Written by: Dave KetchenJeremy Short

Jim Combs

Illustrated by:Wil l Terrel l

Shading by: Amber Terrel l

Flat World Knowledge, Inc.1 Bridge Street, Suite 105

Irvington, NY 10533www.flatworldknowledge.com

Tales of Garcon: The franchise PlayersAll Rights Reserved© 2011 Jeremy Short,

Dave Ketchen, Jim Combs

ISBN-13: 978-1-936126-03-3

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.

Frequently asked questions about Tales of Garcón

A graphic novel textbook? Yes! Tales of Garcón combines the academic rigor of traditional textbooks with the fun of graphic novels. The result is more student learning and involvement. Your students will read this book without complaint.

What topics does Tales of Garcón cover? Tales of Garcón offers comprehensive coverage of key issues within family business, franchising, and small business management.

What support materials are available? Tales of Garcón and the instructor’s manual together offer a glossary of key terms for each chapter, a detailed summary of each chapter, interviews with entrepreneurs and executives, in-class exercises, recommendations for further reading, and a few special surprises.

Seriously, a graphic novel textbook?? Absolutely! Tales of Garcón is Flat World Knowledge’s third graphic novel textbook coauthored by Jeremy Short and Dave Ketchen. The first two (Atlas Black: Managing to Succeed and Atlas Black: Management Guru?) received very favorable coverage from higher education magazines (e.g., Inside Higher Ed, BizEd), business periodicals (e.g., Wall Street Journal, BusinessWeek), academic journals, (e.g., Academy of Management Learning and Education and Business Horizons), and daily newspapers (e.g., Dallas Morning News, Houston Chronicle). According to Dr. Dale Dunn, MBA student and pathologist, “The graphic novel has a definite place as a valid educational tool and as such can offer educators a novel mechanism of teaching while concomitantly providing students a more innovative and memorable way of learning.” Not surprisingly, instructors that have used the Atlas Black books have received their strongest teaching evaluations ever.

And finally, here’s what Rich Dad Poor Dad author Robert Kiyosaki said via Facebook and Twitter in reaction to an interview of Jeremy Short about graphic novel textbooks: “Here’s a professor who gets it. Textbooks [stink]. Make school fun and the learning increases.”

Have more questions?E-mail us at talesofgarcon@gmail.com.

3

Garcón: A renowned entrepreneur and adventurer. Raised by a Creole father and a Latina mother on the family vineyard, Garcón enjoyed a series of harrowing esca-pades around the world as a young man. Following the disappearance of his beloved wife, Garcón created Hotel Garcón. His outstanding hospitality has made this family business extremely successful.

Ramón: Garcón’s oldest child and his heir apparent. Ramón is officially the manager of Hotel Garcón, but his immature and goofy nature forces other family members to cover for him. Ramón wants to prove that he is worthy of taking over Hotel Garcón by growing the business in new and exciting ways.

Isabel: The younger sister of Ramón. Isabel is very intelligent and insightful, and is pursuing a Master’s in Business Administration (MBA). Isabel rightfully wonders why Garcón views her older brother as the next leader of the family business, and she is skeptical of Ramón’s decision-making skills.

Audrey: A potential franchisee of Hotel Garcón. Audrey also appears to be interested in a personal relationship with Ramón, and she cannot understand why Isabel does not trust her.

Isaac: The head bartender at Hotel Garcón. Isaac is treated like a family member by Garcón and his children. Isaac harbors a strong distaste for franchising, and he is very wary of the possibility that Hotel Garcón will be franchised.

Felix: Owner of a franchised hotel locatednext to Hotel Garcón. For many years, Felix was Garcón’s sidekick during his adventures. Garcón blames Felix for his wife’s disappearance,and the former partners have long been at odds.

Mark: The son of Felix. Mark is also Ramón’s best friend, and he manages his father’s hotel. Mark has long had a crush on Isabel, but Mark lacks the courage to tell her how he feels.

