The word franchise comes from the old French meaning, privilege or freedom. In the middle ages, Kings would grant franchises to select subjects, for all manner of commercial activities, such as building roads and brewing ale. Essentially, the King would give someone the right to a monopoly for a certain type of commercial activity. Over time, the regulations governing franchises became part of European Common Law.
In the 1840′s in Germany, certain major ale brewers granted franchises to certain taverns, giving those taverns the exclusive right to sell their ale, essentially starting the concept of franchising as we know it today.
In 1851, Isaac Singer invented the Singer Sewing Machine. During his search for an effective and affordable way to distribute his product for his company, the Singer Sewing Centre, Singer ran into problems that prevented his company from becoming successful.
Singer faced two specific problems. Firstly, he had a lack of capital to invest in the manufacturing of the machines. Secondly, no one wanted to purchase a machine they did not know how to use, and mainstream retailers were not interested in investing the time to train purchasers on how the use the merchandise. Singer’s solution was to find individuals who were willing to purchase licensing fees that would give them the right to sell the sewing machine in exclusive geographical areas. These individuals were required to train their purchasers on how to use the sewing machine, thereby creating new sales opportunities. From this solution, Singer was able to apply the licensing fees received to the manufacturing of machines that were shipped directly to his licensed distributors.
Other companies took notice of Singer’s concept, and over the course of several decades, developed the methodology to enhance their own business models. Coca Cola, and their franchising of their bottling and manufacturing of their soda in the late 1890s is an example of this.
During the 1960s and 1970s, there were many abuses in franchising. There were a number of fraudulent franchise companies which literally took peoples money and ran, and there were a number of companies that were undercapitalized and poorly managed which went bankrupt, leaving a tail of failed franchisees who lost everything. The International Franchise Association was created in 1960 with the specific intent of uplifting the entire industry to enhance its overall professionalism. Members of the IFA are required to adhere to the IFA Code of Ethics. Specifically to:
“…provide a set of core values that are the basis for the resolution of the challenges that may arise in franchise relationships. Also the Code is not intended to establish standards to be applied by third parties, such as the courts, but to create a framework under which IFA and its members will govern themselves.”(Taken from the IFA Website: http://www.franchise.org/IndustrySecondary.aspx?id=3554)
Today, franchising is a highly regulated industry that is not only governed by federal and state laws, but one which provides great opportunity to those individuals who want to realize their dream and go into business themselves not by themselves.
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