Learning about franchising

Franchising works. According to a 2004 survey done by the consulting arm of PricewaterhouseCoopers for the International Franchise Association Educational Foundation, more than 9.7 million people in the US work in the world of franchising. Franchising is found in almost every industry, from the most visible - the fast food industry - to hotels & motels, educational services, home repair and remodeling, health & wellness services, and business support services. According to the IFA, some industry analysts indicate that sales through franchises businesses have grown faster than the gross domestic product. And over 50 percent of retail sales are made at franchised shops.

So if franchising is such a powerful economic engine, then what's driving it, and how can you get involved?

At its most basic level, franchising is a business relationship. In fact, in my opinion, franchising is the most relationally intense business concept that exists. This relationship links a company that wants to distribute a product or service and an entrepreneur who wants to run his or her own business. In both types of franchises, the company that sells the rights to distribute a product or use a business format is called the franchisor. The businessperson who buys those rights is called the franchisee.

The company that owns the product or service grants a limited license to the person who wants to sell or distribute that product or service. There are two types of franchises that exist today: product distribution and business format. Product distribution franchises involve an agreement between the manufacturer and entrepreneur granting the rights to sell the manufacturer's product, but do not operate under the name of the manufacturer.

The more common type of franchise today is called business format franchising: the company offering the franchise provides not only the product or service, but also licenses the entrepreneur, who wants to start the business, an entire system for running that business.