Written by:

Dave Ketchen
Jeremy Short
Jim Combs

Illustrated by:
Will Terrell

Shading by:
Amber Terrell

Flat World Knowledge, Inc.

1 Bridge Street, Suite 105
Irvington, NY 10533
www.flatworldknowledge.com

Tales of Garcon: The franchise Players

All Rights Reserved© 2011 Jeremy Short,
Dave Ketchen, Jim Combs

ISBN-13: 978-1-936126-03-3

This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License.
 Frequently asked questions about Tales of Garcón

A graphic novel textbook?

Yes! Tales of Garcón combines the academic rigor of traditional textbooks with the fun of graphic novels. The result is
more student learning and involvement. Your students will read this book without complaint.

What topics does Tales of Garcón cover?

Tales of Garcón offers comprehensive coverage of key issues within family business, franchising, and small business
management.

What support materials are available?

Tales of Garcón and the instructor’s manual together offer a glossary of key terms for each chapter, a detailed
summary of each chapter, interviews with entrepreneurs and executives, in-class exercises, recommendations for
further reading, and a few special surprises.

Seriously, a graphic novel textbook??

Absolutely! Tales of Garcón is Flat World Knowledge’s third graphic novel textbook coauthored by Jeremy Short and
Dave Ketchen. The first two (Atlas Black: Managing to Succeed and Atlas Black: Management Guru?) received very
favorable coverage from higher education magazines (e.g., Inside Higher Ed, BizEd), business periodicals (e.g., Wall
Street Journal, BusinessWeek), academic journals, (e.g., Academy of Management Learning and Education and Business
Horizons), and daily newspapers (e.g., Dallas Morning News, Houston Chronicle). According to Dr. Dale Dunn, MBA
student and pathologist, “The graphic novel has a definite place as a valid educational tool and as such can offer
educators a novel mechanism of teaching while concomitantly providing students a more innovative and memorable way
of learning.” Not surprisingly, instructors that have used the Atlas Black books have received their strongest teaching
evaluations ever.

And finally, here’s what Rich Dad Poor Dad author Robert Kiyosaki said via Facebook and Twitter in reaction to an
interview of Jeremy Short about graphic novel textbooks: “Here’s a professor who gets it. Textbooks [stink]. Make
school fun and the learning increases.”

Have more questions?

E-mail us at talesofgarcon@gmail.com.
 The Players
Ramón: Garcón’s oldest Isabel: The younger
child and his heir apparent. sister of Ramón. Isabel
Ramón is officially the is very intelligent and
manager of Hotel Garcón, insightful, and is pursuing
but his immature and a Master’s in Business
goofy nature forces Administration (MBA).
other family members to Isabel rightfully wonders
cover for him. Ramón wants why Garcón views her older
to prove that he is worthy brother as the next leader
of taking over Hotel Garcón of the family business, and
by growing the business she is skeptical of Ramón’s
in new and exciting ways. decision-making skills.

Garcón: A renowned
entrepreneur and adventurer.
Raised by a Creole father and
a Latina mother on the family
vineyard, Garcón enjoyed a
series of harrowing esca-
pades around the world as a
young man. Following the
disappearance of his beloved
wife, Garcón created Hotel
Garcón. His outstanding
hospitality has made this
family business extremely
successful.

Audrey: A potential Isaac: The head

franchisee of Hotel bartender at Hotel
Garcón. Audrey also Garcón. Isaac is treated
appears to be interested in like a family member by
a personal relationship Garcón and his children.
with Ramón, and she Isaac harbors a strong
cannot understand why distaste for franchising,
Isabel does not and he is very wary of
trust her. the possibility that
Hotel Garcón will be
franchised.

Felix: Owner of a
franchised hotel located
next to Hotel Garcón.
For many years, Felix
was Garcón’s sidekick
during his adventures.
Garcón blames Felix for
his wife’s disappearance,
and the former partners
have long been at odds.

Mark: The son of Felix. Ice: Isabel’s boyfriend

Mark is also Ramón’s best and her classmate in the
friend, and he manages his MBA program. Ice’s
father’s hotel. Mark has self-confidence is
long had a crush on Isabel, surpassed only by his
but Mark lacks the courage arrogance. Some claim he
to tell her how he feels. bears an uncanny
resemblance to mark.

