Leveraging Intellectual Property
Assets for Business Success: Building
an Enterprise Based on a Franchise
Dr. Guriqbal Singh Jaiya
Director
Small and Medium-Sized Enterprises Division
World Intellectual Property Organization
www.wipo.int/sme
SMEs Website
IP for Business Series
• Making a Mark
(Trademarks)
• Looking Good
(Designs)
• Inventing the
Future (Patents)
• Creative
Expression
(Copyright and
Related Rights)
http://www.wipo.int/sme/en/multimedia/
Development of 10 Modules
Module 1: Importance of IP for SMEs
developed in 2004 as a pilot project
Based on “IP for Business”
in SMEs Homepage
• Why is IP relevant to your SME?
• IP as a business asset
• IP as an investment
• The value of IP assets
• Introduction of IP Audit
Basic IP Modules in 2005
Module 2 : Trademarks and Industrial Designs
• Main Story : Susan faces
difficulty in marketing due to
weak brand and poor design. With
the help of Gibson and hard work,
her company eventually succeeds
in developing a new brand and a
nice design to attract consumers.
Alex
Gibson Susan Nicole Chris
Marketing IP Lawyer CEO Designer Branding
strategist
Expert
• Learning Points
- TM and ID to increase
the Power of Marketing
- Brand Building
- How to Protect TM and ID
- Trademarks Management
Basic IP Modules in 2005
Module 3
Invention and Patent
Module 4
Trade Secrets
Module 5
Copyright & RRs
• Learning Points
- Basics of trade secrets
- TS management program
- Violation of TS
- TS audit
• Learning Points
- Basics of invention and
patent
- Patent application
- Patent infringement
- Patent management
IP Promotion
• Learning Points
- Basics of copyright
- Copyright and related
rights
- Ownership of copyright
- Using works owned by
others
Advanced IP modules in 2006
Module 6 : Patent Information
Module 7 : Technology Licensing in
a Strategic Partnership
Module 8: IP in the Digital Economy
Module 9 : IP and International Trade
Module10 : IP Audit
Spotlight is on knowledge
in today’s economy
• Knowledge, Weightless, Information, Digital
or Service Economy
• Factors of production: Land, Labor, Capital,
Intangibles (Knowledge)
• Knowledge as useful Information (or
Service)
• Information as a “Public Good”
• Information as Property
Market-oriented Economy
• Playing Field: Unfair competition; free riding
• National Legal Systems: Diversity
(bilateral/regional/ international treaties or
agreements)
• Adding Value : Meeting or exceeding market
needs or expectations
• Market research: Consumers’ needs, competing
products or substitutes, gaps
• Technological innovation as an element of
marketing
The challenge of adding value in
today’s economy
• Raw materials/Inputs: Processing (Value addition) = Value
added output/component; product; sale; Profit
• Value addition: Better: Functional/technological or
aesthetic/non-technological; Rational/Emotional (More for
Less)
• Price; access/availability; consistency
• Individual, Enterprise (legal person), Chains, Networks;
consortia; Open Innovation (Industry-Government-Academia)
• Ownership vs. access to knowledge
• Value Addition, Value Delivery and Value Extraction
Levels of Product
Augmented
Product
Installation
Packaging
Brand
Name
Delivery
& Credit
Quality
Level
Core
Benefit
or
Service
Features
AfterSale
Service
Design
Warranty
Actual
Product
Core
Product
What is innovation?
• Innovation is the process and outcome of creating
something new, which is also of value.
• Innovation involves the whole process from
opportunity identification, ideation or invention to
development, prototyping, production marketing
and sales, while entrepreneurship only needs to
involve commercialization (Schumpeter).
What is innovation?
• Today it is said to involve the capacity to
quickly adapt by adopting new innovations
(products, processes, strategies, organization,
etc)
• Also, traditionally the focus has been on new
products or processes, but recently new
business models have come into focus, i.e. the
way a firm delivers value and secures profits.
What is innovation?
