Is Franchising the Best Option?

Yes, franchising is one of the most powerful growth vehicles, but it’s not the only choice.

Is Franchising the Best Option?

Before you take the leap and convert your business to a franchise model – which it may not be entirely suited to – it’s worth considering a few other alternatives for bulking up your distribution channels. Remember, each option presents some disadvantages, such as loss of control, inability to build a brand and potential increases in liability. They may also be costly and legally cumbersome, so make sure you consult a lawyer first.

Alternative #1

Business opportunity or licensing

When you set up a franchise, you provide a common trademark for all your franchisees to use. A business opportunity or licensing allows a person to open a cookie-cutter version of your business under their own name.

The drawback is: You won’t be able to build a valuable common consumer brand this way. When competing with franchisors who can promote and advertise their brand, this can put you at a disadvantage. But if branding isn’t important to you, this could be a viable option.

Example – Bike Zone SA: Here, independent bike store owners can buy the trademark of Bike Zone and benefit from preferential buying of the group, a recognised brand and the expertise of an
experienced retailer.

Alternative #2

Trademark licences

A second option is to simply licence your trademark. Although similar to a franchisor, a franchisor is required to offer significant operational support and exercises operating control. When you’re a trademark licensor, you don’t need to provide training programmes, operations manuals or management advice.

The drawback is: Very few businesses have a name so valuable that people would pay for it without also requesting help in establishing the business itself. And even if you could licence 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 operator could destroy all your hard work.

Alternative #3

The ‘no fees’ route

This alternative to franchising involves offering interested parties an option that doesn’t involve any fees. That doesn’t mean that you give up all profits though. You have to structure transactions in a way that’s markedly different than franchises – that collect money through initial fees, royalties, advertising fees, training and equipment fees.

An example would be to scrap all fees but allow someone to start a dealership or distributorship. You make money on the wholesale mark-up of your products to them. You could also allow others to be sales reps who are paid a commission to sell your product or service.

In short

To help figure out whether one of these options is suited to you, ask yourself three basic questions to determine which expansion strategy is most likely to maximise success:

  • 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?
Mark Siebert
About the Author
Mark has personally assisted more than 30 Fortune 1000 companies and over 200 startup franchisors. He regularly conducts workshops and seminars on franchising around the world. For more than a decade, Mark also has been actively involved in assisting U.S. franchisors in expanding abroad. In 2001, he co-founded Franchise Investors Inc., an investment firm specializing in franchise companies.

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