franchising and the domain of entrepreneurship research

7/28/2019 Franchising and the Domain of Entrepreneurship Research

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FRANCHISING AND THEDOMAIN OF

ENTREPRENEURSHIP

RESEARCH

PATRICK J. KAUFMANNBoston University

RAJIV P. DANTBoston University

EXECUTIVE

SUMMARY

In this essay, we explore the relationship between franchising and entrepre-

neurship in general, and their research domains in particular. We begin by

categorizing the focus of various representative definitions of entrepreneur-ship as: (1) traits, (2) processes, or (3) activities, and adopt the view that iden-

tifying the unique research domain of entrepreneurship is a more worthwhile

endeavor than attempting to reach definitional consensus. We subsequently

discuss the differences between entrepreneurship in the manufacturing and retailing contexts, and the

particular features of franchising as it relates to the study of retailing entrepreneurship. Specifically, four

areas are examined: the franchisors role in creating an innovative concept, the franchisees role in bring-

ing the franchisors concept to new markets, the franchisees acceptance of risk, and the special issues

surrounding the pervasive practice of multi-unit franchising. We conclude with a brief discussion of the

reasons for including the study of franchising, franchisors, and franchisees as integral areas within the

distinctive domain of entrepreneurship research, and similarly exhort franchising researchers to explore

the implications of their work for the study of entrepreneurship. 1998 Elsevier Science Inc.

INTRODUCTION

When the premier entrepreneurship journal devotes three successive special issues tofranchising, it begs the question: What is it about franchising that uniquely qualifies it

Address correspondence to Patrick J. Kaufmann, Boston University, School of Management, Boston,MA 02215.

The authors thank Candida G. Brush (Boston University), Scott Shane (Massachusetts Institute of Technol-ogy), and S. Venkataraman (Rensselaer Polytechnic Institute) for providing helpful suggestions on earlier drafts

of this article. Patrick J. Kaufmann is a Professorof Marketing, andRajivP. Dant is an AssociateProfessor of Market-ing at Boston University and currently a Visiting Associate Professor of Marketing at Sloan School of Management,Massachusetts Institute of Technology. This essay was written while Patrick Kaufmann was on the faculty of GeorgiaState University.

Journal of Business Venturing 14, 516 1998 Elsevier Science Inc. All rights reserved. 0883-9026/98/$19.00655 Avenue of the Americas, New York, NY 10010 PII S0883-9026(97)00095-5


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6 P.J. KAUFMANN AND R.P. DANT

as an entrepreneurial activity? To some, the connection seems so natural that the associa-tion between franchising and entrepreneurship is often formally institutionalized withinuniversities by placing franchising centers within entrepreneurship centers or institutes.To others, franchising is the antithesis of innovation, represents the lamented homoge-

nization of our commercial culture, and is singularly responsible for the lack of varietyin a number of retail sectors. In fact, the efficiency and scale economies of the competingfranchise chain are sometimes seen as the instruments of destruction for budding retailentrepreneurs. Clearly, these opposing viewpoints reflect a divergence of definitions,as well as values.

Unfortunately, the literature provides a somewhat contradictory set of definitionsof entrepreneurship. This is not surprising. Entrepreneurship is a multifaceted phenom-enon and cuts across many disciplinary boundaries (e.g., management, economics, soci-ology, marketing, finance, history, psychology, social anthropology, etc.). Consequently,entrepreneurship researchers have pursued a wide range of goals, adopted different

units of analysis, and espoused diverse theoretical perspectives and methodologies (Lowand MacMillan 1988). Further, entrepreneurship entails a complex set of contiguousand overlapping constructs like management of change, innovation, technological andenvironmental turbulence, new product development, small business management, in-dividualism, and industry evolution (Low and MacMillan 1988). Needless to say, theabove have rendered definitional consistency and conciseness an elusive goal.

In this essay, we review and categorize some of the more familiar definitions ofentrepreneurship. We then describe the specific domain of franchising research and re-late it to those various perspectives on entrepreneurship. We end by suggesting somequestions and issues in entrepreneurship that might be uniquely explored within thefranchising context.

