Franchising and the Domain of Entrepreneurship Research

FRANCHISING AND THE DOMAIN OF ENTREPRENEURSHIP RESEARCH

PATRICK J. KAUFMANN Boston University

RAJIV P. DANT Boston University

In this essay, we explore the relationship between franchising and entrepre- EXECUTIVE neurship in general, and their research domains in particular. We begin by SUMMARY categorizing the focus of various representative definitions of entrepreneurship 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 franchisor’s role in creating an innovative concept, the franchisee’s role in bring- ing the franchisor’s concept to new markets, the franchisee’s 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 to franchising, 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 Professor of Marketing, and Rajiv P. Dant is an Associate Professor 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 Georgia State University.

Journal of Business Venturing 14, 5–16  1998 Elsevier Science Inc. All rights reserved. 0883-9026/98/$19.00 655 Avenue of the Americas, New York, NY 10010 PII S0883-9026(97)00095-5 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 within universities 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 variety in a number of retail sectors. In fact, the efficiency and scale economies of the competing franchise chain are sometimes seen as the instruments of destruction for budding retail entrepreneurs. Clearly, these opposing viewpoints reflect a divergence of definitions, as well as values. Unfortunately, the literature provides a somewhat contradictory set of definitions of entrepreneurship. This is not surprising. Entrepreneurship is a multifaceted phenomenon and cuts across many disciplinary boundaries (e.g., management, economics, sociology, 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 (Low and MacMillan 1988). Further, entrepreneurship entails a complex set of contiguous and overlapping constructs like management of change, innovation, technological and environmental turbulence, new product development, small business management, in- dividualism, and industry evolution (Low and MacMillan 1988). Needless to say, the above have rendered definitional consistency and conciseness an elusive goal. In this essay, we review and categorize some of the more familiar definitions of entrepreneurship. We then describe the specific domain of franchising research and re- late it to those various perspectives on entrepreneurship. We end by suggesting some questions and issues in entrepreneurship that might be uniquely explored within the franchising context.

MENU OF CURRENT DEFINITIONS The term entrepreneur was first utilized in sixteenth century France to describe captains of fortune who hired out mercenary soldiers to serve princes and towns; the term’s usage in business contexts commenced in the eighteenth century to refer to economic actors that undertook contracts for public works, introduced innovative agricultural techniques, or risked personal capital in industry (Martinelli 1996). Hence, from the very onset, constitutive associations were posited between entrepreneurship and entrepreneurs’ willingness to accept the risk and the uncertainty associated with new economic enterprises. This risk-taking entrepreneurial function was subsequently separated by economists like Jean Baptiste Say and John Stuart Mill from that of simply providing capital—a distinction especially stressed by Schumpeter who identified the elements of innovativeness with entrepreneurship and provided it a dynamic quality lacking in earlier formulations (Hebert and Link 1982). More specifically, Schumpeter emphati- cally distinguished between the simple rational conduct of the economic man and the creativity implicit in entrepreneurial innovation. Consequently, in part because of these historical roots, domains of entrepreneurship and management research have been traditionally demarcated rather sharply: research in entrepreneurship is focused on the formation 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 entrepreneurship literature. However, definitional clarity and domain consistency have recently FRANCHISING AND ENTREPRENEURSHIP RESEARCH 7 been complicated by two other developments. First, definitions of entrepreneurship have been expanded to include noncommercial endeavors. For instance, Amit, Glosten, and Muller (1993) note that entrepreneurs are often “categorized into those who are profit-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 organizations (e.g., universities)”. Second, new definitions have been offered for entrepreneurs that do not include the 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 residual claimancy on the proceeds of a firm and who also have operating control of an organization”. Relatedly, the construct of corporate entrepreneurship has been introduced 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 propensity; cf. Lumpkin and Dess 1996). However, it can be argued that the construct of corporate entrepreneurship is not particularly helpful because it merely underscores the significance and relevance of managerial proactiveness in an increasingly competitive marketplace and does not add any new dimension to managerial responsibilities. None- theless, the implication of these changes is the breakdown of the traditional demarcation between 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 characteristic traits or qualities supposedly possessed by entrepreneurs, (2) definitions stressing the process of entrepreneurship and its result, and (3) definitions focused on the activities entrepreneurs 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, leadership, motivation, and the ability to resolve crises (Leibenstein 1968). • Entrepreneurs are leaders and major contributors to the process of creative destruction (Schumpeter 1942). • An entrepreneur is an individual who undertakes uncertain investments and possesses an unusually low level of uncertainty aversion (Knight 1921). Although some scholars have suggested psychological proﬁling as a useful tool in entrepreneurial 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 whether there is an essential set of entrepreneurial characteristics and, if so, what that set may be. Other traits like creativity, adaptivity, technical know-how, vision and leadership ability, managerial and organizational skills, ability to make decisions quickly and to act in a rapidly changing and uncertain environment, personal integrity, a range of cognitive decision-making biases, speciﬁc categories of cultural characteristics, and educational background may also be associated with successful entrepreneurs. It would appear that 8 P.J. KAUFMANN AND R.P. DANT

