchising company called “Franchise Disclosure Document”. This document, which must be delivered no less than fourteen days before the possible signing of the Franchise Agreement, presents details on the background of the Franchisor; initial payments, accessories and royalties; estimated initial investment; restrictions on the purchase, sale and supply of goods and services; obligations of the Franchisee; technical, advertising and marketing assistance; territory; use of trademarks, patents and confidential information; renewal, termination, transfer and dispute resolution; financial results of existing or out of operation units; and the financial statements of the Franchising company, among other valuable information required by the US Federal Trade Office (FTC) that you must carefully analyze before making a decision.
Always keep in mind that the Franchise agreement does not transfer ownership of the business to the Franchisee, but rather makes it a kind of partner of the Franchisor as far as operations are concerned. Once the contract has been signed, the Franchisee must strictly adhere to the instructions of the Franchisor who, during the term of the commitment, will be the one who dictates the great guidelines in management matters.
To conclude, I must emphasize that the inflexibility of the franchise agreement restricts the Franchisee's ability to introduce changes in the business without the prior authorization of the Franchisor. Therefore, if you are an eminently creative person with entrepreneurial vigor, you are probably not the best candidate to opt for a franchise.
Article written by Alfredo Gonzalez, CEO Business in Florida LLC