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Not every business can and ought to be a franchise. As the founder and operator of an exciting recent concept, it’s hard not to assume opening a location on every corner and becoming the following franchise millionaire. It’s a typical dream. Numerous concepts once claimed to be the following “McDonald’s” of their industry.
And while franchising could also be the suitable growth vehicle for somebody who has a longtime brand and proven concept that’s ripe for growth, business owners who need to expand their concept into prime locations ahead of the competition but don’t desire to achieve this produce other options Available to do it alone for several reasons. For example, they might not have the resources or money reserves to finance a franchise program (it is vital to notice that while franchising a business leverages the time and capital of others to open additional units, establishing a franchise system is actually not a no). -costs). Or they don’t desire the responsibility and relationship that comes with being a franchisor and would moderately deal with running their core business moderately than a franchise system.
Related: The Pros and Cons of Franchising Your Business
But when you’ve eager customers asking to open a branded location like yours of their neighborhood, it’s hard to withstand. You could also be pondering: What if I do not take the deal and miss a chance which will never come around again?
Licensing your mental property, resembling your name, trademarks and trade presence, for a set fee or a percentage of sales is one strategy to achieve this without having to go the marginally more laborious and legally controlled franchise route. Types of licensing agreements range from granting a license that enables one other company to fabricate or manufacture your products to allowing someone to make use of your logo and name for their very own company. Unlike a franchise, in a licensing situation your partner only receives certain, predetermined rights to sell your services, moderately than a blanket agreement that provides them a turnkey business, accompanied by training and support, for set fees. A license agreement sets out the rights and obligations of every party and what they are going to and won’t do under the terms of the agreement. It is critical to have an attorney prepare the paperwork and seek the advice of a trusted business advisor who has helped others along this journey and may shorten your learning curve while protecting your rights. License agreements are governed by contract law and never franchise laws. However, caution is suggested: To make sure you stay on the suitable track and do not stray into franchise territory, you will need your advisors to elucidate to you exactly what you’ll be able to and may’t do as a licensor.
For example, a license agreement excludes you from involvement within the day-to-day operations of the licensee. While it could sound like a relief to haven’t any control, it might be a double-edged sword, especially for people who find themselves used to controlling all features of their services or products. You do not have to supply licensees with ongoing services like marketing materials and ongoing training, but that also means you’ve no control over how they run their business, what their product mix is, or how they decorate their space. If you might be type A, this could be difficult for you.
Most individuals are more acquainted with third-party brand licensing because these agreements are big within the sports and entertainment industries, where a star lends their name to endorse a product, be it branded sportswear or trendy foodservice products like pizza or chicken, and even ice cream.
Using a star’s cache attracts media attention you may never get otherwise. But not everyone who creates a fantastic concept or product has the popularity that will allow them to draw famous business partners or endorsements and raving fans to follow them.
There are other methods to get your products in front of more consumers. Some coffee concepts, resembling Caribou, have created market saturation by franchising traditional stores in addition to licensing for non-traditional locations resembling airports, big box stores and college campuses. However, others, like Starbucks, use a mixture of company-owned stores and licensees in busy locations where a small kiosk can serve a high volume of shoppers. And in fact, bags and pods of those brands’ coffee blends are also sold in retail stores, for instance in grocery stores.
Related: Startups have to protect their brand. Here’s how and why
But here’s that cautionary note again: If you choose to license your services or products, watch out to not try to regulate the way in which licensees operate their business, from selecting locations to training them Employees.
While licensing or franchising could be a suitable business growth tool for a lot of brands, other business structures will be considered:
- Company-owned branches: Opening business locations using bank loans and/or the profits of already opened units.
- Dealers or distributors: In a distribution relationship, products are purchased from a manufacturer after which sold through local distributors.
- Agency relationships: These are just like the relationships you’d have with merchants, but on this case an agent or representative of your organization sells your services to a 3rd party. The necessary difference to take into accout in order that the connection doesn’t stray into franchise territory is that you simply, because the provider of the services, are paying the agent (as an independent sales representative), not the agent collecting the cash and paying you.
- Joint ventures: In this case, because the concept owner, you’d engage a business partner who would also invest their very own funds in the corporate. Both of you’d then share within the equity and profits equal to the share of your investment.
The appropriate method for growing your online business relies on several aspects, including the character of your concept, service or products; your risk aversion factor; your access to capital; where you might be; and current market conditions. So in the event you select an option aside from franchising, watch out to not find yourself with a franchise company. Federal Trade Commission regulations define a franchise as meeting not less than three standards: a typical name, fees and royalties paid by the franchisee to the business, and ongoing support and control of day-to-day operations by the franchisor.
Remember: As you embark on an expansion method, you might consider changing that structure with legal and skilled advice if your online business needs require a change in strategy. Case in point: Some licensors will eventually convert licensees into franchises under a newly drafted agreement and program in the event that they see the necessity to change the fee structure and retain additional control over operations.
Slow growth will be detrimental to a business, but not selecting the suitable vehicle for that growth will be worse than standing still. That’s why it is best to do your homework – seek the advice of with professionals like lawyers, accounting and franchising consultants, and talk over with others in the identical boat as you – so you do not drift too removed from shore.