• Schumpeter argued that innovation
comes about through new combinations
made by an entrepreneur, resulting in
–
–
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–
–
a new product,
a new process,
opening of new market,
new way of organizing the business
new sources of supply
Dimensions of innovation
There are several types of innovation
– Process, product/service, strategy,
which can vary in degree of newness:
– Incremental to radical,
and impact:
continuous to discontinuous
Drivers for innovation
– Financial pressures to reduce costs, increase efficiency, do
more with less, etc
– Increased competition
– Shorter product life cycles
– Value migration
– Stricter regulation
– Industry and community needs for sustainable development
– Increased demend for accountability
– Demographic, social and maket changes
– Rising customer expectations regarding service and quality
– Changing economy
– Greater availability of potentially useful technologies coupled
with a need to exceed the competition in these technologies
What is innovation?
• Gary Hamel argued that today’s market
place is hostile to incumbents, who
now needs to conduct radical business
innovation:
– Radically reconceiving products and
services, not just developing new products
and services
– Redefining market space
– Redrawing industry boundaries
New conditions for innovation
• Small start-up entrepreneurs increasingly
depend on large firms:
–
–
–
–
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as suppliers or customers
for venture finance,
for exit opportunites,
for knowledge (production, markets and R&D)
and for opening new markets.
New conditions for innovation
• Large firms increasingly depend on small
start-ups
– for NPD,
– as suppliers of new knowledge (which they cannot
develop themselves),
– or organizational renewal, for experimentation with
busienss models,
– for opening new markets, etc
New developments in innovation
raises new issues and problems
• Greater emphasis on commercializing scientific
discoveries, particularly in IT and the bio-sciences
• Speed and potential value of scientific progress leads to
emphasis on solid and well-designed portfolios of
research projects
• Universites as active drivers of innovation: Academic
entrepreneurship and the entrepreneurial university
• University-industry partnerships
• Increased search for radical innovation and top-line
growth.
Complementary Resources
Manufacturing Distribution
Finance
Core
technological
know-how
Service
Complementary
technologies
Marketing
Other
Other
Bargaining power of owners of complementary resources
depends upon whether complementary resources are generic or
specialized.
New Business Models Emerge
Then…
Now…
CRO’s
Product
Development
Product
Development
Cycle
Tool
Companies
One Integrated
Company
CRM’s
Testing
Services
Many Distributed
Companies
New Regional Model Emerge
Then…
Now…
Region D
Region A
Region B
Manufacturing
Region C
Research
Trials/Testing
Services
Development
Self-contained
regional clusters
Region G
Region E
Region F
Specialized,
networked regions
Understanding the Process of Innovation
The Process/Steps of Innovation
Pre-IPO
$
Expansion
• Legal Entity
• Viable
• Market acceptance
• Heading to IPO or M&A
• High Growth
• Founders = Mgt Team
• Bright Idea
• Head Count
• Minimal Revenue
• Experimental
Start-Up
• Multiple Cycles
• Slow Growth
• Research
• Support Functions
• Business Plan
• Administration
Seed
• Proof of Concept
• Marketing
• Revenue Growth
Idea / Concept
Time
The Needs of Each Stage
$
•Recruitment
•Business
•Corporate and
Development
Secretarial
•A & P
•Financial
•Market Access
•Training
•PR and Marketing
•Networking
Expansion
•Business
•Business Plan
Development
•International support and
•Prototype/ POC
Mkt. Access
•Project Management
Start-Up
•Diversification strategies
•Business Premises
and support
•Project Management
•Recruitment
•Management Training
•Training and Incentives
Seed
Idea / Concept
Time
IP Management Needed in all stages
An Aspect of Good Management
• People Management –
because IP is generated by people and used by
people
• Knowledge Management – because a lot of knowledge is informal and
may or may not crystallise as
recognisable category of IP
• IT Strategic Planning –
because a lot of IP is IT-related; some
of the more complex IP issues arise in
IT context
• Contract Management –
because IP is often created (or improved) in
context of a contract (eg, supply contract or
joint venture relationship)
• Asset Management –
because IP is an asset, albeit intangible; it has
a value
• Risk Management –
because there are risks to an organisation
flowing from its actions, or failure to act, in
relation to IP (including risk of lost
opportunity)
with permission of
P Crisp, AGS, 2003
Introduction to IP Management 1
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Legal
Technical
Business
Export
Financial
Relationships
•
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Accounting
Tax
Insurance
Security
Automation
Personnel
Introduction to IP Management 2
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Trademarks (Brands)
Geographical Indications
Industrial Designs
Patents and Utility Models
Copyright and Related Rights
Trade Secrets
New Varieties of Plants
Unfair Competition
Basic Message 1
IP adds value at every stage of the value chain
from creative/innovative idea to putting a new,
better, and cheaper, product/service on the market:
Trademarks/ GIs
Ind. Designs/Patents/Copyright
Patents /
Utility Models/Trade secrets
Patents /
Utility models
Invention
Commercialization
Marketing
Financing
Literary / artistic
creation
Copyright/Related Rights
All IP Rights
Industrial Designs/
Trademarks/GIs
Product Design
Licensing
All IP Rights
Exporting
Basic Message 2
• IP Strategy should be an integral part of the
overall business strategy of an Enterprise
• The IP strategy of an Enterprise is
influenced by its creative/innovative
capacity, financial resources, field of
technology, competitive environment, etc.