3
 Table of Contents

Chapter 1 Chapter 5

Advertising fees – 12 Management fads – 17

Business format franchising – 11 Matrix organization – 17
Franchise fee – 12 Nepotism – 15
Franchisee – 5 Quality circles – 17
Franchising – 4–5 Strategy as pattern – 6
Franchisor – 5 Strategy as perspective – 7
Free riding – 14 Strategy as plan – 2
Heir apparent – 2 Strategy as ploy – 4
Product franchising – 10 Strategy as position – 5
Residual claimant – 13 Symbiosis – 5
Royalties – 12
The Franchise Rule – 22 Chapter 6

Chapter 2 Bricolage – 18
Contract length – 19–22
Agent – 17–18 Contract renewal clause – 19
Antitrust law – 3 Contract termination clause – 9
Exclusive dealing – 3 Limited liability company – 26
Franchise Disclosure Document – 4–6 Proven business concept – 2
Monitoring – 19 Selection criteria – 10
Principal – 17–18 Sole proprietorship – 26
Registration state – 11–13
Territory – 2 Chapter 7
Tying – 3
Estate planning – 18
Chapter 3 Hold up – 4
International expansion – 7
Business model – 12 Master franchising – 11
Family business culture and history – 13 Obsolescing bargain – 1
Goal conflict – 3 Passive ownership – 13
Industry norms – 16–17 Underinvestment – 5
Operational complexity – 12
Operations manual – 12
Succession – 20
Support services – 17
Survival – 21

Chapter 4

Advisory council – 10, 14, 16–23

Area development agreement – 13
Capital scarcity – 2
Conversion franchising – 26
Family council – 10, 14, 16–23
Franchisee association – 23
Franchisee support services – 16–20
Organic growth – 21

4
Tales of GARCóN
The Franchise Players
Chapter 1: The Game's Afoot
HOTEL GARCóN on behalf
of the entire
Garcón family...

...let me close
by thanking you although hotel garcón
for coming. is a small business,
we have big dreams.

we invite you
investors
to, uh, invest...

in those
dreams.

and again, i apologize that my father

was unexpectedly detained elsewhere.

1
 As the
eldest child,
I will take
the helm after
El Almirante.

Ramón, who
will take over
when your
father retires?

No offense, kid,
If you open
but your sister
My hair is just more hotels,
would be a better
as apparent as
heir apparent. how can
hers!
you possibly
compete with the
big brands?

Well, uh, I think my

you see, brother means
it’s just that…. that Hotel Garcón
offers a personal
touch that the
giants lost
long ago.

You may be
right, Isabel,
but my board would Mine either.
never approve investing But please give
in a boutique hotel. Garcón my regards
It’s too risky. when he returns.

Ramón clearly
lacks the admiral’s
business savvy.

2
 Now Don’t
what? worry,
RamÓn.
El Almirante
will be so
disappointed!
Papa always
finds a way
to end up
on top.

How did the Not so The bankers

investor good, don’t think we
presentation Mark. can compete with
go? chain hotels.

they don’t realize

Ha! that the chain hotel I Maybe that should Estúpido!!
manage next door has have been included
half the customers in my talk.
Hotel Garcón does!

3
 I was hoping to What can
speak to the heir That's
I do for
of this fine me!
you?
establishment.
And feel free to
provide multiple
answers.

I'd like to
take you to
a place you've
never been.

Hogwarts?

I don't know.
I'm talking I can imagine
about quite a bit.
franchising,

and how it
could provide
your family
more wealth
than you
can imagine.
.

You'll
have it.

And
more.

4
 Don’t think of
The word franchise has freedom from
its roots in the French Um, something,
word franc, which means set free but freedom
"to make or set free." how? to pursue
something –
Don’t you
want to be – such as
set free? building a
great brand.

Wow,
she speaks
French.

It’s simple really. One firm,

What, exactly, the franchisor, sells the right
is franchising? to market goods or services
under its brand name and using
its business practices to a
second firm,the franchisee.