MENU OF CURRENT DEFINITIONS

The term entrepreneur was first utilized in sixteenth century France to describe captainsof fortune who hired out mercenary soldiers to serve princesand towns; theterms usagein business contexts commenced in the eighteenth century to refer to economic actorsthat undertook contracts for public works, introduced innovative agricultural tech-niques, or risked personal capital in industry (Martinelli 1996). Hence, from the veryonset, constitutive associations were posited between entrepreneurship and entrepre-neurs willingness to accept the risk and the uncertainty associated with new economicenterprises. This risk-taking entrepreneurial function was subsequently separated byeconomists like Jean Baptiste Say and John Stuart Mill from that of simply providingcapitala distinction especially stressed by Schumpeter who identified the elementsof innovativeness with entrepreneurship and provided it a dynamic quality lacking inearlier formulations (Hebert and Link 1982). More specifically, Schumpeter emphati-cally distinguished between the simple rational conduct of the economic man and thecreativity implicit in entrepreneurial innovation. Consequently, in part because of thesehistorical roots, domains of entrepreneurship and management research have been tra-ditionally demarcated rather sharply: research in entrepreneurship is focused on theformation of new firms, whereas research in management is directed on the functioning

of existing firms.In general, the above domain demarcation has been maintained in the entrepre-

neurship literature. However, definitional clarity and domain consistency have recently


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FRANCHISING AND ENTREPRENEURSHIP RESEARCH 7

been complicated by two other developments. First, definitions of entrepreneurshiphave been expanded to include noncommercial endeavors. For instance, Amit, Glosten,and Muller (1993) note that entrepreneurs are often categorized into those who areprofit-seeking, either working individually or in a corporate setting, and those who are

not profit seeking, working in charitable, government and other not-for-profit organiza-tions (e.g., universities).

Second, new definitions have been offered for entrepreneurs that do not includethe creation of a new and innovative enterprise. For example, Shane and Cable (1997)define entrepreneurs as individuals who receive their compensation in the form of re-sidual claimancy on the proceeds of a firm and who also have operating control of anorganization. Relatedly, the construct of corporate entrepreneurship has been intro-duced in the literature to capture entrepreneur-like activities or traits of ongoing firms(e.g., aggressive pursuit of opportunity, capacity for renewal and change through flexi-bility and adaptation, promotion of innovation and creativity, and risk-taking propen-

sity; cf. Lumpkin and Dess 1996). However, it can be argued that the construct of corpo-rate entrepreneurship is not particularly helpful because it merely underscores thesignificance and relevance of managerial proactiveness in an increasingly competitivemarketplace and does not add any new dimension to managerial responsibilities. None-theless, the implication of these changes is the breakdown of the traditional demarcationbetween ownership, professional management, and entrepreneurship.

CATEGORIZING THE DEFINITIONS OF ENTREPRENEURSHIP

For our purposes, it would appear that contemporary definitions of entrepreneurship

can be loosely categorized into three groups: (1) definitions stressing the characteristictraits or qualities supposedly possessed by entrepreneurs, (2) definitions stressing theprocess of entrepreneurship and its result, and (3) definitions focused on the activitiesentrepreneurs perform. Examples of each category are presented below and summa-rized in Table 1.

Personal Traits Perspective

An entrepreneur is an individual who possesses qualities of risk-taking, leader-ship, motivation, and the ability to resolve crises (Leibenstein 1968).

Entrepreneurs are leaders and major contributors to the process of creative de-struction (Schumpeter 1942).

An entrepreneur is an individual who undertakes uncertain investments and pos-sesses an unusually low level of uncertainty aversion (Knight 1921).

