You are thinking about expanding your business but don’t want to do it all on your own. You begin to realize that when it comes to expansion you have several options for growth outside of opening more locations yourself. It really depends on your goals and what you want out of your relationship with your future operators. This will dictate what vehicle of growth is best for you; whether it is franchising, licensing, business opportunities or distributorships. There can be some confusion regarding these options. It is important to realize that franchising, business opportunities and licensing are all different types of paths and relationships. They are not the same. When deciding which path is best when expanding your business, it is important to know you cannot do them all. Allow us to explain further.
Franchising a Way to Grow
Franchising is a prescribed method of doing business where you have the ability to dictate: what an operator sells, what services they offer, what products, equipment and supplies they must purchase and use; and you are able to control the look, the feel and how the business operates. There is a level of consistency in franchising since each business is operated under a common name. Franchise relationships provide ongoing support, have many benefits to an operator that are unattainable as a business owner going at it alone, the relationship is for a specified period of time (known as the term) and the term can be renewed (just to name a few). When looking to expand your business the key to franchising is that you have a huge element of control over your future operators (see our article for more on what it really means to franchise).
Licensing a Way to Grow
When it comes to licensing, the best example we can provide is that you are giving someone the right to simply just use your name without any regard to how they use it. For example think about the software QuickBooks. Anyone can walk into an office supply store to purchase a copy of QuickBooks off the shelf. The creators of QuickBooks don’t care how you use their program. They simply provide instructions for the program and its features, but it’s up to you to use the program as you see fit. In a true license arrangement you may license the use of your name for a certain period of time, but that is it. None of the elements mentioned above about franchising pertain to licensing (more on how licensing and franchising are different).
Business Opportunity a Way to Grow
A business opportunity is pretty much a free for all. Business opportunities are also not as regulated as franchising so you see some crazy things out there (visit our frequently asked questions for more on how franchising is regulated). As a business opportunity you have absolutely NO control over your future operators and there is NO right whatsoever for the operator to use your name. A business opportunity is simply a one-time fee to teach someone how to do something. Once this person pays the fee and completes some type of orientation or training then that is the end of the relationship. Yep, that’s right there are no obligations, no royalties, no branding, no loyalty and no strings attached. For example someone may know how to apply permanent makeup and offers a business opportunity to teach others all the tricks-of-the-trade. They charge a one-time fee for a training program to teach such tricks-of-the-trade and once completed the person who bought the business opportunity is on their own to start their business, can call the business whatever name they want and can operate it however they see fit. With business opportunities the relationship is over the minute some type of orientation or training is done, no strings attached.
Distributorships a Way to Grow
So far as you can see by the pure nature of all the above business models, you cannot do all three at once when expanding your business. However, when it comes to distributing your products this is a bit different. First off a distributorship relationship is simply you giving someone that already sells a bunch of products the right to also sell your product and add your products to their current offerings (find out if you can just franchise a product). While that could be a good method of growth, traditionally distributors are only going to sell the products that move for them. If your products don’t move and there are no sales, it is highly likely your product will be dropped by the distributor. The biggest complaints with distributorship arrangements is that there is no obligation for distributors to keep selling your product and no consistency in how the product is being offered or sold.
Franchising May Be Your Solution
On the other hand, with franchising not only could you require your franchisees to purchase, use and sell your products but our President Dave (learn more about us and the history of The Franchise Maker) also has a way to build into your franchise program an ability for you to get your products out in the marketplace (in addition to your franchisees using and selling such products) without calling it a distributorship. For example, if you have a privately labeled product or have something you have developed and you still want to get that product out to the masses while also requiring on your franchisees to use and sell it, then you can reserve the right to also sell your product via alternative means of distribution (say for example big box stores). When it comes to franchising you will just want to be mindful that you are not putting out in the marketplace everything that is available in your stores (otherwise there would be no need for someone to come to into your stores). This strategy can help in so many ways beyond just getting your name, brand and product out there.
Hopefully now you have a better understanding of these different business models when it boils down to expanding your business (take a look at more Benefits of Franchising and a short video about it) . If you like the idea of franchising and all the benefits and protections this type of expansion and business model provides, then give us a call directly at 1-877-615-5177. We will actually listen to you and identify what you want out of future relationships to determine if franchising makes sense.
- Franchising and Control Freaks
- Is Franchising a Good Choice for Your Business
- Why the Term Franchise Partner is Not Accurate
- Are All Businesses Suitable for Franchising
- Franchising to Reach Your End Game
- Understanding How to Franchise
- Restaurant Franchising