So, we’d be
the franchisor
and you’d be
the franchisee.

Exactly!
See, we’re
practically
there already.

I’m in!

5
 Well, of course.
What my brother means How about I have
to say is that this seems my lawyer draw up
like a great opportunity, some preliminary
but we need to think papers and we’ll
about it a bit more. chat more about
this next week?

seems Could
attractive you be more
to me! specific?

6
 Franchising!
Sure, strangers
Audrey wants routinely offer to
to make us rich. line our pockets
with money.

Well, franchising
Indeed, has fueled explosive
I regularly growth for firms
receive e-mails like McDonald’s
from overseas and Subway,
to that effect. but it’s complex.

We need
some expert
advice.

– And
I know
just the Is it the widow
person. of a deposed but
wealthy general?

7
 Silly me,
I assumed you were
Professor! inviting me to play
Over here! actual golf.

ó
When Ram n says, Arrrr,
“meet me at the let’s tee off, I’m not sure I know
first hole,” he means me mateys. I can help little about
“Buccaneer Cove.” you much, franchising.

But your Following a

Humph! premade
title is “Professor
of Entrepreneurship.” formula is not
entrepreneurship.

8
 Well,
Is that all not
franchising exactly.
is?
following
franchising
a recipe
involves a
step-by-step?
long-term
cooperative
agreement
between two
very different
types of firms.

A master
and an
apprentice?

In a The franchisor develops and

way, a business opportunity franchisees exploit
yes. that has the potential the opportunity on a
to be profitably local or regional
delivered in different basis.
locations,

So there could
be a Hotel Garcón
in every town in
America!

9
 I’m a little confused.
Our uncle looked into
buying a tractor franchise,
but that seems a lot
different than creating
a hotel franchise.
Indeed, franchises for hard
goods like tractors, gasoline,
and tires are called
“product franchises.”
They are probably
better thought
of as distributors.
Finished products
are delivered to them,
and they turn around
and sell them
to the public.

I thought
Product franchises can be traced
franchising
back at least to the 1830s, when
started in
German brewers started offering
the U.S.
pub owners working capital and
generous credit in exchange for
After all,
an exclusive supply agreement.
we’re the best
at everything!

Uh, have
you tried
German
beer?

10
 Franchising hit our shores in 1851,
when the Singer Company began
offering people territories for
selling their sewing machines.

– where a
product or service
What you two are is both created and
considering is called consumed locally.
“business format franchising.”
This is used in settings like
hotels, restaurants, dry
cleaning, and real estate

That seems a lot

more complex than
just distributing
beer or sewing
machines.

Indeed,
it is. Kind
of like putting
through this
dragon.

11
 Franchisee
gets Proven business
What does
concept, brand name, and
each side of
training/support
a business
format
franchising
relationship
give and get?

Let me see
the back
of that
scorecard…
Franchisor
(you)
gets fee upfront
and ongoing
royalties

Yes. These rights would last

a certain length of time,
such as ten years.

So, And they

essentially would apply
a franchisee to a particular
would buy the geographic area,
rights to use
the Hotel Garcón perhaps a
concept and particular
our operating town or state.
procedures.

Collecting
We’ve done the franchisee fees
hard work, and royalties
now we just sit seems wonderful,
back and collect but franchising
money. has some key
risks too.
Being a
franchisor
sounds just
like tenure!

12
 Ramón, have Perfect.
you ever had Have you been
a lousy meal at to that restaurant
a famous fast chain since?
food place?
Absolutely
not.

YES!

About four years ago,

I got food poisoning
courtesy of an
“Attila Thrilla” from
Barbarian Burger.

It doesn’t take So, bad

much for a brand franchisees
to be ruined in can undermine
the eyes of a a company.
consumer.

Audrey would
never do anything
like that! Don’t be so
sure, Ramón.

As residual
claimants,
franchisees
have powerful
incentives to cut
quality.

I just It’s simple really.

knew we After all the bills
could not get are paid
through golf
without a crazy – royalties,
management labor expenses,
term. rent, utilities,
costs of supplies,
everything –
What in the
heck is a whatever money
“residual is left over
claimant”? is profit for
the franchisee.