• BUT: Ignoring the IP system altogether is in
itself an IP strategy, which may eventually
prove very costly or even fatal
Basic Message 3 (More for Less)
• Own Use
• Licensing
• Franchising
• Merchandising (Mickey
Mouse, Hello Kitty)
Strategic Entrepreneurship and
Innovation
• Entrepreneurship is concerned with:
– The discovery of profitable opportunities
– The exploitation of profitable opportunities
• Firms that encourage entrepreneurship are:
– Risk takers
– Committed to innovation
– Proactive in creating opportunities rather than waiting to
respond to opportunities created by others
Entrepreneurship 1
Entrepreneurship drives innovation,
competitiveness, job creation and economic
growth.
It allows new/innovative ideas to turn into
successful ventures in high-tech sectors
and/or can unlock the personal potential of
disadvantaged people to create jobs for
themselves and find a better place in society.
Entrepreneurship 2
Entrepreneurship, in small business or
large, focuses on "what may be" or
"what can be".
One is practicing entrepreneurship by
looking for what is needed, what is
missing, what is changing, and what
consumers will buy during the coming
years.
Entrepreneurship 3
Entrepreneurs have:
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A passion for what they do
The creativity and ability to innovate
A sense of independence and self- reliance
(Usually) a high level of self confidence
A willingness and capability (though not
necessarily capacity or preference) for
taking risks
Entrepreneurship 4
Entrepreneurs do not (usually) have:
– A tolerance for organizational bureaucracies
– A penchant for following rules
– A structured approach to developing and
implementing ideas
– The foresight to plan a course of action once
the idea is implemented and established
Entrepreneurial Success
1. People (Entrepreneur /Entrepreneurial
Team)
2. Opportunity (Marriage of Market and
Product/Service)
3. Access to Resources (Land. Labor,
Capital, Knowledge
And the fit amongst these three elements
(Business Model)
What is a Franchisee?
“Frantrepreneur”
(fran*tre*pre*neur) n.
One possessing the desire to be a
business owner -- without the desire to
recreate the wheel -- by following a
proven system for the benefit of personal
and professional goals.
The Frantrepreneur Mentality
“I’m in
business for
myself, but not
by myself”.
“Why would I work
for someone else
when I can work for
myself and reap the
rewards of my
efforts?"
“I have the opportunity
to learn from the success
and failure of others.”
“I want a ‘bottled’ process for
success that I can use in developing
my own successful business.”
"Why would I spend years and the
investment required to establish a
successful brand when I could buy a
franchise which provides immediate
access to a successful business system and
a brand name which others already have
made successful?"
