You've grown a successful business and now you want to expand. There are a number of potential paths you can choose to do that, and each has different advantages and disadvantages for you. Your choices can include:
- Expanding your business by opening more outlets yourself. This option has the advantage of letting you keep all the profits generated by these additional outlets and also allows you to retain complete control of the business. The disadvantages to this strategy are that you'd have to invest all the capital required to grow the additional outlets yourself and you'd have to find employees who would run the other units for you while you run the original business. These are difficult challenges for many business owners, and this approach often results in slow growth because of these factors.
- Expanding your business by franchising the concept. This alternative has the advantage of potentially creating more rapid growth for your brand and also allows you a fair amount of control over the operating system used by the additional outlets that are opened. The disadvantages of franchising your business are the costs and risks associated with getting this type of venture set up properly. There are numerous legal and regulatory hurdles to franchising, and you have to set up a support structure (including staff) before you ever begin seeing any revenue from these activities. There's also the risk of not being able to recruit new franchisees for your system after you go through the expense of setting up a franchise company.
- Expanding your business by offering a business opportunity so others can set up an operation comparable to yours. This is often an intriguing choice for an entrepreneur because it has the potential advantage of rapid and profitable expansion without most of the risks and costs associated with franchising.
For this article, we'll focus on the option of offering a business opportunity. And in this context, we're not talking about a multilevel marketing business but rather a more traditional approach to the business opportunity option.
First off, it's important to understand the legal differences between a franchise and a business opportunity--there are laws and regulations that govern the activities of someone using either strategy to grow a business. It's important to know--at least in general terms--what these laws are so you don't inadvertently cross a line and become subject to costs and regulations you don't want to have to pay or adhere to. As a general rule, a franchise structure is more highly regulated than a business opportunity, but most states have business opportunity statutes as well.
A franchise requires that a new franchisee pay an initial cost or fee to get involved; it has some form of obligated ongoing payment required (usually in exchange for a commitment to provide ongoing services), and has a common brand or brands used in the operation of the business. If you eliminate one or more of these characteristics, you're generally considered to be operating a traditional business opportunity rather than a franchise.
The most typical method of setting up a business opportunity involves the owner of the successful business taking the time to document all the key operational characteristics and procedures involved in both starting up and successfully running the business. This is usually done by creating one or more manuals that explain everything a new person would need to know about the business based on the owner's experience. The manuals need to explain the following areas in detail:
- Startup. This covers every aspect of setting up the business properly. This section of the manual would include information on identifying all necessary supplies, furniture, fixtures and other materials needed for the business and the source for acquiring all such items. It would also include detailed information on how to find the right site for the business location and how to lay out all the equipment, signage, furniture and fixtures. Finally, it would also provide information about getting set up as an employer (government requirements, payroll services, insurance, and so on) as well as explaining in detail how to find the right initial group of employees for the business.
- Operations. This section describes every aspect of running the business properly. This would include explaining customer relations, order taking, order processing, handling of cash or funds, hours of operation, employee management, payroll processes, and so on--basically a complete walk-through of every key aspect involved in successfully running the business once it's open. The operations manual often also points out risks or mistakes to avoid while running the business in a section about "lessons learned the hard way."
- Marketing. This includes every aspect of properly building the customer base for the business. The one thing all businesses need to succeed is a sufficient number of customers. This documentation would include all tested and proven methods that have worked to attract and retain customers, whether that involves print advertising, direct mail, mass media, internet advertising or trade shows and events, among other things.
All this documentation, contained in a set of manuals, becomes the "business plan" for successfully operating this concept. The owner then offers this business plan for sale to interested parties who would like to start this type of a business.
Training and Fees
In addition to the manuals, the seller of a business opportunity usually provides an initial training program, which is normally conducted at the owner's existing business location. The buyer comes to the location for a week or two to get hands-on training experience in an actual operating unit.
You typically charge a one-time fee for the business opportunity, and then after the training's finished, the person who bought the business opportunity will be on their own. The contract for such a sale is usually pretty simple, and its main features are the price a person has to pay for the opportunity and a confidentiality agreement requiring the investor not to share the business plan information with anyone else.
