Franchising & Licensing: Two Powerful Ways to Grow Your Business in Any Economy

449 Pages·2004·4.2 MB·English

by  Andrew J. Sherman

F
R A N C H I S I N G &
L
I C E N S I N G
THIRD EDITION
..........................10376$ $$FM 10-24-0309:36:28 PS
This page intentionally left blank
F
R A N C H I S I N G &
L
I C E N S I N G
THIRD EDITION
TWO POWERFUL WAYS TO
GROW YOUR BUSINESS IN ANY ECONOMY
ANDREW J. SHERMAN
AmericanManagement Association
NewYork•Atlanta•Brussels•Chicago•MexicoCity•SanFrancisco
Shanghai•Tokyo•Toronto•Washington,D.C.
..........................10376$ $$FM 10-24-0309:36:29 PS
SpecialdiscountsonbulkquantitiesofAMACOMbooksare
availabletocorporations,professionalassociations,andother
organizations.Fordetails,contactSpecialSalesDepartment,
AMACOM,adivisionofAmericanManagementAssociation,
1601Broadway,NewYork,NY10019.
Tel.:[phone].Fax:[phone].
Website:www.amacombooks.org
Thispublicationisdesignedtoprovideaccurateandauthoritative
informationinregardtothesubjectmattercovered.Itissoldwiththe
understandingthatthepublisherisnotengagedinrenderinglegal,
accounting,orotherprofessionalservice.Iflegaladviceorother
expertassistanceisrequired,theservicesofacompetentprofessional
personshouldbesought.
LibraryofCongressCataloging-in-PublicationData
Sherman,AndrewJ.
Franchising&licensing:twopowerfulwaystogrowyourbusinessin
anyeconomy/AndrewJ.Sherman.—3rded.
p. cm.
Includesbibliographicalreferencesandindex.
ISBN0-8144-7222-2
1. Franchises(Retailtrade)—UnitedStates. 2. License
agreements—UnitedStates. I. Title:Franchisingandlicensing. II.
Title.
HF5429.235.U5S54 2003
658.8(cid:1)708—dc21
2003012749
(cid:2)2004AndrewJ.Sherman.
Allrightsreserved.
PrintedintheUnitedStatesofAmerica.
Thispublicationmaynotbereproduced,
storedinaretrievalsystem,
ortransmittedinwholeorinpart,
inanyformorbyanymeans,electronic,
mechanical,photocopying,recording,orotherwise,
withoutthepriorwrittenpermissionofAMACOM,
adivisionofAmericanManagementAssociation,
1601Broadway,NewYork,NY10019.
Printingnumber
10 9 8 7 6 5 4 3 2 1
..........................10376$ $$FM 10-24-0309:36:29 PS
To my first franchisee,
Matthew Harris Sherman,
and to my wife, Judy Joffe Sherman.
I thank them for their
never-ending support and patience.
..........................10376$ $$FM 10-24-0309:36:29 PS
This page intentionally left blank
C O N T E N T S
Preface to the Third Edition ix
Acknowledgments xi
Part 1. An Overview of Intellectual Capital Leveraging Strategy 1
1 Leveraging Intellectual Capital to Create Growth
Opportunities and Profitable New Income Streams 3
Part 2. Franchising as a Growth Strategy 9
2 The Foundation of Franchising 11
3 Developing the Operations and Training Programs 21
4 Developing System Standards and Enforcing Quality Control 37
5 Federal and State Regulation of Franchising 59
6 Compliance 89
7 Structuring Franchise Agreements, Area Development
Agreements, and Related Documents 105
8 Protecting the Intellectual Property of the Franchise System 135
9 Managing Disputes 165
10 Developing Sales and Marketing Plans 191
11 Taking Your Franchise Program Overseas 215
vii
..........................10376$ CNTS 10-24-0309:36:32 PS
viii CONTENTS
Part 3. Financial Strategies 231
12 Business and Strategic Planning for the Growing Franchisor 233
13 Capital Formation Strategies 243
14 Management and Leadership Issues in Building a Successful
Franchising Organization 281
15 The Role of the Chief Financial Officer and Related Financial
and Administrative Management Issues 297
16 Special Issues in Mergers and Acquisitions 317
17 Managing the Transfer and Renewal Process 333
Part 4. Alternatives to Franchising 345
18 Strategic and Structural Alternatives to Franchising 347
19 Structuring Licensing Programs and Agreements 361
20 Joint Ventures and Strategic Alliances 383
Appendix. Resource Directory: List of State Administrators and
Agents for Service of Process 397
Index 429
..........................10376$ CNTS 10-24-0309:36:32 PS
P R E FA C E T O T H E T H I R D E D I T I O N
Itishardtobelievethatnearly15yearshavepassedsincethepublication of
thefirsteditionofFranchising&Licensingin1991.Theimpactoftechnology
and globalization has had a permanent effect on the dynamics of the fran-
chise relationship. When the manuscript was being written for the first edi-
tion in the late 1980s, I could not have envisioned the many changes in the
evolutionoftoday’sfranchiserelationshipsthatcanbemanagedorthediver-
sityinthenumberofindustriesandcompaniesthatwouldpursuefranchising
as their primary growth strategy. It has been an honor to work with compa-
nies launching franchising programs in dozens of different industries and at
variousstagesofgrowth,rangingfromstart-uptoFortune500companies.
At the time of this writing, global events and geopolitical concerns are
overshadowingandrestrainingsomeofthemanysuccessesthatthefranchis-
ing community has enjoyed since the publication of the second edition. We
are in the middle of war with Iraq, we now live with the threat of terror
attacks against our homeland following the events of September 11, 2001,
our economy is as weak as it has been in over 10 years, and oil and energy
prices are on the rise, making the cost of growing a business very high. In
tough economic times, the development of creative strategies to leverage
yourintellectualcapitalbecomesespeciallyimportant.
Howhavetheseconditionsandeventsaffectedfranchisingandtheover-
allgrowthofacompany?
❒ From the franchisor’s perspective, the weak capital markets have lim-
ited access to the resources needed for more organic or traditional
growth strategies, thereby making franchising the strategy of choice to
accomplish growthobjectives andbrand-building.
❒ From the franchisee’s perspective, more families in a post-9/11 environ-
ment (and with job losses averaging 300,000 per month) want to take
greater control over their own destiny and are pursuing many different
typesoffranchisedopportunitiesasawayofowningtheirownbusiness.
ix
..........................10376$ PREF 10-24-0309:36:36 PS