Business Opportunities Industry Analysis 2020 - Cost & Trends

Looking at Business Opportunities in 2020

So what exactly is a business opportunity and how does it differ from a franchise opportunity? In this report we explain the differences between a franchise and a business opportunity and help you determine what your options are if you decide entrepreneurship is for you.

Business Opportunities Defined

Generally speaking, a Business Opportunity (often referred to as a “Biz Opp”) is any opportunity that allows the purchaser of the opportunity to start his or her own business. Generally, a pre-packaged business investment.

The Federal Trade Commission (FTC) defines a Biz Opp as an “arrangement where a seller solicits a purchaser to enter into a new business where the purchaser makes a payment to the seller, and the seller, either expressly or impliedly; (1) makes an earnings claim, or (2) promises to provide business assistance. Business assistance is defined as promising to find locations to operate the business; providing outlets for products or customers for the purchaser's goods or services; promising to buy back any of the products or services; tracking or paying, or purporting to track or pay commissions or other compensation based on the purchaser's sale of goods or services, or recruitment of other persons to sell goods or services; and otherwise advising a purchaser in the management or operation of a new business.”

Currently 25 states have laws that provide slightly different definitions when compared to the FTC for what constitutes a business opportunity. The most consistent items that appear in these definitions include:

1. Initial start-up fee greater than $500
   
2. Seller of biz opp to assist buyer in locating a market to sell the product
3. Seller of biz opp to provide buyer with access to the product that is for sale
4. Inventory buyback guarantee provided by seller to buyer
5. Marketing assistance provided by seller
6. Seller will mandate that buyer exclusively source specific products through the seller

What’s the difference between a business opportunity and a franchise opportunity?

While the above definition is understandably broad, it should be noted that all franchises are considered biz opps -but not all business opportunities are considered franchises.

A franchise is most simply defined as a business in which a franchisor with an existing product or service enters into a contractual arrangement with a franchisee through which the franchisee can operate a location in a predetermined area using the franchisor's brand/trade name and guidance. The franchisee is usually required to pay a fee to the franchisor for these rights. Franchises typically seek to maintain consistency across all franchise locations and as a result have very restrictive guidelines on items such as how the company’s brand can be used, the look and feel of the location, product offering, pricing etc.

Broadly speaking, ownership of a non-franchise biz opp generally means significantly more flexibility and less oversight, but also less support, from the seller when compared to a franchise.

Pros and Cons of Investing in a Business Opportunity

Pros:

1. Significant flexibility on how to operate the business
   
2. No ongoing royalties paid to the seller
3. In most cases, lower startup costs when compared to a franchise
4. Flexibility for owner to develop their own brand
5. Flexibility to customize strategy to fit the specific market

Cons:

1. Limited support provided by the seller after the purchase
   
2. Buyer is not necessarily provided with an established brand name
3. Risk of seller only being motivated to collect the upfront fee
4. Higher inventory or supply costs (potentially), as owner isn’t able to tap into system-wide economies of scale

Some typical business opportunities:

Licensing

A licensing agreement allows the licensee the right to use a trademark or brand from the licensor in return for a split of the earnings. Licensing provides the licensee with more flexibility in how best to leverage the license in a certain product category.

Gorilla Brands offers the Gorilla Games trademark and brand for licensees to open their own Gorilla Games video game location.

Vending

A vending business allows the buyer to distribute a product through a vending machine. Typically the buyer of the vending machine will seek to find a quality location with strong foot traffic to place the machine. The owner of the location is provided with a predetermined split of all revenue generated from the machine.

Revive Energy Mint provides a vending Biz Opp through which buyers can distribute the Revive Energy Mint caffeinated energy products.

Distributorship

A distributorship is a contractual agreement through which one can offer for sale the product of another company. Typically the buyer of the distributorship can develop its own brand outside of the brand of the actual product for sale and can develop non-exclusive distribution relationships with other product makers.

Pet Corner International is a distributorship that allows the distributor to sell all-natural pet supplements to retailers.

Dealership

Similar to a distributorship, with the main difference being that a dealership typically focuses exclusively on selling one particular product.

Auto dealerships are the best example, whereby a dealer exclusively sells one product (e.g., a Chevrolet dealership)

Rack Jobbing

Selling other company’s products in a variety of stores.

Many convenience stores will rent space to rack jobbers to allow them to display and sell goods.

Looking for more franchises? Take our franchise quiz here.

Matt Sena is a writer and researcher, a co-founder, a former portfolio manager, a rider and a dad. He earned his MBA in Finance from Kellstadt Graduate School of Business while working at Goldman, Sachs & Co.