Entry Strategies
• New Business
– Develop a new product or service
– Develop a similar product or service
– Competitive approaches
• Existing Business
– Buying a business
– Franchise
– Joint venture – customer or supplier
Classification of Retail
Operations
Ownership
Level of Service
Classification
of
Retail
Establishments
Product Assortment
Price
Classification of Ownership
Independent
Retailers
Chain Stores
Franchises
Foreign Market Entry Options
•Indirect Exporting
•Direct Exporting
•Licensing
•Franchising
•Turnkey Projects
•Management contract
•Strategic alliances
•Joint ventures
•Wholly Owned Subsidairy
Entry Mode
Advantage
Wholly
 Enables global strategic
owned
coordination
subsidiaries  Protects technology
 Realizes (potentially) location
and experience economies
International  Gives access to local partner's
Joint
knowledge
Ventures
 Allows sharing of development
costs and risks
 May be more politically
acceptable than 100% foreign
ownership
 Allows foreign par ent do
deploy resources across more
national markets at once
International  Similar to international joint
Strategic
ventures
Alliances
Disadvantage
 High costs and risks
 Requires overseas
management skills
 May be slower to implement
 Loss of control over
technology and ma nagerial
know-how
 May impede global
coordination
 May make realization of
location and experience
economies more difficult
 Sharing of profit "pie"
 May be more difficult to
manage than international
joint ventures
Entry Mode
Advantage
Franchising  Low financial risk
 Relatively low
developmen t costs
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Licensing
Exporting
 Similar to franchising
 Fewer "maintenance"
costs than franchising
 Ability to realize
experience curve
economies

Disadvantage
Lack of direct control over quality
Successful international franchising
requires considerable start-up and
ongoing pre sence overseas (cost)
Is likely to impede, make global
coordination costlier than ownership
Growth may be slower depending
on franchisee's intentions
Sharing of profit "pie"
Possible loss of know-how to
potential competitor
Similar to franchising
 Transport costs
 Trade barriers
 Motivation of local agents a
challenge
SELECTING AN ENTRY MODE
• Core Competencies and Entry Mode
The optimal entry mode for these firms depends to some degree on the nature of
their core competencies.
In particular, a distinction can be drawn between firms whose core competency is
in technological know-how and whose core competency is in management
know-how.
• Technological Know-How
• If a firm’s competitive advantage (its core competence) is based upon control
over proprietary technological know-how, licensing and joint venture
arrangements should be avoided if possible in order to minimize the risk of
losing control over that technology, unless the arrangement can be structured
in a way where these risks can be reduced significantly.
• When a firm perceives its technological advantage as being only transitory, or
the firm may be able to establish its technology as the dominant design in the
industry, then licensing may be appropriate even if it does involve the loss of
know-how. By licensing its technology to competitors, a firm may also deter
them from developing their own, possibly superior, technology
• Management Know-How
• The competitive advantage of many service firms is based upon management
know-how. For such firms, the risk of loosing control over their management
skills to franchisees or joint venture partners is not that great, and the benefits
from getting greater use of their brand names can be significant.
Categories of Franchises
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Accounting/Tax Services
Advertising/Direct Mail
Auto & Truck Rentals
Automotive Products/Services
Batteries-Retail & Comm.
Beverages: Special
Business Brokers
Business/Mgmt Consultants
Campgrounds
Check Cashing/Financial Services
Children’s Services
Clothing and Shoes
Computer/Electronics/Internet
Construction Materials
Consumer Buying Services
Convenience Stores
Cosmetics
Dating Services
Drug Stores
Educational Products/Services
Employment Services
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Fitness
Florist Shops
Food/Restaurants
Golf Products/Services
Greeting Cards
Hair Salons & Services
Health Aids & Services
Home Furnishings
Home Inspection
Hotels and Motels
Insurance
Janitorial Services
Jewelry
Laundry & Dry Cleaning
Lawn/Garden/Agriculture
Maid & Personal Services
Maintenance
Marine Services
Optical Aids & Services
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Packaging/Ship/Mail
Painting Services
Paralegal Services
Payroll Services
Pest Control Services
Pet Sales/Supplies
Photography
Printing/Copying
Real Estate Services
Recreational Services
Rental Equipment & Supplies
Retail Stores
Security Systems
Senior Care
Sign Products & Services
Tanning Centers
Telecommunications
Transportation Services
Travel Agents
Vitamin & Mineral Stores
Weight Control
Franchise Agreements in Profile
• Data from 91 publicly traded franchisors in US
– % outlets franchised (75% mean, 12% - 100%)
• (best performers have a mixture of own and franchised)
– Franchise fee ($29k mean, $5k - $123k)
– Royalty rate (5,6% of revenue mean, 2% - 12%)
• (franchise fees and royalty rates are market benchmarked)
– Advertising rate (3,8% of revenue, 0% - 15%)
• (marketing power is function of #outlets * ad rate)
– Term (14 years average, 5 – 20 years range)
– # outlets (2.650 mean, 100 – 13.600 range)
Questions To Ask Yourself
• How much capital do you have to invest?
• How much liquid assets do you have?
• Do you require a specific level of annual income?
• Are you interested in pursuing a particular field?
• Are you interested in retail sales or performing a service?
