Lessons for New Franchise Investors
This is a tough love tutorial. If you can’t handle the play, stay out of the game! If this is too tough for your tender sensibilities, feel free to call me names. It won’t bother me one bit.
There is a business investment formula you do not want to use. For years new franchise investors used this awful approach and thousands are now bankrupt as a result. The terrible investment formula is:
Ignorance + Incompetence + Arrogance = Scammed and Broke
Ignorance refers to the fact that if you have never before vetted a franchised small business investment proposal, you simply do not know how to go about doing that.
Incompetence includes the fact that you are incapable or sorting out truths from fictions in the information that a franchise seller is presenting to you. It makes no difference that it may come in a slick brochure or in a formalized Franchise Disclosure Document package. Most of what most franchisors say about their propositions is simply untrue, and you can’t tell what is from what is not. You also are unable to know when you call existing franchisees for a reference when you are hearing truthful responses and when you are hearing untrue responses from people fearful that you might just be a predatory franchisor’s spy looking for franchisees who are badmouthing the system so that you can retaliate. When thieves give you references, the references are unreliable.
Arrogance is the insistence that despite your lack of experience, you refuse to hire expert pre investment deal and legal due diligence assistance and decide to go it alone or with only a lawyer to explain the contract documents. You save fees doing that, but you sign up in total ignorance of deal quality. Once you have signed you are toast, as only very expensive lawyers can try – with little chance of success – to get you out of your deal. It could be said – since the resources you need to keep from being cheated are readily available – that you have only your own stupidity to blame for your predicament. Stupidity and arrogance are just different shades of the same color.
If you go on the Internet to some of the blog sites relating to franchise problems, you will encounter squads of cheated franchisees telling you all about the evils of franchising and how they lost everything they owned in the world due to crooked, abusive franchisors.
They will also tell you that the problem is not of their making, but attributable to a failure of the government to regulate franchising in such a manner that they are bullet proof and cannot be cheated or abused by their franchisors.
If you suggest that their problems are that they signed deals knowing nothing about what the risks really were, they call you names and accuse you of holding all franchisees to be stupid. They refuse to accept any responsibility for their failures.
Is that a group that you want to join? Of course not. Do you have to join that group? Of course not. How do you manage not to be cheated in franchise transactions?
For God sake, educate yourself before you sign away everything you own and can borrow on a crooked franchise deal that has no hope of being successful for you. It may be very successful for the franchisor, but the real question is, despite hundreds of franchises being sold, whether it will be successful for you as a franchisee of one of those companies.
There are generational differences amongst broke franchisees. Many of them bought bad franchise deals many years ago before competent legal and deal due diligence was widely available. In many instances they may not have had a realistic place to turn for help. At least within the last five years, however, that is not so. Now there is no legitimate excuse for signing bad franchise deals.
The government is not going to make franchise investment safe in the sense that there are no serious investment risks other than your own mismanagement of the business causing it to fail. Those who want franchises regulated like securities are regulated won’t accept that many people also get cheated in securities frauds. The Bernie Madoffs and similar folks out there in the world of bozo securities are not deterred because of the securities laws. Similarly, cooked franchisors abound in the system as it now exists in franchise regulation and would continue to exist were the regulation made tighter. No political solution has ever succeeded in eliminating crooks.
These same dreamers also want the government to legislate the rewriting of bad franchise agreements they signed to make the terms less one sided. But governments and courts won’t dilute the dynamics of any free markets to impose terms of dealing that the parties to agreements did not themselves insert into those contracts. Court after court has refused to do that. Congress has time and again refused to do that.
The Australian Parliament has played a smoke and mirrors game to make it seem like that is what they did, but the Australian remedies are essentially useless. When you are broke and can’t afford legal representation to handle your case, the result is the same as if the rights were not there in the first place. The truth is that it is almost impossible to find a competent trial lawyer to take on a franchise damages case on a contingent fee. There is too much uncertainty about recovery. Some dummy lawyer might do it, but anyone who doesn’t know what he is doing isn’t likely to get you the result you seek.
It is extremely important that your franchise network have a competently managed independent franchisee association that is very widely supported and has enough money in the till to do what may need to be done. Predatory franchisors make money from the abuses they impose and cannot simply be talked out of it because you don’t like what is being done or because it is “wrong”. A competently managed franchisee association can deal with this scenario. A social club franchisee association cannot.
The reason you won’t get judicial or legislative relief is that it appears very clearly that you don’t need it. When you sign up for a franchise investment you agree in writing, signed by you, that you are financially and experientially capable of assuming the risks of the investment. You acknowledge that you were not told anything that is not in the disclosure package the franchisor gave you, and that if you were, you did not rely on it in making your investment decision. You agree that there are no promises made to you except what is specifically promised in the written contract. You personally guarantee your performance of the agreement. You often agree that if the business closes – for any reason at all, regardless of fault, you are liable for a lot of damages and that in closing you caused serious injury to the franchisor. You may waive jury trial. You may agree to arbitration and not have any access to any court for any reason. You agree to waive claims for punitive and exemplary damages, no matter what.
When the courts and Congress see what you agreed to there is no perceived need for additional relief in your favor. You just agreed that you are far better than you really are, so why the hell bother? If you don’t even know the truth about yourself – which is exactly what I have just described – everyone knows that you can’t fix stupid – not through the courts and not through legislation. The answer is not to be stupid in the first place. Recognize your limitations and get help where you need help. Then you won’t be stupid and you probably won’t get cheated.
This is the lesson about franchising that all potential franchise investors need to learn. If you don’t learn it, you will most likely join the ranks of the thousands of others who believed lies and signed unbelievably abusive agreements with crooks and predators. There is no middle choice. Either do it competently or suffer the consequences.
About the author: My websites are FranchiseRemedies.com and FranchiseeAssociationManagement.com. Look at the articles about franchise fraud, franchise relationship
management through franchisee associations and the myths and realities
of franchise fairness. If you don’t
like me or my manner, then hire someone else. Use the no charge
information to educate yourself before you make the investment from
which you cannot escape except through bankruptcy or through losing
everything you invested and releasing the crooked franchisor you
invested it with.
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There seems to be two opposing camps on BMM -
Followers of the Solomon Doctrine or Solomonites - who are for individual responsibility and informed consent
and
Anti-Solomonites - modern day Luddites who believe in Neopatrimonialism, fairies, pixies and wood nymphs
The future of BMM hangs in the balance. If the Solomon Doctrine prevails will the Anti-Solomonites leave for the greener pastures of the aptly named UnhappyFranchisee website or will they get religion and spread the gospel of Solomon?
Mr. Guest, I just did spread the gospel of Solomon: Franchising is rife with scammers and franchisors do nothing to rid the system of them. They were his quotes, outstanding lessons and he has the backing of most, if not all, of the franchise experts.
Perhaps keeping potential franchisees in the dark is more to your liking. This site is for educating franchisees and Mr. Solomon did an excellent job with his article.
Again, why buy into an industry that requires such enormous due diligence because the great majority of the industry are scams which are supported and backed by the leading association in the industry?
Franchising must be corrupt, for decades franchising has grown leaps and bounds on the backs of tens of thousands of innocent franchisees.
How could those diabolical franchisors build large franchise networks through Ponzi schemes without being detected?
Mr. Guest there have been several studies showing the multiple turnover of franchises. While the franchisee goes bankrupt another takes over keeping the site open thereby continuing the "successful franchisee" charade. When that one goes bankrupt another one buys the site. Keeping it in the "successful" category yet again (otherwise known as not "closed"). Yes, its quite clear the IFA and the franchisor has the franchisees back.
Another significant class of franchisees work 70 hour weeks for a meager income.
Another significant set of franchisors sell sites and then close up in less than 10 years.
If this is your "American Way" of franchising I ask that you continue to post. Potential franchisees get to see exactly what franchisors think of their investors.
Again, why buy into an industry that treats its investors with such contempt? Why does an industry allow a significant majority of its members to perpetuate scams? Read Mr. Solomon's words again. "Crooked franchisors abound in the system as it now exists"; a system protected by the industry's largest association and its members.
Those busy franchisors have perpetuated scamming, churning and fraud on a massive scale and to think it has gone virtually undetected until BMM!
"Scam" or "fraud" indicates intent. Most struggling franchisors are guilty of little more than buying their own BS, at least to start with. I'm not particularly a moralist about this. Most crappy franchises are as crappy for the franchisor as the franchisee. Both parties decided you could take some little low margin business, add franchise fees to the cost mix and make money. In hindsight, it's obvious why so many end up losing money or at least making none.
Howard might be a Solomonite?
Would God approve?
Morrill should not fear smiting, however the Anti-Solomonites have every reason to worry about all manner of calamity befalling them.
I tend to lean more toward Morrill than Solomon on this point, and this affects my thoughts as to the remedy.
I part company with Solomon because he places too much stress on pre-purchase "due diligence" and then on litigation.
As discussed previously, there are limits to how much "due diligence" can be done when entering into a 20-year relational contract which gives nearly unfettered discretion to the stronger party, and empirical evidence supports the proposition that most franchisee success in breaching the legal fortification of the franchisors is quickly plugged.
If Morrill is correct and this is a Mutual-Delusion Society, then this is even more reason why a part of the problem will only be fixed by legislation designed to curb the negative impact on society.
And while I suspect that a numerical majority of franchisors are a poor investment for a prospective franchisee, there are a few good systems and I have clients who are buying franchises--even in the current market.
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
Mr. Morrill, Mr. Steinberg, Mr. Solomon and, yes, Mr. Guest:
Please, prey tell, what has happened to the "proven, successful business model"? Are these systems not supposed to have several facilities to prove that it can work - not just five years down the road (which most small businesses if they reach 5 years had better be profitable) but from inception - which franchisors claim?
