9780131494213

In this book, Dr. Scott A. Shane systematically helps businesses assess the pros and cons of the decision to franchise. This book focuses squarely on the issues and challenges faced by franchisors. Shane answers key questions such as: What do successful franchisors do differently from unsuccessful franchisors? Why do some companies in an industry choose to franchise while their competitors don't? How does the decision to franchise affect your ability to compete with firms that don't? For businesses that choose to move forward, Shane presents proven principles for every aspect of building a successful franchising system, including: recruiting, selecting, managing and supporting franchisees; establishing territories and pricing; managing expansion; and navigating the unique legal and institutional challenges of franchising.

Scott A. Shane is Professor of Economics and Entrepreneurship at the Weatherhead School of Management at Case Western Reserve University.

Acknowledgments	ix
Introduction	xiii
Chapter 1: Is Franchising Right for Your Industry?	1	(22)
Chapter 2: The Advantages of Franchising	23	(20)
Chapter 3: The Disadvantages of Franchising	43	(24)
Chapter 4: What Business Concepts Can Be Franchised?	67	(12)
Chapter 5: Key Franchising Policies	79	(26)
Chapter 6: Franchisee Support and Assistance	105	(18)
Chapter 7: Territorial Strategies	123	(18)
Chapter 8: Pricing Franchises	141	(14)
Chapter 9: Expansion Strategies	155	(20)
Chapter 10: The Legal and Institutional Environment for Franchising	175	(14)
Chapter 11: Recruiting, Selecting, and Managing Franchisees	189	(16)
Conclusions	205	(8)
Notes	213	(10)
Index	223

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INTRODUCTION INTRODUCTIONFranchising has become the dominant mode of retail entrepreneurship in the United States. The number of businesses involved in franchising in some way is astounding. At most recent count, almost 2,300 companies manage franchise chains in more than 80 industries. These companies work with 767,000 franchisees that employ 10 million people--as many as all manufacturers of durable goods combined. 1 Moreover, franchise systems generate $1 trillion in sales annually, accounting for approximately 40 percent of all U.S. retail sales. 2Franchising is also becoming a more common business model. The number of franchised outlets in the United States increased by 146 percent from 1980 to 2003, an average of 6 percent per year, as franchises have replaced independent businesses in industries as diverse as fast food, banking, Internet services, automotive repair, and eye care. In fact, in the United States today, a new franchised outlet opens approximately every 8 minutes.This pace of growth has been on an accelerating trajectory in recent years. The number of franchised outlets in the U.S. economy grew by only 28 percent in the 11 years between 1980 and 1991, but it grew 92 percent in the 11 years between 1991 and 2002. 3Franchising is growing even faster internationally, leading the House Committee on Small Business to define franchising as one of America's most rapidly growing exports. Currently, approximately 500 American companies operate more than 50,000 franchised outlets overseas. Ninety percent of all franchisors in this country are planning to expand internationally in the next decade, and roughly half of all franchised outlets established in the past decade were set up outside the United States.The industry distribution of franchising is also quite broad. Franchise systems are currently found in more than 80 different industries, with more industries being added every year. Recent industry additions to franchising include advertising for on-hold telephone calls and outlets offering three-dimensional ultrasound, allowing people to see their soon-to-be-born children.Despite the common perception that it is all about small business, franchising is a strategy adopted by a surprisingly large number of big businesses. Several Fortune 500 companies, including Ashland Oil, First Interstate Bancorp, McDonald'sreg;, Medicine Shoppes International, Merrill Lynch, Ponderosareg;, Postal Instant Press, Prudential Insurance, S.C. Johnson, Shoney'sreg;, Snelling and Snelling, TCBY Enterprises, Union Carbide, and Wendy's International, have used or currently use franchising as a business model. 4 Five percent of all franchisors are public companies, including Ben Franklinreg; stores, Big O Tiresreg;, Doubletreereg; Hotels, Gymboreereg;, Microage Computer Centers, Staff Buildersreg; International, and Swisher International. 5 Ironically, franchising is also an avenue for private equity firms interested in taking public companies private again, as well as financing management buyouts and making acquisitions. Recent private equity deals involving franchising include The Dwyer Group, Cottmanreg; Transmission Systems, Carvelreg; Ice Cream, Sylvan Learning Centersreg;, El Pollo Locoreg;, Chem-Dryreg;, Meinekereg; Car Care, Ruth's Chrisreg; Steakhouse, Nutri Magicreg;, and Money Mailerreg; Systems. 6 The Purpose of This BookObviously, franchising is an important business model chosen by some firms in some industries. What makes franchising particularly interesting, however, is that the adoption of it appears to be a strategic choice made by some businesses and not others. For example, although at least 12 coffee companies franchise, Starbucksreg; steadfastly resists the use of this

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From Ice Cream to the Internet : Using Franchising to Drive the Growth and Profits of Your Company

From Ice Cream to the Internet : Using Franchising to Drive the Growth and Profits of Your Company

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