Ice: Isabel’s boyfriend and her classmate in the MBA program. Ice’s self-confidence is surpassed only by his arrogance. Some claim he bears an uncanny resemblance to mark.

The Players

4

Table of Contents

Chapter 1

Advertising fees – 12Business format franchising – 11Franchise fee – 12Franchisee – 5Franchising – 4–5Franchisor – 5Free riding – 14Heir apparent – 2Product franchising – 10Residual claimant – 13Royalties – 12The Franchise Rule – 22

Chapter 2

Agent – 17–18Antitrust law – 3Exclusive dealing – 3Franchise Disclosure Document – 4–6Monitoring – 19Principal – 17–18Registration state – 11–13Territory – 2Tying – 3

Chapter 3

Business model – 12Family business culture and history – 13Goal conflict – 3Industry norms – 16–17 Operational complexity – 12Operations manual – 12Succession – 20Support services – 17Survival – 21

Chapter 4

Advisory council – 10, 14, 16–23Area development agreement – 13Capital scarcity – 2Conversion franchising – 26Family council – 10, 14, 16–23Franchisee association – 23Franchisee support services – 16–20Organic growth – 21

Chapter 5

Management fads – 17Matrix organization – 17Nepotism – 15Quality circles – 17Strategy as pattern – 6Strategy as perspective – 7Strategy as plan – 2Strategy as ploy – 4Strategy as position – 5Symbiosis – 5

Chapter 6

Bricolage – 18Contract length – 19–22Contract renewal clause – 19Contract termination clause – 9Limited liability company – 26Proven business concept – 2Selection criteria – 10Sole proprietorship – 26

Chapter 7

Estate planning – 18Hold up – 4International expansion – 7Master franchising – 11Obsolescing bargain – 1Passive ownership – 13Underinvestment – 5

Tales of GARCóNTales of GARCóNChapter 1: The Game's AfootChapter 1: The Game's Afoot

The Franchise Players The Franchise Players

1

and again, i apologize that my father

was unexpectedly detained elsewhere.

HOTEL GARCóN

...let me closeby thanking you

for coming. although hotel garcón

is a small business,we have big dreams.

we invite youinvestors

to, uh, invest...

in thosedreams.

on behalfof the entire

Garcón family...

2

You may beright, Isabel,

but my board wouldnever approve investing

in a boutique hotel.It’s too risky.

No offense, kid, but your sister

would be a betterheir apparent.

My hair is justas apparent as

hers!how can

you possiblycompete with the

big brands?

If you openmore hotels,

As theeldest child,I will take

the helm afterEl Almirante.

Ramón, whowill take over

when yourfather retires?

Well, uh,you see,

it’s just that….

Mine either.But please give

Garcón my regardswhen he returns.

I think mybrother means

that Hotel Garcónoffers a personal

touch that thegiants lostlong ago.

Ramón clearlylacks the admiral’s

business savvy.

3

Estúpido!!

Nowwhat?

Papa alwaysfinds a wayto end upon top.

El Almirantewill be so

disappointed!

How did theinvestor

presentationgo?

Not sogood,Mark.

The bankersdon’t think we

can compete withchain hotels.

they don’t realizethat the chain hotel Imanage next door hashalf the customers Hotel Garcón does!

Maybe that shouldhave been included

in my talk.

Ha!

Don’t worry, RamÓn.

4

I was hoping tospeak to the heir

of this fineestablishment.

That'sme!

What canI do for

you?

And feel free toprovide multiple

answers.

I'd like totake you to

a place you'venever been.

Hogwarts?

I'm talkingabout

franchising,

and how itcould provide

your familymore wealth

than youcan imagine.

I don't know.I can imaginequite a bit.

.

You'llhave it.

Andmore.

5

I’m in!

The word franchise hasits roots in the French

word franc, which means"to make or set free."

Don’t youwant to beset free?

Wow,she speaks

French.

Um,set free

how?

