It is a documented fact that between the years 2002-2008 a lot of franchises were sold. Not coincidentally this was also the time when the franchise lead generation portals began to proliferate. And so, one could argue, 2002-2008 could be seen as the Golden Age of franchise sales. But with the success of franchising, a smug triumphalism soon began to appear in all corners of the franchise industry—from franchisor to franchise broker to franchise portal. The near sacrosanct idea that the machine of franchising would always move inexorably forward at a steady pace no matter the state of macro-economic environment became commonplace. It was enshrined in the “fact” that franchising had always done better in periods of economic downturns. That has “all changed, changed utterly”–to borrow a phrase from William Butler Yeats. The long hard slog out of the recession has laid bare the ugly truth that franchising is not immune from the macro-economic problems that beset the wider economy.

And so a pressing question is whether there are endemic problems with the current model of franchising? Or, is it simply the fact that although franchising is now understood to not be immune from macro-economic factors the model of franchising is sound and one need only wait patiently for the recovery for franchising to return to the Golden Age, Take Two? I do not pretend to have the definitive answer to this question. I would surmise, however, that the answer lies somewhere in the middle. When the economy turns around and lending purse strings are loosened the sales of franchises will improve. Of that I am confident. At its simplest, most basic form, franchising is an amazingly efficient product distribution model that will contribute to the global economy for the foreseeable future.

With that said, it is hard to envision how and why the future of franchising will look the same as it did in the recent past. Franchising as a business model is only as good as the businesses of which it is comprised. The more franchises that fail the weaker the model becomes in the eyes of the prospective franchisees. And so to the extent that failed franchises are seen more as the rule rather than the exception franchising will have to contend with a back-draft of negative perceptions. While it may be beyond peradventure that in our capitalist system every business that wants to franchise should be allowed to do so, we must remember that franchising does not sit alone on an island. Franchising is held out as being a system that is a cooperative association. It is a private association between the franchisor and the franchisee; but is also a very public association between the franchisor and the larger system of franchising.

Thus the franchise community has an interest in having the perception of franchising remain as positive as possible. Perhaps it is time for the franchise community to be a little more honest with itself as to why some franchises fail and some do not, and what could be done about it to assure that the least amount of harm is done to the industry when franchises fail. Maybe the time has come for the franchise community to acquaint (reacquaint?) itself with the idea that failed franchise systems are deleterious to franchising’s “brand”. One of the hallmarks of franchising is the ability to establish and protect a brand. I would argue that the brand of franchising qua franchising needs to be protected as well. Perhaps it is time for the franchise community to be a little more attentive to what can be done corporately to make certain that the next generation of franchisors will be just as successful as those who came before.

It is by no mean my intention to say that the Darwinian spirit of capitalism should be suppressed in franchising. I am a firm believer in letting the market decide who should stay in business and who should not. With that said, it would be a shame were we to allow backward looking pride to facilitate the system of franchising down a path akin to that of Percy Bysshe Shelley’s “Ozymandius, King of Kings”. That is to say, it would be folly of the highest order to carve in stone any notion that franchising has an indivisible slice of the economic pie of the world economy.

What does the does the arcane socio-economic philosophy of Distributism and the business system of franchising have in common? On the surface it would appear that not only are the two concepts not philosophically similar, any comparison between the two is akin to comparing apples and oranges. Upon further examination of the central tenets of the two, however, it is clear that there are some areas in which the two systems have striking similarities. In fine, the system of franchising has as its bedrock many of the same principles that underlay Distributism. This essay briefly sets forth similarities between the two systems and the importance of recognizing these similarities.

America is experiencing a re-assessment of the belief that laissez-faire, free market capitalism is an unalloyed good. With the collapse of the capital markets in the Fall of 2008, it is beyond peradventure that a certain amount of state controlled economic governance is likely to be the result of what some are calling the “Second Great Depression”. Many on the Left are saying that a critical investigation into the merits of the Austrian school of economics that has held sway over our public policy since the early 1980’s is long over due. While many on the Right say that the problem is not with free market capitalism it is that free market capitalism has not been thoroughly tried; that we have had state intervention in the economy in some form or fashion since the last Great Depression. Read the rest of this entry »

Joel Waldfogel, a University of Pennsylvania professor, has written an interesting and controversial little book called Scroogenomics. His central premise is that every holiday season we Americans waste about 12 billion by buying gifts for people who place a value on the gifts that is less than what we actually paid for the gifts. How he goes about calculating this figure is simple, if somewhat controversial. The crux of his theory revolves around the economic concept of “dead weight loss”. Looked at from a macro-economic perspective dead weight loss is the cost to society created by inefficiency in the market. Professor Waldfogel posits that this waste occurs because “when other people do our shopping, for clothes or music or whatever, it’s pretty unlikely that they’ll choose as well as we would have chosen for ourselves. We can expect their choices, no matter how well intentioned, to miss the mark. Relative to how much satisfaction their expenditures could have given us, their choices destroy value.”

He triumphantly makes his point by closing the above paragraph with “Take that, Santa.” Read the rest of this entry »