Working for Yourself

Starting your own business is a part of the American dream for many people. For some, it looks like pulling themselves up by the bootstraps and starting a unique business all on their own. Others look to franchising, buying into a tried-and-true business system. There are other business opportunities much less structured than franchises but still built on a proven concept. A third option is network marketing, which relies on recruiting others to help expand market distribution.

These latter options have some things in common: a person buys into a business venture that is already established. However, franchises and business opportunities can be expensive, often requiring thousands, if not millions, of dollars to start. Network marketing is an affordable way to be autonomous in a business, often only requiring a few hundred dollars to get started.

Here are some distinct differences between these three choices.

Franchise

When you buy a franchise, you are running a business based on an existing idea. Fast food is the most well-known franchise, so think of McDonald’s. Each one looks similar, if not identical.

The advantage of a franchise is the support structure. Franchises work on a proven formula. Many have spent decades refining marketing, training, and recruiting tactics. You may be responsible for business operations, but they teach you how to make it work.

Another advantage of a franchise is that the larger company vets you. These are large companies with a reputation to uphold. The investment to open a franchise can be anywhere from $5,000 to $5 million. Franchises work because they only allow people who will succeed open one up.

Business Opportunity

Like a franchise, a business opportunity is an already established idea that you buy into. Business opportunities are more loosely structured than a franchise. Often they are an existing business or part of a business, sometimes just a concept.

Business opportunities are more cost-effective than franchises. You have more to decide on your own, but you could also see higher returns because of fewer overhead costs. This does mean more inherent risk. Although a business opportunity may come with mentoring, many of the day-to-day choices are in the hands of the buyer. Marketing, location, and pretty much everything else is up to the new business owner.

Network Marketing

Also known as direct sales or multi-level marketing (MLM), this is by far the cheapest way to dip your toe into self-employment. These companies are the easiest to get involved with since they have low buy-in, usually only a few hundred dollars. They also require the least amount of responsibility or up-front work from the person buying in.

Start-up costs tend to go towards training materials and starter kits. MLMs tend to under prepare people for the task of running business operations on their own. Although the MLM handles many of the business operations—like creating promotional material, building and hosting a website, and dealing with supply chain logistics—it can be a monumental task to make enough sales to earn a profit for consultants.

Be aware that illegal pyramid schemes often cloak themselves as network marketing companies. Compensation based on recruitment rather than product sales is illegal. Since direct sales/network marketing relies on recruitment, it’s easy to hide the intent of the organization.

Before you join an MLM, do your homework. Many have income disclosures posted online. Some also post the pay structure of the organization. Even if the cost to join is low, there might be little opportunity for upward mobility if the market is already saturated. Since income is often based on a commission from the new recruits’ sales, there is a threshold where effort and profits match. Unfortunately, the vast majority of direct sales consultants fall below that point.

Starting your own business is an adventure. Depending on the capital at hand and how hands-on or off you want to be is up to you. Getting involved with an established system like a franchise, business opportunity, or MLM can help you with some of the logistics. In the end, it's up to you to perform the due diligence to find out if the opportunity works for you and will be profitable.

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