Although some scholars have suggested psychological profiling as a useful tool inentrepreneurial research (Brockhaus 1982; Perry 1990; Shaver and Scott 1991), as Amit,Glosten, and Muller (1993) point out, it is simply not known at the present time whetherthere is an essential set of entrepreneurial characteristics and, if so, what that set maybe. Other traits like creativity, adaptivity, technical know-how, vision and leadershipability, managerial and organizational skills, ability to make decisions quickly and to act

in a rapidly changing and uncertain environment, personal integrity, a range of cognitivedecision-making biases, specific categories of cultural characteristics, and educationalbackground may also be associated with successful entrepreneurs. It would appear that


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TABLE 1 Definitions of Entrepreneurship and Their Applicability to the Franchising Context

Application ApplicationRepresentative Definitions of Entrepreneurship to Franchisors to Franchisees

Entrepreneur is an individual who possesses qualities of Yes Yes

risk-taking, leadership, motivation, and the ability toresolve crises (Liebenstein 1968).

Entrepreneurs are leaders and major contributors to the Yes Noprocess of creative destruction (Schumpeter 1942).

Entrepreneur is an individual who undertakes uncertain Yes Yesinvestments and possesses an unusually low level ofuncertainty aversion (Knight 1921).

Entrepreneurship is the creation of new enterprise Yes Yes(Low and MacMillan 1988). (concept) (market)

Entrepreneurship is the creation of new organizations Yes Yes(Gartner 1985). (concept) (market)

Entrepreneurs introduce new combinations of the factors Yes No

of production (land and labor) that, when combinedwith credit, breaks into the static equilibrium of thecircular flow of economic life and raises it to a new level(Schumpeter 1934).

Entrepreneurship is the process of extracting profits from Yes Yesnew, unique, and valuable combinations of resources (ambiguousin an uncertain and ambiguous environment (Amit, environment)Glosten, and Muller 1993).

Entrepreneur performs one or more of the following activ- Yes Yesities: (1) connects different markets, (2) meets/over- (1, 2, 3, 4) (2, 4)comes market deficiencies, (3) creates and managestime-binding implicit or explicit contractual arrange-ments and input-transforming organizational structures,and (4) supplies inputs/resources lacking in the market-place (Leibenstein 1968).

Entrepreneurship is the purposeful activity to initiate, Yes Yesmaintain, and develop a profit-oriented business(Cole 1968).

Entrepreneurs perceive profit opportunities and initiate Yes Yesactions to fill currently unsatisfied needs or to do moreefficiently what is already being done (Kirzner 1985).

Entrepreneurs are residual claimants with operational Yes Yescontrol of the organization (Shane and Cable 1997). (system profits/ (unit profits/

shared control) shared control)

there is a tendency in this literature to personify entrepreneurs as embodiments of allthat may be desirable in a business person, and almost deify entrepreneurs in theprocess.

Further, these traits may not be observable ex ante and may be impossible to sepa-rate from luck and other extraneous factors post hoc (Amit, Glosten, and Muller (1993).Similarly, a post hoc approach is problematic from a self-selection perspective (i.e., onlythe successful and the survivors may be available for observation, creating, by analogy,a sort of a Type II error). Finally, some of these traits may not be unique to entrepre-

neurs (e.g., risk-taking propensity is likely to exist in proactive managers as well), raisinga demarcation problem (Amit, Glosten, and Muller 1993).


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Process Perspective

Entrepreneurship is the creation of new enterprise (Low and MacMillan 1988).

Entrepreneurship is the creation of new organizations (Gartner 1985).

Entrepreneurs introduce new combinations of the factors of production (landand labor) that, when combined with credit, breaks into the static equilibriumof the circular flowof economic life and raises it to a new level (Schumpeter 1934).

Entrepreneurship is the process of extracting profits from new, unique, and valu-able combinations of resources in an uncertain and ambiguous environment(Amit, Glosten, and Muller 1993).

However, if indeed entrepreneurship is an exceptional and discontinuous change-inducing activity in the Schumpeterian sense of the term, the goal of predicting, packag-ing, and specifying that process is necessarily an illogical exercise. In effect, entrepre-

neurs may pursue essentially idiosyncratic paths to the creation of new enterprise.Hence, under this view, research into entrepreneurship would, by necessity, be confinedto retrospective anecdotal analysis of the results of that process.

