Franchising in Montana more profit for less risk?

Since the first settlers made their homes among the trees and upon the prairies, Montana's economy has relied on the entrepreneurial spirit. Today, entrepreneurs continue to change the face of Montana marketplaces, with franchised businesses joining--and oftentimes, replacing--the traditional morn-and-pop shops.

Chances are the new coffee and doughnut shop, dine-in restaurant, and fitness center opening in your city are part of nationwide franchises. Montana Business Quarterly has watched this evolution and has talked with a number of entrepreneurs who invested in franchised businesses. How did they decide to contract with a particular franchisor? Are they succeeding? Is franchising worth the loss of managerial independence ?

A Safer Bet?

"People wonder why we don't see more of the franchises we see in other states," says Jeff Sha, a professor in The University of Montana's School of Business Administration. Because trends seen elsewhere are almost always precursors to eventual growth in Montana, expect new franchised businesses, he says. Be patient, Shay counsels. They're coming.

At UM, Shay teaches entrepreneurship at the undergraduate and graduate levels, and includes franchising in his coursework. Shay received his bachelor's degree in business from Babson College and earned his doctorate at Cornell. He also teaches during the summer at the London School of Economics.

"A lot of people don't consider franchising a form of entrepreneurship," Shay says. But it is, he insists. "It just takes some of the risk out."

In one of his UM entrepreneurship courses, Shay explains what franchising is and isn't. He quotes author William D. Bygrave, who defines a franchise as a "business opportunity by which the owner, producer, or distributor (franchisor) of a service or trademarked product grants exclusive rights to an individual (franchisee) for the local distribution of the product or service, and in return receives a payment or royalty and conformance to quality standards."

That one definition applies to two types of franchises: the business model franchise and the product distribution format. A "business format" model is by far the most common, offering the person buying into the franchise use of a trademark and logo, as well as access to a proven way of doing business.