An American icon: some things just say "America," like baseball, apple pie and … franchises. Here are 5 big ways franchising has affected our nation

Entrepreneur, Jan, 2005 by April Y. Pennington

CHANCES ARE, MOST PEOPLE DON'T realize how much franchises have become an integral part of their lives. They could easily get goods and services from franchises on a daily basis without knowing it--the proliferation of concepts and models is so great, consumers often don't distinguish or discriminate between franchise or nonfranchise businesses.

Though franchising as a concept has existed for centuries, it became a prevalent force in American business just a few generations ago. And as anyone who has watched TV, listened to the radio or read ads can attest, franchising has become an icon of American life. Robert A. Robicheaux, chair of the Department of Management, Marketing and Industrial Distribution at the University of Alabama, Birmingham, says the "explosion of entrepreneurship made possible by franchising" began in the 1950s, punctuated resoundingly by Ray Kroc, founder of McDonald's. By using franchising, which Robicheaux points out is nothing more than a particular legal form of business, franchisees could be, as he puts it, "quasi-independent" business owners who basically assisted the franchisor in expanding the brand. Now, in addition to the vast hamburger empires, automobile dealerships, janitorial services and just about any other type of business imaginable can use franchising as a way to build and expand. In doing so, franchising has irrevocably shaped the nation. On a broad scale, here are five areas that have been significantly affected by franchising: the economy, jobs, entrepreneurship, uniformity and culture.

Economy

Money makes the world go 'round, and franchises have lent a hand in the rotation. In our 2005 Franchise 500[R], there were over 387,000 franchise and company-owned establishments in 2004. And companies in the Franchise 500[R] generated $135.7 billion in their most recent fiscal year.

Don DeBolt, president of the International Franchise Association (IFA), says franchising accounts for almost half of all U.S. retail sales. "Franchising has had a $1.5 trillion impact on our economy. It's bigger than the gross domestic product of China," DeBolt says. What could I say other than "wow," to which DeBolt countered, "'Wow' is the right word. We knew it had a terrific impact, but that kind of impact is overwhelming. [Franchising] is one of the more dependable generators of economic activity because small business tends to grow incrementally."

Jobs

Franchising can be counted on to create new jobs every time a franchise expands or adds a new location, which, in our ever-growing retail and service landscape, is often. "Big business has not been creating jobs," DeBolt asserts. "Small business and franchising have created jobs. Franchising is really small business at its best."

In fact, franchising affects our economy and everyday lives more than we realize, according to a study released by the IFA in March 2004, which measured the direct and indirect impact of franchise businesses. The study showed that franchises directly employed almost 9.8 million people, (7.4 percent of all private-sector jobs)--as many people that year as all manufacturers of durable goods. Franchising also supplied a payroll of $229.1 billion (5 percent of all private-sector payrolls) in 2001.

Because franchising doesn't exist in a vacuum, it's also a boost to overall economic well-being. The study revealed that the total economic impact of franchising (which includes what occurs both in and because of franchises) resulted in more than 18.1 million jobs (13.7 percent of all private-sector jobs) and $506.6 billion in payroll (11.1 percent of all private-sector payroll). In addition, the study found that economic activity in franchise businesses generated "about the same amount of additional activity in nonfranchise businesses."

Entrepreneurship

Franchising has created opportunities for job-seekers and business-seekers alike. Men and women young and old, high-ranking executives and those armed only with the dream of financial independence have entered the realm of franchise ownership. Those who have an entrepreneurial yearning but also appreciate the benefits of running a business with a support system in place have found a haven in franchising, and have planted their roots there. In fact, franchising, to a degree, is a brain drain on corporate America. "Corporate America's going to have kids fresh out of school who will work for a little bit of money, but they're not going to have people who have 20 or 30 years of experience and really know how to run a business," says franchise consultant George Knauf. "[Those former execs] are going to be sitting in franchises or independent businesses. They're going to be running their own operations and gaining the benefit of their hard work instead of giving it away."

And there are plenty of opportunities: Of the companies that comprise the franchise population, more than 90 percent of their total units are owned by franchisees, according to our 2005 Franchise 500[R].

Going the franchise route can also give prospective franchisees assurance, due to stringent disclosure requirements. "The beautiful thing about it," says DeBolt, "is there's so much opportunity for people to investigate the investment in a way they couldn't if they were starting their own business, or buying a business that isn't a franchise." Being a franchise owner is another important avenue for achieving the American dream.