The franchise model has been called the greatest business model ever devised. It’s created opportunities and allowed people who’ve wanted to own businesses do just that. But, how did it begin? How did franchising start?
Singer Sewing Machines – the 1850s
The modern franchise business model can be traced back to Isaac Merrit Singer. He created and patented a simpler and easier to use sewing machine. It was practical and it became very popular. Singer’s sewing machines could sew 900 stitches per minute, much more than other sewing machine that existed at the time. Because everything was stitched together by hand before Singer’s sewing machine, a fast sewing machine was huge. Sewers worked long hours in clothing factories.
At $120 each, Singer sewing machines were out of reach for most Americans. But one of Singer’s partners fixed that. He came up with what would turn out to be the first-ever installment plan. That’s right — everyday people could purchase Singer’s sewing machines and pay for it in installments. With this plan in place, Singer was able to sell a lot more machines. He just needed a better distribution method. And being the entrepreneur that he was, he figured out just how to do it. He created licensing deals. This innovative licensing system eventually laid the groundwork for future modern franchising.
Singer’s solution became to charge licensing fees to people who would own the rights to sell the Singer sewing machines in specified geographical areas. Under the groundbreaking licensing system , Singer recruited sales people interested in selling his new sewing machine in specific geographic areas. Once the sales people were recruited, he charged them an upfront fee to sell his sewing machines to consumers and teach them how to use it. The licensees had businesses of their own, as they would charge fees to teach buyers how to use the machines. And the fact was that licensees were selling a product that most households wanted. This new system proved to be a financial success and saw the first modern implementation of a franchising relationship in the United States.
Coca-Cola – 1899
Another early, very successful franchise was created by an ingenious pharmacist named John S. Pemberton. In 1886, he created a beverage consisting of sugar, molasses, spices, and cocaine (which is no longer an ingredient). Pemberton sold licenses to selected people to bottle and sell the drink, which is now known as Coca-Cola. His was one of the earliest—and most successful—franchising operations in the United States.
At the time, the cost of transporting a bottled drink in glass bottles was too expense, so it would limit his potential sales to sites near the manufacturing facility. So what he did instead was offer to ship just concentrated syrup to his franchisees, and require the local franchisees to bottle the soda under strict formulas and processes to assure the quality of his Coca-Cola soda. This allowed him to expand his product rapidly to distant markets without the need for extreme capital that his company would need to create its own factories in many locations.
Coca-Cola issued its first franchise in 1899. Franchisees obtained the rights use the Coca-Cola formula and a valuable trade name, and the bottlers were able to overcome the transportation issue. In 1901, Coca-Cola issued its first franchise to the Georgia Coca-Cola Bottling Company.