STEVE INSKEEP, HOST:
All right. Now, we've been reporting for several weeks on small businesses in America. And today, we explore a business system in which entrepreneurs and corporations come together, for franchising.
RENEE MONTAGNE, HOST:
As NPR's Uri Berliner explains, the franchise is a bit like a marriage: It takes a good long-term relationship to succeed.
URI BERLINER, BYLINE: This story is about franchising and the hair-styling business. So it makes sense to start with Martha Matilda Harper. Martha Matilda Harper was a servant living in Rochester, New York, in the late 19th century. In her spare time, she developed a special hair tonic. The tonic sold well, so she quit and opened a hair salon.
JANE PLITT: Women just adored it.
BERLINER: That's Jane Plitt, a researcher and author.
PLITT: This was a time, in 1888, when usually, wealthy women had their hair dressed in the privacy of their home. But Martha was now doing it boldly in public. There was a lot of buzz.
BERLINER: Plitt's book on Harper is called "How One Woman Changed the Face of Modern Business." Harper was an innovator. She invented the reclining shampoo chair. And she was a savvy marketer.
PLITT: A picture of her with her floor-length hair was posted on the front door so that people would come in and say: What happens here? Her hair was her advertisement.
BERLINER: Perhaps her most important contribution was to the new field of franchising. Starting with that one shop in Rochester, she expanded her brand by selling franchises to other women, many of whom were quite poor. At the peak of her success, Harper had franchised her business to more than 500 stores.
PLITT: The Harper method was the method that people chose to use.
BERLINER: The Harper method ultimately gave way to franchises we're familiar with today.
GARY ROBINS: My name is Gary Robins. I'm the owner and operator of 41 Supercuts throughout the Philadelphia area and Delaware Valley.
BERLINER: Robins is 51. He's a serial entrepreneur, and he tried franchising once before with video rental stores.
ROBINS: I was that guy behind the counter who said, uh, Mr. Berliner, you forgot to rewind your tape. That will be 50 cents. That was me.
BERLINER: The video rental business. You know how that movie ended. So in 1998, he started with a Supercuts franchise in Wynnewood, Pennsylvania, and he's been expanding ever since, opening shops like this one in a bedroom community called Media.
UNIDENTIFIED WOMAN: OK, great. We'll see you in 20 minutes. Thanks. Bye-bye.
BERLINER: Robins says after his first try at franchising, he knew he wanted to try again. It offered a way to run his own business, drawing on the strength of an established brand. He never thought it would have anything to do with hair.
ROBINS: If you'd ranked them from number one to 20, hair salons would have been number 21.
BERLINER: He wound up choosing Supercuts, partly because haircuts would never go the way of the video cassette.
ROBINS: One of my criteria was whatever business I was going into, I did not want to be susceptible to technology, or a piece of the puzzle.
BERLINER: Franchises are prevalent throughout the consumer economy, from McDonald's, to service companies like Supercuts or hotels like Hampton Inn. What they share in common is a system, a business system. The franchisee pays an upfront fee to get started and a percentage of total sales. In return, the franchisor provides marketing, training - basically, the keys to the brand. Gary Robins shows me what that means.
ROBINS: Almost everything you see in here is from Supercuts. OK, the wallpaper is a decision made by Supercuts. The sign holders there are a decision made by Supercuts. The signs in there, the benches, the flooring, the floormat, the lettering on the door...
Though the Supercuts imprint is everywhere, Robins owns the business. He's responsible for the bottom line. The infrastructure allows him to focus on customer service and expansion.
You can take your capital and apply it to the franchise and grow quicker than you could on your own.
BERLINER: But for entrepreneurs who chafe at rules and established systems, franchising probably isn't a good idea.
FRANCINE LAFONTAINE: They will have the franchisor telling them what to do, when, how much, and there's a lot of controls that come with that.
BERLINER: Francine LaFontaine teaches at the University of Michigan's Business School, and she coauthored a book on the economics of franchising.
LAFONTAINE: So, someone who really likes their independence and doing things their way will find franchising a very uncomfortable setting as a franchisee.
BERLINER: Another challenge in franchising: contracts. They can last up to 20 years. As Gary Robins points out, it's much easier to get a divorce than it is to get out of a franchising contract. So it really helps if the two sides get along. Given all that, is franchising worth it? Economist LaFontaine says franchises do have a slightly better track record than solo enterprises.
LAFONTAINE: We found a small advantage to being franchised, overall. They have a higher survival rate at one year, at two years, at three years.
ROBINS: For Gary Robins, the formula seems to be working. He says he's opened nearly half of his 41 Supercuts franchises since the financial crisis.
BERLINER: Uri Berliner, NPR News.