Don’t think offreedom from

something,but freedom

to pursuesomething –

– such asbuilding a

great brand.

What, exactly,is franchising?

It’s simple really. One firm,the franchisor, sells the rightto market goods or services

under its brand name and using its business practices to asecond firm,the franchisee.

So, we’d bethe franchisorand you’d be

the franchisee.

Exactly!See, we’re

practicallythere already.

6

What my brother meansto say is that this seemslike a great opportunity,

but we need to thinkabout it a bit more.

Well, of course. How about I have

my lawyer draw upsome preliminarypapers and we’llchat more aboutthis next week?

seemsattractive

to me!

Couldyou be more

specific?

7

Franchising!

Audrey wantsto make us rich.

Sure, strangersroutinely offer toline our pockets

with money.

Indeed,I regularly

receive e-mailsfrom overseasto that effect.

Well, franchisinghas fueled explosive

growth for firmslike McDonald’s

and Subway,but it’s complex.

We needsome expert

advice.

– AndI know

just theperson.

Is it the widowof a deposed butwealthy general?

8

Professor!Over here!

Silly me,I assumed you wereinviting me to play

actual golf.

When Ramón says, “meet me at the

first hole,” he means “Buccaneer Cove.”

Arrrr,let’s tee off,me mateys.

I’m not sureI can helpyou much,

I knowlittle aboutfranchising.

But yourtitle is “Professor

of Entrepreneurship.”

Following apremade

formula is notentrepreneurship.

Humph!

9

So there couldbe a Hotel Garcón

in every town inAmerica!

followinga recipe

step-by-step?

Is that allfranchising

is?

franchisinginvolves along-term

cooperativeagreement

between twovery differenttypes of firms.

Well,not

exactly.

A masterand an

apprentice?

In away, yes.

The franchisor developsa business opportunitythat has the potential

to be profitablydelivered in different

locations,

andfranchisees exploit

the opportunity on alocal or regional

basis.

10

Product franchises can be tracedback at least to the 1830s, when

German brewers started offeringpub owners working capital andgenerous credit in exchange foran exclusive supply agreement.

I’m a little confused.Our uncle looked into

buying a tractor franchise,but that seems a lot

different than creatinga hotel franchise. They are probably

better thoughtof as distributors. Finished products

are delivered to them, and they turn around

and sell themto the public.

Indeed, franchises for hardgoods like tractors, gasoline,

and tires are called“product franchises.”

I thoughtfranchisingstarted in

the U.S.

After all,we’re the bestat everything!

Uh, haveyou tried

Germanbeer?

11

Franchising hit our shores in 1851,when the Singer Company beganoffering people territories forselling their sewing machines.

What you two areconsidering is called

“business format franchising.”This is used in settings likehotels, restaurants, drycleaning, and real estate

– where aproduct or service is both created andconsumed locally.

That seems a lotmore complex thanjust distributingbeer or sewing

machines.

Indeed,it is. Kind

of like puttingthrough this

dragon.

12

What doeseach side ofa business

formatfranchisingrelationshipgive and get?

Let me seethe backof that

scorecard…

Collectingfranchisee feesand royalties

seems wonderful,but franchisinghas some key risks too.

Franchiseegets Proven business

concept, brand name, and training/support

Franchisor

(you) gets fee upfront

and ongoingroyalties

So,essentiallya franchisee

would buy therights to use

the Hotel Garcónconcept and

our operatingprocedures.

And they

would applyto a particular

geographic area,

perhaps aparticular

town or state.

Yes. These rights would lasta certain length of time,

such as ten years.

We’ve done thehard work,

now we just sitback and collect

money.

Being a franchisor

sounds justlike tenure!

13

It’s simple really.After all the bills

are paid

– royalties,labor expenses,rent, utilities,

costs of supplies,everything –

whatever moneyis left overis profit for

the franchisee.

Ramón, haveyou ever had

a lousy meal ata famous fastfood place?

