Investors Bankrupt as eBay Franchise Turns Into Nightmare

I think it's the responsibility of the prospective franchisee to determine if they are working with a failed business model.   No offense to the eauctiondepot pres., but if I read a story about the Isoldit company, I've gotta wonder if his model will work over time. 

 There are still people that come on forums like this saying, 'I'm thinking about buying a Quizno's', because of the name and visibility not realizing the troubles that stores/operators are having.  Franchisors will sell and believe that their model is viable as long as someone will buy it, if no one buys it then I think that says something about their business model.    

 

Joe Mathews tells us the truth. The UFOC is the license for the franchisor to do business in the State and not much more than this. Maybe it would help franchisee prospects if government called it a state license instead of an offering circular, and didn't mislead you into believing that they were regulating franchisors in the interests of franchisees. Because the franchisors know that they have the upper hand, this encourages them to engage in even more bad faith and predatory practices that will not come to the attention of the courts. It is pretty obvious to all of those in the franchising world that franchising is regulated in the interests of the franchisors and that the UFOC which underlies the signed franchise agreement protects the franchisor almost 100% from any franchisee recourse in the courts. The four corners of the agreement which is interpreted strictly under contract law almost guarantees that franchisees will never get to juries. This, I believe, is the intention and is public policy, and public policy is protected by the courts. The American people don't really understand the actual concept of franchising and don't understand that all these famous brand stores that they frequent are owned by individual business persons who have made the entire investment in the physical structure that bears the famous brand name. They might think about this matter when they infrequently see a big brand name business closed down ----but even then, they might not catch on. But, most of the time, those big brands who churn just develop policy to have that failed stored picked up for almost nothing and the new franchisee who negotiates a bargain with the Landlord and the failed first franchisee gets to try to break even on the back of the first generation franchisee. The government apparently allows networks to hide their churning in the UFOC's through Item 20 which is an imprecise look at the network. Transferred stores are not identified as either successes or failures. Since the success or failure rate of the stores is the most important element on which to determine the risk factor for the franchisee, we have to kinow that these statistics are intentionaly imprecise with government's and the franchisors' knowledge that naive individuals will confuse visibility with viability and that churning will not be indentified in large networks that contribute to a healthy economy If you were to take a survey out on the streets of the big cities, the statistics would confirm the truth of the statement above. Because the identity is blurred, this helps the big and predatory chains to churn visability that is interpreted as viability by prospective franchisees. When a failed franchisee sell-transfers a unit, the unit isn't even closed down and the new owner just takes over and the community thinks there is a new "manager" in the store. Even if you close down in a termination, you will continue to get calls at the telephone number you have left on the front door asking when store is going to open up again and what's happened?, etc. This blurring of identities is encouraged by corporate and by the franchisee as well, but most of the benefit of blurring works in the favor of the Corporate Brand. Even when lawsuits against a big brand franchisee make the paper, the franchisor still tries to blur the identity in their statements to the Press because they don't want to tell you that the person who is being sued has only RENTED the brand name and is not a part of the Corporate Brand Corporation in any sense. ( UPS probably took this into consideration when they bought MBE after 9-11, knowing that "terrorism" could produce big liability problems, that that they could pass off to their franchisees) Because the UFOC actually is the contract that you will sign and because it must be offered under law, it does indicate to prospects that govenerment is regulating franchising in the franchisees' interests. Why would government regulate franchising at all if it wasn't in the interests of the franchisees? Even though there is a disclaimer in the front of the UFOC to protect the government who doesn't read the UFOC, the prospect is aware that, under the law, the government is requiring the franchisor to disclose certain information to you that will protect you in the purchase of a franchise. Since government abets churning through ineffective regulation, the business magazines like Entrepreneur and other publications put out "hype" for these churners and innocent Americans are then encouraged to buy these unviable franchises from AARP (a trusted publication) believing that neither Entrepreneur nor AARP, nor Fran/Vet, nor the SBA would push these unviable franchises to them. Government apparently encourages churning by imprecise and incomplete requirements for disclosure by franchisors and "churning" apparently isn't illegal because none of the experts on this site indicate that it is in anyway legal. So, LET THE BUYER BEWARE, if your franchisor sold you a lousy business plan based on visibility and not viability, you have been "screwed" and your government sold them the screw driver, apparently, because franchising is good for the economy, good for the franchisors, good for the banks, good for the SBA, and WHO ARE YOU, anyway!

Well done.

Do you see:

• the industry ever effectively self-policing or
• are the best & worst always going to be in the same boat?

I would caution that the market for ALL franchises would predictably collapse if information flows were improved via the information highway (Blue Mau Mau and others).

• Does the industry not see they are not immune to the Tragedy of the Commons social trap? What is best for the individual franchisor, in the end, destroys the environment that supports all franchisors (killing the goose..., externalities, etc.)

Present Industry Trajectory

I would suggest that the franchise industry will not change and that the real and imagined past success will lead to an investment crisis (notwithstanding the industry's dogmatic denials to the contrary.

There are only so many groups of unwitting vets, immigrants, 401s, etc. to harvest.

People of privilege will always risk their complete destruction rather than surrender any material part of their advantage.
John Kenneth Galbraith

Les Stewart, MBA :: industry analyst
www.cafo.net :: FranchiseFool .com :: the Wise say No