Are Franchisees "Real" Entrepreneurs? (1992)

ABSTRACT Survey results indicate that there are several differences between franchisees and entrepreneurs. Entrepreneurs have higher levels of achievement motivation, supervisory ability, and self actualization than franchisees. Franchisees demonstrate a greater need for security than entrepreneurs. Franchisees do not appear to be real entrepreneurs. INTRODUCTION When people decide to become self-employed, they have three options: start their own business, buy an existing business, or purchase a franchise. The first option has the highest risk and the greatest potential for reward. Buying a business is less risky, and buying a franchise is the safest option of all. The U. S. Department of Commerce estimates that 80 percent of all franchises are successful. There is considerable debate about the people who choose the various options. More specifically, the question often asked is whether those who buy franchises are real entrepreneurs. There is little doubt that those who create franchises are entrepreneurs. Vesper (1990), in his classification of entrepreneurs, refers to franchisors as Pattern Multipliers. The purpose of this study is to determine if franchisees are entrepreneurs. The Small Business Administration estimates the failure rate for new businesses to be approximately 50 percent during the first year of operation. Furthermore, the SBA estimates that only about one in five new businesses survive beyond their fifth year. The two primary reasons for failure are lack of management skills and inadequate capital. Franchisors claim that their system overcomes both problems. They develop extensive operations manuals which guide franchisees through all business activities, and they stipulate how much capital franchisees must have in order to purchase a franchise. Guidance and assistance from the franchisor creates almost an employer-employee relationship (Norton, 1988) which requires franchisees to follow the franchisor's system to the letter (Addison, 1988). Employee and follower hardly sound like terms used to describe entrepreneurs; however, franchising is a hybrid form of entrepreneurship that appeals to many Americans (Main, 1990). According to the International Franchise Association (IFA), there are approximately 500,000 franchises in the U. S. which accounted for $640 billion in sales in 1988. By the turn of the century, the IFA estimates that one-half of all retail sales will be generated by franchises. If owning a franchise is profitable and less risky than owning an independent business, should everyone wanting to be self-employed be encouraged to purchase a franchise? Only if there are relatively few significant differences between the two types of owners should all be encouraged to become franchisees. If independent business owners and franchisees have fundamental character and managerial differences, each should be encouraged to follow the most appropriate path to self-employment. Entrepreneurs, those individuals who choose to become self-employed, have been the subject of many studies in the past ten years; however, very few studies have focused on franchisees per se. Recent literature reviews (Carland, Hoy, Boulton & Carland, 1984; Wortman, 1987) reveal that researchers are primarily interested in traits and characteristics appearing to be peculiar to entrepreneurs. No definitive set of characteristics seem to differentiate entrepreneurs from others; however, some distinguishing traits appear to be common to successful entrepreneurs. Entrepreneurs are achievement oriented, assume decision making responsibility, dislike routine work, have considerable energy, and are very imaginative. Entrepreneurs want to achieve, are willing to work hard, are disposed to accept responsibility, and are oriented toward reward (Burch, 1986). Competence, confidence, imagination, and commitment are believed to be core traits of successful entrepreneurs (Van de Ven, Hudson & Schroeder, 1984). …