"Because of limited local decision-making authority, franchisees typically do not meet AMIBA’s suggested definition of a local independent business."

Read more about the Local Multiplier Effect.

Just in case you were wondering. It comes up from time to time, and the point to me remains: "They (franchises) buy into someone else’s business model."

AMIBA readily concedes the "gray" in franchising, but not the fundamental difference between your own conceptual creation and using someone else's. That's always been the crux of it for me, and it always will be. If that makes me cantankerous, so be it.

Should Franchises or Buying Coops Be Part of “Buy Local” Initiatives?

And are franchises’ advantages worth the trade-offs for business owners?

Editor’s note: we originally wrote this memo for AMIBA affiliates as a member resource. We decided to make the page publicly accessible to help prevent others from making costly errors after we saw many “buy local” campaigns derailed by mishandling franchises or cooperatives.

Franchising is a business model used by corporations (franchisors) wishing to expand their reach and increase revenues without taking direct responsibility for financing and managing each new location. The franchisor grants licenses and enters into contracts with individuals or companies wishing to open a branch (franchisees). These licenses typically are for a limited number of years and grant a specific territory to franchisees. It’s akin to leasing a business.

While some franchises are operated by area residents, others are owned by management corporations that may own many franchises (this is especially common in fast food, where a single company may run outlets of multiple brands).

Individual store owners may own or lease their store building or space, but they buy into someone else’s business model. Support from the franchisor may include a known brand, business plan, trademarks, training, site selection assistance and other tools that theoretically help make success more likely. The franchisee pays a royalty fee and also may pay a portion of sales or profits as part of the franchise agreement, which usually has a finite term attached to it that may be renegotiated at its end. For most franchises, especially restaurants, contracts typically require buying some or all inputs from the parent corporation or its chosen distributor.

The franchisor typically has the right to revoke the franchise from a franchisee if their stipulations are not followed. Because of limited local decision-making authority, franchisees typically do not meet AMIBA’s suggested definition of a local independent business. However, since we are not a franchisor, member organizations ultimately make the decision of how to handle franchises.

If you opt to allow any franchises to be listed in any of your organization or campaign materials, we recommend strongly it be in a “locally-owned franchises” category, distinct from independent businesses. Make sure your board and staff know your policy to ensure consistency and share this page with them so they can speak knowledgeably on the topic ...

Death to chains, death to Dunkin Donuts -- and spare me the tired argument that it's a "local" business.

Charle's Marohn's piece at Strong Towns is almost five years old, but no less relevant now than it was in 2014.

Next time you're playing bumper cars and competing for inches of asphalt on State Street, look up past the runoff waterfalls to the plateau called Summit Springs, where the buildings being constructed will house businesses like Dunkin Donuts, the subject of Marohn's focus.

According to Marohn, there are at least two big problems with these chains -- which couldn't have been installed without local government subsidies generally unavailable to indie entrepreneurs, and propelled in the case of Summit Springs by TIF bonds used to finance the Daisy Lane road extension.

First, the relationship that Dunkin Donuts – and any national chain, whether selling tacos or auto parts or massages – has with your community is the same relationship that England had with its American colonies back in the 1700’s. The colonies provided raw materials. English merchants, manufacturers and transporters would take these materials, process them and provide them back – with all the value added – to the colonies. The government would take a nice bit off the top for the trouble and, just like that, you have a mercantilist economy, one designed to have a positive balance of trade for the English.

Second, there is an effect on the genuine grassroots entrepreneur.

In the localized version of capitalism, this person starts the doughnut shop. Over decades they slowly and incrementally build their business, creating a modest amount of wealth for themselves and their family in the process. In the national corporate franchise version of capitalism, this person becomes the night manager. They work for someone else. They may have some corporate profit sharing, but it is disconnected from their day-to-day work. They may have a 401(k) plan, but they’re not going to get wealthy from it.

Here’s what breaks my heart: I’ve seen that night manager. I’ve seen the look in their eyes. And I’ve seen that entrepreneur, felt the look in their eyes. One is borderline resignation, an acceptance of fate. The other contains endless optimism. I want an America full of endless optimists.

Tragically, we’ve priced them out.

