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Not every company will be franchised, nor should it’s. As the founder and operator of an exciting latest concept, it’s hard not to imagine opening a location on every corner and becoming the next franchise millionaire. This is a common dream. At one time, many concepts aspired to be the next “McDonald’s” in their industry.
And while franchising could also be the right growth tool for someone who has an established brand and a proven concept that is ready to grow, there are other options available for business owners who want to expand their concept into prime locations before the competition does, but who don’t they need to go it alone for many reasons. For example, they could not have the resources or money reserves to finance a franchise program (keep in mind that although a franchise company uses the time and capital of others to open additional units, establishing a franchise system is definitely not an unimaginable solution). – costly project). Or they don’t need the responsibilities and relationships of a franchisor and prefer to focus on running their core business quite than the franchise system.
But when you have eager customers asking to open a branded establishment like yours in their area, it’s hard to resist. You may think: what happens if I do not keep the contract and lose an opportunity that will never come again?
Licensing your mental property, corresponding to your name, trademarks and trade dress, in exchange for a set fee or percentage of sales is one way to achieve this without having to go the barely more labor-intensive and legally controlled route of franchising. Types of licensing agreements include granting a license to allow one other entity to produce or manufacture your products or allowing someone to use your logo and name in their very own company. Unlike a franchise, your licensed partner will only have predetermined rights to sell your products and services, quite than a full contract providing them with a turnkey business, complete with training and support, in exchange for agreed fees. The license agreement outlines each party’s rights, responsibilities, and what they will and cannot do under the terms of the agreement. It is essential to have your documents drafted by a lawyer, in addition to to seek the advice of with a trusted business advisor who has helped others on this journey and can shorten your learning curve while protecting your rights. Licensing agreements are governed by contract law, not franchise law. However, watch out: to make sure you stay in your lane and don’t cross into the franchisor’s territory, ask your advisors to describe in detail what you’ll be able to and cannot do as a licensor.
For example, a licensing agreement excludes you from being involved in the day-to-day operations of the licensee’s business. While the lack of oversight may appear to be a relief, it may well be a double-edged sword, especially for individuals who are used to controlling all facets of their products or services. You won’t have to provide licensees with ongoing services like marketing materials and ongoing training, but that also means you do not have control over how they run their business, their product mix, or even how they decorate their space. If you are type A, this will likely be difficult for you.
Most people are more familiar with third-party trademark licensing because these agreements are vital in the sports and entertainment industry, where a celebrity lends his or her name to endorse a product, whether it’s branded sportswear or fashion items from gastronomic menu corresponding to pizza, chicken or even ice cream.
Using a celebrity stash attracts media attention you may never otherwise get. But not everyone who comes up with a great idea or product enjoys the recognition that might allow it to attract high-profile business partners or endorsements, in addition to rabid fans.
There are other ways to get your products in front of more consumers. Some coffee concepts, including Caribou, have saturated the market each by franchising traditional stores and licensing non-traditional locations corresponding to airports, big box stores and college campuses. On the other hand, other corporations, corresponding to Starbucks, employ each company-owned stores and licensees in high-traffic locations where a small kiosk can serve a dense population of shoppers. Of course, bags and sachets of coffee blends from these brands are also sold in retail stores corresponding to grocery stores.
But again, here’s a word of caution: If you select to license your products or services, watch out not to influence the way licensees run their businesses, from selecting locations to training employees.
While licensing or franchising will be vital business development tools for many brands, additional business structures that could be considered include:
- Own stores: Opening corporate locations using bank loans and/or profits from already opened premises.
- Dealers or distributors: In a distributor relationship, products are purchased from the manufacturer and then sold through local dealers.
- Agency relations: These are similar to the relationships you have with dealers, but in this case your company’s agent or representative sells your services to a third party. An vital difference to keep in mind so that the relationship doesn’t veer into franchise territory is that you simply, as the service provider, are paying the agent (as an independent sales representative) quite than the agent collecting the money and paying you.
- Joint ventures: In this case, as the owner of the concept, you’d take on an operating partner who also invests his own funds in the business. You would each then share in the equity and profits at the rate of interest of your investment.
Choosing the right business development method depends on several aspects, including the variety of concept, service or products; Your risk aversion coefficient; Your access to capital; where are you positioned; and current market conditions. So if you select one other franchise option, be certain not to develop into a franchisee. Federal Trade Commission regulations define a franchise as meeting at least three standards: a common name, fees and royalties paid to the company by the franchisee, and ongoing support and control of day by day operations by the franchisor.
Please note that if you begin with one expansion method, it’s possible you’ll want to consider changing that structure with legal and skilled advice if your business needs require a change in strategy. Example: Some licensors will eventually franchise licensees under a newly designed agreement and program if they see a need to change the fee structure and maintain additional control over operations.
Slow growth will be detrimental to a company, but not having the right tools for that growth will be worse than standing still. So by doing your homework – consulting with professionals corresponding to lawyers, accounting and franchising advisors, and talking to others in the same boat, you’ll be able to prevent yourself from drifting too far from shore.