Mr. Guest might want to now listen to the words of THESE experts: Mr. Morrill - (paraphrased) even most franchisors are delusional in thinking a marginal business can work when adding on additional fees and that most of these systems are not profitable; Mr. Steinberg - "how much "due diligence" can be done when entering into a 20-year relational contract which gives nearly unfettered discretion to the stronger party, and empirical evidence supports the proposition that most franchisee success in breaching the legal fortification of the franchisors is quickly plugged" and "I suspect that a numerical majority of franchisors are a poor investment for a prospective franchisee, there are a few good systems".
A FEW good systems? Due diligence that guarantees a 20 (and I would argue even a 10 or 5) year relationship that can change at a moments notice? Franchisors that don't even recognize their systems as being marginal at best?
An industry that "quickly plugs" any legal hole allowing for any remedy of a scam?
Add on an industry wide environment where scamming and lying are commonplace and little to no recourse is allowed. Where 70-80% of all offerings are garbage?
The experts have once again provided excellent arguments to lead potential franchisees away from this industry.
Roll the dice and see if you buy into one of the few real prospects and HOPE (yes, HOPE because that is all you have) they don't change the game anytime after you pledge your family's assets and financial future to this game.
These are not comments from disgruntled franchisees. These are the words from industry experts after their years of dealings with franchising.
WHY would anyone get in bed with this industry?
ADDENDUM: Mr. Steinberg, after signing on if you are not profitable just try and sell one of these things. See how much you get to pay off the debts. Most have taken out substantial loans and will only see pennies on the dollar on the sale which will most likely leave the franchisee facing bankruptcy. There is no other "exit" strategy. Once you sign on the dotted line there is little recourse. Unless you play with buying on margin in the stock market, your exit strategy is no where near as devastating.
a risk identification and evaluation process. It identifies risks that you have not vetted and sorts them out for you so that your investment decision is better informed. In many cases - in most cases - that saves you from losing your investment because of serious defects in what is being presented to you.
It does not, however, insulate from normal business risks, including poor management by you and changes in future market circumstances. You will always assume normal business risks. The only question is whether you can identify the unusual negative risks and evaluate them in a way that informs your investment decision.
This isn't snake oil. It is how real due diligence is conducted in major investments made by people who do this professionally.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Mr. Solomon, I do not disagree with you regarding the need for due diligence. I am questioning WHY there is a need for so much due diligence, for there to be so much fear in the franchising marketplace.
Every expert commenting so far has agreed that the vast majority of offerings are scams. That thousands upon thousands lose their life savings. That few systems are truly profitable. That, even after due diligence is performed, the franchisor on a whim can change the contract into a more financially burdensome proposition. MOST important, is that the industry itself not only protects but helps proliferate the scams.
Mr. Steinberg stated "If Morrill is correct and this is a Mutual-Delusion Society, then this is even more reason why a part of the problem will only be fixed by legislation designed to curb the negative impact on society."
Where Mr. Morrill, is incorrect is that franchisors do not just make a mistake in assuming that their franchises will do well. They are not delusional once they begin selling franchises. Once franchisors begin seeing that franchisees are struggling it automatically tells them the system is not working. It immediately informs them that they are not selling "proven successful business models" and they are placing their franchisees in financial peril. Does that stop them? No. They just update their General Release form and continue the sales process.
Due diligence does not remove the fact that the industry as a whole not only refuses to take action against the 70-80% but actually allows them to permeate the industry like snake oil salesmen. As Mr. Steinberg noted, due diligence does not protect the franchisee once the contract is signed since it can be "tweaked" at any point during the life of the contract.
Again, these words are coming from the experts who have specialized in franchising for decades - not disgruntled franchisees.
Potential franchisees: Are these the types of people and industry you want to tie your family's financial future to?
through your field glasses over the top of a berm, peering into an open area backed up by a thicket. You know that in that thicket hide many adverssary resources poised to take you out along with those you are there to protect. If you don't size up that combat situation correctly, you will be wiped out. Sound familiar? Sound a lot like vetting a franchise investment?
The difference is that often, in the real battlefield, you have institutionalized back up resources - air support - drone arial survey capabilities - troops in reserve.
In franchising, however, you are more like Viper Company - the tip of the spear - out there almost by yourself. You take more casualties because of that. If you are in a Viper Company scenario - like franchise investment - you need to have with you only the most experienced, sharply focused people in your squad/platoon/company. The IFA is not there for you. The FTC doesn't do jack shit - in fact the new FTC head franchise guy is an IFA stalwart (HAHAHAHA!) - and Congress has other fish to fry that it is more interested in than franchise investor casualties.
You aren't going to be able to change the battlefield conditions for quite a while. So you would do well to stop lamenting the situation and find an adaptive, well adjusted way to kick the adversary in the ass before they kick you in the ass.
People can argue about the bad situation all they want, but if you are the person thinking of risking all in a franchise investment, you don't have time for theoretical discussions. You need sharpshooter, Ranger like capabilities. If you don't see franchise investment as a kind of assault on your net worth, then you don't understand how the franchise world works.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Mr. Solomon, I do see franchise investment as an assault on my net worth. Unfortunately, unlike an Army Ranger that can disarm his/her opponent your due diligence cannot. While it may make the initial travel from point A to point B safer, you can still be ambushed once at your destination - either immediately, or after your opponent has developed a plan of attack and brings in his troops later.
Unlike starting your own business, the franchisee not only contends with normal economic activity and competitors, they must also be careful of "the enemy within" who actually has total control of the inner workings of what you think is your business.
Mr. Solomon, I totally agree no one has your back in franchising. Precisely my point. Why would anyone want to subject themselves to this industry. Maybe, I will concede, there are a handful of investments that may make initial sense, but having to watch over your shoulder as the franchisor makes "adjustments" or perhaps, has interest in your site (ala DD's) makes this industry too treacherous without the legal adjustments that Mr. Steinberg alluded to. Potential franchisees need to understand the pitfalls only just begin after signing on.
Please help the the franchisees that are forced to remain in franchise agreements across the US. We must get Congress abrogate the underlying franchise agreements and free the Zees from subjugation and servitude.
Mr. Guest, perhaps re-reading Mr. Solomon's, Mr. Morrill's and Mr. Steinberg's posts will help you comprehend the situation. These experts that you bestow mythical powers to (Solomonlike) have all stated that most franchise offerings are worthless, that few are profitable and only a handful are worthy of investment. Shear numbers of sales does not make it profitable.
GM can make 3 million automobiles but if they lose $2 billion dollars doing it, it is still a loss.
Again, Mr. Guest, I defer to the legal experts on this site (whose loyalty, to pay their own bills, should be to more franchising not less) who have summed up franchising as mostly worthless scams and most franchisors as liars and thieves. Should you want to discuss the other 20% we are all listening.
You are so very right about franchising being a failure machine that is a blight on the economy. subjugation for Zees and has been without question a perpetuated Ponzi scheme for decades.
Again, Mr. Guest these were not my words but those of the experts you held in high regard just moments ago. Being open for business does not make you profitable nor does it mean a living wage is being produced. But I believe your response fits into what Mr. Solomon spoke of when he said you can't trust anything franchisors tell you.
No need for us to go back and forth, Mr. Guest. I have merely reiterated the teachings of the franchise experts with decades of experience dealing with franchisors such as yourself. Potential franchisees have now had an opportunity to learn, thru the experts eyes, how they will be treated as franchisees. Good day, Mr. Guest.
"Potential franchisees have now had an opportunity to learn, thru the experts eyes, how they will be treated as franchisees."
Actually as evidenced by your postings you have learned nothing from this discourse. Until prospective franchise investors change how they research franchise opportunities the status quo will be maintained. And for failed franchisees like you...you will never get your pound of flesh, unless you cut it off your own leg. Try it with bacon...bacon makes everything taste better!
"Until prospective franchise investors change how they research franchise opportunities the status quo will be maintained."
I would say until prospective business people begin comparing buying a franchise to their other alternatives, the status quo will be maintained.
If your goal is to buy a franchise, you probably will. That's the wrong way to define your goal.
Yes absolutely. But what about bacon?
Eventually every thread on BMM ends up in some rant or another. Eat your own flesh with bacon is one of the classic signs of the insane repetitive rant.
It reminds me of the sidewalk/airport Hari Kirshnas beating their little drums and saying the same crap over and over - waiting until they arrive at some mystical nirvana - floating on a cloud of clove aroma cigarettes and stuff that goes into your arm through a needle - that place in the sky where the drinks are free and all the girls are just dying for your body.
I suppose, however, that without these ultimately wounded franchise victims who show these signs of franchise investment resulting dementia, we would have no reason to warn folks of the risks. They are the people who run up the street ahead of us screaming that the world needs reconfiguration. And no wonder - how does one go back and tell their family that because they didn't know what they were doing, everything accumulated during a lifetime of care and hard work is now gone and is unrecoverable - soaked up by the likes of the Cuppy's, Dagwood Sandwiches, Soup Man, Quiznos, Curves, 123 Fit, Flip Flop Stores, and similar FranWhacks.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
I have been reading the comments by the guest regarding your statements of thieves and liars. He mentioned specific cases that were resolved thru criminal laws rather than having to further deplete the franchisees assets on cases that you yourself said are hit or miss (no contingency, remember?) and Steinberg said are difficult to replicate because franchisors shore up the holes for next time. Even Paul is calling for more regulation. Yet, you continue your humiliation of franchisees. Why? Does it make you feel bigger and better? An entire industry dedicated to manipulating information and preventing legal ramifications and you insult those who were ruined (just like the franchisor guest who gets giddy listening about how franchisors destroyed families – ‘Yeah, we got another one’.)
