If you’re reading this, chances are you have a small-to-medium-sized business with a proven model that you want to scale big, like WAY big. Your strategy and business structure is such that franchising is a realistic possibility; so why not go the traditional route and take your small business on the road in blazing entrepreneurial glory?
Because there are two equally profitable and sometimes, less risky opportunities, that’s why.
Enter stage right: Distributorship
While this expansion option resembles a franchise, it differs in very important ways. Start up costs for a franchise can require tens to hundreds of thousands of dollars and carries significant legal obligations and corporate fees. Distributorships can generally be launched with as little as a $100, and as a distributor you’re not responsible for solely sourcing the products that you sell. In fact, you can purchase them at a cheaper rate and a higher markup. Even better, distributors don’t have to store products that can be shipped directly from your supplier to your customer.
Also, the operational costs and commitments vary greatly. As a franchisee, you should expect to manage the full-time operations under a parent company that sets its own guidelines for their brand. As a McDonald’s franchise owner, you couldn’t implement recipe changes without consequence.
On the distribution side, you can expect more freedom, but less guidance about implementation and strategy.
Think: Automotive parts are designed and produced by one company and then distributed to another for disbursement to the manufacturer, who then combines those parts to create a vehicle that is eventually sold by a franchised auto dealer to you, the buyer.
Enter stage right: Licensing
A licensing agreement grants rights to a person or business for use of intellectual property, service or some other intangible property. For example, Microsoft licenses it’s software to Android and end-users who purchase and download its software onto their personal or work computers.
Licensing can be an exclusive or non-exclusive agreement that comes with varying levels of restrictions and limitations.
Depending on your type of business either of these options can be the best next step for you. If you want to know if your business is suited for a franchise, take this business quiz and come up with a few questions to ask your attorney and business advisor to make sure your next move is your best move.