Speaking personally, I hate chains because they're aesthetic abominations. I also know just how hard it is to create a business from scratch without recourse to throwing money at a tested template, and if this means I have a degree of contempt for those with enough cash to do it, that's fine by me.

But Marohn's valuable contribution to this discussion, as so often echoed in these pages by other contributors, is this:

Not all economic development is created equal. Not all local investments build wealth in our community. Not all open markets produce optimal outcomes for all places. If we want our places to prosper over time, we have to be prepared to ask a tougher set of questions at the local level.

Here's the rest of his essay, which has as its starting point the conditions to obtain a Dunkin Donuts "unit" in Minnesota. Thanks to JG for pointing to it.

Dunkin Our Future.

... Amid all the celebration, one little tidbit of information caught my attention:

Adequate capitalization – Requirements vary by market, but the lowest requirements are $250k minimum liquid assets and $500k minimum net worth per unit.

Now truly, when going through a list of potential small business startups, the kind of thing that someone without an MBA but just a lot of drive and desire could undertake, is not doughnut shop at the top of that list? Along with bakery, pizza joint and coffee shop, in my mind I imagine these as being the familiar Stage 1 businesses that pop up out of nowhere whenever that magical critical mass is obtained. (For more on Stage 1, Stage 2 and Stage 3 businesses, listen to my interview with Economic Gardening guru, Chris Gibbons.)

But if you are going to start a Dunkin Donuts, you need a cool half mil in net worth, at least half of which is liquid, meaning cash or something that can be quickly converted into cash. That doesn’t sound very small business friendly.

For households where the highest wage earner is under 35 years old, the ideal age for someone who is not necessarily college material but nonetheless has the work ethic and the entrepreneurial spirit to step up and start a business, the median net worth (excluding home equity) in 2009 was $2,003. Let me say that again. Take over half the families where the primary breadwinner is 35 years old or less, add up their investments and savings and then subtract their debts, and they have less than $2k. In other words, they are only $498,000 short of being able to start a Dunkin Donuts.

Note that for people 65 and older, that number jumps to slightly over $25,000, which should scare the hell out of everyone.

“Dunkin Donuts – and national franchises like them – are not looking for entrepreneurs. They are looking for investors.”
What this means is pretty clear: Dunkin Donuts – and national franchises like them – are not looking for entrepreneurs. They are looking for investors. They want people who already have money, who have already amassed wealth. They are looking for those people because they want someone locally to assume the bulk of the risk, whose interests will be aligned with the corporation and shareholders sufficiently to ensure that the right management is retained and the store is run efficiently.

That’s a very different person, and a very different impact on the city, than the doughnut shop started by your local go-getter with vision and a dream ...

Be awakened: "A quick look at why small businesses are so important to communities."

Seriously, we've been saying this for at least a decade -- and our local governing elites still can't grasp it.

To be sure, occasional one-off gestures of assistance and glimmers of understanding occur, but the bulk of old-think in terms of economic development continues to be showering the Sazeracs and HWC Engineerings of the world with largess even as indies chalk up the bulk of the worthwhile investment.

The time is coming when the idea of an independent business association seems ideally poised to make a comeback. More on this later. Until then, a quick review of the evidence.

Small Businesses Can Save Your Community, by Quint Studer (Strong Towns)

Quint Studer is a Strong Towns member, a resident of Pensacola, Florida, and the author of Building a Vibrant Community: How Citizen-Powered Change Is Reshaping America. Today he is sharing a guest article on the benefits of a thriving small business community.

It’s an exciting time for small and midsize towns and cities. All across America, community leaders are on fire to find solutions for the challenges the past couple of decades have brought. They’re seeking new ways to spark growth, to keep young people from moving away, and to revitalize half-vacant downtowns.

One of the best and most powerful approaches is to deliberately nurture and grow their small business communities.

Small businesses can be underappreciated and under-supported, and that’s a shame. After all, when a downtown is filled with cool coffee shops, locally owned restaurants, microbreweries, and quirky boutiques—together with plenty of strong non-retail players like architects, ad agencies, and attorneys—that downtown is often the heart and soul of a vibrant community.

