Business opportunities are less structured than franchises, so the definition of what constitutes a business opportunity isn't easy to pin down. In essence, a business opportunity is any package of goods or services that enables the purchaser to begin a business and in which the seller represents that it will provide a marketing plan or sales plan, that a market exists for the product or service, and that the venture will be profitable.
This definition encompasses a dizzying variety of business packages, such as product distribution programs, product and service reselling, work-at-home programs based on computerized services, selling advertising for publications on the Internet, and specialty product sales. A business opportunity does not generally feature the seller's trademark; the buyer operates under his or her own name.
Business opportunities tend to be less expensive than franchises, and they allow the buyer to proceed with no restrictions as to geographic market and operations. The purchase price of a business opportunity venture usually ranges from a few hundred dollars to several thousand. Business opportunities generally don't charge ongoing royalties.
Most business opportunity ventures have no continuing supportive relationship between the seller and the buyer; after the initial package is sold, the buyer is on his or her own. Many independent operators don't want the pressure of operational requirements in their business activities and are satisfied with contacting the seller only when specific questions arise. In addition, investors may want to operate a homebased business on a part-time basis. In a word, the primary advantage of buying a business opportunity is flexibility.
But the very flexibility that makes a business opportunity attractive is also its principal weakness as an investment. Many buyers will spend the money, put the package on a shelf and never take it down to put it into operation. With no continuing relationship, contract requirements or support from the seller, many buyers feel overwhelmed by the challenges of business and never even get started.
Another weakness in the concept is the limited availability of investment information. Business opportunity ventures are regulated by the Federal Trade Commission (FTC) and 25 states. Under the FTC Rule and most state laws, a business opportunity seller is required to prepare and deliver to the buyer a detailed disclosure statement before the sale takes place. Many of the state laws also require the seller to register the program before it's offered in the state.
However, the rate of compliance with these laws is relatively low. Odds are, you won't receive a disclosure statement with your investment. This means you must do all the investigating to find out whether a particular business opportunity is right for you.
On the Level
Multilevel marketing is big business in the United States. Household names like Amway, Mary Kay Cosmetics and Avon have built immense organizations of independent contractors who buy products from the company and sell them directly to their customers. This type of business entails a willingness to approach friends, family and acquaintances who might be interested in buying the soap, cosmetics, telephone service or other product or service you represent.
Many people who get involved with a multilevel marketing program work the business on a part-time basis or only for a season to bring in extra money. The financial investment is low, usually not more than $200, and there are usually no required purchases. You take orders for products from your customers and submit the orders and payments to the company; products are sent directly to you or your customers. You make money on the difference between the retail prices paid by your customer and the cost of the products from the company. Multilevel marketing companies may also pay you a commission on the sales made by those you recruit to the network, called your "downline."
There is probably no business package available to the new entrepreneur that is easier to get into and out of than a multilevel marketing program. For a few hundred dollars, you receive access to a line of products or services with a recognized trademark. Sales support is often made available through managers in your "upline"; they have a direct interest in seeing you succeed.
Regional meetings can be energizing. Mary Kay Cosmetics and others are famous for the levels of enthusiasm, motivation and empowerment that representatives feel at large gatherings of the network. As you work your way up the sales ladder, generous bonuses and prizes may also be offered.
Like every other type of business, multilevel marketing has its weaknesses. For one, the business depends largely on sales made to friends, family and acquaintances. Not everyone is comfortable making sales presentations to people close to them. Also, the turnover among direct sales representatives is high, possibly reflecting the short-term goals of most people who get involved. It could also reflect disappointment with the quality of the product or service. If a multilevel marketing program is new, the risks--and the allure of potential rewards--increase. As with any business, thorough research is your best defense against getting involved in an undesirable program.