Activities Perspective

An entrepreneur performs one or more of the following activities: (1) connectsdifferent markets, (2) meets/overcomes market deficiencies, (3) creates and man-ages time-binding implicit or explicit contractual arrangements and input-trans-forming organizational structures, and (4) supplies inputs/resources lacking in

the marketplace (Leibenstein 1968; Amit, Glosten, and Muller 1993). Entrepreneurship is the purposeful activity to initiate, maintain, and develop a

profit-oriented business (Cole 1968).

Entrepreneurs perceive profit opportunities and initiate actions to fill currentlyunsatisfied needs or to do more efficiently what is already being done (Kirz-ner 1985).

Entrepreneurs are residual claimants with operational control of the organiza-tion (Shane and Cable 1997).

This group of definitions suffers from the same problem associated with the process

perspective definitions, i.e., if entrepreneurs are true mavericks and their activity trulynovel, it may be impossible to specify and predict even the general categories of activitiesthat comprise the phenomenon, either as it relates to the creation of, or the operationalcontrol of, an enterprise. Certainly, one could notspecify a mandatory list of such behav-iors. Without such specificity of trait, process, or behavior, however, we seem to be re-duced to defining entrepreneurship as a personal qualitythat is manifested by an individ-ual engaging in entrepreneurial activity, which in turn is defined as the activities of aunique individual we call an entrepreneur.

Even if the act of engaging in entrepreneurial activity is adopted as the basis forlabeling a person an entrepreneur, it would still be necessary to specify the time horizon

implied by that label. In other words, is being an entrepreneur more like being a currentstudent or like being a college graduate? Should the status be dependent on current


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activity or on past accomplishment? Was Ray Kroc an entrepreneur for his entire careerat McDonalds or did he eventually become a manager (albeit a very good one)? Whatcan we say about a once entrepreneurial firm when the traits of so-called corporate en-trepreneurship begin to diminish? In other words, even if we accept the notion of corpo-

rate entrepreneurship as analogous to the notion of individual entrepreneurship (whichis by no means a settled issue), for how long should a firm be termed entrepreneurialif its corporate culture has begun to change significantly? Pragmatically, the precisespecification of that critical breaking point may itself be an impossible exercise.

To summarize, although some common themes are discernible in these definitions(i.e., acts of innovation and risk-taking behaviors or the willingness to engage in thoseacts appear central to most conceptualizations of entrepreneurship), consensus aboutthe construct of entrepreneurship remains elusive. The diversity of conceptualizationsof entrepreneurship used by various scholars has led some to suggest that, like leader-ship, the term entrepreneurship may be too imprecise a concept to define tightly (Low

and MacMillan 1988).Recently, Venkataraman (1998) has argued for consciously and overtly abandon-ing the pursuit of definitional standardization as a futile endeavor. Instead, he advocatesreaching a consensus on the distinctive domain of entrepreneurship research (i.e., thesubject matter or the ontology that would set the entrepreneurship field distinct fromother fields of management). His own prescription is that entrepreneurship as a schol-arly field should seek to understand how opportunities for profit are discovered andexploited, by whom, and with what consequences. Interestingly, his suggestion can beviewed as accommodating all three categories of definitions discussed above: how (ac-tion), by whom (traits), and consequences (process). In this essay, we adopt Venkatara-mans approach to understanding entrepreneurship and examine the distinctive domainof entrepreneurial research that is contributed uniquely by franchising. In doing so, itbecomes clear that all three of his questions take on unique meaning within a franchisingcontext. We also adopt a dynamic perspective to entrepreneurship that suggests a tem-poral limit on entrepreneurship and distinguishes its research domain from that of man-agement. In other words, we see entrepreneurship focusing on the creation of a newenterprise, not to the ongoing process of proactively managing the extant organization.

ENTREPRENEURSHIP IN RETAIL FRANCHISING

Traditional Research Context of EntrepreneurshipTraditionally, conceptualizations and discussions of entrepreneurship have been rootedwithin a manufacturing model. Such a model has provided fertile ground for the psycho-logical and sociological examination of the ingenuity of rugged individuals, the so-calledcaptains of industry. The pioneers of manufacturing provided good examples of entre-preneurship in both the creation of innovative new products and innovative systemsof production (e.g., automobiles, computers). Studies of manufacturer-entrepreneursalso demonstrate the limits of their capacity to manage, and the organizational changesprecipitated by growth (Chandler 1962).