13
 As did
So if a franchisee Exactly. everyone riding
can cut her expenses, But the brand in the car that day
like by leaving burgers suffers. with Ramón.
out under hot lights
for hours instead of
throwing them out,
then her profits
go up!

I see that this next hole has

us aiming at a clown’s nose,
so our round is coming
to an end.
Let me
recommend
a book to you.
It’s called
Franchising
for Nitwits.

That sounds
like a book
that even Ramón
can handle.

Be quiet
long enough
for me to putt…

Free
game!!! Arrr,
you scalawags
be on your way,
I have 18 more
holes of
conquest.

14
 Hi,
hey,
kids. Any bites
Isaac!
on your
investor
pitch?

Her name is Audrey.

Only Who told She wants to buy a
one – you all franchise from us,
– an angel.
this? and she seems to
With her help,
have cast a spell
Hotel Garcón
on someone.
may become a
household
name.

That’s not a bad idea. We could have a fun meal

Translation, with a small but whimsical toy that looks
Franchising! like Isabel that we deliver with room service!!
selling out.

Becoming part of the

McDonaldization
of society.

15
 That’s
not what I
meant.

Your hotel brings

something unique to the
community, and you want
it to become part of a
predictable experience.

An experience that
can now be shared
by everyone!

Where’s the
excitement in
that?

You’re kind of
That’s why I hate a dream killer
going to chains when today, Isaac.
I visit the big city.

That’s your Why do you think

dream? there are so
many franchises
in big cities?

People want the

To create efficiency and
another soulless predictability
franchise? that come with
standardization.

16
 ... And maybe by training our franchisees
we can replicate what is unique about
the hotel in new locations.

Yes!

I
knew you’d
become a
believer.

It still Perhaps you’d be

seems like convinced if you read
a deal with this book the professor
the devil recommended.
to me.

I guess I owe Isabel

five bucks for our wager
that you’d never open a
book after graduation.

17
 Here are a few fun
facts in the book
that show how important
franchising is for the
overall economy.

The only thing that

Funny you
could possibly be more
should
boring than this mess
say that.
of stats is a history
lesson.
According to
the book, a key innovation
began in the 1890s, when
Coca-Cola started selling
its secret formula to
franchisees who made
coke, bottled it, and
sold it to local drug
stores.

The original Coke franchise territories

were sized based on how far a horse-
drawn cart could travel in one day.

18
 In 1925, A&W Root Beer became America’s first
franchised fast food concept, primarily to sell
root beer to its exclusive franchisees.

In 1935, Howard Johnson became the first Rapid

franchised table-service restaurant. growth? 150 stores seems
By 1941, the system had about 150 stores. small compared to
today’s behemoths like
Barbarian Burger.

This demonstrated that

franchising could fuel
rapid growth.

19
 According to our trusty
book, modern franchises
like Barbarian Burger
trace their roots
to the 1950s.

During World War II, General Dwight Eisenhower was

very impressed by how quickly people and goods could
move from place to place using Germany’s Autobahn.

after “Ike” became president in 1953, he started building the

interstate highway system. The interstates created huge
opportunities for franchising because travelers grew in
numbers, and they wanted consistency in food and lodging.

The growth of television at this

time helped a lot too, because
television advertising allowed
firms to build national brands.
These two trends helped
brands like McDonald’s, Wendy’s,
Kentucky Fried Chicken, Holiday Inn,
and Sheraton become household
names.

Franchising
really is
magic.

20
 Hmm, but
sometimes it is
black magic.

Apparently the
popularity of
franchising in the
1950s and 1960s
opened the doors
to fraud.

Shady operators convinced franchisees

to cough up hefty franchisee fees and
provided nothing in return.

See, But the evil

franchising did not go
is evil. unchecked
for long.

starting in the 1970s,

the Federal Trade
Commission and many
states tried to protect
franchisees from
fraud by regulating
franchising.

your luck has

run out, punk.

21
 A key step was the Franchise Rule of 1979, which requires a
franchisor to reveal to franchisees important information Ugh, no more,
such as the fees it charges, its financial condition, and what my head hurts.
support franchisees receive.
Say, you know
I have to who might be useful
to talk with about
tell them all this?
what?!!