In “The Sad Fall of Geeks on Call” story on BMM it stated:
“By 2008 the company realized it needed serious cash to keep going and decided on an initial public offering. That’s when it had to disclose its financial earnings to meet SEC rules, rather than the loose franchise disclosure document regulation, where it could post just about whatever it thought appropriate as a financial statement. Unlike the previous franchise buyers and trade journals, savvy market analysts now had the necessary information to realize that the franchisor was flat broke and had been since the beginning.”
Richard, how loose are the laws regarding the FDD? Who oversees the accuracy of the information? We know franchisors and the IFA made up the 5% “closure rate” and actually redefined “closure” to mean that even if 10 franchisees went bankrupt while owning the same specific site one right after the other, provided the site never actually “closed” it was still considered a franchising success. We know they can manipulate the earnings and the expenses. What real regulation is there?
BTW, on your list of crappy franchises you left out: Petland, Nationwide Floor and Window Coverings, Cold Stone Creamery, Play It Again Sports, Maid Brigade, Dream Dinners, TCBY, Manhatten Bagel Co., Amoco (Gas Station), A&W Restaurant, The Closet Factory, MAC Tools, The Bad Ass Coffee Co., Atlanta Bread Co., Blockbuster Video, The Candy Bouquet, Blimpie, Carvel Ice Cream, Dollar Discount Stores, Athlete’s Foot, Lee Myles Auto Transmission and the rest of the 150 franchise systems that have a SBA loan failure rate of 20% or more since October 2000. (The SBA considers even a 12% failure rate “excessive” so we can add on an additional 82 franchises according to the list from the BMM article “2008's SBA Loan Failure Rates by Franchise Brand” from 2/02/2009).
Do you still believe that your failure was because of external causes beyond your control?
If they are humiliated it is because they go public with how absurd they were in making their investment decisions - always coming up short on insight and risk assessment.
We have to use these FranWads as teaching tools. They have no other value to future investors. Whining about their losses and how it is always someone else's fault that they went broke does not teach future franchise investors the lesson they need to learn.
Like I said - you don't have to like me or my style. I don't really care about the political correctness or the social aspects of being in here. I already have my friends and I'm not in here to make friends. I'm here to teach lessons that I believe are important to franchise investors. Some will benefit from them and some won't. That isn't my problem. Teaching the lesson is my only concern.
You are welcome to all the people I offend. Be my guest.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Richard, you continue to help the original guest who questioned "Why franchising?" with your current comments. I paid several thousand for my attorney before signing on the dotted line. I paid almost the same for the accountant. The information is not readily available - exactly what the guest was stating. YOU talk of liars and thieves - other attorneys here speak of how the agmt can be changed on a whim - and this is an industry to promote?
As for the financial information, Juan helped me out and stated that no financial warnings were provided to the Geeks On Call franchisees thru the UFOC. Again, I ask: "Richard, how loose are the laws regarding the FDD? Who oversees the accuracy of the information? We know franchisors and the IFA made up the 5% “closure rate” and actually redefined “closure” to mean that even if 10 franchisees went bankrupt while owning the same specific site one right after the other, provided the site never actually “closed” it was still considered a franchising success. We know they can manipulate the earnings and the expenses. What real regulation is there?"
As Paul said, due diligence can only go so far. Franchisors have the legal right to change the tables let alone turn them even with a signed contract. Changing the rules in the middle of the game is part of what they do. YOU can't protect anyone from that. You don't have all the information because sometimes it is hidden - we both know that.
made a personal decision not to accept the invcremental professional risks of doing deal due diligence - such that he might incur liability not covered by a lawyer's E&O insurance.
There are reasons why lawyers choose not to do due diligence at the level I do due diligence.
That does not mean that the due diligence I provide is ineffectual.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Rusty you need to take a chill pill. Your erratic and emotional posts are almost unintelligible. It is no wonder your franchise experience went awry.
I get it! The UFOC/FDD was so obfuscating that even the attorney and accountant you hired couldn't decipher it and they let you down. The IFA in its propaganda deceived you. The silver-tongued franchisor frauded you. And the corrupt loan broker created a thin tissue of lies...your business plan and sold the SBA lender on your deal...oh and the SBA itself was complicit in the deception. It is official you are a victim.
You can continue to luxuriate in your victimhood or you can begin to see your involvement in your fiasco.
The franchise experts here at BMM are saying it guest, but I get it, the last thing you want is for potential franchisees to read and hear about how franchisors are liars and thieves. You see, its not me saying it, its the experts. But again you don't want that said do you. As Richard, Paul and Morrill have all pointed out, the franchise industry is loaded with franchisors that lie, defraud and scam. Only a handful of franchise systems are worth investing in. Not my words - theirs.
What is funny is how you condone it - hell, you do what you can to try to confuse readers so they don't pick up on it. You keep on screwing families over and laughing about. Keep shifting the blame so you can make your commission. Hell, Christmas is coming, you need to generate more commissions, don't you? While families face foreclosure, break ups and financial hell, you keep laughing. Your family must be so proud.
You damn franchising as though it were one thing, when it is really just a distribution model utilized by many different industries or business channels.
You offer no specifics on a particular franchise, a specific business industry or channel and attack franchising generally. Your solution is more government regulation that will likely produce more prospective franchisee pacifism and false security. You believe that research and due diligence cannot mitigate franchise investment risk. And most of all you are intellectually dishonest when you cannot admit that franchising has been a great success in the US.
Guest writes, "you are intellectually dishonest when you cannot admit that franchising has been a great success in the US."
I'm puzzled why the guest is evangelizing the concept of licensing (franchising is a licensing arrangement). Yeah, yeah. The businesspersons and lawyers who crafted the contracts and construct for the modern practice of licensing should take a bow.
While they are at it, multilevel marketing, integrated clauses, securitization and derivative swap developers can also take a bow because they have also been a great success in America too. They can also witness and preach about what a wonderful thing that has been done through the instruments they've created. Their place in history is assured via Wikipedia.
But what has that got to do with a discussion of warps and blind spots caused by government regulation, business practices or legal maneuverings that adversely affect franchise buyers and owners? Why the need for franchise evangelizing?
License - a right or permission granted by a competent authority (as of a government or a business) to engage in some business or occupation, do some act, or engage in some transaction which would be unlawful without such right or permission. - Merriam Webster law dictionary.
Why all the Anti-Franchising speech on BMM.
Don
I suppose I'm generally against ideas that seem well calculated to result in the insolvency of the franchisees and the franchisor entity, although for a time these businesses do offer good products and services to me as a consumer. But such franchising doesn't seem to make much sense for either contracting party, unless of course I assume that the whole thing was always just a short term scheme for the principals of the franchisor to exit with some money. However, even I am not so cynical that I would assume it is usually the original intent of the principals to rip anybody off. An awful lot of franchising is simply dumb and dumber coming together.
The franchising industry does not have to be viewed as some monolithic whole, though it commonly is viewed that way. There is some well thought out franchising that goes on out there. But those highly visible franchisors that do have something to offer seem to make little effort to distringuish themselves from ridiculous and doomed franchise concepts--perhaps because they don't see any compelling business reason to do so--and the IFA has gone out of its way to prove that it will accept membership dues from anyone.
necessary in order to build an industry association that sufficient economic support be obtained to accomplish its purposes. Its purposes always expand to the amount of funding that is raised. No one in the beginning who wasn't an idiot would become judgmental about the sources of the money. PECUNIAM NON OLET.
It is also not the job of any industry association to police the honesty level of its members. No industry association ever does that, and those few who pretend to do that are fooling the public - think of lawyers and doctors. The ABA and the AMA are no more "holy" than the association of drug manufacturers, The more associations pretend to "ethics" the less ethical they really are.
People who criticise the IFA for how it operates and vets its members simply are uninfirmed about what industry associations are and what they do, as well as how they go about doing it. The IFA succeeds in accomplishing its "real" purposes. That is the best measure of its rectitude. If others disagree, they are free to set up their own association and oppose what the IFA stands for. To date, the opposition is still not even approaching first base.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
I don't mind that the IFA will take anyone's check as long as it clears. It's not a moral issue for me. It just is what it is.
The ABA example isn't a perfect comparison though, because although the ABA won't subject its members to disclipline, lawyers are subject to discipline by their state authorities. I don't assume, nor should anyone that a voluntary association will discipline anyone.
has a code of "ethics", it should have some obligation of quality control over its members' business practices.
Of course that is ridiculous, but people have no understanding of how such things really work.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Don B,
Franchise owner-operators by definition define what a franchise voice is. In other words, I suppose it is possible for President Bush to be anti-Bush, but it is highly unlikely. His very utterings define what being Bush and pro-Bush are. Likewise, a franchisee is highly unlikely to be anti-franchise; albeit, they may be anti-franchising for a particular company in that they want a franchisor to change its selling and licensing practices.
So, please stop your anti-franchise whining, negativity and over generalizations about postings on BMM and the Internet.
If you are going to evangelize the existence of franchising and licensing, at least pick a specific feature or a particular franchising / licensing company to give something concrete to your sweeping statements.
Because that's why this website was created.
this site was created - and I suspect the reasons to keep it open change from time to time.
I doubt, however, that He sought anything other than a hopefuly balanced and reasoned forum in which issues might have a chance to be "mediated" amongst intelligent people.
That is often the way it works. At other times it is just an asylum for the abused, downtrodden, fleeced, forelorned, fractured, directionless detrtus of an out of whack industry sector called franchisng.
But we have come to recognize that what fuels franchise fraud and abuse is the enormuous supply of suckers and wimps, offering themselves up for the slaughter every day of the year. As every firefighter knows, you can't stop arson by passing a law that makes arson illegal. The combustible biomass is too tempting to resist.
