Whenever you hear people arguing about whom the real “job creators” are, remember: you already know who I am.    I handed your coffee to you just this morning.  When you bought a sandwich for lunch, I made it for you.   When you get your car serviced, I greet you.  When your relatives visit, I check them into your local motel.  When your kids’ clubs need a sponsor, they see me.  When little league or soccer comes calling, I answer.   You know me.  I’m your neighbor, and I create jobs in our community.  I’m your local franchisee and I invest in and live on Main Street, USA.

The sign on my business’s door may bear the logo of a national “chain,” but the only thing that is “Wall Street” about me is that I pay royalties  for use of the logo.  My family risked the money to invest in the local community, worked hard to build the business, created jobs and kept the money in your neighborhood. 

Franchisees are local people, often entire families.  You know me.  I hired the contractors that built my store.  I sign the paychecks for my employees and write the checks to my vendors, which in turn creates more jobs.  Why is this important?  Because the political and business environment has become toxic to local job creators like me.  

You know me, and I can tell you directly why there aren’t more jobs in your own neighborhood and why jobs aren’t coming soon.

First, there is no certainty in the small business environment.  The last few years have been a roller coaster of tax and regulatory policy, which has been used for political sport.  This sport isn’t fun when my family’s  life savings are at risk.  When Congress and the President constantly practice brinksmanship with seemingly arcane issues like depreciation, it creates an environment where franchisees don’t know the numbers to calculate their next budget, let alone consider any expansion.  The only certainty has been that I will be strangled with complex new regulations that serve only the bureaucracies that write them, expensive mandates requiring me to perform functions of the government, and new fees and taxes that never seem to allow government to take on these important tasks.  

You know me.  Do you believe that I should be in charge of administering the nation’s health insurance system?

Angst on Main Street

Challenges include the Patient Protection and Affordable Care Act of 2010, new anti-employer NLRB regulations passed to circumvent the constitutional Congressional process,  regulations that encourage baseless ADA and other lawsuits without consequence, and further irrational, job killing measures too numerous to list.   Despite what politicians tell you in their speeches, they are telling franchisees that the government does not support their efforts to create jobs in your neighborhood.  Stark evidence is the empty storefronts that have appeared along Main Street while stimulus dollars and bailouts went somewhere other than your neighborhood.  

You know me.  Did you notice any new jobs in my business today?

While the government has been hostile to the franchising industry, the entry of Wall Street investors and lawyers has created more angst on Main Street.  The balance in the Wall Street-Main Street relationship between the franchisor who owns the logos and the small business owners that build, own and operate the local stores has become precarious. This industry needs franchisors, franchisees and suppliers to make the system work. That requires a balance between the partners.  In the last 20 years, there has been a huge change in the contracts that define the relationships between franchisees and franchisors.  How those contracts are implemented to transfer money away from my family on Main Street has also changed dramatically in many systems.  The doubling or tripling in size of those contracts is not for the benefit of the franchisees, but for the absolute protection of the franchisor.  There is nothing illegal about this, and it is the lawyers’ job to provide the best protection possible to their clients.  However, that doesn’t mean it is good for the industry or that it should be done without regard to the effects on Main Street jobs. 

So, why has this happened?  

The reasoning often quoted is that a franchisor “must protect the brand.” Indeed, this is a franchisor’s most important job; but is a rapacious approach to Main Street the best way to accomplish this?  Twenty years ago, most franchise companies were led and run by the founder(s) or their families.  Today, many franchise companies are owned and run by equity firms.  Again, there is nothing illegal or even wrong with that, assuming that the new type of franchisor actually does care to protect the long-term interest in the brand.  Today, Main Street franchisees often are part of brands much longer than the Wall Street investment groups that own them.

As a franchisee representative, I take it very seriously to represent franchisees in the industry to create a more profitable, balanced position that promotes economic growth over the long term.  Franchisees are often told, “You signed that contract that let them do this to you”.  That is true, however, things have happened in the industry that were never contemplated when these contracts were signed.  For example, many systems require that if a franchisee expands to a new location, the franchise owner must “agree to agree” to new contract terms on the old location.  These new terms were conjured up  long after the original contract was signed.  Those changes might include higher royalty payments, requirements that all supplies be bought at a marked up price from the franchisor, mandatory pricing that loses money at the store level but makes the franchisor money, and other things that make the local Main Street franchise owner’s business less valuable, or even a failure.  That does not incentivize a local business owner to expand.  

Another unfortunate new practice involves the requirement in most franchise agreements that a local store must always follow the then current “Operations Manual.”  Twenty years ago, the Operations Manual was used to define your day to day brand specific practices, like how long to cook a hamburger, what to put in the secret sauce, or which color to paint the building.  Today, it is used for much more, like the price of that hamburger.  Now, it is used to change terms of an already signed contract and without disclosure.  When you buy a franchise, the required Federal Disclosure Document outlines the possible costs with your business.  If, for example, you invested $60,000 to open your initial outlet, but 10 years later a $50,000 remodel was required, not by the franchise agreement, but because it was inserted into the Operations Manual.  Most would agree that is a significant change to your contract. 

Many on Wall Street will argue that the agreement allows this, so tough luck.  Is this approach going to create jobs on Main Street, or lead to more unemployment, bankruptcy, and foreclosure?  Is the franchise industry doing its best to grow so that all partners, including Main Street, prosper?  These changes in the industry have kept some of the most qualified local business owners from expanding their current operations, or branching out into other ventures to create more jobs. 

The Universal Franchisee Bill of Rights, as published by the Coalition of Franchisee Associations (CFA), seeks to put balance back into the franchise industry. The CFA is led by franchisee leaders, chosen by their fellow franchisees from their respective independent associations for their brands.  The CFA is the franchisee voice that seeks to improve the industry.  In fact, CFA can be the biggest advocate for the industry, as all CFA members make their livings in franchising.  Hurting franchising would actually hurt franchisees’ own livelihoods.  The CFA’s position is that adherence to the principals of the Uniform Franchisee Bill of Rights would enhance the industry, and in the end, create more local jobs.  Any person considering an investment in franchising should do so with a copy of the Uniform Franchisee Bill of Rights and a list of questions in hand. 

The next time that you hear someone tell you how the government, or big business, or some convoluted program is going to create more jobs on Main Street, remember: you know me. I’m right here on Main Street and I’ve already done it, and would like to do more.   

I’m your local franchisee. I invest in Main Street, USA.

Written by:         Robert Branca, Vice Chairman - Coalition of Franchisee Associations
                         Keith Miller, Chairman - Coalition of Franchisee Associations