Michael Aronovici on the License Rights Misconception That Costs New Market Entrants
When a well known restaurant or retail brand wants to enter a new country or region, it often sells development rights or a license to a local operator instead of building the market itself. On paper, this looks like a clean transaction: the brand gets expansion without the capital risk, and the license holder gets a proven concept with a built-in customer base.
That framing is where the trouble starts. Many people who pursue these deals treat the signed agreement as the finish line rather than the starting point.
Michael Aronovici has built much of his career around exactly this kind of deal. He acquired the development rights for Pizza Hut in Quebec and later secured an exclusive license to develop and operate Starbucks Coffee in Eastern Canada, a market that was otherwise run almost entirely through corporate-owned stores. His view on license rights comes from having negotiated, built, and eventually sold businesses under both agreements.
The misconception: A license is a finished product
The common assumption is that a license or development agreement transfers a working business model wholesale. Sign the paperwork, open the doors, and the brand's existing playbook does the rest.
In practice, a license transfers permission, not performance. The license holder still has to do the full work of building a market: finding sites, training staff, negotiating with local suppliers, and adapting a national brand's systems to a city or region that has never seen it before. None of that comes packaged with the agreement.
This misconception costs people in two ways. First, they underprice the operational buildout when they model the deal financially. Second, they assume the brand owner will step in to solve problems that are, contractually and practically, the license holder's to solve.
What a license actually requires
A development or license agreement typically sets out territory, store count targets, and brand standards. It rarely tells the license holder how to do any of the following:
Build a supply chain that meets the brand's quality standards in a market where none of the usual vendors exist
Train a workforce that has never worked inside that brand's systems
Negotiate real estate in a market where the brand has no track record with landlords
Set pricing and local marketing that fits both brand standards and local buying habits
Aronovici's view is that this is the stage where most of the real work, and most of the real risk, actually sits. The agreement is the opening of the deal. Everything that determines whether it succeeds happens after.
The operational work behind a license
Over the seven years Interaction Restaurants Group held the Starbucks license in Eastern Canada, the work involved negotiations, expansion, and day-to-day operations, not just the initial agreement. That stretch of time matters: license holders who expect a short runway to profitability often misjudge how long it takes to build out a market properly, train enough staff, and get unit economics to where the brand owner expects them.
The same was true with Pizza Hut in Quebec. Securing development rights was the entry point. Becoming the brand's largest franchisee in Canada took a decade of operational growth, not a single transaction.
How to tell if you are ready for this kind of deal
Before signing a development or license agreement, a prospective license holder should be able to answer a few questions honestly:
Do you have the capital for the buildout, not just the license fee? The fee to secure rights is often the smallest line item. Site buildout, training, and working capital for the first several locations usually dwarf it.
Do you understand the local market better than the brand does? A license holder's value to the brand owner is local knowledge: real estate, labor, suppliers, and customer habits. If you do not have that edge, the license itself will not create it.
Can you commit to a multi-year timeline? Markets take years to build, not months. A license holder who expects fast returns is more likely to cut corners on training or site selection, which shows up in weak unit performance later.
Have you planned for brand standard enforcement? License agreements typically include audits and compliance requirements. Operators who treat these as paperwork rather than as ongoing obligations tend to run into disputes with the brand owner.
The practical takeaway
A development or license agreement is a legal right to operate a brand in a territory. It is not a transfer of working knowledge about how to do it well. Anyone evaluating one of these deals should budget for the buildout separately from the license cost, plan on a multi-year horizon before expecting steady returns, and treat local market expertise as the asset they are actually bringing to the table. The brand name opens doors. The operational work decides what happens once you are inside them.
