1,000 brands encompassing everything
from hairdressing to photography and
pet care to children’s sports coaching.
“It’s clear that the advantages of
franchises, including economies of
scale and the support of a large brand,
combined with local marketing
and business owners, make them
particularly robust and statistically
more likely to succeed.”
IS LICENSING FOR YOU?
This is a system under which the owner
retains possession of an intellectual
property, but grants others the right to
use it on payment of a flat fee or royalty.
An early licensor was Isaac Singer, who
in 1850 sold his rights to his sewing
machine patent to entrepreneurs
selling his machines.
There’s certainly money to be made
from licensing. The Virgin brand has
been valued at around £1 billion and the
group now makes about £120 million
a year from licensing its brand to other
companies as diverse as records and
financial services. Disney also licenses
companies to create merchandise for a
fee or cut of the profits.
Unlike franchising, there is usually
no close link between licensee and
licensor because the licensee works as
a separate entity, not part of the parent
company and without any territorial
authority.
Compared with a franchisee,
licensees usually don’t get training or
support from the licensor, but licensing
costs can be considerably less than
those of a franchise. And a licensee has
more freedom to run his or her business
when it comes to marketing and sales.
But there are still strict controls on
some licences. For instance, if you use
Microsoft Office the licence stipulates
that you don’t own anything more than
the right to use it, subject to strict terms
and conditions.
For a licensor, the great advantage of
the system is that the licensee bears the
cost of launching the service or product.
Someone else is paying to expand the
licensor’s business, investing in new
locations or distribution networks.
On the other hand, the licensor
usually doesn’t have much control over
how the licensee operates.
As William points out: “Over the life
of the agreement, licensees operate
virtually independently and licensors
usually offer little, if any, support.”
Indeed, studies have shown that
licensors can sometimes licence their
IP to two or more businesses in the
same area, forcing them to compete
directly with each other, whilefranchisees are normally granted
exclusive territory.
If you’ve built up a brand business,
an increasingly popular way of
expanding is giving licences for
permission to create a related product
under the brand name - several
successful fashion designers now
licence a perfume manufacturer to
create a range for its label.
Another option is to grant a licence
to someone to sell your products under
their own name.LOOSER RELATIONSHIP
William says: “Both franchising and
licensing are valuable expansion
vehicles, but licensing is a much looser
relationship and it’s wise to talk to
someone with experience of operating
a licensing arrangement before you
take a final decision.”
He says that businesses planning to
extend their operations are faced with
two basic alternatives:
If you want to keep an eye on the
minutiae of the business and accept
the extra responsibility, opt for a
franchise.
If you’re looking for a new revenue
source, but are stretched too thin for a
franchise operation, licensing may be
the answer.