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Structural Strategies
Instead of adding or altering products or entering new markets, structural strategies aim to increase sales by changing the way you do business, specifically by developing relationships with other businesses:
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Franchising: Sell the right to copy your business in another location. |
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Licensing: Sell the right to manufacture or distribute a product or service or use a technology or trademark. |
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Strategic Alliance: Establish a network of interrelated businesses, each performing a separate function. |
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Franchising
Instead of hiring new employees and opening new outlets, you take on other businesses to reproduce your operation under your guidance. This becomes your new business in addition to running your own outlets: helping your franchisees get started and keeping them going smoothly.
Sources of revenue:
- Franchise fees: Up-front fees to cover costs of marketing, recruitment and location search.
- Contract fees: Paid upon renewal of the contract.
- Royalties: A percentage of franchise sales as compensation for trademark use.
- Promotion fees: For large-scale advertising to support trademark.
- Management fees: Initial training or site development beyond initial franchise fee.
Points to consider:
- Rapid Growth: Excellent means of externally financing growth and good concepts quickly establish a big presence.
- Risk: Requires at least $100,000 just to prepare agreements, operations manuals, promotional programs and administrative structures. Significant legal obligations.
- Formula: Must be able to isolate, specify and teach basic ingredients of successful business. Franchisees buy a system.
- Track Record: Personal business must be successful first. Few franchisees buy unproven systems.
- Coaching: Franchisor must be prepared to teach and enforce system to make franchisees successful. New role involves patience, empathy, social skills.
- Travel: Local research, recruitment, planning, site preparation involve long periods away from home.
- Pressure: Many franchisees means many business partners, personalities, skill levels, business outcomes and relationships, none of which go away or change easily.
- Organization: Involves high level of logistical skill in developing distribution systems, inventory control and communications.
Licensing
You are selling intellectual property - the right to use the patents, copyrights, trademarks, industrial designs or other trade secrets that you own. It's a great way to expand without capital investment.
As the licensor, you build your business through royalties or commissions while your partners - the licensees - grow through product line extension. Note that you can also grow as a licensee by purchasing production or distribution rights from companies in other regions or countries.
Types of licences:
- Manufacturing rights: You provide the formula or blueprints, the buyer makes it and sells it through its channels, either wholesale or retail.
- Distribution rights: You provide the product or service, the buyer sells it in a specified territory.
- Production rights: The buyer pays to use your copyright, technology or trademark.
Points to consider:
- Uniqueness: Unusual or exclusive products or services may be licensed.
- Wide Potential: Licensee will need good market possibilities. Reconsider original market research - where else in the world do similar market conditions or customer needs exist?
- Adaptability: You must be open to minor modifications necessary for new markets - include a "grant-back" clause in the contract to maintain control.
Strategic Alliance
You focus on the core of your business - whether it is design, production, delivery or customer service - and grow only that aspect while shedding or outsourcing other aspects by contracting with other companies. You grow your market share and your business, not necessarily your size.
Types of strategic alliances:
- Partnerships: Legal combination of businesses, which then share in profits and losses of their enterprise.
- Joint Ventures: Temporary combination of businesses for specific projects.
- Outsourcing: One company contracts to supply another with certain services for a set fee.
- Virtual Organizations: Central office contracts sales, production and distribution through other companies or representatives in a variety of cities, maintaining contact by fax, phone, e-mail and Internet.
Points to consider:
- Network Presence: Mature industries with many suppliers, producers and manufacturers are easier to network within because the infrastructure already exists. Emerging industries are often ripe for the same strategy for companies to gain rapid identity.
- Common Goals: Everyone must want to head in same direction and see benefits of networking. May need to sell concept initially, but eventually everyone must believe.
- Structure: Up-front organization of lawyers, consultants, translators becomes time-consuming. Beneficial agreement and enforceable performance delivery are important.
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