Our cousin
who owns a spa
franchise?

I guess that was

kind of an obvious
question.

I meant it
rhetorically.

It’s not a bad idea. Actually, I already

I haven’t seen have an appointment
Estupido!
Stephanie in a while scheduled today
and she’s like for myself and Mark.
a sister to me.

Perhaps
next week,
sis?

22
Welcome to Spa*Taneity.
We have you two down Facials? You said you wanted
for deluxe facials. me to go with you to
see your cute cousin.

You told me
to make an
appointment.

And
you will! You two
are so
Whilst cute!
also being
refreshed and
rejuvenated.

You can
sort out your
squabble in the
waiting room.

23
 We’ll be with
you in just a
moment!

Those And you

towels are to definitely didn’t Hey,
cover your hair! need to get cousin.
not your undressed.
body!

Well, that
clarifies
some things.

Stephanie, I’m glad Well,

great to, um, to see you I’ve been trying
This place
see you. too, Ramón, to become part
is great.
albeit a bit of the leisure
surprised. class for years.

And it seems
franchising
is the way
to do it!

24
It’s not all And being a Such
massages franchisee definitely as?
and games. has pros and cons.

On the plus side,

we get tons of
great products
with a well-known
brand name.

We also get support from the

franchisor, such as training.

And Spa*Taneity has a

proven formula, with
hundred of outlets
across the country.

And it
still seems
pretty unique.

I didn’t even know this

place was a franchise
until RamÓn told me.

25
 Well, paying the
$25,000 franchisee
And fee up front was
the tough to swallow.
cons?

I pay 5% of my sales in royalties

and another 3% goes to advertising
the brand. So only 92 cents of
every dollar goes toward keeping
the spa going.

And you
lose some For example, Spa*Taneity I see Mark
independence. won’t let us do back dodged a bullet
waxes although many here today.
of our clients have
requested them.

Meanwhile, my ten-year franchising agreement

expires in two years, and corporate could And their support isn’t
decide not to renew it. always that great.

Use jalapeÑo
slices if you
run out of
cucumbers.

this
profitable
territory is
ours now.

26
 Another con
is that you Isabel’s former
aren’t really an professor told me
entrepreneur. franchisees aren’t
entrepreneurs.

What?

I own and
operate this business.
I considered dozens of So let’s get to
opportunities before the bottom line.
deciding on Spa*Taneity.
Do you think
the hotel is
That sounds like right for
entrepreneurship franchising?
to me.

I guess Isabel’s
alma mater won’t
be expecting a big
donation from you
anytime soon.

Ramón, for your

I really do. future reference,
The service and
the atmosphere are what your cousin
unique, and I just offered is
believe you and called a compliment.
Isabel could train
people in the
“Hotel Garcón Way.”

Well, there is a big “but”;

the idea is great,
but you must choose
your franchisees
very carefully…

27
back at club GARCóN... Audrey,
over here!!!

Hi, partners,
I’ve got something
special for you.

Would you like

something to
drink… ma’am?

Only if you serve

the sweet nectar
of wealth.

Good
one!!!

What’s all the

commotion over
there?

Garcón
has
arrived.

It’s show
time!

28
 I regret my absence
the last few days.
Welcome,
my friends, Some old amigos
to needed my help with
Hotel some stray cats.

Garcón!

Is that how
Stray cats? your arm was
That seems beneath damaged?
the great Garcón!

Not when the Appearances

Ah…. can be deceiving.
cats are tigers,
and they are straying
into a village.

I am
uninjured!

but the tigers

learned a
valuable lesson…

29
Whenever you grow
your territory,

you invade someone else’s.

So when times get tough…

People What?
actually
like this?

…You must be sure

that your partners
will not turn I said,
tail and run. I like this!

And now, my friends,

let me buy you all a drink.
Top shelf, of course!
We shall toast to the tiger.

¡ Antes que te cases,

mira lo que haces!

Huh?

It means
“look before
you leap,”
amigo!

