Stephen and Dave right a wrong from a previous episode and dive deep into the history of franchising. A system for making millionaires.

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Dave Young:
Welcome back to The Empire Builders Podcast. I’m Dave Young, I’m with Stephen Semple. And Stephen just whispered the topic into my ear and I missed something. Stephen, you said franchise and I didn’t quite catch what franchise we’re going to be talking about.

Stephen Semple:
We’re going to talk about a little bit of the history of franchising.

Dave Young:
The idea here is the idea of a franchise, the business model, if you will.

Stephen Semple:
Yeah, because if we think about the concept of this podcast as we’re talking about empires, how many business empires today would not exist if it wasn’t for the concept of a franchise where you create something and you license to that person the right to operate? And it’s grown today into being the business model and all those other things. It has allowed numerous numbers of ordinary citizens to own successful businesses and generate wealth. It has also created a way for businesses to grow rapidly because of the fact that they’re able to leverage the person’s interest, hardworking expertise, and money in order to grow these businesses. Especially in the restaurant space, there’s no way companies like McDonald’s and Wendy’s and all of these other businesses would’ve been able to grow at the rate that they grow if franchising had not been created, perfected, developed, and modernized. And those things have a journey that they went on as well.

Dave Young:
Those two key points you mentioned, give the average person an opportunity. If you can scrape up enough money to buy a franchise, you now own a business.

Stephen Semple:
Correct.

Dave Young:
And if you own a business, you created a business and you want to quickly expand to multiple markets, you can do it with other people’s money by giving them the piece of their own little location as opposed to going and borrowing it all or doing some kind of a public offering, those kinds of things, an alternate way of growing fast.

Stephen Semple:
A really interesting Netflix show to watch, and it’s not a documentary, but it’s actually pretty accurate, is The Founder with Michael Keaton.

Dave Young:
Yeah, the Ray Kroc story.

Stephen Semple:
Yeah, the Ray Kroc story. One of the things that Ray Kroc discovered was the best franchisees — franchisees are the people purchasing the franchise — were actually common, everyday hardworking folk who wanted to make a better life for themselves. Buying a McDonald’s franchise was that avenue that actually made a better life for them. And they were the best source of franchisees, not rich folks who were looking for investments. And look, Chick-fil-A. Chick-fil-A today, it’s very difficult to become a Chick-fil-A franchisee because they want to look at it and say, do you fit in? Are you that type of person? Will you actually be a great part of this family? And in Culver’s Restaurant, which I forget what episode Culver’s Restaurant is, we talked about how it’s really, really important to them that basically franchisees really fit into what’s being created.

I think it’s worth exploring the history of franchising. And I have to right a wrong, because back in episode 94, we talked about Martha Harper, and I referred to the fact that Albert Singer was the first commercial franchise. And there’s a lot of history. You read about this all over the place, that Albert Singer and the Singer Sewing Machines as being the first commercial franchise dating to 1851. Well, guess what? That’s wrong, because in 1851, John Albert Singer was only eight years old, and the Singer Manufacturing Company never offered franchises. Their stores were not franchised. They were all corporate-owned. So that is a piece of fact or a piece of information that’s floating pretty widely on the internet that is actually, believe it or not, hold your breath, Dave, inaccurate.

Dave Young:
Wait, wait. Now this is the headline, there’s inaccurate information floating around on the internet?

Stephen Semple:
Yeah, there is.

Dave Young:
I also remember, I don’t remember the episode number and I can’t remember her name, but the woman who started the first hair salon.

Stephen Semple:
Martha Harper.

Dave Young:
So that still leaves her as the first franchise.

Stephen Semple:
Well, she’s the first one who modernized it. So the first person who had the franchising concept happen in the United States, in Philadelphia on September 13th, 1731 by a guy you may have heard of, because I know you’re American, so you may have heard of this gentleman’s name, Benjamin Franklin.

Dave Young:
Well, of course, it was Benjamin Franklin.

