Founding with franchises and licenses

If new entrepreneurs dare to become self-employed, they start with a lot of commitment and ambition, but often without sufficient experience. "If you don't want to start your business from scratch, you can secure the rights to existing business concepts and enter the licensing or franchising business. This model is familiar to many from the system catering industry, but it is also represented in numerous other industries," knows Mike Warmeling, speaker and success trainer from Osnabrück and founder of Warmeling Consulting. But how does a license agreement differ from franchising and which form is best suited for inexperienced founders? Mike Warmeling knows the answers and clarifies the most important points below.

1. How are licensing and franchising related?

"Whoever purchases a license receives permission to use industrial property rights and special knowledge, a patent or work. With the purchase, the licensee obtains from the licensor, for example, the right to use a specific sales tool or business concept. Depending on the subject matter of the agreement, this permission is either tied to a specific period of time or is of permanent validity. Franchising, on the other hand, represents a type of cooperation between two independent companies. Every franchise agreement always includes elements of a license agreement, but goes far beyond this with differentiated rights and obligations for both parties. For example, founders not only acquire the rights to use a company and brand name in return for payment, but also an overarching marketing concept. This links all participants in the system and enables a uniform market presence. Franchisees also have a duty to implement the relevant business concept, while franchisors support them in doing so."

2. What are the advantages and disadvantages of these business models?

"As a rule, a pure license agreement only involves rights and no obligations other than the payment of a fee. Founders thus acquire tried-and-tested business models with which, on the one hand, they can also take off in a second career and, on the other, retain their entrepreneurial freedom. The situation is different with franchising, because here the contracts contain detailed specifications from the franchisor. This entails strict guidelines, and entrepreneurs cannot simply discontinue the business if they are not satisfied or if it fails to be commercially successful. Due to the strictly regulated implementation obligation, the franchisee is often limited in his own creativity. However, founders also benefit from this business model, as they receive support and backing from the franchisor."

3. Which model should founders choose?

"Anyone who decides to enter into a franchise or licensing system should first and foremost pay attention to the specific content of the contract to be signed or find out what rights and obligations they are entering into and what services the respective system provider offers. Which business model is the right choice for prospective self-employed persons depends on many factors, such as the industry or one's own objectives. For those who want to build a career on the side and make independent decisions, a pure license agreement can be advantageous. Franchising, on the other hand, is an option for founders who want to implement proven concepts one-to-one and as part of a successful company. In any case, it is advisable to seek an external and experienced opinion and not to make decisions too hastily."

Further information on franchises and licenses at www.warmeling.consulting