TABLE 1 Definitions of Entrepreneurship and Their Applicability to the Franchising Context Application Application Representative Definitions of Entrepreneurship to Franchisors to Franchisees Entrepreneur is an individual who possesses qualities of Yes Yes risk-taking, leadership, motivation, and the ability to resolve crises (Liebenstein 1968). Entrepreneurs are leaders and major contributors to the Yes No process of creative destruction (Schumpeter 1942). Entrepreneur is an individual who undertakes uncertain Yes Yes investments and possesses an unusually low level of uncertainty 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 combined with credit, breaks into the static equilibrium of the circular flow of economic life and raises it to a new level (Schumpeter 1934). Entrepreneurship is the process of extracting profits from Yes Yes new, unique, and valuable combinations of resources (ambiguous in an uncertain and ambiguous environment (Amit, environment) Glosten, and Muller 1993). Entrepreneur performs one or more of the following activ- Yes Yes ities: (1) connects different markets, (2) meets/over- (1, 2, 3, 4) (2, 4) comes market deficiencies, (3) creates and manages time-binding implicit or explicit contractual arrangements and input-transforming organizational structures, and (4) supplies inputs/resources lacking in the marketplace (Leibenstein 1968). Entrepreneurship is the purposeful activity to initiate, Yes Yes maintain, and develop a profit-oriented business (Cole 1968). Entrepreneurs perceive profit opportunities and initiate Yes Yes actions to fill currently unsatisfied needs or to do more efficiently what is already being done (Kirzner 1985). Entrepreneurs are residual claimants with operational Yes Yes control 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 all that may be desirable in a business person, and almost deify entrepreneurs in the process. 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., only the 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 entrepreneurs (e.g., risk-taking propensity is likely to exist in proactive managers as well), raising a demarcation problem (Amit, Glosten, and Muller 1993). FRANCHISING AND ENTREPRENEURSHIP RESEARCH 9

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 (land and labor) that, when combined with credit, breaks into the static equilibrium of the circular ﬂow of economic life and raises it to a new level (Schumpeter 1934). • Entrepreneurship is the process of extracting proﬁts from new, unique, and valuable 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, entrepreneurs may pursue essentially idiosyncratic paths to the creation of new enterprise. Hence, under this view, research into entrepreneurship would, by necessity, be conﬁned to retrospective anecdotal analysis of the results of that process.

