When the time comes for a business to expand it’s a sure sign of success, but it also brings the challenge of finding the best way to expand. Business growth is what all companies wish to achieve.
However, businesses looking to expand through business growth plans need to find the best way to do. They need to plan well before they undertake the task.
Licensing is a fairly new concept in India. But experts say it’s catching on fast, as more international brands enter the country through licensing deals. It typically involves making an agreement allowing third parties to use your brand or trademark in exchange for royalties. Licensing enables small businesses to push brands into new markets on a tight budget. There’s no need to invest capital for business growth to get established.
At the same time, furthering geographic reach helps strengthen your brand, making it more recognizable and valuable. On the downside, if don’t have a prominent brand it can be difficult to gain a licensing deal.
This route to expansion also lacks control and raises risks around quality – licensees may provide poor-quality products, damaging your brand and potentially causing you to lose your trademark rights. This is why it is advisable businesses specify quality control measures in licensing agreements.
Another increasingly popular route to expansion is franchising, where you license your proprietary knowledge, processes, and trademarks to third-party franchisees, which provide services under your business’s name.
They generally pay an initial sum and annual licensing fees. There are two common types – dealer franchises, where another business sells your products, and brand franchises, where inexperienced franchisees set up businesses from scratch. Franchising provides more control, as franchisees are obligated to follow rules in the contract, covering specific aspects like territory. It also allows your business to tap into local knowledge.
As the executive director of Omaha Education, Major KV Rajan, says: “Franchisees know the local details of any location and can be taught the franchisor’s way of doing business.” The main challenge to franchising concerns disagreements, which typically arise when franchisees start to believe the contract isn’t aligned with their economic interests.
Perhaps the most well-known path to expansion is a joint venture. A joint venture is where two or more parties make an agreement to pool resources to accomplish a specific task. A separate entity is usually created, with each partner responsible for associated profits, losses and costs. Among all the expansion routes, joint ventures offer the greatest level of control and share of profits.
They also enable small businesses to overcome common growth barriers – you can pool capital and expertise, share risks and access partners rich in local knowledge. On the downside, joint ventures are notorious for disputes due to the fact that they involve a great deal of decision-making.
Common problem areas include division of control and profits, as well as hiring – would you agree if your partner wanted to hire family members? While expansion signals success, entrepreneurs need to take care to choose the right route for their business. You want a structure that optimizes business value and enables the smoothest path to scale.
Ask yourself: is it better to grow economically through licensing, retain control by franchising or reap more profits with a joint venture?