Imagine someone coming up to you and offering, for a several thousand dollar fee, to grant you the right to clean up dog crap from people's lawns using his name, under an arrangement by the terms of which you also pay a monthly percentage of your gross revenue, plus advert payments, and restrictions on your rights to pick up dog crap should you ever cease pciking up dog crap in pursuance with your agreement with him.
If I told you that there is such a franchise before the advent of DoodyCall and other similar dog crap franchises, you would have thought me the funniest sarcastic humorist on the Internet.
Now that there are hundreds of dog crap FranWads, the scenario has moved from iconoclastic franchise humor to FranWhack.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
It sounds like Blue MauMau's reason for being may have been forgotten by one of our village elders. Here is our mission statement that I hope all posters will consider when writing:
This mission statement is stated in different words in large font at the marquee on the top of Blue MauMau, "share franchise news, to prosper and amuse." The "share" means that readers share. This is not a blog. That is to say it isn't a site where a single creator, or even a handful of blogger-writers, share their wisdom in a daily diary format. The idea behind this site is that in an industry that has typically glorified company propaganda as the news, Blue MauMau's social media tools make it possible for investors to cut through the fog and identify strong investment opportunities by tapping into front line insiders in order to avoid the traps and identify the gold. (Examples of general social media sites are FaceBook, LinkedIn, and Slashdot.org.)
This news tool is an attempt at a market-driven solution to try to provide better transparency to know what looks good.
I challenge readers to identify and post investment opportunities that they are considering. That's when the Blue MauMau school can kick into gear and have something of substance to scrutinize and comment on. There is a deep pool of talent that lurks quietly in these waters and who on occasion post.
Some wish we were more respectful to the institutions and practices of franchising. But Blue MauMau fish are a frank and irreverent bunch, particularly in the public comments under the articles and in our public forum discussion groups. These are not edited in any way to be fair and balanced. One public comment isn't permitted so that it is balanced against another, or that a comment isn't allowed because it isn't deemed "informed" enough. These are public, open areas.
The goal is to help readers prosper in as frank and informed a manner as possible.
Readers cannot fully benefit from this site unless they feel comfortable identifying and discussing investment opportunities that they are considering.
--
Related Reading:
About Blue MauMau: This description of what this site is and why it was created appears at the bottom of every Blue MauMau web page
Because that is what losers do. They never acknowledge their mistakes, instead they continually bitch and moan trying to convince everyone that they are not the loser they know in their heart of hearts that they truly are. I stop by here every few months, it is rather quite the emotional train wreck. I find it rather amusing. Almost the same cast from a year ago. It seems two prominent posters of old stopped posting in the last year. The rest pretty much same old same old story time and again. The winners in life have moved on. What remains are the dregs that cannot get over their own stupidity. The cannot accept the fact they are culpable, so they engage in futile crusade to try and get the Government to protect idiots form themselves.
Webster seems smart. Ask him, I bet almost every time the hook was set by playing the greed card. That is how the zors rope the suckers in. The lust for $$$ allows greed to overcome what common sense they may have.
what the supercilious get out of trying to hide what is an obvious wart and very much on the nose with franchising.
I suppose the game of hide and hide will continue while those who condemn themselves to any franchising trough have to convince the foolish that the smoke and mirrors is real and worthy of wagering the family. The first question for all parties to franchising should be to ask whether insanity is hereditary.
The more things change; the more they stay the same.
Then you haven't been around here very long.
Don B.
its becasue information cotrol which is an intergral part of any business, but is used to the point of fraud in franchisng and is so tight that the only way people feel they can help other make the same mistakes is by screaming it from any platform they can.
This is reiterated by members and predominantly guests consistent comments about zees not handing out specific details of the franchise they were burnt by, again back to information control. If the zee whether ex or not was to be found on this site or any other medium spouting their own experiences the zor can and may enforce the clause in the agreement that effectively states you must not say anything bad about the zor. I would not be able to say how many letters i have recieved to that effect and the threats that go with those letters are not to be taken lightly. Although mildly ammusing to see the zor spending money on me and being unable to really take any action, it is still upsetting to my family and health to continue to get threats of costly action.
Consequently we end up with a heap of very cranky zees that only wish they had this information before they got scammed.
Briefly; as a noisy advocate for quality franchising and public floggings for almost everything less, I have had the opportunity to observe and be privy to the operations of many franchise systems. There are great systems out there. There are systems that should be torn down and flushed.
Then there are those that need overhauling to various degrees in many or few areas but they could become viable or they could be lifted to a level that generates a worthwhile return for franchisee investors and they could be good. Were that to happen, the benefits flow through to the franchisors and if the concept allows, gives longevity where longevity was never going to be possible.
I hear from franchisees from many of these franchise systems where the franchisor doesn’t have the vision or the faith in their own product to address the problems or where the franchisors are influenced by the ease to scam for a large short term return. These systems are in the majority. These franchisors are as dangerous as those that were always deliberate scams.
These systems could be fixed but they won’t be without a determination by the industry, media and government to ensure they are clearly visible for what they are and almost every franchise system will be tarred with their brush.
If I surveyed 1,000 existing franchisees would I find 1 or 2 or any that performed an adequate level of due diligence? It is just that lazy approach that will see an eventual growth in the numbers of those who walk away from considering a franchise investment as those numbers react to a tarnished industry reputation where they see all of franchising as a scam.
Whether a franchisee was duped by any consideration of a concept of protection or by the glam and glitter spewed out by the industry marketing machine is irrelevant to an honest analysis of all factors. How often have we heard ‘if only I knew then what I know now’. Hindsight is a great teacher but usually the evidence was there to be found …. if only they had known how critical it would eventually be.
Those repairable systems often need the remodelling of a fragile franchisee financial model where specific areas of need may vary where a sweet level of franchisor royalty only works for the franchisor in the short term.
At times it means mandatory supplier deals producing abusive franchisor income streams have to be revamped or thrown out.
Quite often the problems arise from dumb selection processes for incoming franchisees, support personnel and locations where such franchisees and locations are negotiated with on the basis that they add numbers to a network but where there is never going to be a quality result for the individual franchisee, the network or the franchisor. They were not suitable and stupid lease negotiations destroy franchisee profitability. Franchisors too often take the cheap options when selecting franchisee support people.
There are systems where training and support are sacrificed to almost nothing or exactly nothing in the name of cost cutting to further enhance the franchisor’s bottom line. There comes a price for everyone.
And such a widely and consistently abused ability do advertising funds offer. Some more addiction where those that would steal advertising monies start off with a corporate box. When they get away with that confidence grows and it goes further … and often to ‘misappropriating’ virtually the lot except for what is needed to sell franchises.
There are systems that needed to evolve and the franchisor lacked the drive or vision or through the consequences of dumb franchising destroyed their financial ability to do so.
Often it simply means addressing the culture of stupid communication styles within the network that produces confrontation and where frustrated, angry franchisees willingly participate to destroy their own investment.
I was recently contacted by franchisees in one system where all declare the model is basically terrific but the CEO takes personal umbrage to typical franchisee questioning. Individuals are targeted for ‘special’ treatment and demands. End of term and the sale of existing franchises becomes a time for retribution. One is now in Court and others run the gauntlet as they attempt to sell and leave the system as good but angry operators. Instead of building network numbers this wanker is replacing good operators with untested new investors that will hopefully learn to shut their mouth.
Failures and friction in franchise systems create a environment of distrust and confrontation that at best reduce the value of the investment and eventually cause the collapse of the system unless such problems are addressed.
Richard’s ’lessons’ fall on deaf ears for so many and that deafness cannot be attributed solely to franchisees. But they are the people that can make a difference … at least to their individual futures and those for their family. History will no doubt suggest that the term 'deaf and dumb' was born from franchising.
As for franchisees hoping that non-franchisees in more powerful positions will provide a protection, or amend their shonky or criminal ways, they are simply ‘p***ing into the wind’. Why would they? Ethics and morality in business and politics? Yeah .. right!
Bad franchisors, those who feed from their trough and apathetic governments are addicted to the dollars that come from the industry. Effective legislation and regulation is just not going to happen.
But no one can tell me that existing legislation could not be fixed to the point where there is a strong deterrent factor and where mandatory transparency offers a better shot for quality franchisors to better prosper in the comparisons and the cost to economies of failures was minimized. Some processes in business take an awful long time. Cleaning up an industry would never happen in the short term but with every other restructuring, operators have to start somewhere. But that would just be me ‘p***ing into the wind’.
Those who don’t perform effective due diligence don’t because they do not appreciate what they are really putting at stake. If one were to only lose their original investment then that would not be so bad. But in franchising the contract leaves them vulnerable where they are typically threatened if they suggest it is time to cut and run. Such threats can mean huge payouts of lost royalty through to end of contract term. Such threats involve considerations of possibly huge legal costs.
There goes the home that through the failure process saw a mortgage swell as the desperate operator attempted to prop up what was destined to collapse. That is the time where marriages and health break down and the psychological trauma typically ensures franchisees add to their woes by making catastrophic decisions to fight a foe that holds their signature on a contract, expertise in dealing with such confrontation and a far superior funding power to ensure they will rarely, if ever, lose.
There is no God like protection once a franchisee signs a contract so they better get their decision right. There is no turning back. It will be what it will be after that very moment they may have signed their family away. And in almost every instance a better decision would have come from a comparatively small investment in due diligence time and expertise.
And the whole industry suffers because of such failings in a sector where quality franchisors turn the other way in some stupid belief their reputation won’t be tarnished and where those who report the problems are accused of exaggerating the complexity and levels of damaging practices and terrible consequences.
