Franchising vs. Licensing
Licensing is an expansion vehicle that is best used for a "process," or a straight business opportunity. Someone might license a certain manufacturing process that they have developed, and receive a fee each time it is used, for example. A business might license a person or another business to sell their product, without significant control over the business.
Franchising exists when someone: 1) uses the name of an existing business, 2) pays $500 or more to the existing business, and 3) operates in a manner somewhat as prescribed by the existing business, providing assistance, or maintaining control. Thus, name, payment, and assistance or control determine when a franchise exists.
So, one or more of those has to be eliminated to avoid being subject to franchise requirements, and normally it is either "name" or "control." However, many people who think that they are expanding by licensing can quickly and inadvertently develop a franchise program without realizing it. Many of those who start expanding by licensing soon discover that they really want more control over the business operation of the licensee, and that franchising would be a better expansion vehicle. Additionally, many of those who opt for licensing eventually find out out that they they have run afoul of state business opportunity laws.
Franchising is more costly, and takes longer, than simply putting together a licensing agreement. However, rather than thinking: "I want to expand. How can I do it and avoid franchising?", we recommend that business owners carefully consider the legal position and market acceptance of franchising. We think that unless you are licensing something like a manufacturing process, franchising can provide a much greater payoff, and higher level of satisfaction (and a better exit strategy) than licensing.
Franchising does not have to be difficult, nor does it have to be costly. We believe that it is a very good way for a successful business to expand regionally and nationally.
More information can be found at: www.biltmorefranchise.com
Franchising vs Licensing - To learn more about this author, visit John Power's Website.
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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