Entrepreneur:
When making a decision to franchise, you should attempt to determine not only if your company is franchisable, but also if franchising is the best expansion strategy for your company to pursue.
While I’ve already written extensively about franchising versus company-owned growth in this column, no examination of strategic growth alternatives is complete without an understanding of the other alternatives available to you.
To gain a more thorough understanding of these alternatives, it’s perhaps easiest to use the federal definition of a franchise as a ready point of reference. The federal definition of a franchise includes a business relationship that has 3 elements:
1. The use of a common trademark;
2. The provision of operational support or assistance, training or the exercise of significant operating control;
3. The payment of a fee of over $500 in the first six months of operation. This definition includes initial fees, royalties, advertising fees, training fees or fees for equipment. In fact, the lone exception is for goods sold to the franchisee at a bona fide wholesale price for resale to their customers.
If a company has those three elements, it’s a franchise regardless of what you call it. If it looks like a duck…
So to create a different type of relationship, you’ll need to remove one of those three definitional elements.
Business Opportunities or Licensing: The ‘No Name’ Options… read on.
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