• Do you want a part-time or full-time opportunity?
• How many hours are you willing to work?
Questions To Ask Yourself (continued)
• Do you want to operate the business yourself or hire a
manager?
• Do you want to have employees?
• Do you want to have inventories?
• Do you want to have Accounts Receivables?
• Will franchise ownership be your primary source of
income or will it supplement your current income?
• Would you be happy operating the business for the next 20
years?
• Would you like to own several outlets or only one?
Questions to Ask a Franchiser
• Determine what assistance the franchiser provides. Do they assist
with training, store design, location construction, site selection,
and feasibility studies?
• Do they have any access to demographic studies to get an
understanding of the audience within the market area?
• What types of support will the franchiser provide once your
franchise has opened its doors?
• After the initial investment, will there be additional financial
obligations requiring working capital?
• Does the franchiser offer any form of financing?
• Ask the franchiser how many franchises have been sold in the
state you will be operating in during the last 12 months, and how
many have been opened for business?
Questions to Ask a Franchiser
(continued)
• What types of territorial restrictions and protections have
been set up by the franchiser?
• Is the franchiser planning on expanding within your state?
Are they focusing on any specific locations?
• What arrangements are established through the franchiser in
terms of product supply?
• Ask if the franchiser has been forced to terminate any of its
franchisees and detail the reasons for this decision. Have any
franchisees failed or gone
bankrupt?
• Are there any current lawsuits pending or past judgments
against the franchiser? What steps are taken to settle
disputes between the franchiser and franchisees?
Questions to Ask Franchisees
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How long have you owned your franchise?
Is your franchise profitable?
In which month did you reach your breakeven point?
Have you made approximately the same profit that was
forecast in the disclosure document?
Were your opening costs consistent with the original
projections in the disclosure document?
Are you satisfied with the franchiser?
Are you satisfied with the product or service?
Is the operations manual, clear, up-to-date and adequate?
Are you satisfied with the marketing and promotional
assistance provided by the franchiser?
Questions to Ask Franchisees
(continued)
• Was the initial training and ongoing support sufficient for you to
operate your business?
• What was your background prior to buying your franchise and
was it beneficial to your success?
• Are deliveries of goods provided by the franchiser timely and
competitively
priced?
• Is the franchiser fair and amicable to work with?
• Does the franchiser listen and help you with your concerns?
• Have you or other franchisees had any disputes with the
franchiser? What was their nature? Were they resolved fairly?
• Do you know of any disputes between the franchiser and the
government?
• Do you know of any disputes with competitors?
• Who are the major competitors?
Common Mistakes of Prospective
Franchisees
• Not reading, understanding or asking questions about the UFOC,
franchise agreement and other legal documents
• Not understanding the responsibilities of the franchisee and the
obligations of the franchiser
• Not seeking sound legal and financial advisors
• Not verifying oral representations of the franchiser, representatives or
brokers
• Not contacting enough current franchisees
• Not contacting closed, sold or changed franchisees and confirming
reasons
• Not having enough working capital
• Not recognizing the need for financing
Common Mistakes of Prospective
Franchisees (continued)
• Not knowing how to make a proper loan request
• Not developing true and accurate budgets/forecasts and financial
statements
• Not meeting the franchiser’s key management and support personnel
• Not analyzing your market in advance
• Not developing your marketing strategy
• Not determining dollar amounts necessary to implement marketing
strategy including advertising and promotional programs
• Not choosing the right location
• Not analyzing the competition
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Established Franchisers offer:
Name Recognition
More regional and national advertising
Experienced management
Better chance of competing with competitors in a price or
advertising war
More refined training and support
Better purchasing power with established price discounts
More likely to have franchise financing available
More established and efficient working prototype or
company-owned stores
Improved assistance from existing qualified franchise
owners through advisory councils
Established versus New
Franchisers
Should You Use a Consultant?
A Franchise Consultant...
• will take the time to educate you on the franchise industry
• will help you define your qualifications so that you don’t waste your
energies and time on franchises that are not right for you or that you
are not qualified for
• can provide you valuable insight on franchises that you won’t find on
your own
• will help you present your qualifications to a Franchiser
• are paid by the Franchisers, but they recognize that this only happens
if they provide you excellent service and present to you the right
opportunities
• will take an unbiased approach to helping you achieve your goals