About four years ago,I got food poisoning

courtesy of an“Attila Thrilla” from

Barbarian Burger.

Perfect.Have you been

to that restaurantchain since?

Absolutelynot.

It doesn’t takemuch for a brand

to be ruined inthe eyes of a

consumer.

So, badfranchisees

can underminea company.

Audrey wouldnever do anything

like that! Don’t be sosure, Ramón.

As residualclaimants,

franchiseeshave powerful

incentives to cutquality.

I justknew we

could not getthrough golf

without a crazymanagement

term.

What in theheck is a“residual

claimant”?

YES!

14

So if a franchiseecan cut her expenses,

like by leaving burgersout under hot lightsfor hours instead ofthrowing them out,

then her profitsgo up!

Exactly.But the brand

suffers.

As dideveryone riding

in the car that daywith Ramón.

I see that this next hole hasus aiming at a clown’s nose,

so our round is comingto an end.

Let merecommend

a book to you.It’s calledFranchisingfor Nitwits.

That soundslike a book

that even Ramóncan handle.

Be quietlong enough

for me to putt…

Freegame!!!

Arrr,you scalawagsbe on your way,I have 18 more

holes ofconquest.

15

That’s not a bad idea. We could have a fun mealwith a small but whimsical toy that looks

like Isabel that we deliver with room service!!

Any biteson yourinvestor

pitch?

Hi,kids.

hey,Isaac!

– an angel. With her help,Hotel Garcónmay become a

householdname.

Onlyone –

Who toldyou all

this?

Her name is Audrey.She wants to buy afranchise from us,and she seems tohave cast a spell

on someone.

Becoming part of theMcDonaldization

of society.

Franchising! Translation,selling out.

16

Why do you thinkthere are so

many franchisesin big cities?

People want theefficiency andpredictability

that come withstandardization.

Your hotel bringssomething unique to thecommunity, and you want

it to become part of apredictable experience.

That’snot what I

meant.

An experience thatcan now be shared

by everyone!

Where’s theexcitement in

that?

That’s why I hategoing to chains when

I visit the big city.

You’re kind ofa dream killertoday, Isaac.

That’s yourdream?

To createanother soulless

franchise?

17

I guess I owe Isabelfive bucks for our wagerthat you’d never open abook after graduation.

... And maybe by training our franchiseeswe can replicate what is unique about

the hotel in new locations.

Yes!

Iknew you’d become abeliever.

It stillseems likea deal with

the devilto me.

Perhaps you’d beconvinced if you read

this book the professorrecommended.

18

The original Coke franchise territorieswere sized based on how far a horse-drawn cart could travel in one day.

Here are a few funfacts in the book

that show how importantfranchising is for the

overall economy.

The only thing thatcould possibly be moreboring than this messof stats is a history

lesson.

Funny youshould

say that.

According tothe book, a key innovationbegan in the 1890s, when

Coca-Cola started sellingits secret formula to franchisees who madecoke, bottled it, andsold it to local drug

stores.

19

In 1925, A&W Root Beer became America’s firstfranchised fast food concept, primarily to sell

root beer to its exclusive franchisees.

In 1935, Howard Johnson became the firstfranchised table-service restaurant.

By 1941, the system had about 150 stores.

This demonstrated thatfranchising could fuel

rapid growth.

Rapidgrowth? 150 stores seems

small compared totoday’s behemoths like

Barbarian Burger.

20

According to our trustybook, modern franchises

like Barbarian Burgertrace their roots

to the 1950s.

During World War II, General Dwight Eisenhower wasvery impressed by how quickly people and goods couldmove from place to place using Germany’s Autobahn.

after “Ike” became president in 1953, he started building theinterstate highway system. The interstates created hugeopportunities for franchising because travelers grew in

numbers, and they wanted consistency in food and lodging.

The growth of television at thistime helped a lot too, becausetelevision advertising allowed

firms to build national brands.

