Understanding Franchising Part 1

Understanding Franchising

Part 1

Presented by:Marvin L. Storm

Types of Entrepreneurs

• Extreme Entrepreneurs• Innovator Entrepreneurs• Founder Entrepreneurs• FranPrenuer

Entrepreneurial Personality

• Lone Wolf vs. Team Player

• Entrepreneur vs. Franchisee

Understanding Franchising

• Licensing Concept vs. Buying

Types of Franchise Structures:

Direct Franchising

Regional Developer

Master Franchising

Understanding Franchising

Finding a Franchise

Types of Franchisees:

Unit Franchisee

Multi-Unit Franchisee

Area Developer Franchisee

Types of Franchises

Franchise Industries:

Art FranchisesAutomotive FranchiseChildren’s Franchises

Beauty Franchises

Business Services FranchisesCleaning and Maintenance FranchisesHealth Franchises

Computer and Internet Services Franchises

Construction Franchises

Educational FranchisesEntertainment Franchises

Financial Services Franchises

Fitness FranchisesFood Franchises

Franchise Consultants FranchisesTravel FranchisesHome Services Franchises

Medical FranchisesPet FranchisesRecreation FranchisesRetail Franchises

Senior Care FranchisesSmall Business FranchisesStaffing Franchises

Be Aware Of:

• Financial strength

• Experience level of management team

• Validation of franchisees

• Litigation

• Mature vs. emerging franchisors

Acquiring an Existing Franchise Location

• Same process as buying a business

• Additional criteria: Approval of Franchisor

Benefits of Franchising • Brand• Valuation at exit• Learning curve reduced• Technology• Marketing• Support• Systems are a significant

competitive advantage

Right For You?• No right or wrong answer

Right For You?• No right or wrong answer

• But an answer that needs to be answered.

Right For You?• No right or wrong answer• But an answer that needs to be

answered.

• Never become a franchisee unless you are a team player

Right For You?• No right or wrong answer• But an answer that needs to be

answered.• Never become a franchisee unless you

are a team player

• Never rely on a franchisor for your success – are only a business partner enabling your success – you still have to make your own success

A Brief History of Franchising

The Whole Story in an Abbreviated Form

• What is Franchising?- A French Word

- 1851 Albert Singer – the First US Franchisor

A Brief History of Franchising

• Two Type of Franchise Business Models?

• What is Franchising?

A Brief History of Franchising

A Brief History of Franchising

• Two Type of Franchise Business Models?

• What is Franchising?

-Trademark Franchising

A Brief History of Franchising

• Two Type of Franchise Business Models?

• What is Franchising?

- Trademark Franchising

- Business Format Franchising

A Brief History of Franchising

• Two Type of Franchise Business Models?

• What is Franchising?

- Trademark Franchising

- Business Format Franchising

- History of Franchise Regulations

A Brief History of Franchising

• Two Type of Franchise Business Models?

• What is Franchising?

- Trademark Franchising

- Business Format Franchising

- History of Franchise Regulations

The McDonald’s Story

The McDonald’s Story

Ray Kroc sells dozens of malt mixers to a hamburger joint in San Bernardino, CA

Kroc visits McDonalds to find out what is going on?

The McDonald’s Story

Kroc learns about 15₵ hamburgers, fries and malts?

The McDonald’s Story

Kroc acquires the licensing rights from the McDonald Brothers and returns to IL to launch a franchise company

1st Franchise Location in Des Plaines, IL

The McDonald’s Story

In the next 10 years Kroc’s focus is on quality, convenience and a consistent brand experience and growing the franchise system to over 200 franchise units in the mid-western states.

The advertising focused on good food, fast and at a good value

The McDonald’s Story

Kroc takes the company public in 1965 making millionaires out of many of the original franchisees and they say………the rest is history

The McDonald’s Story

A Brief History of Franchising

• Two Type of Franchise Business Models?

• What is Franchising?

- Trademark Franchising

- Business Format Franchising

- History of Franchise Regulations The McDonald’s Story

Fraud & Abuse in Franchising

• The recent financial malaise that began in 2007 will result in new regulations in the financial community and banking industry

Why Are There Regulations?

• Stock Crash of 1929 lead to the Securities Exchange Laws of 1933 and 1934.

• The abuses in franchising in the 1960’s & 1970’s lead to the adoption of franchise requirements by franchise companies

• The Enron collapse lead to Sarbanes Oxley disclosure requirements

A Brief History of Franchising

• Two Type of Franchise Business Models?

- Trademark Franchising

- Business Format Franchising

- History of Franchise Regulations The McDonald’s Story Fraud & Abuse in Franchising

UFOC in 1972-1978

• What is Franchising?

A Brief History of Franchising

• Two Type of Franchise Business Models?

- Trademark Franchising

- Business Format Franchising

- History of Franchise Regulations The McDonald’s Story Fraud & Abuse in Franchising

UFOC in 1972-1978

• What is Franchising?

FDD adopted in July 2009

Question?

A Brief History of Franchising

The Next Step in Our Discussion on the FDD is to review the actual Franchise Disclosure Document

A Brief History of Franchising