Stephen Semple:
So Benjamin Franklin and Thomas Whitmarsh entered into an agreement for the carrying on of the business of printing in Charleston, South Carolina. So while it’s not identical to the modern-day franchise system, a lot of the important elements of franchising were in this agreement. The agreement was for six years, Whitmarsh was required to manage the business himself. He was responsible for the expenses of the business. All the equipment and the paper needed for the business were to be purchased from Franklin. And Whitmarsh was responsible for maintaining the agreement. Whitmarsh also agreed not to engage in any other printing businesses during this time, and Franklin was free to enter into additional relationships with others. Whitmarsh printed a lot of Benjamin Franklin’s works, including Poor Richard’s Almanack and things along those lines. So it had a lot of the elements of a franchise agreement.

Dave Young:
What did he pay Benjamin Franklin for it?

Stephen Semple:
I wasn’t able to find out how much he paid.

Dave Young:
It sounds like it was a pretty one-sided deal. Maybe he supplied the press.

Stephen Semple:
But it’s like you’re franchising, but you’re able to conduct this business. I’m going to use you for printing the things. I said it had some of the early elements of a franchise. As we also know when Whitmarsh died in 1733, Franklin appointed Louis Timothée to operate the South Carolina printing business.

Dave Young:
Oh wow. Okay.

Stephen Semple:
And it’s also interesting to note that when Louis died, Franklin made a franchise, and made the same agreement with Louis’s wife Elizabeth, which gives her the distinction of being the first female publisher in North America.

Dave Young:
Okay.

Stephen Semple:
It’s interesting that history started with Benjamin Franklin. Now, the person who really modernized it, again, the first that we were able to find that really created really the modern-day structure that we operate off of today is Martha Harper, who we talked about back in episode 94, where what she did is she created a haircare franchise. And it really was a franchise because you were able to use the name, you were trained by her. There was equipment that she had patented that you would get exclusive rights to. You had to buy everything from her. She had operating manuals that you could do.

So in other words, it was much more like how the modern-day franchises where you’re really picking up the name, the systems, the equipment, the processes, and she actually did the marketing also for the people. So she would do the marketing in your town. So it was much more like the modern-day franchise. And as we know, even though her name is lost to history, she grew to 500 salons.

Dave Young:
That’s a pretty big deal.

Stephen Semple:
Right. And there was a training school and all of those other things. And the last one, as we know, last location closed in 1972. So it actually existed for a very, very long period of time. But to put the record straight, the history of franchising started with Benjamin Franklin doing this basic agreement, which was really more of a supplier agreement. And then Martha Harper took that idea and really perfected it into the franchise we have today. And then guys like Ray Kroc really running with it and proving it as a business model for growing businesses.

Dave Young:
To me, this tells why the franchise as a model has been so popular in the United States especially. For the general population of the United States, almost half of the US are Myers-Briggs SJ types. If you’re familiar with the Myers-Briggs personality type, when we were using Myers-Briggs for marketing and writing and SJ, we talked about them as being methodical.

Stephen Semple:
Right.

Dave Young:
And so there’s a sort of a mindset of give me the system, give me the plan, and I will follow the plan.

Stephen Semple:
Right.

Dave Young:
Right? I will follow it to the letter. And those are the people that are going to do really well. Well, they’re going to do better than others in a franchise because-

Stephen Semple:
Absolutely.

Dave Young:
… if it’s a good franchise, you’ve got the book. It’s not just, here’s the brand, there’s a piece of land, get on it. It’s no, here are the 6,000 steps you need to make in this order before you open your door. And here are the training things you need to do. McDonald’s has a university, McDonald’s U, you’re going to send your managers and you’re going to learn how to train people. So SJs, they’re the people that can take a plan like that and just say, okay, there’s the plan. Let’s execute the plan. And we think about Wizard Academy being like… Wizard Academy is an NT, an NF, it’s an intuitive type of place. So entrepreneurs that want to invent their own thing, that want to come up with a whole new thing don’t do really well with franchises.

Stephen Semple:
No, they don’t.

Dave Young:
They want to put tacos on the Burger King menu. So there’s a place for innovation, but it’s typically not in the out-in-the-field type franchise.

Stephen Semple:
Well, this is the mistake that I think even owners and franchisors make. They are the innovative person who’s done all this, and they want to bring on somebody like them. And it’s like, no, you don’t want to bring on somebody that’s like you. You want to bring on somebody who’s actually going to execute the ideas. You actually don’t want a super innovative person in that role. Maybe a little bit is fine, but really what you want is somebody who’s going to execute.