A strong small business presence—especially one that thrives in the context of a busy, livable, walkable downtown—is what gives a community its character. It creates that sense of “place” that attracts tourists, young people and empty nesters (increasing numbers of both groups want to live downtown), a talented workforce, and yes, bigger businesses and other investors who drive further growth.

I can’t say enough about how crucial small business is to economic health—and now more than ever before. Over the past few decades, most communities have had their “pillars” pulled out from under them. Big institutions like banks, hospitals, and newspapers used to be locally owned. Their owners lived and worked in the same place. Their children went to the local schools. As a consequence, their leaders were deeply invested in the community and worked hard to keep it vibrant.

But over the years, large corporations have bought up many of these pillar institutions and consolidated them. It’s now common for the owners of these organizations to live elsewhere, often in bigger cities where corporate headquarters are located. Smaller communities no longer have the benefit of business leaders with a deep personal connection to the place.

This is a natural part of change. And all change brings opportunities along with losses.

One big opportunity has landed at the feet of small business owners. They have a chance to step into the vacuum that was created when the old pillars fell. Not only can they keep their communities strong, they can help shape those communities’ futures. When small business owners work toward the goal of creating vibrant places, they benefit by increasing their communities’ overall economic health.

Let’s take a quick look at why small businesses are so important to communities ...

Death to chains, by the numbers -- "The Multiplier Effect of Local Independent Businesses."

The obvious question: If local independent business recirculates more revenue locally, why do the local government economic incentives and abatements inevitably flow to the chains?

The most recent example is Summit Springs. City Hall happily bills itself as a partner in this development, and city funds will be used to make it a reality. There'll be two hotels, both chains, along with three restaurants (need we ask?), on a commercial strip already dominated by big box retail.

In effect, in this and other projects like it, the city overlooks the multiplier by subsidizing the businesses most likely to recirculate less revenue locally.

The Multiplier Effect of Local Independent Businesses (AMIBA)

Clearly communicating the importance of the local economic multiplier effect or “local premium” is a key part of effective “buy local” and public education campaigns. The multiplier results from the fact that independent locally-owned businesses recirculate a far greater percentage of revenue locally compared to absentee-owned businesses (or locally-owned franchises ... in other words, going local creates more local wealth and jobs.

I can hear the excuses now -- except I can't. City Hall doesn't publicly discuss matters like this, does it?

And that's the real problem, isn't it?

Meanwhile, even the area's premier publication for chain glorification gets the memo.

Chain restaurants only do three things better than independents, study says, by David A. Mann (Louisville Business First)

Independent restaurants seem to have an advantage over their chain counterparts in a number of different operational and emotional metrics, according to a new consumer study.

The study came from industry consulting firm Pentallect and research partner Critical Mix. Consumers give independents the edge in 12 of 15 metrics being surveyed.

Independent restaurants seem to have an advantage over their chain counterparts in a number of different operational and emotional metrics, according to a new consumer study ...

In Arizona, as in New Albany, restaurants and pubs "offer sense of place."

If you won't believe the way it works here, where you live, might it help to point to the way is works somewhere else, where you don't?

Or am I bugging you to so much as mention elsewhere?

West Valley's independent restaurants, pubs can offer sense of place, by Lesley Wright (The Republic)

 ... The benefit of attracting regular patrons to locally-owned pubs extends beyond the business’s income stream, according to Local First Arizona, a non-profit that advocates for independent businesses.

“Locally owned neighborhood bars, pubs and restaurants are integral to the well-being of a community,” said Local First spokeswoman Erica Pederson.

The Indie Impact Study Series, a 2012 report by consultant group Civic Economics and American Booksellers Association, found that locally owned businesses can have an outsized economic impact.

When residents shop at a locally owned business, more of their money circulates back into the local economy, according to the report which examined spending in 10 U.S. cities. The study found that up to four times as much of that money stays in the area compared to money spent at a national chain.

Local First Arizona also advocates the “place-making” value of local restaurants and pubs. Such places can make residents feel more connected to their communities.

The owners of independent beer maker Peoria Artisan Brewery discovered how much cities want locally owned businesses when they opened the West Valley’s first craft-beer pub in Litchfield Park in December ...