Activities Perspective • An entrepreneur performs one or more of the following activities: (1) connects different markets, (2) meets/overcomes market deficiencies, (3) creates and manages time-binding implicit or explicit contractual arrangements and input-transforming 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 currently unsatisfied needs or to do more efficiently what is already being done (Kirz- ner 1985). • Entrepreneurs are residual claimants with operational control of the organization (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 truly novel, it may be impossible to specify and predict even the general categories of activities that comprise the phenomenon, either as it relates to the creation of, or the operational control of, an enterprise. Certainly, one could not specify a mandatory list of such behaviors. Without such specificity of trait, process, or behavior, however, we seem to be reduced to defining entrepreneurship as a personal quality that is manifested by an individual engaging in entrepreneurial activity, which in turn is defined as the activities of a unique individual we call an entrepreneur. Even if the act of engaging in entrepreneurial activity is adopted as the basis for labeling 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 current student or like being a college graduate? Should the status be dependent on current 10 P.J. KAUFMANN AND R.P. DANT activity or on past accomplishment? Was Ray Kroc an entrepreneur for his entire career at McDonald’s or did he eventually become a manager (albeit a very good one)? What can we say about a once entrepreneurial firm when the traits of so-called corporate entrepreneurship begin to diminish? In other words, even if we accept the notion of corporate entrepreneurship as analogous to the notion of individual entrepreneurship (which is by no means a settled issue), for how long should a firm be termed entrepreneurial if its corporate culture has begun to change significantly? Pragmatically, the precise specification 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 those acts appear central to most conceptualizations of entrepreneurship), consensus about the construct of entrepreneurship remains elusive. The diversity of conceptualizations of entrepreneurship used by various scholars has led some to suggest that, like leadership, 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 advocates reaching a consensus on the distinctive domain of entrepreneurship research (i.e., the subject matter or the ontology that would set the entrepreneurship field distinct from other fields of management). His own prescription is that entrepreneurship as a schol- arly field should seek to understand how opportunities for profit are discovered and exploited, by whom, and with what consequences. Interestingly, his suggestion can be viewed as accommodating all three categories of definitions discussed above: how (ac- tion), by whom (traits), and consequences (process). In this essay, we adopt Venkatara- man’s approach to understanding entrepreneurship and examine the distinctive domain of entrepreneurial research that is contributed uniquely by franchising. In doing so, it becomes clear that all three of his questions take on unique meaning within a franchising context. We also adopt a dynamic perspective to entrepreneurship that suggests a tem- poral limit on entrepreneurship and distinguishes its research domain from that of management. In other words, we see entrepreneurship focusing on the creation of a new enterprise, not to the ongoing process of proactively managing the extant organization.

ENTREPRENEURSHIP IN RETAIL FRANCHISING Traditional Research Context of Entrepreneurship Traditionally, conceptualizations and discussions of entrepreneurship have been rooted within a manufacturing model. Such a model has provided fertile ground for the psychological and sociological examination of the ingenuity of rugged individuals, the so-called captains of industry. The pioneers of manufacturing provided good examples of entrepreneurship in both the creation of innovative new products and innovative systems of production (e.g., automobiles, computers). Studies of manufacturer-entrepreneurs also demonstrate the limits of their capacity to manage, and the organizational changes precipitated by growth (Chandler 1962). To focus only on the manufacturing context, however, confines the study of entrepreneurship to organizations characterized by the efficiency of centralized production. The fixed nature of production, the core activity of the manufacturing firm, is markedly different from the geographic dispersion issues inherent in retailing. This difference FRANCHISING AND ENTREPRENEURSHIP RESEARCH 11 presents a unique domain for the study of retailing entrepreneurship in general, and franchising 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 of Commerce 1988), business format franchising (e.g., McDonald’s, Holiday Inn) is the segment that most differentiates this organizational form from other methods of distribution. Business format franchising is also the true locus of franchising entrepreneurship. During the past 25 years, retail entrepreneurs have been developing new niche concepts at an alarming rate. Some of the concepts have been truly unique (e.g., video rental outlets). Others, some would argue, are me-too offerings, that reflect little true innovation. Nevertheless, even concepts that appear to duplicate existing nonfranchise retail establishments (e.g., photo finishing outlets) often gain their competitive advantage through the development of unique and efficient operating systems that “industrial- ize” the service offering (Levitt 1983). Moreover, the entrepreneur-franchisors that create these systems must not only risk the resources to develop the concept and operating system, but do so in a manner that permits efficient turnkey transfer to the operating franchisees. Ostensibly, franchisor entrepreneurs are the same kind of people, do the same kinds 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 domain of retail entrepreneurship and, by implication, franchising entrepreneurship. The first difference has to do with the identification and exploitation of profit potential and who can take advantage of it. Unlike in the manufacture of a new product, retail service concept development typically is not as susceptible to the preemptive competitive reac- tion of existing retailers. The minimum efficient scale of niche retailing is often very small, and therefore, scale efficiencies are more difficult to bring to bear to preempt competition in retailing than in manufacturing. Further, whereas a manufacturer might react to a competitive threat by extending its product line, a retailer must decide whether to alter its entire retail concept in response to a new niche entrepreneur. This gives the retail entrepreneur greater opportunity to identify and exploit retail niches. This is especially true in franchising where the retail formats are typically very small niche concepts. The identification and exploitation of these niche retailing franchise concepts, 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 research domain of entrepreneurship.