30
 Let’s Seems quite fair,
Franchise fee, $1,000.
get back to where do we sign?
Royalty, 1% of profits…
business.

Hold on,
I don’t
our friend
see the need,
Jeanette
our lawyer
has dealt with
has already
franchising in her
approved it.
law practice, and
she offered to
examine the
contract.

El Almirante and I will

I think put me in decide
you mean your charge of if we
lawyer. growing franchise!
the business,
We will get
back to you
after we meet
with ours.

I think
we have a
problem.

31
 From the Desk of Garcón: A Summary of the Tale So Far

Welcome, amigos. Our story begins at Hotel Garcón, my humble oasis for weary travelers who long for
our legendary hospitality. I can assure you that their expectations are not only met, but exceeded.
Family firms such as ours account for roughly 80% of businesses worldwide. The intermingling of busi-
ness and family relationships within a family firm often creates interesting interpersonal dynamics,
and Hotel Garcón is no exception. Although each of the Garcóns feels a fierce loyalty to the others,
a variety of strong opinions exist. There is grave danger here. Variety may be the spice of life, but
family discord could ruin our firm’s recipe for success.
You have stumbled upon our family at a critical moment. My son Ramón is looking to expand our brand.
While I was away on an adventure, Ramón gave a presentation to potential investors outlining the
reasons why they should offer financial backing for our growth plans. Although my daughter Isabel
reported that the presentation was pitiful, a provocative investor named Audrey was intrigued by the
hotel’s growth prospects. Audrey proposed to create a franchising relationship between Hotel Garcón
as the franchisor and herself as a franchisee. This would involve Audrey building a hotel and operating
it under the Hotel Garcón name. But is my family capable of becoming franchise players? I have
entrusted Ramón with making this choice. As my heir apparent, Ramón must learn to navigate tough
decisions so that he can one day take the helm of the family business.
Ramón seemed smitten with the idea of franchising – and with Audrey – but Isabel insisted on learning
more before moving forward. Over a game of mini-golf with one of Isabel’s professors, the siblings
discovered that franchising is a long-term relationship wherein each side provides certain benefits to
the other. A franchisor (such as Hotel Garcón) provides a proven business concept, a brand name,
operational procedures, and training/support. The franchisor also promotes the brand, introduces
new products and services, and updates operational procedures as needed. In return, a franchisee
(such as Audrey) pays an upfront franchisee fee and an ongoing royalty fee (which is typically a
percentage of the franchisee’s sales). In running the franchise, a franchisee agrees to implement the
operational procedures under the franchisor’s brand name and to uphold quality standards in their
location or region.
As fortune would have it, my lovely niece Stephanie owns a spa franchise. Ramón and his best friend
Mark visited the spa to learn about franchising from a franchisee’s point of view. Stephanie explained
that, in comparison to starting an entirely new business, becoming a franchisee has important advan-
tages, including joining an established brand, using proven procedures for running the business day-
to-day, and support from the franchisor, such as site selection, lease negotiation, and training. On
the downside, however, franchisees operate on tight margins because they must pay franchise fees
and royalties, they have limited flexibility to solve problems and adapt to local demands, they face
some risk of nonrenewal when their contracts expire, and franchisor support can vary a lot in quality.
Based on her experience, Stephanie believes that Hotel Garcón franchises could be very successful.
This news warmed my soul like a soft kiss at dawn.
Soon after Ramón’s visit to the spa, I returned from overseas and held court with the hotel’s guests.
Surrounded by the festive spirit that is at the heart of the Hotel Garcón experience, Audrey made a
formal proposal to Ramón and Isabel to become our franchisee. Tensions erupted between my prog-
eny as Ramón embraced the proposal and Isabel remained very skeptical. It seems that both of them
inherited their father’s passion – and his stubbornness. Isaac, our lead bartender and a long-time
family friend, was troubled by the dispute and shared his concerns with a mysterious confidant. After
completing the story of my most recent adventure, I bought all of our guests a drink.
Top shelf, of course!!

32
 Key Concepts

Advertising fees – Money that is collected from franchisees and then used to market the brand.
These fees are usually a percentage of franchisees’ sales. The franchisor cannot keep this money; it
must be used to support the brand.

