The pessimism and fear that has settled in over the larger economy is now increasingly palpable in the franchise community. The unbridled optimism of the last seven years has in the past seven months changed to an unbridled pessimism. The one constant between the two seemingly polar states is that both are and were unrealistic.

The economy was never truly as strong as it appeared back in 2006 and 2007 and is not nearly as weak as some believe to be today in 2009. Over the course of the next year our economy will in the language of statisticians revert to the mean. Stated differently, and using a more metaphysical description of the state of our national affairs, our economy (and our economic behavior) will move to what Aristotle called the golden mean. The golden mean is the desirable middle between two extremes, one of excess and the other of deficiency.

What does any of this have to do with franchising one might ask? Apart from the ineluctable fact that franchising is inextricably bound to the larger economy, franchisors need to be the engine that leads the economy out of the forest of gloom. In order to do this, however, t he franchise industry must first accept that “that was then, this now”. Like the larger economy the supply of cheap money enticed franchisors and franchisee alike into business decisions that were not sound. The faster the franchise industry fully accepts that it is not “recession proof” as some had claimed, and that it too was drunk on the supply of cheap money the faster the US economy will turn around.

The composition of the franchise industry has been forever altered. But that is by no means a negative. As we find our collective footing in the new economy, a return to the golden mean will have the effect of strengthening the franchisors with solid business plans.  Strong management teams–both on the franchisor and franchisee level–will be at the forefront of the economic recovery.

Americans are now more than ever looking to take their future into their own hands. It is time for the franchise industry to lead by example. It is time for the franchising industry to demonstrate to America what financial independence looks like. It is time for the franchise industry to re-infect our national psyche with the one emotion that the franchise industry has the most of and the larger economy is most lacking in right now: optimism.

That which I state above is not unprecedented and is not “pie in the sky” optimism.  There is historical precedence to prove that even in seemingly dark economic periods starting a business—and specifically starting a franchised business—can succeed. Howard Johnson’s is that example.

A World War I veteran with only a grammar-school education, Howard Dearing Johnson started out as a salesman for his father, a Boston cigar jobber. As smokers increasingly turned to cigarettes, however, the business fell into debt and, after his father died, Johnson closed it. Looking for a better enterprise, he bought a store selling candy, newspapers, and patent medicines in Wollaston, a Boston suburb, in 1925 for $500 he borrowed, picking up also its debts of at least $28,000. Johnson revived the store’s moribund soda fountain and, seeking a quality product that would bear his name, introduced chocolate ice cream with a “secret” formula: a butterfat content almost twice the standard. It proved a hit, so he added other flavors and opened a beachfront stand where he sold $60,000 worth of ice-cream cones in a single summer. By 1928, his gross sales of ice cream had risen to $240,000.

When Johnson opened his first restaurant, in neighboring Quincy in 1929, he made fried clams and broiled swordfish the specialties and also included homemade baked beans, brown bread, and pastries. However, he was frustrated in his desire to expand by lack of capital before 1935, when he persuaded an acquaintance to open a restaurant in Orleans, on Cape Cod, and sell his ice cream under a franchise. By the following summer, there were four Howard Johnson franchised restaurants, called “Howard Johnson’s,” and 13 small Johnson-owned roadside stands being converted into restaurants. By the end of the year, 39 more franchised restaurants had been opened.

Howard Johnson’s phenomenal growth was based on the application of two relatively new and untried concepts. Its founder, unable to obtain loans from bankers, was a pioneer in the franchising field. Licensees, rather than the chain, bore the start-up costs. These included an initiation fee paid to the company, which then made more money by selling food and other supplies to the licensees. In addition, Howard Johnson foresaw that the growing popularity of the automobile would send millions of hungry Americans out on the road.

By the end of 1939, there were 107 Howard Johnsons along the eastern seaboard and as far south as Florida, mostly along highways. Gross receipts came to $10.5 million and profit to $207,000. See http://www.fundinguniverse.com/company-histories/Howard-Johnson-International-Inc-Company-History.html

W.C. Garth Snider