THE INFLUENCE OF HUMAN CAPITAL FACTORS ON FRANCHISING

Martin Joseph McDermott, Tom Boyd

Abstract


The influence of human capital on franchise business ownership is explored in this research.  Franchising is a popular form of small business ownership.  Russ (2015) describes human capital as the knowledge, experience and skills held by an individual, seen in terms of their value or expense to an organization.  Previous research suggests one of the greatest challenges for franchise organizations is acquiring franchisees that are a good match for their system.  In addition to the challenge of finding qualified franchisee candidates, some studies suggest that many new entrepreneurs might be dissatisfied with owning and operating their own business.  Previous research has explored the impact of human capital such as the effect of education and entrepreneurial experience on entrepreneurship, yet no studies have focused specifically on the franchise format of business ownership.  There is also evidence that individuals and institutions that finance start-ups evaluate human capital factors like education and experience when making financing decisions.  However, the use of education and experience may not be equally helpful when looking at franchises versus other startups.  This study applies a comparative research model to assess whether the practice of using education and ownership experience is appropriate for franchises. Many studies suggest entrepreneurs who hold higher levels of human capital when starting a business make more informed decisions, have greater access to external capital, set more realistic expectations, have lower failure rates, develop the business faster, have more practical expectations of business ownership and produce greater revenue.

Keywords


human capital; franchising; entrepreneurship; small business; education; prior business ownership

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 University of Houston-Clear Lake