These two trends helpedbrands like McDonald’s, Wendy’s,

Kentucky Fried Chicken, Holiday Inn,and Sheraton become household

names.

Franchisingreally is

magic.

21

your luck hasrun out, punk.

Shady operators convinced franchiseesto cough up hefty franchisee fees and

provided nothing in return.

Hmm, but sometimes it is

black magic.

Apparently thepopularity of

franchising in the1950s and 1960s

opened the doorsto fraud.

See,franchising

is evil.

starting in the 1970s,the Federal Trade

Commission and manystates tried to protect

franchisees fromfraud by regulating

franchising.

But the evildid not gouncheckedfor long.

22

I have totell themwhat?!!

A key step was the Franchise Rule of 1979, which requires afranchisor to reveal to franchisees important informationsuch as the fees it charges, its financial condition, and what

support franchisees receive.

Ugh, no more,my head hurts.

Say, you knowwho might be usefulto talk with about

all this?

Our cousinwho owns a spa

franchise?

I guess that waskind of an obvious

question.

I meant itrhetorically.

It’s not a bad idea.I haven’t seen

Stephanie in a whileand she’s likea sister to me.

Actually, I alreadyhave an appointment

scheduled todayfor myself and Mark.

Perhapsnext week,

sis?

Estupido!

23

You cansort out yoursquabble in thewaiting room.

Welcome to Spa*Taneity.We have you two down

for deluxe facials.Facials?

You told meto make an

appointment.

You said you wantedme to go with you tosee your cute cousin.

Andyou will!

Whilstalso being

refreshed andrejuvenated.

You twoare socute!

24

Thosetowels are to

cover your hair!not your

body!

We’ll be withyou in just a

moment!

Hey,cousin.

Well, thatclarifies

some things.

And youdefinitely didn’t

need to getundressed.

Stephanie,great to, um,

see you.

I’m gladto see youtoo, Ramón,albeit a bitsurprised.

Well,I’ve been tryingto become partof the leisure

class for years.

And it seemsfranchising is the wayto do it!

This placeis great.

25

And being afranchisee definitelyhas pros and cons.

It’s not allmassagesand games.

Suchas?

On the plus side,we get tons ofgreat products

with a well-knownbrand name.

We also get support from thefranchisor, such as training.

And Spa*Taneity has aproven formula, withhundred of outletsacross the country.

And itstill seems

pretty unique.

I didn’t even know thisplace was a franchise

until RamÓn told me.

26

Andthe

cons?

Well, paying the$25,000 franchisee

fee up front wastough to swallow.

I pay 5% of my sales in royaltiesand another 3% goes to advertising

the brand. So only 92 cents ofevery dollar goes toward keeping

the spa going.

For example, Spa*Taneitywon’t let us do backwaxes although manyof our clients have

requested them.

And youlose some

independence. I see Mark

dodged a bullethere today.

Meanwhile, my ten-year franchising agreementexpires in two years, and corporate could

decide not to renew it.And their support isn’t

always that great.

Use jalapeÑoslices if yourun out ofcucumbers.

thisprofitable

territory isours now.

27

Another conis that you

aren’t really anentrepreneur.

What?

Isabel’s formerprofessor told mefranchisees aren’t

entrepreneurs.

I own andoperate this business.

I considered dozens ofopportunities before

deciding on Spa*Taneity.

That sounds likeentrepreneurship

to me.

I guess Isabel’salma mater won’tbe expecting a big

donation from youanytime soon.

So let’s get tothe bottom line.

Do you thinkthe hotel is

right forfranchising?

I really do.The service and

the atmosphere areunique, and I

believe you andIsabel could train

people in the“Hotel Garcón Way.”

Ramón, for yourfuture reference,

what your cousinjust offered is

called a compliment.

Well, there is a big “but”; the idea is great,

but you must choose your franchisees very carefully…

28

back at club GARCóN... Audrey,over here!!!

Hi, partners, I’ve got something

special for you.