This is an industry that has been prostituted by so many for so long that the original concept of franchising has been twisted and siht on. And along with the neglect of the real health of the industry by franchisors, those that get fat from the franchisor trough and inefficient government it appears destined to get worse. And the internet will follow the slide.
Some ask why franchisees bleat and I say why the hell not. Some say most politicians talk siht and I say whats new.
The more things change; the more they stay the same.
I'd like to see what you mean by lengthy.
You are making a fool of yourself.
The Guest poster may be direct and you don't like it, but he is making terrific points about franchising, you & Mr. Solomon's blog.
JJ Adams
JJ, I posted last night that there were 230+ franchise systems that have "excessive" SBA loan failures over the last 8 years. That's 230+ systems (minimum) that are using grossly inflated revenue numbers to get their SBA loans approved. (Loan failures are just the tip of the iceberg. I know of dozens of franchisees in my system that did not hit their projections but have been able to continue business by borrowing more, taking a full time job or using personal proceeds so they don't declare bankruptcy - so although not defaulted they still received approval on bullsh-- projections.)
You can't have "excessive" (SBA's words) SBA loan losses unless franchisees are not meeting the projections. You only get the loans by showing a net revenue projection that meets or exceeds the SBA's guidelines. With excessive loan losses 2 things are shown:
1. The franchise system does not produce the profitability they claim (no franchisee would buy into a system unless they were told they were going to make money),
2. Attorney Morrill is incorrect. It is not 'mutual delusion' as he stated to the other guest yesterday. As the other guest pointed out, once the franchisor sees that franchisees are not profitable it is no longer 'delusion', it is, in fact, lying, deception, scamming - all the things Solomon, Morrill and Steinberg said are "rife" in this industry.
SBA statistics have superficial relevance.
Not all franchisees get SBA loans, the SBA admits their tracking is poor and you assume because there is an SBA default then there must be franchisor fraud.
Is it possible there other factors?
Is it possible that franchising has good and bad franchise networks?
I mean no disrespect, but is it possible you suffer from inattentional blindness?
JJ Adams
Inattentional Blindness is the phenomenon of not being able to see things that are actually there. This can be a result of having no internal frame of reference to perceive the unseen objects, or it can be the result of the mental focus or attention which cause mental distractions.
There have been 4 SBA studies over an 8 year period (2 authored by independent researchers commissioned by SBA and 2 performed internally) all drawing the same conclusion. Consistency is the key, you only get the loans by showing profitable projections. If so many aren't making it withing a specific system then the system obviously does not generate what the projections state.
Are there good franchises? I have said all along, there are good and bad systems. I have always stated that my intent is to rid franchising of the bad ones. Unfortunately, the system is set up to protect, enable and perpetuate the bad ones.
Of course your business plan has to show a ramp up, break even and a profit otherwise why would you do it and why would a lender loan you $?
If you don't believe your own projections it seems dumb to move forward with the investment?
JJ Adams
The business plan projections must show a net profit meeting minimum debt coverage ratios beginning in year one (approx $75,000 net profit on an approx. $300,000 loan). This gives you a rough idea of what the SBA requires and the ratio the SBA lenders look for. The numbers were provided thru the franchisors business associates who we were told independently verified the information - information franchisees could not determine themselves. And again, not just me, not just all my fellow franchisees, but this problem includes hundreds of other franchise systems.
I have personal experience with SBA 7A and 504 guaranteed loans and have seen many projections that did not meet the net profit scenario you have described.
JJ Adams
Every loan to my franchisor since 2006 shows the same numbers and required the same net profitability for approval - verified by senior officials of the SBA and less than 5% have ever attained those numbers.
Mr. Oldsword - How is it possible that the SBA would know how franchisees of your system performed? To my knowledge the SBA does not track individual loan performance, just bad loans and they do it poorly.
It would amaze me that the SBA analyzes performing loans universally.
JJ Adams
I used the word consistency before. Consistency creates patterns - especially with numbers. When patterns cannot be justified it becomes a concern - especially when loan money is at stake.
Our "Guest" just doesn't want potential franchisees informed of what is going on. He is fully aware how it works - he just doesn't want it publicized which is why he is so determined to stop your inquiry.
Senior SBA officials don't typically review loan applications from preferred SBA lenders, so I am confused by this and your other comments about SBA franchise lending.
JJ Adams
You see Rusty takes various pieces of information/opinion and assembles them into a cobbled up manifesto to show massive fraud in franchising and SBA lending practices.
Richard,
With all due respect, you are mistaken and your intention, objective or style is a red herring.
The shame-humiliation emotion (see Affect theory, Silvan Tomkins) is triggered in former franchisees with your over-generalizations and judgementalism. I cannot talk for others but your actions are perceived to be humiliating.
Shame is a much more powerful and misunderstood affect than guilt. Humiliation is used very frequently in franchising to silence critics which seems to be your solution: Suffer all you want just don't talk publicly about it...or at least, not here where I have to read it.
.
Solomon is not offering advice to those that have already failed in franchising in his "Lessons for New Franchise Investors".
Those that have failed need different help. They need a litigator, bankruptcy lawyer, counselor, rabbi, priest, minister or wiccan priestess to get their due or help assuage their humiliation.
On the Geeks on Call audit report dated December 20, 2007 (for their subsequent event details), you would notice that the auditor gave the company the dreaded 'going concern' tag, which meant there was a chance that they wouldn't survive another year. These would've been in the UFOC at the time. The difference with them going public is that people that understood financial statements were scrutinizing them rather than prospective zees that probably didn't even read the financial statements.
The prior financial statements show that the company was losing money each year (which should be a red-flag to prospective franchisees).
JD misses something. The audited financial statements in the UFOC DOES NOT show that the company was losing money each year.
KPMG LLP's audited report of December 20, 2006, which is Exhibit H of the UFOC (pdf), declares a net profit for 2005. KPMG provides no "going concern" tag or lack of confidence. It states in the independent auditor's report a rather bland opinion: "In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positions of Geeks on Call America, Inc."
Juan, okay you're right they had a $3k operating profit on $9+mil in revenues in 2005 (although after preferred dividends they did have a net loss). Look at 2006's financial statements and there are 'red flags' out there, like the fact that they were having cash issues and therefore needed a line of credit and to issue more preferred shares.
The going concern tag is something that's evaluated each year. As of December 20, 2006 KPMG felt that in their review the company would still be around at that time in 2007. It was. However, when the new auditors did the 2007 audit they looked at the two years of huge losses and the fact that people that had previously invested cash into the company probably werern't going to do it anymore.
That same bland opinion is the same opinion given on audits that were prepared under GAAP. It's in the third paragraph of the 2007 audit report.
I have read and reread this article several times and am a bit confused. I have pulled out a number of quotes from here and from an article by Mr. Webster that Mr. Solomon directed us to earlier today (plus Mr. Solomon’s comment). My comments appear at the end:
1) Ignorance refers to the fact that if you have never before vetted a franchised small business investment proposal, you simply do not know how to go about doing that.
2) Incompetence includes the fact that you are incapable or sorting out truths from fictions in the information that a franchise seller is presenting to you.. . . Most of what most franchisors say about their propositions is simply untrue, and you can’t tell what is from what is not. You also are unable to know when you call existing franchisees for a reference when you are hearing truthful responses.
3) Arrogance is the insistence that despite your lack of experience, you refuse to hire expert pre investment deal and legal due diligence assistance and decide to go it alone or with only a lawyer to explain the contract documents.
4) . . .you will encounter squads of cheated franchisees. . . This is the lesson about franchising that all potential franchise investors need to learn. If you don’t learn it, you will most likely join the ranks of the thousands of others who believed lies and signed unbelievably abusive agreements with crooks and predators.
5) Now there is no legitimate excuse for signing bad franchise deals.
6) The government is not going to make franchise investment safe in the sense that there are no serious investment risks other than your own mismanagement of the business causing it to fail. Those who want franchises regulated like securities are regulated won’t accept that many people also get cheated in securities frauds. . . No political solution has ever succeeded in eliminating crooks.
7) It is extremely important that your franchise network have a competently managed independent franchisee association that is very widely supported and has enough money in the till to do what may need to be done.
8) The reason you won’t get judicial or legislative relief is that it appears very clearly that you don’t. . .
9) When the courts and Congress see what you agreed to there is no perceived need for additional relief in your favor. You just agreed that you are far better than you really are, so why the hell bother? If you don’t even know the truth about yourself – which is exactly what I have just described. . .
From Michael Webster’s “While most franchise systems don't have a proven business method, franchisors typically berate the money losing franchisee as "not following the business model".”
10. For some major decisions, buying a house or car, if we are wrong we can sometimes sell and recover a large part of our investment.
11. While most franchise systems don't have a proven business method, franchisors typically berate the money losing franchisee as "not following the business model".
From Mr. Solomon again:
12. Sound familiar? You thought I made it all up, didn't you?
This aint fiction.
The psychodynamics of franchise due diligence is a tortuous trail of (d)elusional information that has to be parsed.
What you see/think you see, because of what you heard/thought you heard usually isn't so - especially in franchising.
Mr. Solomon, you made a great case that franchising is nothing more than a scamming method. Most lawyers, according to you, can’t figure it out (which means an individual has a snowball’s chance in hell of doing so) and it is impossible for anyone but a few true experts to determine where the bodies are buried (which, given the sheer numbers of franchisees you claim have been hurt this is the largest mass grave in human history). No one questions the stated statistic on this site – made by many of you – that 70-80% of franchise systems are frauds. Even Mr. Webster in #11 seems to agree. Why would anyone want to roll the dice on a franchise system knowing that they have better odds at a craps table then selecting a "good" one. Your entire article is based on the fact that most franchisors are scum, the IFA doesn’t care, and, in fact, franchisees should be spending most of their time fearing the next shoe to drop – be it in some unforeseen clause OR having the FDD rewritten on them after the signing in a way that changes the profitability of the system that they thought was originally good – DD’s anyone?
