‘Business opportunity’ or licensing
When you set up a franchise, you’re providing a common trademark (generally speaking, your brand name) for all of your franchisees to use.
If you don’t wish to start a franchise, one option is to allow a person to open a cookie-cutter version of your business, under their own name. This is called a ‘business opportunity’ or
As a licensor, you often don’t have to comply with the same regulations as a franchisor, which makes the legal documentation and the sales process less complex.
Related: The Danger Of Being Franchisee No. 1
The main drawback, though, is that you won’t be able to build a valuable common consumer brand this way. That can put you at a significant disadvantage when competing with franchisors, who can use advertising to promote a common brand. But if branding is not important to you, this is certainly a viable option.
A second option is to license your trademark, which is quite similar to what a franchisor does. But here’s the difference: By definition, a franchisor must also provide ‘significant operational support’ or exercise ‘significant operating control.’
When you’re a trademark licensor, you don’t provide such assistance or control (such as training programmes, operations manuals or management advice) otherwise you’d just be deemed a franchisor.
Unfortunately, very few of us own businesses where the name is so valuable that people would pay for it without also requesting help in establishing the business itself. And even if you could license your trademark, you’d have to think carefully about whether you’d want someone to use your name without the ability to control how they use it.
A single rogue operator could destroy the brand that took you years to build.
The ‘no fee’ route
The third alternative to franchising involves offering interested parties an option that doesn’t involve any fees.
That doesn’t mean, of course, that you give up profits. But you have to structure these transactions in a way that’s markedly different from franchises, which by definition collect initial fees, royalties, advertising fees, training fees and/or fees for equipment.
So, for instance, you could charge no fee but allow someone to start a dealership or distributorship, making money on the wholesale mark-up of your products to them. Or you could allow others to be sales representatives, where you collect all revenues and pay them a commission to sell your product or service.
Another option would be for you and another party to create a joint venture in which you would share ownership of the business – and your only compensation would come in the form of profits (or losses).
Related: How Risky Is That Franchise?
To decide whether one of these alternatives is better than franchising, ask yourself three basic questions:
- Do I want to build a common brand?
- Do I want to control the brand or provide assistance to my operators?
- How do I want to be compensated?
Once you’ve answered those questions, it’s easier to determine which expansion strategy is most likely to maximise the value of your business model.