Would you likesomething todrink… ma’am?

Only if you servethe sweet nectar

of wealth.

Goodone!!!

What’s all thecommotion over

there?

It’s showtime!

Garcónhas

arrived.

29

but the tigerslearned a

valuable lesson…

Welcome,my friends,

to

HotelGarcón!

I regret my absencethe last few days.

Some old amigosneeded my help withsome stray cats.

Stray cats?That seems beneaththe great Garcón!

Not when thecats are tigers,

and they are strayinginto a village.

Ah….

Is that howyour arm was

damaged?

Appearancescan be deceiving.

I amuninjured!

30

It means“look before

you leap,”amigo!

Whenever you growyour territory,

So when times get tough…

you invade someone else’s.

…You must be surethat your partners

will not turntail and run.

Peopleactuallylike this?

What?

I said, I like this!

And now, my friends,let me buy you all a drink.

Top shelf, of course! We shall toast to the tiger.

¡Antes que te cases,mira lo que haces!

Huh?

31

Let’sget back to

business.

Franchise fee, $1,000.Royalty, 1% of profits…

Seems quite fair,where do we sign?

Hold on,our friend Jeanette

has dealt withfranchising in herlaw practice, andshe offered to

examine thecontract.

I don’tsee the need, our lawyerhas alreadyapproved it.

I thinkyou mean your

lawyer.

We will getback to you

after we meetwith ours.

El Almiranteput me in

charge ofgrowing

the business,

and I willdecideif we

franchise!

I thinkwe have aproblem.

32

From the Desk of Garcón: A Summary of the Tale So Far

Welcome, amigos. Our story begins at Hotel Garcón, my humble oasis for weary travelers who long for our legendary hospitality. I can assure you that their expectations are not only met, but exceeded.

Family firms such as ours account for roughly 80% of businesses worldwide. The intermingling of busi-ness and family relationships within a family firm often creates interesting interpersonal dynamics, and Hotel Garcón is no exception. Although each of the Garcóns feels a fierce loyalty to the others, a variety of strong opinions exist. There is grave danger here. Variety may be the spice of life, but family discord could ruin our firm’s recipe for success.

You have stumbled upon our family at a critical moment. My son Ramón is looking to expand our brand. While I was away on an adventure, Ramón gave a presentation to potential investors outlining the reasons why they should offer financial backing for our growth plans. Although my daughter Isabel reported that the presentation was pitiful, a provocative investor named Audrey was intrigued by the hotel’s growth prospects. Audrey proposed to create a franchising relationship between Hotel Garcón as the franchisor and herself as a franchisee. This would involve Audrey building a hotel and operating it under the Hotel Garcón name. But is my family capable of becoming franchise players? I have entrusted Ramón with making this choice. As my heir apparent, Ramón must learn to navigate tough decisions so that he can one day take the helm of the family business.

Ramón seemed smitten with the idea of franchising – and with Audrey – but Isabel insisted on learning more before moving forward. Over a game of mini-golf with one of Isabel’s professors, the siblings discovered that franchising is a long-term relationship wherein each side provides certain benefits to the other. A franchisor (such as Hotel Garcón) provides a proven business concept, a brand name, operational procedures, and training/support. The franchisor also promotes the brand, introduces new products and services, and updates operational procedures as needed. In return, a franchisee (such as Audrey) pays an upfront franchisee fee and an ongoing royalty fee (which is typically a percentage of the franchisee’s sales). In running the franchise, a franchisee agrees to implement the operational procedures under the franchisor’s brand name and to uphold quality standards in their location or region.

As fortune would have it, my lovely niece Stephanie owns a spa franchise. Ramón and his best friend Mark visited the spa to learn about franchising from a franchisee’s point of view. Stephanie explained that, in comparison to starting an entirely new business, becoming a franchisee has important advan-tages, including joining an established brand, using proven procedures for running the business day-to-day, and support from the franchisor, such as site selection, lease negotiation, and training. On the downside, however, franchisees operate on tight margins because they must pay franchise fees and royalties, they have limited flexibility to solve problems and adapt to local demands, they face some risk of nonrenewal when their contracts expire, and franchisor support can vary a lot in quality. Based on her experience, Stephanie believes that Hotel Garcón franchises could be very successful. This news warmed my soul like a soft kiss at dawn.

