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BOOK REVIEW: DUNK'D — Franchising is everywhere. There are franchised restaurants, grocery stores, parcel deliveries, online search optimization services, premium out houses, even poop scoop services for pooches.Investing in these franchises has helped hundreds of thousands of small business owners climb up the ladder of economic success and achieve their piece of the American dream.
But there are big problems with modern franchising.
Earlier in my career when I worked for a franchisor, my franchisee friends — Wall Streeters, chief financial officers, and other executives — told me in retrospect that they felt woefully uninformed. It is the reason Blue MauMau, a news site that promotes interaction between franchise insiders and small business investors, successfully came into being.
When I founded Blue MauMau, I had no idea of the magnitude of the problems franchisees faced. My earlier perspective as a franchisor told me that if a franchisee failed, it was because he must not have followed the operations manual. I knew the industry experienced its share of pain, but I didn't realize how much of this pain was swept neatly under the rug.
The franchising industry has created a marketing machine that for decades has been devoted to convincing investors that the streets in franchising are paved with gold. Books and business journals are packed full of stories saying how wonderful it is to "buy" a franchise. Sales reps routinely make bogus claims of 90 percent success rates and pass over the potential landmines inherent in the legal relationship. What's missing from this franchise selling process is a candid voice from a small business entrepreneur and franchisee who has actually experienced the pitfalls of the industry and is willing to write about it.
The good news is that that book has arrived.
Interestingly, Irwin Barkan was not your typical franchisee. He came to the table with more money, more experience, more information, and better honed entrepreneurial skills than most franchise investors. His story, Dunk'd, is a candid glimpse of franchising from the vantage point of a sophisticated owner of commercial real estate with a 20-year history of buying and operating franchises. While reading Dunk'd, I was struck at the depth of Irwin's business skills. As his financing situations grew more complicated, he kept pulling rabbits out of his hat, negotiating funding deals from astonishing places. But even with his impressive skills, he reached a point where he could do no more.
Some readers will want to debate who had the best legal case, while others will enjoy second-guessing Irwin, or theorizing what Dunkin' Donuts should have done. But there is something much bigger at work here. Let's say we take Irwin's story in its least positive light and assume the court was correct in its application of the law. Under that scenario, the reader will be struck by how precarious the fate of a franchisee is. If the franchisor likes you, you receive favors. If he doesn't, then this book reveals how the law favors the larger economic entity, the franchisor. Paperwork gets stopped or lost. Candidate buyers of a struggling franchise are not approved. Like Barkan, a franchisee can easily end up with nothing to show for his efforts but debt and bankruptcy.
British politician Lord Baron Acton once wrote, "Power tends to corrupt, and absolute power corrupts absolutely." It is an itch that even the best intentioned franchisor wants to scratch — pushing certain franchisees out of the system while justifying any action it takes as being for the good of the brand.
Dunk'd shows how a franchisor can prevent a franchisee from getting on his feet and how a franchisor can easily “churn” a sizeable franchise investment, reselling it to another franchisee for more money to the franchisor while leaving the original owner with nothing. Protecting abusive franchisors, franchise agreements are craftily written to negate societal norms of fair play and even the law, which is the real rub of Irwin's story.
As a reporter, I wish Barkan would give a little more lattitude and understanding to those on the other side. Those standing against him are sometimes made into a villain or painted two-dimensionally, like the attorney who represents Dunkin'. When he walks into a paragraph, there is an obligatory sneer. But I also understand that when a franchisee has everything to lose, he won't like the instruments bent on his destruction.
In this book a reader will experience the day-to-day operations and investment decisions that some of the top entrepreneurial franchisees are faced with. It is readable, real and entertaining. Dunk'd provides us with the benefit of hindsight, from which any business person can learn. Franchisees will want to read it so that they can be better informed and can better cope with the realities of their own situation. Investors looking for opportunities will also want to read this book before writing that check because, as Irwin makes clear, if you have signed on with the wrong franchisor and paid the initial fee, all bets are off.
If you are lucky enough to sign on with a good, kind, and considerate franchisor like the original incarnation of Dunkin' Donuts and its founder Bill Rosenberg appear to have been, pray to God that it stays that way.