The Franchise and the Brand

Will They Survive in the Collaborative Economy

All business is founded on the single notion of human need, or perhaps more accurately, want. I’m assuming it’s a higher order function, because animals don’t typically do business.

If you stop to think about it, business existed well before money. If you needed or wanted something and your neighbor had it, you could trade him something of yours. Soon after that came the middle man, or merchant. You traded what you had to the merchant, who then traded it to someone else for something else. In this manner, goods and services circulated more widely.That’s why the merchant class came to be known as “tradesmen,” and although they were not always accorded the highest order of respect, tradesmen were recognized as a necessity.

The earliest businessmen were traders in the 19th century BCE, probably in Assyria. But until the beginning of the 17th century, there were few recorded complex business structures. One of them, interestingly enough was the franchise. The term ‘franchising’ derived from ancient French, is defined as holding a particular privilege or right. Early on, the king was the franchisor, and he granted some of his subjects certain rights, like the rights to operate ferries or local fairs. Later, he also granted rights to brew ale. It is even thought that the growth of the Church was built on the franchise model. So franchising grew up alongside other business structures as the horizons of the world expanded.

The first recorded “multinational corporation” was the Dutch East India Company, which had a two-fold purpose — to colonize the world, and to bring back the vast resources of newly explored continents to Europe. For 200 years, the Dutch East India Company controlled much of the activity in the business world of the time, establishing the world’s first monopoly.

Ironically, or perhaps predictably, what destroyed the Dutch East India Company’s monopoly was the growth of technology during the Industrial Evolution, which began in the 18th century and continued on into the 19th. Technology opened the path to entrepreneurship, and corporations were formed in a number of other industries, such as textiles, energy, mining and medicine that were far more complex than mere natural resources and spice trade.

Here the history gets more familiar. We all know the great entrepreneurs of the 19th century: Andrew Carnegie, Thomas Edison, John D. Rockefeller, and later Henry Ford. The vision of business grew larger as well: railroads and steamers gave a glimpse into the global markets of today. And when we come to the first modern franchisor, most agree that it was Albert Singer, who used franchising as a distribution model to get his sewing machines into the hands of women all over the world. Utilities and auto manufactures followed, and by the end of World War II, the first restaurant franchises.

Because franchises are based on repeatable processes and business models, they are an easy way to grow businesses in global markets. However, they’re not without their complexities. Years of experience with franchising-related issues have brought about regulations and requirements to protect both franchisor and franchisee, and the modern Franchise Disclosure Document (FDD) is the culmination of that effort.

There’s a Chinese maxim: “It’s easy to start a business, but hard to keep it open.” The franchise in its modern form is designed to help those who want to start a business keep it open. However, the continued growth of technology has altered retail, or merchandising, the most. As we move to online shopping and digital commerce, the franchise, like the Dutch East India Company, has been in danger.

And now it gets more complicated yet: the collaborative economy allows us to share rather than trade OR buy. Remember: the human want never goes away. But how it is satisfied, whether by sharing or by consuming, whether online or off, is destined for change.