Soon after Ramón’s visit to the spa, I returned from overseas and held court with the hotel’s guests. Surrounded by the festive spirit that is at the heart of the Hotel Garcón experience, Audrey made a formal proposal to Ramón and Isabel to become our franchisee. Tensions erupted between my prog-eny as Ramón embraced the proposal and Isabel remained very skeptical. It seems that both of them inherited their father’s passion – and his stubbornness. Isaac, our lead bartender and a long-time family friend, was troubled by the dispute and shared his concerns with a mysterious confidant. After completing the story of my most recent adventure, I bought all of our guests a drink.

Top shelf, of course!!

33

Key Concepts

Advertising fees – Money that is collected from franchisees and then used to market the brand. These fees are usually a percentage of franchisees’ sales. The franchisor cannot keep this money; it must be used to support the brand.

Business format franchising – A franchise relationship that involves creating and distributing a branded service. Some business format franchises involve the sale of physical products to custom-ers (e.g., restaurants) while others do not (e.g., dry cleaning).

Franchise fee – A one-time fee paid by franchisees to the franchisor prior to the opening of a new outlet.

Franchisee – A firm that purchases the right to use another firm’s brand name and business system within a specific geographic area for a specific period of time. Franchisees pay upfront and ongoing fees to the franchisor. Franchisees also agree to follow the franchisor’s operational procedures and uphold quality standards.

Franchising – A long-term contractual agreement in which one firm (the franchisor) sells the right to market goods or services under its brand name and using its business practices to a second firm (the franchisee) within a specified geographic area and for a specific period of time.

Franchisor – A firm that owns a business system and sells to franchisees the right to use the system within a specific geographic area for a specific period of time. The franchisor provides a brand name and associated trademarks as well as operational procedures. The franchisor also promotes the brand, introduces new products and services, and updates operational procedures. Most fran-chisors provide some support services, such as training and help with site selection.

Free riding – When a member of a team does not live up to its commitments and hurts the team as a result. For example, a franchisee can save money by cutting the quality of the service it provides to customers, but this will harm the franchisor’s brand.

Heir apparent – The person who is likely to be the next leader of a firm. In some family firms, the choice of the heir apparent is influenced by a gender bias (males are given preferential treatment) and/or a birth order bias (older siblings are given preferential treatment).

Product franchising – A franchise relationship that involves the sale of branded goods, such as in soda bottling, auto dealers, and gas stations.

Residual claimant – The person or set of people who are entitled to the profits (if any) that remain after all of a firm’s bills are paid.

Royalties – Ongoing payments that franchisees make to franchisors for the continued use of the business system. Typically, royalties are calculated as a percentage of sales.

The Franchise Rule – Regulations put in place by the Federal Trade Commission in 1979 requiring that franchisors disclose to franchisees key information about (1) the nature of the franchise system, (2) the franchisor’s financial viability, (3) the costs involved in purchasing and operating a fran-chised outlet, (4) the terms and conditions that govern the franchise relationship, and (5) the names and addresses of current franchisees. The regulations were updated in 2007.

34

Further Reading

Aronoff, C. E., Astrachan, J. H., Mendoza, D. S., & Ward, J. L. 1997. Making Sibling Teams Work: The Next Generation. Marietta, GA: Family Enterprise Publishers.

Barach, J. A., Gantisky, J., Carson, J. A., & Doochin, B. 1988. Entry of the next generation: Strate-gic challenge for family business. Journal of Small Business Management, 26: 49–56.

Barnes, L. B. 1998. Incongruent hierarchies: Daughters and younger sons as company CEOs. Family Business Review, 1: 9–21.

