Franchise Outlook

Who Started Out as a Franchisee?

Franchise businesses appeal to celebrities as investments, to retired people looking for a second career, to new college grads having trouble finding a job. But they also appeal to plenty of savvy businesspeople.

One example you might not have heard about: Sam Walton, the founder of Walmart. “Mr. Sam,” as Walmart associates fondly called him, started his business ventures as a franchisee with Ben Franklin, a chain of five and dime stores founded in 1927. Ben Franklin might have been the first retail store franchise.

Sam Walton, who grew up during the Depression and put himself through school by waiting tables and selling magazine subscriptions, had his first retail job in a J. C. Penney store. His manager nearly fired him for the poor state of his books, telling him that he just didn’t have any aptitude for retail. However, he was very successful with his Ben Franklin franchises. In fact, his first store was the most successful Ben Franklin franchise in a six state area, even though it was located in a tiny town, Newport, Arkansas.

Walton’s landlord wanted to buy the franchise for his son, but Walton refused to sell. The landlord refused to renew his lease, and Walton sold the store to him. The landlord gave the highly successful store to his son.

Walton didn’t give up. He raised enough money to start a new store in a new Arkansas town. He had an independent store, but he also started a new Ben Franklin franchise. It prospered, and Walton opened more franchises. With his brother, Walton owned 15 Ben Franklin stores at the time he started Walmart in 1962 with a single store.

In fact, Walton took the Walmart concept — deep discounts on lots of merchandise in small towns, supported by extremely lean operations — to Ben Franklin first. He wanted to operate his Ben Franklin stores the way he eventually did the Walmart stores. Ben Franklin’s owners didn’t think it was a good idea.

Eventually, Sam Walton closed his Ben Franklin stores and took Walmart public, building Walmart into a retail giant which currently has revenues larger than the Gross Domestic Product of 157 countries, including Norway.

So what took Mr. Sam from being an incompetent retail clerk to being the leader of the largest retail empire the world has ever seen?

As a franchisee, Walton got to learn and to succeed with a winning formula. Harvard Business School professor Richard Tedlow, in his book Giants of Enterprise: Seven Business Innovators and the Empires They Built, said, “First he learned all the rules.”

That learning started with a two week training from the franchisor. Like many franchisors, Butler Brothers, the parent company of the Ben Franklin stores, believed in thorough training for franchisees. Once he had completed that training, Sam Walton continued learning. He studied trade publications, took advantage of all the franchise training opportunities, and studied his competitors minutely. He learned from his mistakes, too — including the error of signing a lease without a renewal clause.

His experience as a franchisee prepared Walton to succeed in later ventures.

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