To focus only on the manufacturing context, however, confines the study of entre-

preneurship to organizations characterized by the efficiency of centralized production.The fixed nature of production, the core activity of the manufacturing firm, is markedlydifferent from the geographic dispersion issues inherent in retailing. This difference


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presents a unique domain for the study of retailing entrepreneurship in general, andfranchising entrepreneurship in particular.

The Franchisor as Retail Entrepreneur

Franchising is predominantly a retailing phenomenon,and although product franchising(e.g., automobiles, gasoline) is the largest franchising segment (U.S. Department ofCommerce 1988), business format franchising (e.g., McDonalds, Holiday Inn) is thesegment that most differentiates this organizational form from other methods of distri-bution. Business format franchising is also the true locus of franchising entrepreneur-ship. During the past 25 years, retail entrepreneurs have been developing new nicheconcepts at an alarming rate. Some of the concepts have been truly unique (e.g., videorental outlets). Others, some would argue, are me-too offerings, that reflect little trueinnovation. Nevertheless, even concepts that appear to duplicate existing nonfranchise

retail establishments (e.g., photo finishing outlets) often gain their competitive advan-tage through the developmentof unique and efficient operating systems that industrial-ize the service offering (Levitt 1983). Moreover, the entrepreneur-franchisors that cre-ate these systems must not only risk the resources to develop the concept and operatingsystem, but do so in a manner that permits efficient turnkey transfer to the operating fran-chisees.

Ostensibly, franchisor entrepreneurs are the same kind of people, do the samekinds of things, with the same kinds of consequences as their manufacturing counter-parts. There are some key differences, however, that point to the unique research do-main of retail entrepreneurship and, by implication, franchising entrepreneurship. Thefirst difference has to do with the identification and exploitation of profit potential andwho can take advantage of it. Unlike in the manufacture of a new product, retail serviceconcept development typically is not as susceptible to the preemptive competitive reac-tion of existing retailers. The minimum efficient scale of niche retailing is often verysmall, and therefore, scale efficiencies are more difficult to bring to bear to preemptcompetition in retailing than in manufacturing. Further, whereas a manufacturer mightreact to a competitive threat by extending its product line, a retailer must decide whetherto alter its entire retail concept in response to a new niche entrepreneur. This gives theretail entrepreneur greater opportunity to identify and exploit retail niches.

This is especially true in franchising wherethe retail formats are typically very smallniche concepts. The identification and exploitation of these niche retailing franchiseconcepts, including the current explosive development of concepts that rely on nontradi-tional sites (e.g., kiosks), can be a particularly fertile area of inquiry within the researchdomain of entrepreneurship.

The Entrepreneurial Partnership of Franchising

Retail franchising is more than just the concept and system creating activities of an indi-vidual entrepreneur. It is an entrepreneurial partnership, and one that suggests a muchmore complex entrepreneurial role for both franchisor and franchisee. The geographicdispersion fundamental in the growth of a traditional retail firm provides an immediate

challenge to the retailer-entrepreneur. Traditional retailing presumes the physical pres-ence of the customer. Because consumers are not insensitive to the costs of travelingto and from the retail outlet, and because consumers standard recurring travel patterns


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are more likely to be confined to local areas, distance matters for both destination ori-ented and impulse purchases (Ghosh and McLafferty 1987). The rubric oflocation, loca-tion, location reflects the most consistent truth in retailing: the demand that can be at-tracted and satisfied by any one site is finite. To grow, retailers must open new outlets.

The geographical dispersion implicit in retail growth creates pressure on the entre-preneurs capacity to control his or her organization (Norton 1988). It also suggests thatunlike manufacturing where expansion may occur within the same production concept,retail expansion occurs in a constantly changing environment. As much as the retailentrepreneur may try to find analogous locations to successful sites, all locations areultimately unique on some dimension. Retail expansion, therefore, is by its nature acontinuous entrepreneurial activity. Long after the initial creation of the retail concept,each new location offers unique challenges, each new outlet creates unique risks. Tocomplicate the issue, the risk associated with successfully opening and operating eachoutlet is not separable, but is borne in part by all of the other outlets in the system.

