A potential franchisor should consider if their firm is franchisable and whether franchising is the best expansion plan to execute. Without a thorough grasp of the options accessible to a business owner seeking to expand via the use of others’ resources, no franchising choice is complete. Franchising is simply one strategy of expansion, albeit a strong and profitable one. But, it is always wise to evaluate alternative franchise business models you have at hand!
When exploring alternatives to franchising, be sure to establish a programme that does not violate both franchise and “business opportunity” regulations. There are six more strategies to extend marketing distribution channels besides the prototypical company structure franchising.
Consider these Alternative Franchise Business Models
Distributorship
Consider establishing a distributor network to expand your business if you offer your goods through a retail channel. A distributor will use your brand and trademark for marketing your goods, but they typically have greater control over how the firm is managed than a franchise.
Instead of being confined to a franchisor-controlled network, a distributor contains a single contractual agreement with suppliers of their choice and the ability to buy in bulk and do business with various firms. Typically, distributors do not anticipate full-time operational assistance or training. As a result, your engagement may be significantly reduced compared to a franchise arrangement.
Licensing or Business Opportunity
The upside of the business opportunity (biz opp) approach is that the licensor does not have to adhere to the FTC’s franchise disclosure rules in many situations, saving money and simplifying the sales process. However, a business opportunity may still be obligated to abide by franchise disclosure requirements in some jurisdictions.
A licensee pays for permission for using your trademark via a licensing agreement. Unlike a franchise, your licensees are free to manage their businesses. As the licensor, you collect royalties and oversee license usage, but you have no say in how the firm functions. Licensees can select their respective suppliers, develop their operational methods, and get their sites and markets. Apple Computer, Canon Inc., and Woolmark are examples of licensors.
Company-Owned Operations
The establishment of new company-owned shops is the most obvious way of expansion for many businesses. Compared to franchising, this method has numerous advantages. Most importantly, the company-owned expansion allows owners to keep all earnings from each unit instead of splitting them with franchisees. It also gives owners more control over unit management because they may appoint and remove managers on a whim.
It also provides a more consistent form of growth for a firm considering a first-time franchise extension. Adding company-owned sites helps the business owner accumulate physical assets in the firm, which can significantly influence the company’s worth when the owner considers departing the company.
Trademark Licenses
The usage of a trademark license is another option open to businesses wanting to grow through third parties. Trademark licenses are particularly tough to sell for those of us without well-known names, especially if we’re branding a company rather than a product. It’s all too simple to cross the line into “substantial operational control or considerable operating assistance.”
However, a single operator’s actions might jeopardize a brand that has taken years to establish. For this reason, trademark licensing is rarely a feasible option for establishing a network of connected firms.
Joint Venture
A joint venture partnership is formed by distributing both stock and earnings rather than fees. For instance, your joint venture partner may put up 70 percent of the money and labor for a year at a lower-than-market pay.
Defining and monitoring earnings is a key challenge for companies that employ a joint venture arrangement. Even in partnerships where the owner is honest and well-intentioned, measuring the profitability for a single unit may be time-consuming; multiply that by a hundred or more units, and the budgeting becomes overwhelming.
Branchising
The word “branchising” was created by author David D. Seltz. It’s a general word for company franchising, and it is used to refer to the conversion of existing company-owned outlets into franchised or licensed ones. It entails partnering with a franchisee to open new locations where both the franchisee and the franchisor maintain interest.
Branchise has a horizontal structure where the franchisor and franchisee share ownership of the firm and work together for mutual gain. Each party owns a stake in the company and so has a vested interest in its success.
As you can see, putting together a programme that avoids all of these definitions is a difficult task. This stresses the need to work with attorneys knowledgeable about franchise and business opportunity regulations and licensing and distribution experience. However, the decision to be a licensee, distributor, or franchisee is primarily determined by the sort of business you want to run, how you want to manage it, and which industry most interests you.
