In the Boots of a Boss Blog Series: Post 2: Deciding Between a Franchise and a Business Opportunity?
Following up from our initial post on “Why You Should Become Your Own Boss”.
So you’ve decided to start your own business, become your own boss and take on the world! Now, you have to assess the type of business model you are going to go with. If you are going to start your own business entirely on your own, this can be taking on a lot of risk. For those who are not ready or perhaps will never want to take the risk of going it alone, a franchise opportunity can offer an alternative option.
What’s the difference?
Deciding to start your own business is a big decision which leads to a series of other decisions which must be made.
A franchise is an entire business model along with a support program and a training system.
A business opportunity in general is the licence to distribute a certain product or provide a certain service but without the same level of back-up, training or support of the business behind the product. A business opportunity can often involve the distribution of a particular product or the licence to deliver a particular service but would lack the business model and support that franchisees benefit from.
Here are the three main areas where franchises differ from business opportunities:
As a franchisee, you have a pre qualified interest in your business, as potential customers will already know your business from existing franchisees. Franchises often impose strict guidelines for franchisees on how to deliver their service/product which means that the customers can expect the same service whenever they enter a franchise outlet; it also means that each franchisee is working towards the growth and consolidation of the brand. On the other hand, with a business opportunity, there is often no pressure to operate your business under the same name as other licensees, and you will not have to conform to a particular operating system.
Looking through any of the franchise profiles on our site, you will see that franchises offer a structured approach to ongoing support following the opening of a new franchise business. This can come in the form of top up training for both the franchisee and their employee; regular meetings at head office either individually or as organised general meetings with all franchisees; mentoring programs; and/or on site visits from the franchisor. The franchisor usually has a vested interest in the ongoing success of the franchisee, and so franchises in general will provide a good program of ongoing support to ensure continuing and growing success.
In comparison, a business opportunity does not usually provide ongoing support, or if they do, it is generally not as structured a franchise would be. As explained in the next section, business opportunities do not have as vested an interest in the ongoing success of a business after its initial launch and so, ongoing success will not be as freely available.
This is one of the biggest differences between a franchise and a business opportunity.
Franchisors often use the line “we only succeed if you do so we are dedicated to your ongoing success” to market their franchise support. This is usually because they charge ongoing fees or royalties, either as a fixed fee or as a percentage of your sales.
Business opportunities however do not charge ongoing fees. The initial start up fee is generally the only fee charged by the business, and licensees will usually just to have pay for replacement products after and occasionally, if relevant, for training for new employees.
Source: Entrepreneur Magazine
Business opportunities can be great for those who want to add a product on to their existing business without the interference from a franchisor, or who would like to “go it alone” with the license to distribute a product or service. A franchise however, offers a lower risk start up, with the security of back up support, mentoring from the franchise and the benefit of knowing that they want you to succeed as much as you do.
This is all just generally speaking, and franchises and business opportunities all vary and there will always be exceptions to the rules. It is always important to remember this, and to always ensure that you carry out an enormous amount of research before investing in any type of franchise or business opportunity. Consulting with a legal and financial professional is extremely important, however at this stage of the business start up process, one of the best steps can be to contact existing franchisees or licensees in any industry and ask them about their experiences.