The initial fee charged for a traditional business opportunity fluctuates widely, but for a reasonably thorough preparation for a reasonably complex business, it's not uncommon for the one-time fee to range from about $10,000 to $25,000. Frankly, if you can't generate a fee in this range, it's probably not worth the effort to go through the process of preparing and then attempting to sell your business plan.
A business opportunity typically doesn't require (and may even forbid) the new investor from using the same brand name as the existing business. A common brand is one of the characteristics that makes a business a franchise, and you want to make sure you're not treading in franchise water if you mean to be a business opportunity. A business opportunity may also grant some form of exclusive territory as part of the sale, though many do not.
There's typically no assumption that there will be any ongoing fees of any kind paid to the owner under the terms of the business opportunity contract. There's also normally no assumption that there'll be any ongoing service or support responsibility after the initial training in this type of relationship. As the creator of a business opportunity, you're simply agreeing to give someone the initial advantage of your experience in exchange for a one-time fee payment.
Though there are usually no requirements to do so, most business opportunity owners do provide some ongoing communication facilitation to the people who bought their business plan. These buyers generally form a network of business owners with the common denominator of having all started from basically the same place. This communication can be as simple as a newsletter or, even more common today, an intranet with forums to share best practices and other helpful information.
The Step-by-Step Process
The path to setting up a business opportunity is fairly clear and involves the following main steps:
- You'll need to invest some time creating the business plan, but this is all information you already know from your own experience. If you don't feel you have strong writing or communication skills, you can hire someone else to write the documentation for the business. You can also find templates for sale on the internet or in bookstores that will provide extensive support in the preparation of your manuals and business plan. These templates are usually available at a relatively low cost and consist of boilerplate language that you customize to fit your specific business concept.
- Before you attempt to start selling the business plans, you'll want to consult with an attorney familiar with business opportunity statues. There are four principle areas you'll need to cover with your attorney. First, you need to make sure that the structure you're contemplating for your business opportunity doesn't make it a franchise under the definitions of either federal or state laws. Second, you'll need your attorney to prepare the proper contracts for you to use in the sale of the business opportunity. Third, you'll need your attorney to review any promotional materials you intend to use in selling the opportunity and also to carefully explain what you can and cannot say and do during the sales process in order to comply with all applicable laws and regulations. Fourth, you'll need your attorney to review your business plan materials to make sure you're delivering whatever you're promising in the sales process. This probably sounds more complicated than it really is. This process shouldn't be very expensive, but it is an essential component of reducing your risk when you begin operating your business as a business opportunity.
- You'll also need to decide how you're going to market the business opportunity in order to find people who'll buy the business plan from you. The easiest way to get ideas on this subject is to study what other successful business opportunities are doing to promote the sale of their plans. You should analyze internet-based activities and promotional sites, newspaper and other print media advertising or PR efforts, tradeshows and other event promotions, and any other methods that are being effectively used by others. If possible, it's also very helpful to develop one or more relationships with other people who've worked this route successfully before you to act as mentors while you're getting started in marketing your opportunity.
What Businesses Should Offer Business Opportunities?
The types of businesses that work well under a business opportunity structure tend to have two common characteristics. First of all, they're concepts that don't require a common brand in order to convey quality or value to potential customers. Second, they're concepts that are easy enough to learn that someone without experience in the concept's operation can be taught whatever they'll need to know to be successful in a relatively short period of time (say, two weeks of training or less).
Most business opportunities that are successful in selling a significant number of business plans also feature a fairly low total investment (including working capital and a grand opening advertising budget) to get started in the business. They're almost always less than $150,000 in total investment, and many are under $50,000.
The types of businesses that don't tend to work well under a business opportunity structure are usually ones with more complicated operations and/or ones that require special licenses to conduct business, especially if the licenses take months or years to acquire. It's also much harder to sell a business opportunity if the total investment to start the business is greater than $200,000 or so.
Deciding to expand your business by preparing and offering a business opportunity can be very rewarding financially. And if you're the kind of person who gets satisfaction from helping others achieve success, you'll probably find that many nonfinancial rewards come to you after you start offering a business opportunity based on your already successful venture.
Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. He's currently the CEO of FranChoice Inc., a company that provides free consulting to consumers looking for a franchise that best meets their needs.