This interdependence of risk is due to the generalization of the systems image fromone unit to the others and the detrimental impact of an obviously unsuccessful (possiblyboarded-up) outlet on that image.

When retailing entrepreneurs reach the limits of their capacity to efficiently moni-tor and control the increasing number of geographically dispersed retail outlets, theyoften turn to franchising to create the incentives necessary to align the new store manag-ers (i.e., franchisees) interests with their own (Rubin 1978). Franchisees become theengines of expansion for the chain, opening new markets, finding new pockets of de-mand, and assuming the risk associated with that activity (i.e., becoming the operatingresidual claimants envisioned by Shane and Cable 1997). In this way, franchisees be-come partners in the entrepreneurship of the retail franchisor, creating a distinct formof entrepreneurship (typically an individual-based concept) that can be labeled entre-preneurial partnership. This entrepreneurial partnership is another unique feature offranchising worthy of investigation within the distinctive research domain of entrepre-neurship.

The Franchisee as Entrepreneur

In the economics literature, two unique perspectives have been offered to explain theexistence of franchising. Interestingly, both are relevant to this discussion of entrepre-neurship. The first is the capital acquisition model. This suggests that franchisees are anefficient source of financial capital for retail firms seeking to expand (Caves and Murphy1976; Dant 1995; Oxenfeldt and Kelly 1968). Although the subject of some dispute (Ru-bin 1978; Kaufmann and Dant 1996; Lafontaine 1992), the capital acquisition argumentis consistent with the above concept of an entrepreneurial partnership. Whereas thefranchisor risks resources devoted to the development of the brand, the franchisee risksresources devoted to the development of the local markets. Quite often the franchiseeis more familiar with the local markets and their potential than the franchisor. Althoughthe risk they face may be reduced by this familiarity, franchisees role as entrepreneur-partner is supported by the fact that they do accept the financial risk of introducing thefranchisors concept to a new and untried market. Further, because the franchisor often

depends on franchisees local expertise and contacts, franchisees are called on to createidiosyncratic marketing programs that adapt the concept to their immediate environment.

The second major rationale given in the literature for franchising is based on agency


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theory (Rubin 1978). Franchising solves the problem of shirking that exists because thefranchisor cannot directly and efficiently monitor the widely dispersed retail outlets thatcomprise the chain. By providing the franchisee with claims to the profits and havingthe franchisee post a forfeitable fee, the incentives of both parties come into alignment.

It is this quasi-independence that allows the franchisee to claim a share in the title ofentrepreneur. Whereas franchisees are expected to be proactive in taking advantageof local opportunities, employee store managers with similar local market expertise facemuch more severe hierarchical constraints on their activity.

Are franchisees unconstrained in their entrepreneurial activity? No, but then noentrepreneur is unconstrained. All environments constrain entrepreneurship. In fran-chising, because of each franchisees potential impact on the investment of the otherfranchisees and the franchisor, maintenance of the franchisors core concept is critical.Nevertheless, franchiseesoften have wide latitude in developing unique ways of market-ing that concept in their particular location.

One last point, the franchising literature suggests that although partners with verydifferent roles in the process of retailing entrepreneurship, franchisors and franchiseesmay have a great deal in common. Research has demonstrated that franchisees are verysimilar in orientation and background to those entrepreneurs who start their own inde-pendent business, and that they often consider both courses before doing one or theother (Kaufmann and Stanworth 1995; Peterson and Dant 1990). In fact, there are anumber of examples of franchisees who eventually become franchisors by developingother concepts (e.g., Apple South). The study of the franchisees decision process andwhy franchising is chosen over the creation of an independent enterprise, therefore,represents an additional unique franchising-related research topic within the generaldomain of entrepreneurship research.

The Multi-Unit Franchisee

One of the most interesting phenomena within franchising is the prevalence of the multi-unit franchisee. The practice of allowing franchisees to acquire mini-chains of outlets iswidespread (Kaufmann and Dant 1996). This can be done either through the sequentialacquisition of additional units by a franchisee who starts with only one location, or itcan be part of an overall strategic plan envisioned in the granting of area developmentrights (and responsibilities) for an exclusive territory. The similarities and differencesbetween these two forms of multi-unit ownership provide interesting research questionsfor entrepreneurship research.