The Entrepreneurial Partnership of Franchising Retail franchising is more than just the concept and system creating activities of an individual entrepreneur. It is an entrepreneurial partnership, and one that suggests a much more complex entrepreneurial role for both franchisor and franchisee. The geographic dispersion 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 traveling to and from the retail outlet, and because consumers’ standard recurring travel patterns 12 P.J. KAUFMANN AND R.P. DANT are more likely to be confined to local areas, distance matters for both destination oriented and impulse purchases (Ghosh and McLafferty 1987). The rubric of location, location, 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 entrepreneur’s capacity to control his or her organization (Norton 1988). It also suggests that unlike manufacturing where expansion may occur within the same production concept, retail expansion occurs in a constantly changing environment. As much as the retail entrepreneur may try to find analogous locations to successful sites, all locations are ultimately unique on some dimension. Retail expansion, therefore, is by its nature a continuous entrepreneurial activity. Long after the initial creation of the retail concept, each new location offers unique challenges, each new outlet creates unique risks. To complicate the issue, the risk associated with successfully opening and operating each outlet 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 system’s image from one unit to the others and the detrimental impact of an obviously unsuccessful (possibly boarded-up) outlet on that image. When retailing entrepreneurs reach the limits of their capacity to efficiently monitor and control the increasing number of geographically dispersed retail outlets, they often turn to franchising to create the incentives necessary to align the new store managers’ (i.e., franchisees’) interests with their own (Rubin 1978). Franchisees become the engines of expansion for the chain, opening new markets, finding new pockets of demand, and assuming the risk associated with that activity (i.e., becoming the operating residual claimants envisioned by Shane and Cable 1997). In this way, franchisees become partners in the entrepreneurship of the retail franchisor, creating a distinct form of entrepreneurship (typically an individual-based concept) that can be labeled entrepreneurial partnership. This entrepreneurial partnership is another unique feature of franchising worthy of investigation within the distinctive research domain of entrepreneurship.

