By Vicki Prout, Chief Sherpa
We are often asked “What is the difference between licensing and franchising and what is my solution?”
On a very basic level, licensing and franchising both deal with the selling of certain intellectual properties, whether software, trademark, or a business process, to third parties. However, franchising, under the watchful eye of the ACCC, has a much greater deal of control by the owner/franchisor than an owner/licensor.
For a business that is seeking to grow their brand across Australia and potentially internationally, franchising offers a methodology that potentially can allow you to reach a large size in a relatively short period of time due to:
For example, a typical franchisor will grant the right to use their business process and the intellectual properties associated with that process (Here in South Australia some great franchised brands include Cartridge World, Wokinabox, Marcellina, The Fairies, Wendy’s to name few) in return from purchasing from the franchisor (or designated third parties) the goods or services required to operate the franchise.
Licensing is a business structure and method of distributing goods and services. In most cases, the licensee does not retain rights to use the company’s trademark and licensees usually don’t receive exclusive territorial rights.
The licensing company is often free to sell similar licenses and products to other people in the same geographic area. Licensees don’t usually receive much in the way of training or ongoing support from the licensing company. On the other side, license opportunities are often less expensive than franchises in both the upfront investment and ongoing fees. The major negative aspect of licensing is a lack of control over licensees to get them to follow crucial systems such as sales techniques that eventually can hinder the success of the operator.
Businesses need to be aware of their crucial success factor within their business. For example, if it is a critical component for the business to respond to client enquiries and address how they service clients every time, then to duplicate this level of service would usually require comprehensive training and strict compliance to business systems. This would not normally occur within a licensing relationship.
Many companies utilise the franchise framework to underpin their business model - and operate as licensors. You need to be mindful and well informed as the Franchising Code of Conduct specifically defines a structure as a franchise if it contains all of the following four elements:
This means that if a business model contains all of these elements it will be deemed by the ACCC as a franchise, whether the business owner wants it to be or not.
So the question remains, Rethink the “f” word – its true value, its compliance, overall control, its systems and processes and blueprint framework. Why would businesses remove these critical elements from their offering to avoid relatively modest compliance requirements.It falsely hinders and limits your growth, quality and brand values. Which in return lead to poor performance and limited growth of the business.
The “F” word needs to be taken seriously and the business owner needs to select the best business model for their business and manage the resulting compliance issues in a cost effective and efficient manner. The best model whether franchise or licence depends on many factors. CONTROL - IF you asked 100 businesses their one most successful point – the answer would be to maintain control!
Sherpa Group – http://www.sherpagroup.com.au/contact.html
