The Differences Between a Franchise & Business Opportunity

When considering life as an entrepreneur, it is important to understand the differences between a franchise, business opportunity and a start-up business. There are, of course, advantages and disadvantages to each style of business. In this article we will discuss the advantages and disadvantages of business opportunities and the difference between a franchise and business opportunity.

BUSINESS OPPORTUNITY:

All franchises are considered business opportunities, but not all business opportunities are franchises. A business opportunity involves the sale or lease of another's product or service that will enable the purchaser to establish a business. Other types of business opportunities besides franchises include:

• Turnkey operations - A product or service which can be provided or resold to another immediately after it is purchased. It is often considered the same as a franchise, but not all franchises are turnkeys.



• Distributorships - An independent agent that has entered into an agreement to market the product of another, but does not use the manufacturer's trade name as part of their name. Distributors may sell to several dealers. (For example, food service distributors that provide bulk items to restaurants, hotels, schools, hospitals, etc.)



• Dealer - Similar to distributorship but they sell only to consumers and retailers. (For example, auto dealerships)



• Vending Machine routes and Rack Jobbers - Two methods of marketing another company's products through distribution systems to various stores.



• Network Marketing or Multi-Level Marketing (MLM) - A business model that needs a distributor network to build the business. It involves selling products directly to consumers, as well as through a network of other agents whom you recruit. You usually earn commissions on both your sales as well as those of the other agents you recruit.



• Trademark/product licenses - The licensee may use the seller's trade name as well as certain of their methods, products, equipment, and technologies.



• Cooperatives - An existing business may affiliate with a larger network of similar businesses in order to advertise and market products and services, using a common identity.

• Typically the initial start-up costs are less than establishing a franchise. Upfront fees are lower and there usually are not ongoing royalties to pay to the seller.



• Business opportunities afford a proven system of operation and products and services.



• Financing is many times readily obtained through the leverage of the parent company.



• Comprehensive training programs are usually provided, making the learning curve much easier and shorter.



• Site selection is often chosen by experts at the parent company, usually providing the best location for marketing the products.



• Marketing and advertising are usually a joint effort between the opportunity provider and the purchaser. This can decrease dramatically promotional expense for the licensee.



• Purchasing power is a great advantage. The larger parent company can often get better deals by buying equipment and materials in bigger quantities.

• Since the purchaser usually does not pay any ongoing fees to the seller, there is typically no incentive for ongoing support to be provided. If the seller runs into problems, he/she is usually on his/her own.



• Exclusivity clauses can put limits on what a licensee is allowed to sell. If the entrepreneur deviates from the clause, the licensor can cancel the agreement.



• Even though sites are usually selected by experts within the parent companies, some poor choices can be made. It is important for the licensee to research the area themselves for marketability of the products/services being offered.



• If the parent-company would go bankrupt, there is the risk of the licensees losing their businesses as well, although the risk would be greater if it were a franchise.