Franchise businesses are successful for one reason: they have a proven system in place. That is why franchise businesses have a failure rate of only 25% within the first five years, and traditional businesses have a failure rate of about 80%. Quite a difference. Other facts according to 'The E-Myth' are: in the year 2000 there were 320,000 franchised businesses in 75 industries. Franchises produce $1 trillion in sales every year. Mc Donald's in particular is a $40 billion a year franchise with 28,707 restaurants worldwide that serves 43 million people a day.
The E-Myth states that the franchise, or turn-key business, is a way of running a business that 'has the power to dramatically transform a business from a condition of chaos and discord to a condition of order, excitement and continuous growth.' Why is this? It's because a franchise is a system-dependent business, not a person-dependent business. This means that as long as a person can simply follow directions, the business will most likely be a success. Ray Kroc was the first to realize this, and from this realization Mc Donald's was born. Since Mc Donald's is the most popular franchise recognized by people, and also the most successful, we will concentrate on the reasons that have made Mc Donald's 'the best' and what Ray Kroc did to create that model.
Ray Kroc's story begins with him walking into a hamburger stand with the intention of selling milkshake machines to the owners. What ended up happening was Ray observed a hamburger stand that ran like a 'swiss watch.' Hamburgers were produced 'quickly, efficiently, inexpensively and identically.' The method allowed anyone to be able to do it. He watched as high school kids efficiently and happily served customer after customer with minimal supervision from the owners. Ray convinced the brothers to let him franchise their system and 12 years later bought them out and created what is known today as Mc Donald's.
Even though franchises have been around for about 100 years, Ray Kroc's creation of Mc Donald's changed what a franchise was. A franchise used to be simply the right to sell a name brand product for a company and make some of the profit yourself. Ray changed that by making a franchise not only the right to sell the products, but also the right to use the proven system created for distributing the product. Ray's beliefs were different from original business owners. They believed that the name brand that you sell is what makes the business successful. Ray believed that it was the 'system' you use to sell a product that makes a business successful. In other words, he was 'selling' Mc Donald's itself, not just hamburgers. In Ray's opinion, a person looking to start a business didn't care if they were selling hamburgers or not, all they cared about was 'does the business work and make money.'
From that point on, franchising became a revolution. Franchise after franchise was opened, not only Mc Donald's, and not only in the food industry, but in almost every kind of industry in existence. Starting a business became as simple as thinking of a business you want, then finding a franchise that has created a proven system for running that kind of business.
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