FRANCHISING: To franchise or to licence?

Tina Tower has set out on a franchising journey with her business, Begin Bright. Each month she'll share her challenges and successes with us as she strives to build her business and empower franchisees. 

When I started my first business seven years ago I never imagined that here I would be, navigating the waters of franchising. Since starting the franchising journey I have got the opportunity to mix with beginners like myself and seasoned professional from KwikCopy, Boost and more. It fascinates me to assess the reasons why some companies franchise successfully and others never quite get off the ground.

The common thread to what most books on franchising say is that relationships are the key to running a successful franchise system. But what is it that tells you whether or not you should franchise in the first place? I personally, started as licence system, not a franchise. To me it seemed easier, a lot less legal work involved and cheaper for both parties. It is often used as an alternative for franchising but certainly has its positives and negatives. We sold licenses for our company for two years before realising that it was the wrong model for us. Read through the following ups and downs and my negatives may be your positives.

On the plus side, a licence is cheaper than a franchise making it more affordable and open to a wider range of the community. Though flip it over and it means that every man and his dog can probably afford to have a go at your program. We had people start that had dreamed of small business ownership and this seemed the perfect entry opportunity. Because the start up cost was so affordable (aka ridiculously cheap) people were able to purchase a licence, realise that running a business actually required a little pinch of effort and then not even start! Completely baffling to me. Now I have to take a lot of responsibility here. For our licensing, we made a franchise cardinal sin. We had no in depth screening process. If you had the money and a child care qualification, you were in. Silly me.

That brings me to a major positive of franchising. You are replicating your business model and so have an exact profile of the type of person you want reflecting and representing your brand and you have a blueprint to provide people with. With a licence system you are giving program and then leaving the rest up to the licensee. Unless they have ran a business before or have huge initiative and motivation, their chances of success are not much greater than a start from scratch small business. With franchising however, you are able to provide full business training and support and give away what are essential the secret 'herbs and spices' that make your business so wonderful and unique. That is why the catch cry for the franchising industry is 'In business for yourself but not by yourself'. Your chances of success as a franchisee are greatly increase in comparison to a standalone business and even a licensee.

Last week I met with a lovely woman who was considering her options with her business as either a licence or a franchise. She has developed a software program to mystery shop businesses. She can either sell it as a license to businesses, mainly corporates, so that they can then do as they please with it, or franchise her business model as she is operating to others who can set up their own mystery shopping businesses. Which is best? It really depends on how much involvement she wants with how the program is being implemented and the continuity of the brand. Also, just because a company calls something a licence, it could actually be a franchise it fits the build, but not comply to the Franchising Code of Conduct. The ACCC has information on how to know if it's a franchise or licence.

First of all, being a licensor doesn't require anywhere near as much input, involvement and constant work as being a franchisor as you are basically leaving people to fend for themselves. The franchise system keeps the franchisor very accountable for the franchisee success which is great for the franchisee but also a lot effort for the franchisor who is trying to make sure that everyone stays compliant and operating a profitable and successful business.

For that though, you as a franchise system are given the greatest business reward of all, the building of a famous brand. If you say Boost, Cookie Man, Mr Rental or Fernwood you can immediately see that logo in your mind and you've made an association with that brand whether positive or negative. The only way that these brands have been built so well, is through successful franchising. It allows you to have multiple locations across the state, country or even the world without having to individually run each establishment. The benefits for that are compounding.

As we stand right now, I have six licensees and zero franchisees. Follow me on the trials and tribulations of starting a successful franchise system.

Tina Tower is the director of Begin Bright.

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