But here’s the other important role I think franchising has played in the North American economy, because it’s similar in Canada, is when we take a look at the creation of wealth in North America, people who have become rich come from one of three sources, and it’s basically pretty equally spread. One is inherited, so you got lucky. The other is celebrities and corporate CEOs, I put those together as a group. And then the last is owning a business. So a third of the uber-wealthy, not even just the uber-wealthy, the wealthy in North America have come from owning a business.

Now, here’s the interesting part of this. This is a tale of two cities, because the other half of it is the vast majority, almost 80% of businesses don’t make it to their 10th anniversary. I think it’s actually 75%, but it’s way more than half. And most businesses, 80%, have 10 or fewer employees. So the other role that franchises have done is the people who have been really good franchise operators that have bought into good franchises like a McDonald’s or a Tim Horton’s, have been able to become wealthy because they’ve been able to own this piece of a very successful business and make a good life for themselves. So it’s served also a role inside of our economy, but it’s also been an engine that has allowed businesses to grow.

Now, there’s another side to franchises. If you read Schultz’s book, so he was one of the early people in Starbucks, basically.

Dave Young:
Starbucks, yeah.

Stephen Semple:
Yeah. If you read his book, Pour Your Heart Into It, there’s a whole section where he talks about the downside of franchising and the reason why Starbucks did not go that road because Starbucks stores are primarily corporate.

Dave Young:
What was his primary reason?

Stephen Semple:
Well, his primary reason was if you want to make a change, so all of a sudden you decide, I want to bring this new piece of equipment in, or I want to reconfigure the restaurants, or I want to do this, that or the other thing. You’ve got to get all the franchisees to buy on. When it’s corporate, you just have to find the money. You don’t have to get anybody’s approval to do anything. So in his mind, from a customer experience standpoint, it’s much easier to innovate and bring new ideas into it.

And talk about innovation and new ideas, man, I was just recently in Chicago… It’s funny, we’re talking about franchising and now we’re talking about a company that doesn’t franchise. But anyway, I was recently in Chicago and I went to the Starbucks Roastery, which is this four-story working roastery, which has also got a coffee shop in it. Man, if you want to talk about innovation and new ideas, Starbucks is taking the coffee experience up another notch.

So when I came across this information about Singer and how I was incorrect on that, I wanted to write it wrong. I thought it was very interesting that the history goes back to Benjamin Franklin, man, what a dude. And that Martha Harper actually played a far bigger role in the modernizing of franchising than I had realized. And really, it still amazes me that there’s not a business school out there with her name on it.

Dave Young:
I agree. We should change that.

Stephen Semple:
Yeah, it’s really quite remarkable. So I encourage people to go back and listen to episode 94, it’s probably one of my favorite stories, the story of Martha Harper. It’s really quite remarkable.

Dave Young:
I wish more media outlets would be willing to set the record straight if they find out that they made a mistake.

Stephen Semple:
Yeah, no kidding.

Dave Young:
Some kind of factual error.

Stephen Semple:
No kidding.

Dave Young:
Imagine what the internet would be like.

Stephen Semple:
It would be a little different, I think.

Dave Young:
I think it would. Well, thank you for doing that, Stephen. And it’s always fun talking about franchises. There are probably podcasts that all they talk about are franchises.

Stephen Semple:
Oh, there are.

Dave Young:
I’m sure of it. There are podcasts about everything.

Stephen Semple:
There is that.

Dave Young:
All right. Hey, now wait, don’t go looking for those because listening to The Empire-

Stephen Semple:
The interesting ones, we’ll cover here.

Dave Young:
Yeah, we’ll let you know. We’ll let you know if anybody says anything worth repeating. Thanks, Stephen.

Stephen Semple:
All right, thanks, David.

Dave Young:
Thanks for listening to the podcast. Please share with us, subscribe on your favorite podcast app, and leave us a big fat juicy five-star rating and review. And if you have any questions about this or any other podcast episode, email  Questions@TheEmpireBuildersPodcast.com.

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