According to the FTC, “The Business Opportunity Rule applies to commercial arrangements where a seller solicits a prospective buyer to enter into a new business, the prospective purchaser makes a required payment, and the seller – expressly or by implication – makes certain kinds of claims.
Examples of what’s covered by the Rule include work-at-home opportunities like envelope stuffing or craft assembly where the seller offers to buy back merchandise from the biz op buyer. Also covered: opportunities where a seller says it will help the buyer set up or run the business – for example, by providing the buyer with customers, accounts, or locations to sell products or services.”
In English, what the FTC is saying is that the new rule is expanded to cover business opportunities like vending machines, rack jobbers, 900-number phone opportunities, internet kiosks, work-from-home schemes like envelope stuffing, product assembly, medical billing, and even pyramid marketing opportunities.
The four major buckets of business opportunities are:
Advantages of “Business Opportunities”
The major advantage of a business opportunity over a franchise is that it offers a buyer a greater degree of flexibility in conducting their business than a franchise, at a lower cost of entrance and without royalty payments. It is often a good method for home-based, part-time or second income businesses.
The most significant drawback of a business opportunity is that typically the business owner does not receive the significant management systems, training, ongoing support, or marketing, which are typical in a franchise relationship.
Business Format Franchising
The relationship in a Business Format Franchise is considerably more structured than in a business opportunity. While there are variations between the federal definition of franchising and some states’ definitions, under the FTC Rule the definition of a franchise is any continuing commercial relationship that includes the use of the franchisor’s brand by the franchisee and also contains the following elements:
Business Format Franchising generally refers to the system of delivery, not the specific product or services associated with the delivery as in a business opportunity or in Traditional Franchising. The major differences between a business opportunity and a franchise are generally found in the degree of the relationship:
In a biz op, the important element of the relationship is really the specific product or service that is being delivered.
In a business format franchise, while product is important, it is the system of delivery used by the franchisee to the public that is really the principal element in the relationship. Another major distinction is that the biz op owner generally does not use the company’s name or logo in identifying their business as they would in a franchise.
You will often hear franchisors use the phrase that when you become a franchisee, “You are in business for yourself and not by yourself.” It may not always be true in franchising, but after you sign a business opportunity agreement, generally speaking you are in business for yourself – period. If you are a true entrepreneur, a business opportunity may be the perfect vehicle for you to start a new business.