How Franchising Began
by FranchiseKing, Guest Blogger
- Created: September 4, 2013, 8:38 am
My feeling is that you should go “all in” if you’re going to become the owner of a franchise business someday.
There’s a lot to learn before you open for business. There’s a lot to do, too.
· You have to research the franchises that you’re looking at
· You have to figure out financing
· You have to draw up a business plan
· You have to hire a franchise attorney
· You have to set-up your business entity
· You may have to find a location
There’s also something else that I’d you to do.
I’d like you to take a little time to learn about the history of franchising. Being a franchise owner means being a part of something that was invented many years ago. The franchise model is an amazing one. Let’s find out where it started.
Most franchise experts agree that Isaac Singer’s business technique was the spark that created franchising as we know it today.
The modern franchise business model can be traced back to a true entrepreneurial giant by the name of Isaac Merrit Singer. In the 1800’s, there was nothing “automatic” about manufacturing clothes. Everything was stitched together by hand, in not very ideal working conditions. The women who did the sewing worked incredibly long hours – and of course, everyday housewives had to do a good deal of sewing, too. It was an extremely tedious process.
Isaac Singer was the founder of I. M. Singer & Company and the first person to patent a practical, widely-used sewing machine. Though these machines started to appear on the scene in the mid 1800’s - and worked pretty well - Singer came up with an idea that made them work even better. A lot better. Good enough to sell.
The sewing machines that Singer sold were around $125, which was very expensive at the time. So, in order to make them less cost-prohibitive, Singer established a system that would make them a lot more affordable for the people who needed to buy them the most. It was actually one of his partners who came up with the idea; the first-ever payment installment plan. The plan required customers to pay $1.15 per day over the course of a month for their brand-new sewing machines. This pay-per-day method allowed people who couldn't afford to pay for Singer’s machines all at once to purchase the product within their means.
There’s another thing that Isaac Singer and his business partners utilized. They needed something that would speed up distribution. They decided to create a licensing arrangement. Here’s how it worked:
They would find businesspeople who were interested in owning the rights to sell Singer’s sewing machines in certain geographical areas. Once they found them, they’d get them to pay an up-front license fee. (Known as the franchise fee now, it’s what every franchisee pays upfront.)
In addition to having businesspeople pay the upfront license fee, Isaac and his partners required their licensees to teach consumers how to use the machines that they had just purchased. (Todays’ franchisors have formal training programs that all new franchisees are required to participate in)
How This Turned Into A Win For Mr. Singer
The best part of this…the early franchise model that Isaac Singer created, was cash flow. The money collected from the licensees could be immediately used to fund more manufacturing. That meant that a lot more sewing machines could be built, and sold. That’s because there was a brand new, ready and willing distribution network -- consisting of licensees -- all ready to go out and sell sewing machines, and train people how to use them.
Not only did Isaac Singer help create the modern franchise business model, and the huge industry behind it,* he built quite a business.
At the time of his death in 1875, Singer was worth $13 million.
Now you know about the history of franchising.
*Non US Government link
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