Franchising vs. Licensing?

[euphoria]

What is your opinion on Franchising vs. Licensing? Which is better?

[Evan]

Hi Euphoria - here's an article that might help you:

License or Franchise Your Business - Look at the bottom of the article where Albert gets into the differences between licensing and franchising and the pros / cons.

We recently launched a Franchising section that has hundreds of other articles you might find valuable.

On the flip side, Howard Schultz from Starbucks prefers the licensing model:

I always viewed franchising as a way to get access to capital, because you're using other people's money to grow, essentially. And we were dealing with a premium product—something that can be hard to learn, that you have to explain to the customer, that requires an educated staff. It would have been hard to provide the level of sensitivity to customers and knowledge of the product needed to create those Starbucks values if we franchised. You can be just as entrepreneurial and experimental in a company-owned model.

One reason we've been able to exert an unusual amount of control over our products is because we never franchised. When we began to license and form strategic partnerships and joint ventures, we spent a lot of time with the other [companies'] management to see how they operate in good times and bad, and whether we shared a similar view of the world. You are judged by the company you keep.

[coenheads]

A license agreement or business opprtunity there is no ongoing "royalty or required relationship" in effect you are:

In business for yourself and by yourself!

A franchise agreement there is an ongoing commitment in effect you are:

In business for youself but not by yourself!

Jim Coen
www.franchiseperfection.com

[eggman]

Dear colleagues

As before there are pros & cons for both elements

Have a look at this link http://www.wipo.int/sme/en/documents/franchising.htm

the thing is that licenses usually have an ongoing monetary committment without too much onsite support - which may be good depending on the business and the personality

Buying a Franchise offers onsite support, but also demands compliance with a set of rules. Successful Franchises also have a development programme which generally laeds to new products/services as tastes and markets change.

Like to hear your thoughts.

[Evan]

euphoria, which side are you on? Are you looking to franchise / license your business or are you looking for an opportunity to be a franchisee, pay for a license of someone else's invention?

[coenheads]

Ian,

Thank you for linking your article regarding Licensing vs Franchising.

Its a good read.

[saraloves]

Thanks Ian - I learned a lot from your article. I don't know if franchising is right for my business but it's something I'll be looking a lot more at.

[eggman]

Saraloves - my pleasure. Before going too far in your decision making, it would be wise to look at the name that you are going to call your business and investigate whether you need to apply for a trademark to your sole use of that name.

I do not wish to unduly alarm you - but I have had clients who have both set up Franchises using names that they were not entitled to use - as the name was protected by a trademark - only a small operator but it became very expensive to obtain sole use of that name.

If a Franchise is not your thing, then it is still advisable to make sure that the name you intend to call your new firm is not already being used in trade.

to find out more http://www.piperpat.com/IPInformation/tabid/56/Default.aspx

[BigJim22]

eggman and others - do you have any opinions on which model is best between fhanchises and licensing when you have a technology based company with a lot of intellectual property?

[eggman]

BigJim22

Without knowing the facts - I would definitely consider the licensing option.

It is cleaner and easier for both parties - and means that you can pretty quickly start to generate a revenue stream which you can use to re-invest or reward patient shareholders (if appropriate). The License will definitely generate cash for you quickly.

however, I think that there should be a clear understanding that any improvements made by the licensee should, before being made public, be the subject of a provisional or provisional patents applications - held co-jointly.

Most technologies are quickly superceded by the next generation and that should be protected. Of course, there could also be a cross license from the new licensee and the original provider.

The thing is, you still want to control your IP - and the license should reflect this.

Hope this helps.

[BigJim22]

Thanks Ian,

Yes - I am very interested in protecting my IP - this would also be possible under the franchising system as well - no?

[eggman]

Dear BigJim 22

Sure as long as it is in the Franchise agreement... ie wht you are offering as Francisor and what their obligations are as Franchisee

It is all in the agreement........

take care

Ian

[myownboss]

how can you tell how much to charge for a franchise fee?

[eggman]

Dear Colleague

There is no easy answer to this question. Things to consider:
[list=]
The sizeof the Franchise
Clent base
Expected Turnover
Intellectual Property costs (recoup)
Number of Franchises
Number of employees
Original Set up costs
Franchise admin costs

An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc

The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000.

Hope that this gives you some idea

Take care

Ian[/list]

[Jones]

Does anybody know of any unique retail clothing stores that operate on a franchise / license basis?