Are Franchise Owners Entrepreneurs?

Written by Adetola Olatunji

When discussing entrepreneurship, many publications and thought leadership discussions have historically focused on startups. Most entrepreneur-focused publications and popular dictionaries even define entrepreneurship as the process of starting a business. New business statistics do validate a reason to focus on startups; according to a recent compilation of SBA small business data by Forbes Magazine, about 543,000 new businesses are started each month across the country. This number is astounding when also considering the fact that according to the SBA, there are 23 million small businesses currently operating in the U.S. The previous statistic would imply that the number of small businesses will increase by almost 25% by the end of 2015 should all the startups make it to the end of the year.

Although startups are clearly important part of the entrepreneurial conversation, entrepreneurship is defined as “the capacity and willingness to develop, organize and manage a business venture along with any of its risks in order to make a profit. The most obvious example of entrepreneurship is the starting of new businesses.” While startups are undoubtedly the most obvious and strongest association the business community makes with entrepreneurship, the conversation has recently evolved to include additional avenues when discussing the options available to those interested in the entrepreneurial path.

Some argue that the definition of entrepreneurship should expand beyond a focus on new businesses because both maintaining and scaling a business are important skill for true entrepreneurs. In a 2012 Harvard Business Review piece on entrepreneurship policy entitled “Focus Entrepreneurship Policy on Scale-Up, Not Start-Up”, Babson Professor of Entrepreneurship Practice Daniel Isenberg argues that the core tenet of entrepreneurship is value creation. Isenberg also argues that entrepreneurs can create value in many ways, whether they are starting a business, or “acquiring, re-purposing, spinning off, or recombining underutilized or undervalued assets” of a business. Through business management education programs such as Inner City 100, Inner City Capital Connections, and our partnership with Goldman Sachs 10,000 Small Businesses, ICIC has found that an important metric of a business’s potential impact is its ability to scale. This assessment holds true regardless of whether or not the business is an entirely new venture. For aspiring entrepreneurs who are motivated by a desire to expand upon existing ideas, alternatives to the startup route have become increasingly popular ways to stay involved in the entrepreneurial conversation.

One popular startup alternative is the franchising route. According to the International Franchise Association, there are more than 780,000 franchise establishments in the U.S., supporting over 8.9 million jobs and generating $890 billion of economic output for the U.S. economy. We can anticipate that the impact franchising maintains on the U.S. economy will continue to grow due to the allure of this model for millennials. Predicted to make up over 50% of new home-based and low-cost franchisees over the next two years, many millennials gravitate toward the added flexibility of the franchisee model. Franchisors have found this generation to be receptive to technology changes, willing to take the risk in return for the reward they see in continued marketing support and a reputable, replicable business model.

According to the Kaufmann Foundation, Generation Y is the most educated generation to date both in general and about entrepreneurship in particular. Acting President and CEO Wendy Guillies asserts that “entrepreneurship is the fastest-growing activity on college campuses today”. The Kauffmann Foundation’s 2015 State of Entrepreneurship address reported student debt and a slow recovery from the Recession as commonplace barriers for millennials hungry for entrepreneurship. However the rewards millennials often receive for taking the franchising route to entrepreneurship, such as discounts off of franchise fees and waived royalties, allow them to overcome such barriers.

As the population of potential entrepreneurs continues to grow, the definition has evolved and expanded. Whether it’s the type of entrepreneur who is changing the world through introducing a new idea, or the type who is building a proven concept in a new market, the common thread seems to be a passion for innovation and an ability to create value. Thus expanding our dialogue to also recognize franchisees as innovators is a natural next step in the ongoing global conversation about entrepreneurship.