Franchising as Growth Model for Open Source Business

Open Source business is a services industry. As in all service industries, the big question is the standard investor question of "How do you make money while you sleep?"

We've been thinking about this for a while, considering different growth strategies. One model that would seem very viable is franchising. According to WikiPedia:

Franchising is a method of doing business wherein a franchisor licenses trademarks and methods of doing business to a franchisee in exchange for a recurring royalty fee.

In our case this would mean giving other Midgard consultancies the right to use the Nemein brand and working model in their operations. In return, they would pay a franchising royalty to us. According to World Franchising, this royalty is typically 3-6% of revenue.

What would be the benefits to the franchisor? There are several:

  • Established name in Midgard solutions
  • Strong client portfolio
  • Direct technical support from several main developers of Midgard
  • Good management systems and clear IT policy
  • Training period on working models together with the Nemein team
  • Clear technology strategy
  • Marketing and sales support

For the clients this would also be an advantage as they could be sure they're getting real Midgard competence. From a chat with a potential franchisee:

The idea with all this is that we can work together more efficiently and that clients will have a consistent experience. Essentially the big mac will taste the same everywhere.

Being less risky than starting overseas offices, this model is certainly very compelling. We are now piloting the approach with two companies, one in an established western market, and one in an emerging CMS market. If this works out, we might soon see the golden arches of Midgard spread around the world.

Updated 2005-01-03: comments "Not a bad idea. Might work once you have first found a way to become a reputable business" and points to two other related posts: Dan Bricklin and Frank Hecker