As a friend once told me, the FDD is written purposely so that no one can follow it to the letter. Ask a DD’s franchisee. If the franchisor wants to find you in default of the agreement they can. Now the franchisee has an option – fight, which will cost 6 figures for legal representation and, IF you win, you now get back ownership of a system that, in most cases, only offers a small return of income anyway. Hell, after 3-4 years you will at least have made back your attorney’s fee, right? Oh, that's right, at least before taxes. A plus for franchising.
As for getting the government involved, I have a question. If you have figured out how and what to look for in your “due diligence” then why can’t something be put in place legislatively to make sure all franchisors follow a system that makes the information more readily available? You know where to look, right? So, there is a “system” that can be used to make this more open.
But that won’t happen because: franchisors lobby Congress to have laws written (or be exempted from – arbitration anyone) to free them from liability and continue almost unfettered scamming that can only be determined by a handful of professionals. But franchisors and the IFA have the franchisees at heart, don’t they. Another plus for franchising.
As for securities laws, at least the fraudsters go to court and (hopefully) go to prison. In franchising, from what I read here, the laws are so feeble that franchisors are allowed to throw out “squads of cheated franchisees” that are in the “ranks of the thousands” with no repercussions. Bernie, as you so aptly brought up, however, is sitting in jail Mr. Solomon and has lost all of his belongings (yes, even his Mets jacket - which I am sure he gladly gave up).
As for Michael's comment regarding cars and houses (#11), while there should be no legal remedies when buying in a housing bubble, if the construction is defective or the original homeowner failed to provide important information there are laws to work with. And, yes, there is a lemon law for cars and consumer fraud laws that, again, seem to ignore franchising. Another plus for wanting to give franchisors access to your assets.
You’ve made an excellent argument for potential franchisees to run, not walk, away from franchising. You can go to the casino and get better odds given that 70-80% of franchises are crap and the other 20-30% still have failures on their rosters not to mention, again, the changes franchisors can make (after the fact) in the FDD’s that make life a nightmare.
Perhaps the Guest who spoke of “lighting a candle” was referring to “votive candles” lit at church following an offering. From what you have written here, Mr. Solomon, those potential franchisees better light a “hell” of a lot of them for protection.
While no one wants to join the “ranks of the thousands” it seems highly questionable that you, or anyone, can guarantee that a new franchisee will not invest in a scam if nothing else the gauntlet has now been thrown down by you and franchisors will want to test your skills. You state in # 5 “Now there is no legitimate excuse for signing bad franchise deals.” I guess you have just given your clients’ a “Get Out Of Jail Free” card with that one. Since there is no excuse, should any of your clients get involved in one there is now no one to blame but you – unless, of course, you require them to sign a General Release form for your services (you did say you have learned a lot from reading these documents – good for you).
don't go to jail in the first place.
That's the point. You don't get scammed going in,
You'll never get than from any government. And - compared to the cost of not doing it - it's cheap at twice the price.
If you look at most of the dissenters from my views in here, you will see that those are by and large people for whom it is already too late. They didn't get competent due diligence and got scammed. They want someone to tell them that what they didn't do simply can't be done. That would - if it were true - let them off their own emotional hook. But it isn't true. The truth is that you don't have to be scammed and fleeced.
Like so many of them, I have made a lot of mistakes in life. Fortunately none of them was investing in a bozo franchise. Life became a lot easier when I came to recognize that there was never any problem that I ever had that wsn't my own fault. Once you recognize your own fault in a bad situation, you may not be able to rectify it, but you can go on from there with your head in the right place. That saves you from beating your head against a wall for years blaming others and the government for what you yourself could have avoided if your head wasn't up your arse.
Getting on with your life requires a lot of emotional energy that you can't afford to waste in years of mourning past mistakes. Have your rant and then move n. A lot of folks in here just seem to want to be perpetually ranting about how everyone else if to blame for their past ignorant decisions. When/if they acquire the insight to enable them to shut up and move on with their lives, they may find the successes they missed the last time around.
Having all these victims in here ranting every day is good for my business, but it isn't helping them. Why me, oh Lord? Now how does that help? Supposedly it worked for Job, but look at what he had to put himself through. And supposedly the reason Job got relief was that he got the Lord to admit that he was wrong to have messed with Job in the first place. You will never get anything like that in your own real life experience.
Being PC won't help anyone to acquire franchise investment insights. Many have done that number, and the carnage continues. My tough love approach gets me many detractors for my supposedly unsympathetic attitude about the suffering of the thousands of franchise victims. But franchising will start to clean up when the crop of suckers starts to dwindle - and not before.
I live in Texas where we have all sorts of wing nut right wing so called conservatives, so I hear a lot of wierd stuff. But yesterday I heard something said about Washington that could really apply to franchising. Some west Texas rancher to whom what happens outside of west Texas could not possibly have any impact, decided that what we need is for him to be in government. He is gonna run for Congress. His slogan fits franchising, even if it doesn't fit Washington. According to him, "We need more John Wayne and Jesus."
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
"If you look at most of the dissenters from my views in here, you will see that those are by and large people for whom it is already too late. They didn't get competent due diligence and got scammed. They want someone to tell them that what they didn't do simply can't be done."
Such BS. and such a weak over generalization.
Even if DD can somehow be done. (it's stupidly difficult and expensive to do for what is specifically sold to people as "proven workable business system") No other product in history is as purposefuly deceptive as this.
Richard, when are you just going to face the fact that Franchising is insanely corrupt to the F-n bone, it needs to be massively changed. Your law office cant be the outpost with the magic pill. "To hell with everyone else they are all idiots anyway for not calling me".
Many of the people that stay connected to BMM (yes they likely were scammed) also want to see a profound change in franchising.
Why? because its Fn wrong! It's not about our own situation. It's about the next lamb to the slaughter. You're just way too self interested to understand that. (but thats typical lawyer types) me me me. Does it line my pocket.
I tell new prospects right away about the crap that my franchise does even if it hurts my resale value. Why because its Fn wrong.
Another saying, I think its from lovely Texas if it looks like Cow ShXt and smells like cow ShXt. Guess what it is?
Guest, my comments to Mr. Solomon were based on his own words. Why would anyone enter franchising knowing that the vast majority, if not all, are playing "Catch Me If You Can"? Even the leadership in the industry, the IFA, continually fights to prevent laws with teeth to enter the fray.
While Mr. Solomon may have the best interests of franchisees at heart (and if you view his website and read his articles I believe he truly wants to educate the public), he has established here the very reasons why not to enter franchising (except, maybe, as a franchisor): the system is adversarial and bent on subjegating the franchisee as opposed to developing a partnership.
Having to go to these great lengths to determine whether the system is a scam, knowing the vast majority are, hearing how the leading organization (IFA) has no interest in laws that protect an individual and his/her family from scams, understanding that your franchisor can change many of the terms of the contract even after everything is signed and knowing there is little to no recourse makes franchising a very stupid and foolish undertaking.
It appears that only the very expensive franchises, those that have established some credibility in the marketplace, are at best the ones to consider - and even then you'll have better luck flipping a coin.
Your perspective is wrong.
Exactly, guest. Although that is how it is sold, it is, instead, an adversarial relationship. It is an attempt by a business with significant legal backing to use an individual's assets to enrich itself.
I was at first reminded of the title of a 1960's spy series "It Takes a Thief". While true, what is more apropos is the 1980's movie "WarGames" only with a slight tweak. The computer in the movie learns that thermonuclear war, no matter who starts or how, is unwinnable because both sides are close to evenly armed. An international relations strategy termed MAD (Mutually Assured Destruction). The tweak here, unfortunately, is that in our franchise movie, one side almost exclusively wins. Thermonuclear war is winnable provided there are little to no weapons on the other side. Franchisors have accomplished this by making sure there are few laws governing their scam and therefore making the fight one sided: the frachise industry vs. a lone franchisee.
And this is an industry that people should invest in?
Your perspective is wrong.
Whoever you are, I agree with everytyhing you say. I appreciate Richard's efforts if he really wants to educate people. He needs to stop viewing franchisees as unwilling to investigate or spend money. I personally have done my share of both.
He does makes some good points along the way.
However, he really needs to get off his, high horse.
Better laws could make things better.
He makes many incorrect assumptions. Generalizations.
Perhaps you are an exception to the general rule, but most pre-purchase franchisees I meet have already bought the franchise in their own mind--no matter how ill conceived the franchise is--and far more never hire an attorney to look at the offer in the first place.
Better laws will not be self-executing. I'm sure every franchise attorney here meets people who have good cases under existing laws and no money to pursue those cases with. Franchisees, in general, will run out of money before seeking help. So whether it's unwillingness or inability to spend money, they're doa by the time we meet them a huge percentage of the time.
Mr. Morrill, why is "killer due diligence" even necessary? As I wrote here from the beginning, Mr. Solomon and others have clearly stated that franchisors, by and large, are scammers. As you continually repeat the mantra of "due diligence", what should be repeated is "why does this industry make this necessary"? Lying to the public, according to Mr. Solomon and now you, is allowed in franchising - hence the due diligence requirement and the statements that 70-80% of systems are full of it.
So, what is the difference between real laws and the bullshXt that passes for franchise laws? Ask Mr. Toussie who is sitting in jail for supplying phony family income information on HUD loans to get his HUD clients loan approval. Speak to Mr. Madoff sitting in jail (awaiting trial) for scamming investors. How about Mr. Michael Milken of junk bond fame? Need I go on? These were CRIMINAL cases, sir. Prosecution was not dependent upon an (already broke) individual's net worth to bring the case to court.