Franchisors interested in expansion often look to existing franchisees to reducethe risk associated with placing their concept in the hands of an unknown prospectivefranchisee (Kaufmann 1992), and to take advantage of the local market expertise ofoperating retailers (Bradach 1995). One of the critical questions, however, is whetherto grant franchisees the right to expand from the outset or to do so only after the franchi-see has proven himself or herself to be a quality operator. The expected power relation-ship within the entrepreneurial partnership may have a great deal to do with that deci-sion. The current pool of evidence on this power issue, however, is mixed. On the onehand, entrepreneurs willing and able to risk the amount of capital associated with the

development of large territories are expected to resist the influence strategies of thefranchisor, and more aggressively promote their right to innovate in creating their mini-chain. Some franchise systems avoid area development, and even limit sequential multi-


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unit ownership for just that reason (Kaufmann and Lafontaine 1994). Other studies indi-cate that multi-unit operators are surprisingly content to concede to franchisors requestsand accept their advice, perhaps because they encounter the same management issuesas their principals (i.e., franchisors), which serves to further strengthen their incentives

alignment (Dant and Gundlach 1998; Dant and Nasr 1998). At any rate, when localmarket innovation is particularly important to the success of the system, franchisorsare more likely to seek this type of partner. This preference is especially seen in theprevalence of this form of organization in international franchising (Dant and Nasr1998). The franchisors choice of particular types of partners in the entrepreneurial pro-cess, therefore, is another area in which franchising research can provide more usefulinsight into entrepreneurship.

On the other side of the equation, as a franchisee, committing oneself to a (some-times) onerous area development contract involves significantly more risk than buyingthe franchise rights to a single unit. Who these area developers are and how they analyze

the profit potential of various types of franchise offerings is another avenue of inquirythat also should be interesting to mainstream entrepreneurship researchers.

CONCLUSIONS

Like entrepreneurship in general, franchising is a vital sector of theU.S. economy. Fran-chising accounts for about one-third of all U.S. retail dollars (U.S. Department of Com-merce 1988) and is one of the best sources of data on new business ventures. Franchisingis also an area of entrepreneurial activity with strong public policy benefits. It does notexport American jobs. It does not create future overseas competitors (i.e., parties thatexport back to the United States, contributing to the trade deficit). Hence, revenuesgenerated by overseas franchising royalties are a great source of foreign exchange earn-ings with no strings attached. Finally, franchising is increasingly evident in nontradi-tional sectors; for example:

In telecommunications (e.g., franchise systems of National Telecommunicationsof Bloomfield, NJ; Voice-Tel Enterprises of Cleveland, OH),

In financial planning, business consulting, and entrepreneurial advising (e.g.,franchise systems of Creative Asset Management of Iselin, NJ; InternationalMergers & Acquisitions out of Scottsdale, AZ; American Institute of Small Busi-ness of Minneapolis, MN),

In medical and dental products and services (e.g., franchise systems of MiracleEar of Golden Valley, MN; Americare Dental Centers USA of Phoenix, AZ;American Vision Centers of NY, NY),

In travel and transportation services (e.g., franchise systems of Cruise HolidaysInternational of San Diego, CA; TPI Travel Services of Tampa, FL; Air BrookLimousine of Rochelle Park, NJ), and

On the Internet (e.g., franchise systems of Z Land of Santa Anna, CA; and FirstInternet Franchise Corp of San Clamente, CA.)

In sum, franchising provides a unique and fertile setting for research in entrepre-

neurship: franchisor as entrepreneur, franchisee as entrepreneur, and the franchise rela-tionship as an entrepreneurial partnership. In particular, the who, how, and with whatresult domain of entrepreneurial research applied to franchising reveals a myriad of


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unique research possibilities. It is our hope that both entrepreneurship scholars andfranchising scholars increasingly will see the benefits of this intersection.

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