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Bill Burris' wife had passed away a year earlier. The widower found himself with the need to be close to his children while providing an income. A franchise seemed the natural answer. "I wanted a business my kids could run even if something happened to me," says Bill Burris to New York Times reporter Darren Dahl, in a thought-provoking case study on what happened.
Let me recap events the way I see it — an individual using a conventional map that is flawed.
Burris had a secret weapon. He was the director of advertising and media sales at the International Franchise Association, a trade group largely representing the needs of franchising companies. He had access to some of the industry's best due diligence experts and advice from some of franchising's top leaders. It is easy to imagine that he had the gospel of due diligence preached to him. "Franchisees are lazy and don't bother to research or read the disclosure documents, which would show them if there is a problem," goes conventional wisdom. So Burris flew from Washington, D.C. to the land Down Under on his own dime to spend three weeks with an Australian franchisor. He pored over its disclosure documents and analyzed the system. Few franchise candidates are able to spend so much time with a franchisor founder. Few would have as much access to franchise experts as Burris did.
The franchisor really wanted to expand into the United States.
Burris: I believe I did the best due diligence any American who bought an international franchise could do.
Sadly, his due diligence didn't help.
Just five months after opening his franchise, franchisor Hire a Box filed for the equivalent of Chapter 7 bankruptcy —insolvency, liquidation, no money, shuttered doors, kaput.
Using his franchising background, Burris decided that he could make lemonade out of a lemon. The solution was to simply create a new name, RentOurBoxes.com, and to organize the nine other franchisees in the United States to band together in a group under the new franchise name that he owned. He then hired a lawyer in case the former franchisor should resurrect, or a creditor inherit its intellectual property rights, and then come after them with a vengeance. Conventional wisdom among franchisees is that if their franchisor goes under, their franchised business will be set free to go on its independent way. This is what his attorney, Michael Drumm says:
Drumm: Bill reached out to me early on. I told him that he had a lot of factors working in his favor, particularly that he had resigned from the other franchise, which meant he wasn't contractually obligated to the franchiser.
Franchisors successfully go after franchisees who "resign" from their systems all the time. And then there is the issue of non-compete clauses that are typically part of franchise contracts.
Now came the problem of franchise governance. The default solution in a body of equals was to have the ten franchisees make decisions in a sort of Athenian direct democracy model, where each franchisee citizen gets a vote. The majority rules. That's a system similar to the quick-growing 1,100 hotel chain Vantage Hospitality. But unlike the box renting franchisees, the Vantage chain actually has a franchising company that gives support on what two-thirds of the brand's members tell it to do. Unfortunately, Burris was the only big city franchisee amidst country folk. The others voted and thought differently than him. Moreover, since he owned the intellectual property rights to the new brand, franchisee Burris wanted the other franchisees to get on his bus. He acted strangely like a traditional franchisor in a land of equal franchisees.
Burris: Plus a lot of them were still angry because they thought all they would have to do in their business was fulfill orders. They never planned on having to build up their own market. There seemed to be safety in numbers, especially if the jilted franchisees wanted to continue pursuing legal action against their original franchiser, but relations among the franchisees continued to go from bad to worse. "You had 10 franchisees who had paid money to follow someone else's system and who expected someone else, me in this case, to do the work for them." [via NY Times]
Conventional wisdom says that franchisees aren't leaders. They aren't entrepreneurs. They are franchipreneurs, sheep in need of a strongman to give them orders.
Not surprisingly, Burris moved alone into the new franchising company. Ouch!
The new franchisor needed to create a support system on a limited budget if he was going to have any hopes of successfully selling franchises. He would also be required by law to prepare a franchise disclosure document. So he killed two birds with one stone by bringing in a franchisor attorney whom he knew at the IFA, Mike Drumm, formerly of law firm Snell & Wilmer and most recently with his own practice. Burris appointed the Denver-based attorney, who has little or no business background, as the chief operating officer of the new franchising firm. He made him a partner too. And Drumm was granted a franchise license in hopes that the store would help him gain insights into running a franchise.
The good news is that Burris understands marketing. His new franchise, whether a lemon or a plum, is highlighted in the New York Times. That will surely give him a lot of exposure. Burris is looking for new franchisees. The business is easy, he argues. "Half of my business comes from people typing "rent moving boxes" into Google."
What conventional wisdom about franchise success did Burris learn during his former employment?
Burris: In my time at the I.F.A., I learned that the No. 1 reason franchises fail is because their owners fail to market their own business.
It is a sad state of affairs when a new widower from our own insider ranks, who naturally wants to use the few perceived advantages that life has thrown his way, is guided down the wrong path by bad conventional wisdom of an industry. The challenge for Burris will be to unlearn what he has learned. If he copies what his liquidated franchisor did and taught, his future looks bleak. In his box rental startup, he needs to think, well, outside the box. I don't think he realizes what a precarious position he is in.