It is unjustifiable to consider investing in an industry that purposely creates a system where creative means to find the truth are always necessary. AND, if you find out beforehand they are lying, there are no repercussions to the business. Nothing can be done. Only pray and hope that the next sap is capable of figuring it out before they buy into it.
Every lawyer here is, whether advertently or inadvertently stating that franchising is not only buyer beware but, after the purchase, you better have additional capital to protect your ass for when the franchisor either changes the game or tries to take over your site by finding some minor "default" with your business.
In most cases it isn't necessary because most franchise offerings obviously make no economic sense to begin with. KDD is for the remainder in my opinion.
I would put it differently. I would say every franchisee should have a "stop loss" line that is a lot higher than $0--but most don't. And every franchisee should have an exit plan before he enters into the deal.
Stop loss is what every zee in a dire situation should do. If it means closing the doors three weeks after you open, you need to do it.
Being prepared for the worst case scenario means having money put away for at least a year living expenses and legal fees. What person would even consider signing on the dotted line, if they thought for a second they would end up in court. Unfortunately ending up in court is the worst case scenario. Therefore one needs to put that money away. In many cases that would stop many from signing on the dotted line.
Jorgensen wrote:
Morrill correctly notes that at some point you need to throw in the towel. However...if that point is 3 weeks after you open, then you should not have purchased the business in the first place (and I doubt Morrill was considering a 3-week scenario).
This is NOT stock investing, folks. All this CNBC-speak about "due diligence" and "stop loss" sounds real nice, but it perpetuates the dangerous myth that buying a business (franchised or otherwise) is like buying a really expensive stock.
Leaving aside liquidity issues, when you buy a stock (even on margin) you know the limits of your loss and the government (thru Reg T requirements) protects you from your own stupidity.
...well, unless you go "naked" and you have to be very wealthy to do that. Or Canadian.
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
and a lease will not see the gouging of the zor until they open the doors. When I speak of stop loss I am talking about if the start up cost end up costing three times more than expected you need to act and close the doors. You can call it stupidity but I call it smart. I know of one zee who closed her doors four weeks after she opened. She was able to project her numbers and see she was not going to make it due to lack of funds to do so. I say she was brilliant . She stopped the loss and probably is better off for it.
Paul of course people who have to close in a few weeks should of never done it. Unfortunately when desperate zees see it, often it is too late. They are totally screwed. When the stories are consistant with more than one zee in the system you know it was a conn.
Guest - Your imperceptable commentary is underwelmingly compelling. FDDs are most assuredly bound to confound the witless and while you don't mention franchise agreements I bet they may be a cause for concern as well.
Again best to avoid franchising entirely. Maybe we should outlaw its practice in the United States, well at least we should protect the feeble minded from themselves in some way?
G.G. Guestly
So...It's clear. There really is nothing in it for the litle guy. Franchisors will always be in charge, don't even bother?
Rusty do you see yourself in Solomon's mirror or will you perpetuate your denial. Do you see how you were complicit in your own franchise demise?
Guest, do you realize you are the worst advertisement for franchising at BMM? And while doing that you antagonize not only Oldsword but most of us who wish to stay on topic. You may not have strayed as yet but no doubt your intention is to with your following commentary where you focus on the man rather than the issue.
The subject here is mostly to warn prospective franchisees to be cautious and get educated and you would not like that. One of the great frustrations through all the information available at BMM is that quality franchisors don’t seem to get that they have nothing to fear and in fact; they would better prosper when people make better decisions and sign into their better systems.
Only the scams that you seemingly represent have a problem. You come across as a brain-washed small time franchisor employee without the capacity to distinguish good from bad and therefore the franchisee responsibility must absolutely override everything else. Whatever system you represent it has a problem where your focus is on the power of the contract and the responsibility of the franchisees rather than the health of a developing system. I would suggest you know little about your front line business; or care.
You never answer real questions but I have one for you anyway. What are the most common obligations for a good franchisor with a long term plan? This is your big chance to share something concrete with prospective franchisees.
Guest, do you realize you are the worst advertisement for franchising at BMM? No; It seems apparent your IQ is far too limited to have worked that out.
The more things change; the more they stay the same.
I believe that people can choose to follow a path of sober due diligence and have reasonable expectations, unfortunately most do not.
People can avoid bad or unsuitable franchise investments, but it takes effort and knowledge. If you do not possess the knowledge it can be purchased from able practitioners and many candidates are too shortsighted to make the investment.
What we mostly have here on BMM are people that think it's better to curse the darkness than light a candle. The audience on BMM is quick to accept the protestations and indictments from failed franchisees with little to no evidence and at the same time demand more government intervention and increased franchise regulation. Franchising can never be made safe by government, however franchise investors can change their behaviour in how they investigate and select franchise concepts.
"What we mostly have here on BMM are people that think it's better to curse the darkness than light a candle." - Guest
How about it start with you, dear guest. Rather than cursing others, how about you lighting a candle?
Let me start off the lighting of the candle by asking this: What are the first things that a franchise buyer should look at in the disclosure documents to decide if the investment is right for them?
#2: Who out there has the best credentials in teaching buyers on what to look for and turns of the road to avoid? Should you go to a lawyer or a business consultant? Or both?
Masahige,
Franchise searches do not begin with FDDs.
They begin with self-assessment of resources, experience and temperament. Once you assess the above you can look for channels of business (franchise or independent) that begin to meet your resource audit. You need to know about industries generally before you can evaluate franchises or independent businesses specifically. As you acquire information through research you can build an investment criteria model, for example if you want to be a restaurant owner you should pay to join the National Restaurant Assoc. and buy their "Restaurant Industry Operations Report" for $60.00 member $125.00 non-member.
I am going to stop right here and say my initial advice above is useless to the vast majority of people buying franchises because they are too lazy, too cheap and irrationally illogical to conduct anything that resembles due diligence and research. In fact many of these people spend more time selecting a new car than they do when investing in a franchise. So I ask you what can the government do to fix these problems with franchise investors?
"You need to know about industries generally before you can evaluate franchises or independent businesses specifically." - Guest
Nicely put. The Nation's Restaurant Association has some good industry research. For the restaurant industry, Technomic, Inc. also offers well regarded surveys and reports that give insights into trends and problems.
But buyers aren't the only ones who should be using research reports.
Existing franchise owners need to be more plugged into these reports and journals to better understand the forces playing out in their industry and to keep their inner entrepreneur alive, fed and informed. Company reports and inside buzz only goes so far.
Frankly, I'm surprised that more franchisors and franchisee associations aren't providing such information to their members.
So I ask you what can the government do to fix these problems with franchise investors?
enforce their own laws. that way you can narrow thw gaps for rogue zors.
Isis - You should read more carefully before commenting
"So I ask you what can the government do to fix these problems with franchise investors?"
Franchise investors = the folks that are too lazy, too cheap and irrationally illogical to conduct anything that resembles due diligence and research.
Franchise investors = the folks that are too lazy, too cheap and irrationally illogical to conduct anything that resembles due diligence and research
problem is that most people get dumped into that category whether they did basic to nil DD or killer DD. everyone has there own opinions as to what enough is DD. Unfortunately many will dump people into the ignorant category before even learning exactly what the story is.
It is the easiet way for a francisor to lay blame solely on the fracnhisee and for the regualators can use it as an excuse to nit help/
"Franchise investors = the folks that are too lazy, too cheap and irrationally illogical to conduct anything that resembles due diligence and research" - Guest X?
That should include not just franchise buyers but also franchisors; namely, start-up franchisors. There are a lot of new franchisors who are too lazy, cheap and irrational to conduct anything that resembles due diligence and research in regard to franchising and the business that they are franchising.
Hire a due diligence team on the front end (lawyer/business consultant, accountant) for $6k or so OR...
end uP losing $140k, face a $200k demand letter, and be prepared to find another $100k in legal fees on the back end like I did?
I am the one who got myself into this. I look back at what I signed and why I signed it and what I threw money at and my rationale I am convinced I was possessed by the demons of stupidity.
Yes I was frauded...but I LET IT HAPPEN.
6k sounds like dollar menu pricing in context.
You can weed out the bad franchisors from the good ones. Hire a due diligence expert.
As much as I could try, I will never know about franchising half of what Solomon forgot.
Mr. Guest, please read the following quotes:
"sorting out truths from fictions in the information that a franchise seller is presenting to you"
"Most of what most franchisors say about their propositions is simply untrue"
"you might just be a predatory franchisor’s spy"
"When thieves give you references, the references are unreliable."
"C(r)ooked franchisors abound in the system as it now exists"
"a competently managed independent franchisee association that is very widely supported and has enough money in the till to do what may need to be done"
"the thousands of others who believed lies and signed unbelievably abusive agreements with crooks and predators."
These are quotes from the very man that you said "As much as I could try, I will never know about franchising half of what Solomon forgot" Guess what, you are right. He does know more so you may want to really analyze what he said.
My argument is simple. This is an industry rife with thieves, liars and scammers. It refuses to police itself and actually goes above and beyond to make sure no laws are enacted that will stop abusive practices. Even a well vetted system has the option to change the original document to make it more predatory.
WHY would anyone subject themselves to this industry? If even the experts in the industry claim that 70-80% of all systems are crooks and the leaders in the industry just laugh at the scamming (and actually help perpetuate it) why would anyone want to tie their families life savings to this? Mr. Solomon goes so far as to state unequivocally that you need to have an association that is capitalized well enough to go toe to toe with the franchisor if need be. Really? This is what one gets for investing tens of thousands of dollars and offering up their family's assets?