Business format franchising – A franchise relationship that involves creating and distributing a
branded service. Some business format franchises involve the sale of physical products to custom-
ers (e.g., restaurants) while others do not (e.g., dry cleaning).

Franchise fee – A one-time fee paid by franchisees to the franchisor prior to the opening of a new
outlet.

Franchisee – A firm that purchases the right to use another firm’s brand name and business system
within a specific geographic area for a specific period of time. Franchisees pay upfront and
ongoing fees to the franchisor. Franchisees also agree to follow the franchisor’s operational
procedures and uphold quality standards.

Franchising – A long-term contractual agreement in which one firm (the franchisor) sells the right to
market goods or services under its brand name and using its business practices to a second firm
(the franchisee) within a specified geographic area and for a specific period of time.

Franchisor – A firm that owns a business system and sells to franchisees the right to use the system
within a specific geographic area for a specific period of time. The franchisor provides a brand
name and associated trademarks as well as operational procedures. The franchisor also promotes
the brand, introduces new products and services, and updates operational procedures. Most fran-
chisors provide some support services, such as training and help with site selection.

Free riding – When a member of a team does not live up to its commitments and hurts the team as a
result. For example, a franchisee can save money by cutting the quality of the service it provides to
customers, but this will harm the franchisor’s brand.

Heir apparent – The person who is likely to be the next leader of a firm. In some family firms, the
choice of the heir apparent is influenced by a gender bias (males are given preferential treatment)
and/or a birth order bias (older siblings are given preferential treatment).

Product franchising – A franchise relationship that involves the sale of branded goods, such as in
soda bottling, auto dealers, and gas stations.

Residual claimant – The person or set of people who are entitled to the profits (if any) that remain
after all of a firm’s bills are paid.

Royalties – Ongoing payments that franchisees make to franchisors for the continued use of the
business system. Typically, royalties are calculated as a percentage of sales.

The Franchise Rule – Regulations put in place by the Federal Trade Commission in 1979 requiring that
franchisors disclose to franchisees key information about (1) the nature of the franchise system,
(2) the franchisor’s financial viability, (3) the costs involved in purchasing and operating a fran-
chised outlet, (4) the terms and conditions that govern the franchise relationship, and (5) the names
and addresses of current franchisees. The regulations were updated in 2007.

33
 Further Reading

Aronoff, C. E., Astrachan, J. H., Mendoza, D. S., & Ward, J. L. 1997. Making Sibling Teams Work: The
Next Generation. Marietta, GA: Family Enterprise Publishers.

Barach, J. A., Gantisky, J., Carson, J. A., & Doochin, B. 1988. Entry of the next generation: Strate-
gic challenge for family business. Journal of Small Business Management, 26: 49–56.

Barnes, L. B. 1998. Incongruent hierarchies: Daughters and younger sons as company CEOs. Family
Business Review, 1: 9–21.

Bork, D., Jaffe, D. T., Lane, S. H., Dashew, L., & Heisler, Q. C. 1996. Working with Family Businesses: A
Guide for Professionals. New York, NY: Jossey-Bass.

Brokaw, L. 1992. Why family businesses are best. Inc., March: 72–81.

Dicke, T. S. 1992. Franchising in America: The Development of a Business Method, 1840-1980. Chapel
Hill: University of North Carolina Press.

Dyer, W. G., Jr. 1986. Cultural Change in Family Firms: Anticipating and Managing Business and Family
Transitions. San Francisco, CA: Jossey-Bass.

Hartley, B. B., & Griffith, G. 2009. Family Wealth Transition Planning: Advising Families with Small
Businesses. New York, NY: Bloomberg Press.

Hoy, F., & Sharma, P. 2009. Entrepreneurial Family Firms. Englewood Cliffs, NJ: Pearson Prentice
Hall.

International Franchise Association. 2010. Building Local Businesses, One Opportunity at a Time.
http://www.buildingopportunity.com/.

Ketchen, D. J., Short, J. C., & Combs, J. G. 2011. Is franchising entrepreneurship? Yes, no, and
maybe so. Entrepreneurship: Theory and Practice, 35: 583–593.