Bork, D., Jaffe, D. T., Lane, S. H., Dashew, L., & Heisler, Q. C. 1996. Working with Family Businesses: A Guide for Professionals. New York, NY: Jossey-Bass.

Brokaw, L. 1992. Why family businesses are best. Inc., March: 72–81.

Dicke, T. S. 1992. Franchising in America: The Development of a Business Method, 1840-1980. Chapel Hill: University of North Carolina Press.

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Are Franchisees Entrepreneurs?

Don Larose, Senior Vice President of Franchise Development, Express Oil Change, LLC. http://www.expressoil.com*

That is a great question. Franchisees may not be “entrepreneurs” in the fullest sense of the word, because by necessity to be a part of a franchise system they must follow the rules and requirements of the franchise system, which limits their decision-making autonomy. Following the franchise system’s requirements are critical in order for a brand to provide a consistent offer to the consumer and have a brand identity. Without that brand consistency, the customer wouldn’t know what to expect, and the value of the business would be greatly diminished.

Franchisees are, however, entrepreneurs in the most important meaning of the word, and that is that franchisees put their own capital and net worth at risk, seeking the best return on their investment.

Keith Schilleci, President of Momma G’s, Inc. – a company that is building a franchise network around the Momma Goldberg’s Deli brand. http://mommagoldbergsdeli.com*

An entrepreneur is a pioneer with an individually designed enterprise, plan, or idea. Entrepreneurs plan, devise, and implement their concept and business model primarily on their own. They control the direction and implementation of their enterprise and accept full responsibility of the outcome. They accept the majority of risk and reward.

A franchise offers someone the opportunity to own and operate their own franchise business. There is obvious risk and reward for the franchisee, but the risk and reward is shared to some extent with the franchisor. The business model and concept has been developed and is implemented with the assis-tance and support of the franchisor. To some degree, a franchisee is dependent on the direction and level of success of the franchisor. In my opinion, a franchisee does not meet the definition of a true entrepreneur.

Tom Hunt, Owner and President of PHD Hotels, Inc. – a franchisee of Hampton Inns. http://www.phdhotels.com

A franchisee is absolutely an entrepreneur. Anyone who is willing to take a risk by putting their own money and many times all they own on the line for a business is my definition of an entrepreneur. If you want to start your own business by choosing a franchise company, your first risk is the task of searching different franchisors and choosing the right one. I would not consider all franchisors entrepreneurs as many of them are large public companies. Although the CEO of a large public com-pany has a very demanding job, I would not consider them an entrepreneur.

* Reprinted with permission from the Journal of Applied Management and Entrepreneurship

“Which of my children should succeed me at the helm?”

“Should our family firm expand,or should we be content with thesuccess we enjoy now?”

“How can I ensure that ourfamily firm thrives in the future?”

The founders of family firms wrestle with complexquestions like these every day, and the answersare elusive. In Tales of Garcon: The FranchisePlayers, a charismatic entrepreneur namedGarcon tries to direct the destiny of thefamily-owned hotel that he created. The family’splans take an unexpected turn when a mysteriousinvestor offers to become the hotel’s firstfranchisee. Garcon’s carefree son Ramonreadily embraces the opportunity, while hiscynical daughter Isabel questions the investor’smotives. Written in an engaging style, Tales ofGarcon: The Franchise Players covers keyconcepts from family business management,small business management, and franchising.This graphic novel can serve as the main textfor a college course, as a supplement to atraditional textbook, as a reading within anexecutive program, and as a primer forentrepreneurs who simply want to learn moreabout how to be successful. As Garconwould say, “Disfruta de la aventura, amigos.”Enjoy the adventure, my friends.

WWW.FLATWORLDKNOWLEDGE.COM

Tales of GARCóNTales of GARCóNChapter 1: The Game’s AfootChapter 1: The Game’s Afoot

The Franchise Players The Franchise Players