One of the fastest ways to boost sales is through licensing, franchising, partnerships and other sorts of alliances with other businesses. These arrangements help you tap capital, systems, energy and imagination of other enterprises, including much larger and more sophisticated ones. They’re not free or risk-free, and they aren’t for everyone, but they are worth looking into.
Forming a Franchise
Brian Mattingly, CEO and co-founder of Welcomemat Services, an Atlanta-based company that delivers monthly direct-mail packages to people who have recently moved, says that he began offering franchises in 2010 after eight years as an independent. “We recognized the value of having a local Welcomemat Services owner working and consulting with small businesses and organizations in their local community,” Mattingly says.
In fact, when Mattingly and his partner started Welcomemat they had franchising in mind. It took eight years to refine systems, obtain patents and raise nearly $2 million in investments to become a franchiser. During that time they opened a dozen corporate locations in four states and studied them to find out what worked.
In just over a year of franchising, they’ve opened 10 franchisee locations in seven states, with plans for more in 2012. The experience convinced Mattingly that their original vision was on target.
“We are significantly increasing overall new revenue each month and most important, our franchisees are experiencing positive margins, building recurring revenue, and building positive equity in their businesses,” he says.
Franchising is one of the most common ways for businesses to join together. The International Franchise Association says there are nearly 750,000 franchised business locations in the U.S., generating nearly $8 billion in annual combined sales. Bradenton Beach, Fla., franchise consultant Rick Bisio, the co-author of The Educated Franchisee Workbook, says that like Mattingly’s experience indicates, the process of becoming a franchiser is long, complex and expensive. While it can be exceptionally rewarding, he suggests that for most businesses it makes more sense to become a franchisee.
Why? Bisio says that small and medium-size businesses struggle to compete against larger organizations in everything from advertising campaigns and search-engine optimization to customer relationship management and brand development.
“By joining a really high-quality franchise operation, these advantages can be secured more cost-effectively,” Bisio says.
A franchisee usually pays a one-time upfront franchise fee to a franchiser, plus a percentage of ongoing sales. The franchiser provides training, branding, proven systems, marketing, advertising, lead generation, bulk purchasing and other advantages. When an existing business joins a franchise system, it is called a conversion franchise. Not all franchise systems welcome conversions, although the combination can benefit both parties.
Franchisee fees, which may run to five or even six figures, and royalties of typically 5 percent to 10 percent of sales are a significant burden. Bisio encourages would-be franchisees to talk to existing franchisees to make sure that joining the franchise adds enough sales to justify these costs. And he warns that being a franchisee isn’t right for most existing business owners, because they’re used to doing things their way.
“The hard part is, you have to be willing to change,” he says. “Many independents are fiercely resistant to this. However, if you’re going to maximize the value of the relationship to the entrepreneur, you have to change.”
The Alliance Way
Alliances, partnerships and joint ventures are other ways to boost sales by tapping into another organization’s strengths, often with fewer costs and constraints than franchising. The idea is to find someone who has built or bought what you need, and will share it in exchange for something you have.
“It’s using other people’s capital investment in their business to leverage your business,” says Naples, Fla., alliance consultant Robert Porter Lynch, CEO of the Warren Company and author of Business Alliances: The Hidden Competitive Weapon.
Such arrangements can range from simply agreeing to have a company carry your product in its distribution channel to jointly designing new products. One big benefit is time savings. An alliance can place your products into pre-existing channel or market in a fraction of the time it would take to build or develop the capabilities yourself.
Alliances aren’t free, however. Each alliance must have someone dedicated to managing it, Lynch says. And there are risks. Think twice or more before doing an alliance that requires relinquishing truly critical intellectual property, Lynch says. And only ally with people whose strategy complements yours, and who you can trust.
“You don’t do an alliance just because it’s your buddy you went to college with or you go golfing together,” Lynch says.
Perhaps the least-expensive way to boost sales is by piggybacking on someone else’s technology, distribution, manufacturing or other asset through licensing.
“Licensing is really simple. You’re basically renting an idea to a company. Every time they sell something based on that idea, you get paid,” says Stephen Key, a Modesto, Calif., entrepreneur who has licensed many ideas to other companies and also authored One Simple Idea: Turn Your Dreams into a Licensing Goldmine While Letting Others Do the Work.
Speed is one licensing benefit. A business can license an idea for a product to a larger company with pre-existing manufacturing, distribution and sales much faster than if it had to create the capabilities from scratch. That means sales can ramp up faster. It also can require significantly less investment than franchising or partnering.
Licensing also isn’t without risk or cost. Key says you must be careful not to license to a direct competitor. You also have to set performance benchmarks in the contract so that if the licensee isn’t selling enough, the license will be revoked.
While it may sound like licensing, alliances and franchising are too tricky to consider, in reality these are among the most common activities in business. Countless such arrangements are created every year, and the reason that continues is because collectively they represent one of the best sales-boosting tools in any business’s kit.
Learn more in OPEN Forum's Sales Check-In 2012 series.
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