Ritzer, G. 2004. The McDonaldization of Society. Thousand Oaks, CA: Pine Forge Press.

Shepherd, D. A., & Zacharakis, A. 2000. Structuring family business succession: An analysis of the
future leader’s decision making. Entrepreneurship: Theory and Practice, 24: 25–39.

Sharma, P., Chrisman, J. J., & Chua, J. H. 1997. Strategic management of the family business: Past
research and future challenges. Family Business Review, 10: 1–35.

Watson, A., & Johnson, R. 2010. Managing the franchisor-franchisee relationship: A relationship
marketing perspective. Journal of Marketing Channels, 17: 51–68.

34
 Are Franchisees Entrepreneurs?

Don Larose, Senior Vice President of Franchise Development, Express Oil Change, LLC.
http://www.expressoil.com*

That is a great question. Franchisees may not be “entrepreneurs” in the fullest sense of the word,
because by necessity to be a part of a franchise system they must follow the rules and requirements
of the franchise system, which limits their decision-making autonomy. Following the franchise system’s
requirements are critical in order for a brand to provide a consistent offer to the consumer and have
a brand identity. Without that brand consistency, the customer wouldn’t know what to expect, and the
value of the business would be greatly diminished.

Franchisees are, however, entrepreneurs in the most important meaning of the word, and that is that
franchisees put their own capital and net worth at risk, seeking the best return on their investment.

Keith Schilleci, President of Momma G’s, Inc. – a company that is building a franchise network around
the Momma Goldberg’s Deli brand. http://mommagoldbergsdeli.com*

An entrepreneur is a pioneer with an individually designed enterprise, plan, or idea. Entrepreneurs

plan, devise, and implement their concept and business model primarily on their own. They control the
direction and implementation of their enterprise and accept full responsibility of the outcome. They
accept the majority of risk and reward.

A franchise offers someone the opportunity to own and operate their own franchise business. There
is obvious risk and reward for the franchisee, but the risk and reward is shared to some extent with
the franchisor. The business model and concept has been developed and is implemented with the assis-
tance and support of the franchisor. To some degree, a franchisee is dependent on the direction and
level of success of the franchisor. In my opinion, a franchisee does not meet the definition of a true
entrepreneur.

Tom Hunt, Owner and President of PHD Hotels, Inc. – a franchisee of Hampton Inns. http://www.phdhotels.com

A franchisee is absolutely an entrepreneur. Anyone who is willing to take a risk by putting their own
money and many times all they own on the line for a business is my definition of an entrepreneur. If
you want to start your own business by choosing a franchise company, your first risk is the task of
searching different franchisors and choosing the right one. I would not consider all franchisors
entrepreneurs as many of them are large public companies. Although the CEO of a large public com-
pany has a very demanding job, I would not consider them an entrepreneur.

* Reprinted with permission from the Journal of Applied Management and Entrepreneurship

35
 WWW.FLATWORLDKNOWLEDGE.COM

“Should our family firm expand,

or should we be content with the
success we enjoy now?”

“Which of my children should

succeed me at the helm?”

“How can I ensure that our

family firm thrives in the future?”

The founders of family firms wrestle with complex Tales of GARCóN

questions like these every day, and the answers The Franchise Players
Chapter 1: The Game’s Afoot
are elusive. In Tales of Garcon: The Franchise
Players, a charismatic entrepreneur named
Garcon tries to direct the destiny of the
family-owned hotel that he created. The family’s
plans take an unexpected turn when a mysterious
investor offers to become the hotel’s first
franchisee. Garcon’s carefree son Ramon
readily embraces the opportunity, while his
cynical daughter Isabel questions the investor’s
motives. Written in an engaging style, Tales of
Garcon: The Franchise Players covers key
concepts from family business management,
small business management, and franchising.
This graphic novel can serve as the main text
for a college course, as a supplement to a
traditional textbook, as a reading within an
executive program, and as a primer for
entrepreneurs who simply want to learn more
about how to be successful. As Garcon
would say, “Disfruta de la aventura, amigos.”
Enjoy the adventure, my friends.