The Franchisee as Entrepreneur In the economics literature, two unique perspectives have been offered to explain the existence of franchising. Interestingly, both are relevant to this discussion of entrepreneurship. The first is the capital acquisition model. This suggests that franchisees are an efficient source of financial capital for retail firms seeking to expand (Caves and Murphy 1976; Dant 1995; Oxenfeldt and Kelly 1968). Although the subject of some dispute (Ru- bin 1978; Kaufmann and Dant 1996; Lafontaine 1992), the capital acquisition argument is consistent with the above concept of an entrepreneurial partnership. Whereas the franchisor risks resources devoted to the development of the brand, the franchisee risks resources devoted to the development of the local markets. Quite often the franchisee is more familiar with the local markets and their potential than the franchisor. Although the 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 the franchisor’s concept to a new and untried market. Further, because the franchisor often depends on franchisees’ local expertise and contacts, franchisees are called on to create idiosyncratic marketing programs that adapt the concept to their immediate environment. The second major rationale given in the literature for franchising is based on agency FRANCHISING AND ENTREPRENEURSHIP RESEARCH 13 theory (Rubin 1978). Franchising solves the problem of shirking that exists because the franchisor cannot directly and efficiently monitor the widely dispersed retail outlets that comprise the chain. By providing the franchisee with claims to the profits and having the 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 of entrepreneur. Whereas franchisees are expected to be proactive in taking advantage of local opportunities, employee store managers with similar local market expertise face much more severe hierarchical constraints on their activity. Are franchisees unconstrained in their entrepreneurial activity? No, but then no entrepreneur is unconstrained. All environments constrain entrepreneurship. In franchising, because of each franchisee’s potential impact on the investment of the other franchisees and the franchisor, maintenance of the franchisor’s core concept is critical. Nevertheless, franchisees often have wide latitude in developing unique ways of marketing that concept in their particular location. One last point, the franchising literature suggests that although partners with very different roles in the process of retailing entrepreneurship, franchisors and franchisees may have a great deal in common. Research has demonstrated that franchisees are very similar in orientation and background to those entrepreneurs who start their own independent business, and that they often consider both courses before doing one or the other (Kaufmann and Stanworth 1995; Peterson and Dant 1990). In fact, there are a number of examples of franchisees who eventually become franchisors by developing other concepts (e.g., Apple South). The study of the franchisee’s decision process and why franchising is chosen over the creation of an independent enterprise, therefore, represents an additional unique franchising-related research topic within the general domain 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 is widespread (Kaufmann and Dant 1996). This can be done either through the sequential acquisition of additional units by a franchisee who starts with only one location, or it can be part of an overall strategic plan envisioned in the granting of area development rights (and responsibilities) for an exclusive territory. The similarities and differences between these two forms of multi-unit ownership provide interesting research questions for entrepreneurship research. Franchisors interested in expansion often look to existing franchisees to reduce the risk associated with placing their concept in the hands of an unknown prospective franchisee (Kaufmann 1992), and to take advantage of the local market expertise of operating retailers (Bradach 1995). One of the critical questions, however, is whether to grant franchisees the right to expand from the outset or to do so only after the franchisee has proven himself or herself to be a quality operator. The expected power relationship within the entrepreneurial partnership may have a great deal to do with that decision. The current pool of evidence on this power issue, however, is mixed. On the one hand, 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 the franchisor, and more aggressively promote their right to innovate in creating their mini- chain. Some franchise systems avoid area development, and even limit sequential multi- 14 P.J. KAUFMANN AND R.P. DANT 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’ requests and accept their advice, perhaps because they encounter the same management issues as 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 local market innovation is particularly important to the success of the system, franchisors are more likely to seek this type of partner. This preference is especially seen in the prevalence of this form of organization in international franchising (Dant and Nasr 1998). The franchisor’s choice of particular types of partners in the entrepreneurial process, therefore, is another area in which franchising research can provide more useful insight into entrepreneurship. On the other side of the equation, as a franchisee, committing oneself to a (sometimes) onerous area development contract involves significantly more risk than buying the 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 inquiry that also should be interesting to mainstream entrepreneurship researchers.

CONCLUSIONS Like entrepreneurship in general, franchising is a vital sector of the U.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. Franchising is also an area of entrepreneurial activity with strong public policy beneﬁts. It does not export American jobs. It does not create future overseas competitors (i.e., parties that export back to the United States, contributing to the trade deﬁcit). Hence, revenues generated 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 Telecommunications of 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; International Mergers & 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 Miracle Ear 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 Holidays International of San Diego, CA; TPI Travel Services of Tampa, FL; Air Brook Limousine of Rochelle Park, NJ), and • On the Internet (e.g., franchise systems of Z Land of Santa Anna, CA; and First Internet Franchise Corp of San Clamente, CA.) In sum, franchising provides a unique and fertile setting for research in entrepreneurship: franchisor as entrepreneur, franchisee as entrepreneur, and the franchise relationship as an entrepreneurial partnership. In particular, the who, how, and with what result domain of entrepreneurial research applied to franchising reveals a myriad of FRANCHISING AND ENTREPRENEURSHIP RESEARCH 15 unique research possibilities. It is our hope that both entrepreneurship scholars and franchising scholars increasingly will see the benefits of this intersection.

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