Buying into franchising the way it is currently established is like signing a contract with the devil (my words but the experts' belief). The franchisee must always look over their shoulder waiting to see how the franchisor is going to try to get their hands on the franchisees assets. If you don't believe me, see DD's for details.
Just depends on the franchise you buy. Granted, he was already well off and as they say the rich get richer. I think you need to be in the millions in cash to buy Panera?
Someone else I know is making a 100k+ living with one of those bounce house gigs.
Vaguely generalizing that franchises are scams is stupid. Some provide really good cash flow - just depends on the investment.
as an example of a good franchise.
Now, however, I have seen three Paneras close to here close within a year.
The changes in market health can affect even the best model. The Paneras that are still in business here are all positioned cheek by chowl with heavy traffic magnet malls. It is the other Paneras that are closing up.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Regarding Panera and others, is the best time to buy a franchise when the investment cost at its cheapest because of a bad economy and low profits, or when the market is rip roaring away and profits assured?
that only the best locations have the staying power to make it through a slow economic period, even in a major market like Houston. The concept itself is not strong enough to outlive the vicissitudes of mediocre location choices.
Questions must be answered about the reasons why the price is low. Each situation is different, and each market is different. For example, you probably wouldn't want any franchise opportunity in a place like Detroit, even if the frachise fee were waived in total and the store was already built out for you and all you had to do was lease it on very attractive terms.
And that is for the best deals out there. Anything less that the best you wouldn't want in a bozo market - not even for free.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
in franchising for franchisees. It cannot be true! Stone him!
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Yes, Mr. Guess, your comments above that I am replying to make as much sense as the subject line on this note does to the actual story that I posted here.
It must be done now before one more undiligent franchise buyer signs an unprotected unbargained unfair uncertified ungauranteed unhealthy franchise contract.
We could add it the health care bill!
Now that's good ... thank you
The more things change; the more they stay the same.
Who ever you are Guest - bottomline, in the end, you are trying to justify screwing over good people. You are wrong for ever doing this and all the people that do these things are wrong and they all should be held accountable. I would like to see then hung by their ####s. Jail is to good for them.
All the comments about how everyone should have known better at the beginning (ignore the fact that they are actively being tricked and lied to) is just a (mental way of alleviating yourself from ethical responsabilities.
It is continually preached here by certain people that derive revenue from that discovery part of the sale. They (the lawyers) want to feel that they alone have the magic pill and for gods sake never cure the disease.
(If you ask a snow plow salesmen if its gonna be a bad winter what do you think he's gonna say? Is he gonna tell you there is not going to be any snow?
I'd vote for increased franchise regulation in a split second. So would and increasing number of people. All who can see through the BS. Just to much evil intended white collar corruption lately, people are jsut sick of it.
I am for people taking responsibility so they do not get screwed. I support Mr. Solomon's blog. Fraud of any kind is deplorable and can be avoided.
Solomon offers an interesting concept in buying a franchise. His sites should be renamed Hire a teacher.com He's not a broker. He's not a business consultant that tells you how to improve operational returns. For a price, this legal litigator will teach you and provide quizes on how to buy a franchise. You complete his homework. Read his assignments and articles. You tell the teacher what you've found out in your franchise investigation.
He'll tell you where your answer and reasoning are less than 100%.
He is confident that if you follow his process diligently that you will do your due diligence right. B and C students may not receive as strong a level of confidence from the attorney.
Although he has never run an independent franchisee association, he also wants franchisees to seek him out on how to set one up.
I don't know what better law and regulation any government can come up with but if they produce some minor positive that works for me. While I stand with the people with goals to create change I agree that ultimately people must save themselves where law and regulation will never protect the foolish.
Once there were only related laws that influenced franchising and then more relevant laws were introduced and then over the years they were refined and added to. It can be said that the laws and refining have done nothing much to get the result that franchisees need however; if franchisees believe that any law will dissolve their duty to themselves then they should book into the nearest rehab centre.
I see this in 2 parts. One being the possibility to produce better laws to restrict and deter scams as governments have in other industries and I would suggest finance and stock broking are good examples. And in doing so they have made people more aware that caution is needed. There is no serious notion of caution espoused in franchising [except here and at a few other sites].
I have said it before but I see it as true. We live in an age when people sign contracts regularly for many things. And typically most of the population don’t read or understand what they sign. Some get a little burned and some not at all but rarely do they get as seriously ripped as when some sign a franchise contract.
I am suggesting the foolishness of signing franchise agreements without serious due diligence is related to the propensity of a lazy society to sign anything if there is something with apparent glitter to be had.
AT BMM there is a dimension of tragic stories from those who have been burned for whatever reason. They are merely the tip of the iceberg and that is the truth. Those looking into franchising should reflect on whether the effort and expense to be confident in a franchising decision is preferable to joining that club and losing ‘all’.
Franchising is very complex and the newbies simply don’t know what to investigate or how to interpret the information. The problem is they think they do. BMM offers great reading on areas of due diligence never considered by prospective franchisees but they should not be fooled; there is an art in interpreting the right information when trickery always looks, smells and tastes like the real deal.
Note: ‘All’ is too often ALL someone owns and cares for and a debt into a miserable future if a mistake is made.
The more things change; the more they stay the same.
We have been Zees for 15 years. We don't make as much as a lot of people in the community thinks we do, but we make more than 90% of the households in the US.
The real problem is most often (NOT always) that people who inplicitly know that they don't have the combo of knowledge, skills and courage to launch their own independent business, will put everything they own and can borrow into a crappy franchise under the delusion that it is a "proven system".
In many, many cases if they knew a dog danmed thing about the industry they were getting into, they would recognize it as a scam without even needing to hire Solomo, Esq. But instead of taking 6 month of their time and a bit of a pay cut to gat a job as a management trainee in that industry for half a year, they prefer to spend hundreds of thousands of $ and sign a multi-year agreement ti get 2 weeks of training (and the "proven system").
Often what they pay in fees is more than a year's tuition at Harvard, and for this they get 2 weeks training. If it is a "proven system", how many have been operating for 5 years and how profitable are they? Instead too often people jump for the latest "fastest growing" and/or "hot concept". Look up some prior year's fastest growing. Then follow up a few years later. How many of one year's fastest growing were the next year's flash in the pan, and a few years later were closing units or even in litigation? Crispy Creme, Boston Market (before MCD bought the carcass), etc.
The only way to do this without hiring all these consultants to tell you what to do, is if you ALREADY know the industry better than those consultants.
GB writes: "In many, many cases if they knew a dog danmed thing about the industry they were getting into, they would recognize it as a scam without even needing to hire Solomo, Esq. But instead of taking 6 month of their time and a bit of a pay cut to gat a job as a management trainee in that industry for half a year, they prefer to spend hundreds of thousands of $ and sign a multi-year agreement ti get 2 weeks of training (and the "proven system)"
Richard and I, and many others, have constantly made this point: 6 months working in a franchise system is a better education than you can buy from any consultant. Indeed, this is one of my first recommendations - work in the system for 6 months and come back to talk with me then.
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
Working in a franchise for six months and regularly communicating with a franchise owner regularly is not enough. One doesn't necessarily get a feel for the chain and the industry. The guard at the information gate is the limits of one franchise owner-operator and their staff.
The franchise buyer must reach outside the store to get a sense of what's happening in the sector as well as the chain as a whole. That's not easy. Solomon nor Webster can help with that.
Buyers need to have access to reliable information that give them an accurate 30,000 foot level view. Industry reports from trustworthy sources (costing a few hundred to over a thousand dollars) help. Buyers need a reliable mentoring system that they will have to construct in a way that can give them the perspective they need. They need to participate in trade groups and connect with specific sector consultants to help pull the franchise candidate outside of the day to day running of a store. They need to understand not only the health of the franchise system that they are in but also of the long-term trends in the industry. That's part of the reason why franchisee associations, if done right, are so important.
Researching an industry and a potential franchise investment is not easy. It's costly and time consuming.
follows it. It is the single highest quality due diligence you can gtet. That's why I call it the Ultimate Due Diligence.
But there is no fixing stupid.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Internet records show that your site came online in June of '98, as in 11 years ago. So, 'full of shit' might be good term.
While you posture here in pretend school, remember that hundreds of thousands are actually making a living in franchising.
Mistakes like that are sometimes used as the basis for claims that I am nuts/stupid/crooked/perverse/gender ambiguous and free thinking.
You are very astute to have pointed that out and to have called me names for having made a mistake like that.
Thanks you very much for your attentive assistance.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
May God smite him with his best smiting club.
Solomon says, "But there is no fixing stupid."
I struggle with this excuse. I know that there are people out there who are inept. But I also know that this is used too commonly as an excuse to clean the accuser of any blame for the failure. It's a convenient excuse. What is unsaid by the statement is this: "My consulting and system is flawless. The only reason this person failed is because he is an idiot. And there is no fixing stupid."
When I hear it, red flashing lights go off about the person saying it.
On the other hand, I understand what Solomon is saying is that entrepreneurs are a hopeful bunch. Some potential franchise buyers will blind themselves to harsh reality, despite it being in front of them by working for a franchisee for six months before they sign a franchise agreement and buy a franchise.
decision to risk everything you have without competent risk evaluation. Being hopeful is - in my mind at least - another way of being stupid. Hope is not an adequate substitute for investigation, and hope is strictly limited to the crap table. Hope is not competent investment investigation substitute. Using hope as an excuse is stupid per se.
I am a bit amazed that you would even think of excusing stupid by calling it hopefulness. That is way too politically correct for me. I aint Leo buscaglia, and Leo Buscaglia approaches to franchise victimization risks won't be coming from me. That is why I went to the trouble to say if you don't like me or my manner, please go elsewhere with your franchise problems. I have little sympathy for those who refuse to use risk reducing resources when they invest everything in one shot.
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School