Franchise vs. Business Opportunity: The Debate On Every Entrepreneur’s Mind
What is the difference between a franchise and a business opportunity? This is a question that is on the mind of pretty much every person who attends a franchise or business opportunity trade show looking for his or her new career path. However, the people selling each of these types of businesses never really give a good explanation of why their business qualifies as a business opportunity, biz op for short, or a franchise.
When you are looking into starting your own business through a franchise or business opportunity, you must know the differences between the two because the differences can show you how one model could be better for your particular skills or mind set in business.
When asked the question what is a franchise, most people can give examples of franchises they see daily, but do not know the specific criteria that make up a franchise. At its most basic, a franchise is a business model where you, the franchisee, will pay a fee to the franchisor for the opportunity to be trained by them on how to run a business. You will operate that business using that franchisor’s business trade name and logo while understanding that the franchisor will have control over certain aspects of how your business in operated. So, you will encounter (i) use of the franchisor’s trademark, which is their name and/or logo in selling the products or services of that brand, (ii) the franchisor will have the authority to control much of your operation and will provide assistance to you both before you open and during your operation of the business, and (iii) you are required to make a payment in exchange for your right to operate the business and receive the support from the franchisor.
A business opportunity on the other hand is harder to define specifically as different states can define the term using a variety of factors. Basically, if you buy a business opportunity, you are purchasing a business in a box which allows you to run the business how you want to selling or offering, in whole or in part, the products of the seller of the business opportunity. Anyone who has researched business opportunities can tell you the examples the have encountered, but one that has been prevalent for many years are vending machines. There are business opportunities available where you, the purchaser, will buy the right a certain number of vending machines along with a general area of distribution to sell the products. You typically must purchase the products from the business opportunity seller, which is where they make their money, but you get little ongoing support, if any, and you are ultimately on your own with little to no ongoing relationship with the seller.
When it comes to your protection, as the buyer, of either type of business, you need to know that certain laws exist to protect you at both the federal and state levels. Because both types of businesses have a history of less than honorable dealings, different states and the federal governments have enacted laws and now require legal disclosures for each type of offering. I do not have the space within this article to discuss the specific legal standards and disclosure requirements of each type of business offering, but whether you buy a business opportunity or a franchise, you should be very careful to read through all of the information you receive and consult with trusted advisors before signing on the dotted line.
So, now that you understand the differences between franchises and business opportunities, which one is best for you?
This is a question that cannot be answered by anyone but you. If you are entrepreneurial and want to run your business your way without input from anyone higher up the chain, then a business opportunity might be the way to go. With a business opportunity, you will be able to run your business as you see fit, from pricing, to the hours of operation, to the varying product lines you carry. On the other side, with a business opportunity, you will be on your own most of the time and may find that the same business opportunity seller has sold to someone who competes with you locally.
However, if you are more dependent on support systems and the desire to be part of a team, then choosing a franchise might be the better option. With a franchise, you will have your fellow franchisees to look to and will be able to reach out to the franchisor for assistance, yet still have some freedom to make business decisions such as pricing and hiring and firing, to name a few. A drawback to franchising versus a business opportunity is the freedom. If you are part of a franchise system then you are expected, in many systems, to meet minimum sales quotas and order certain products only from specified vendors, which can be more costly than if you had the opportunity to buy locally or from a vendor of your choosing.
One final question that comes up is where can I find a franchise or business opportunity to buy? This question is the easiest of all. Along with websites such as the International Franchise Association and BusinessOpportunity.com, and publications like this one, you can find both franchises and business opportunities at trade shows. Throughout the year there are multiple trade shows that showcase both types of business. If you are looking exclusively for franchises, you can attend the Franchise Expo South in Houston, the International Franchise Expo in New York or the West Coast Franchise Expo in Anaheim. If a business opportunity is your choice, then there is a trade show group which hosts several regional shows throughout the year called the Franchise & Business Opportunity Expos where you can find selections of both franchises and business opportunities.
Whichever method of business ownership you look to, you will have benefits and drawbacks. There are no assurances of success in either model. The key to either type of business is to have a strong team, whether it be your employees and family in a business opportunity, or the franchisor and your co-franchisees in a franchise system. When you find the right business, look before you leap. Take the time to read through all of the information. Perform your due diligence and research the particular business online, call other owners of the business to get their thoughts and opinions, and talk with your advisors to get an outside perspective on the business. Once you have made your decisions, take the next step knowing that you have made the right decision for you.
Jason Power has been helping entrepreneurs review and negotiate franchise purchases since 2009. Jason is a regular speaker at the International Franchise Expo, West Coast Franchise Expo, Franchise Expo South and various other franchise expos where he gives tips on how to analyze and negotiate a franchise purchase. Jason is a senior attorney with Shelton & Power franchise law firm.