Franchisees choose to sign contracts but does that leave them entirely
at fault and entirely responsible for the cost? I would suggest that
often it does.
There is an ongoing debate on whether franchisees should take full responsibility for the poor commercial decisions that led to their failure. From a franchisee’s perspective the debate tends to focus on one aspect of franchisee failure, depending on which side of the fence the commentator sits and in the case of those that may have a slightly more distant perspective, they tend to focus on one single set of presented circumstances that may have led to a failure. But that would not typically cover the complexity behind the franchising industry's failure rates.
It is a massive over-simplification.
In my experience we tend to see these categories of franchisees;
- Those that performed a killer level of due diligence with the assistance of professionals and are successful. And are never heard from. Financial success tends to vary depending mostly on the performance of the franchisee.
- Those that failed to perform any adequate level of due diligence but were successful. They are never heard from. Similarly, franchisees tend to determine their level of return.
- Those that sign into a good or bad system and fail to comply with the Operations Manual and therefore the Contract and are then terminated. They were not scammed but they complain.
- Those that sign and fail because they did not perform effective due diligence on a system that was flawed. And that can include that they took lousy advise from a ‘cheap’ ‘professional’ that knew almost naught about franchising and/or they were not suited to franchising and/or the industry. They complain.
- Those that performed killer due diligence, signed into a good system but didn’t realize their efforts would be central to any success. You don’t download even a quality system and sit back and expect it to work without a serious effort. Quality front line operators are needed to make any business a serious success. However; these franchisees complain.
- Those that did not perform serious due diligence, signed into a good system but expected the system to provide everything for naught … and it didn’t and their negativity caused failure. They get what they deserve but they still complain. They should have known before signing what they were in for.
- Those that signed into a good/bad system and were terrorized by unconscionable power-obsessive conduct by the franchisor. Yes; even good concepts and systems can be driven by psychopaths. These franchisees were scammed and they do complain.
- Those that signed into a system that was designed to drain them, get rid of them and on sell to the next idiot. Oh … how they complain.
- Those that signed into a good system that encountered financial difficulties within the contract term and where the franchisor chose to gouge the franchise network to survive. They were ultimately scammed but they signed the contract. They were scammed and they complain.
- Those that bought into a quality system and the system was sold into the hands of an abusive franchisor that destroyed the viability of the system. The scam was out of their control. They complain.
- Those that were provided with inaccurate disclosure and did not perform an effective level of due diligence. They were deliberately scammed by the franchisor but they hold much of the responsibility. They rightfully complain but they could have known better.
In my experience we tend to see three major categories of franchise systems;
- Good – Very Good
Vocal international exponents in franchising seem to suggest that the’ Very Good’ are vastly out-numbered suggesting that way too many franchisees can at least share culpability for their outcomes with their franchisor. And probably tens of thousands were simply scammed. This is after all a big world and a big industry that has been operating for many decades.
Due diligence must include research into the quality of expert advisors, the suitability of the franchisee, the financial well-being of the franchisor, the worthiness of the franchisee financial model, the longevity of the concept, the terms of the Contract, the accuracy of Disclosure Documents, reports from existing and past franchisees and the historical behaviour of the franchisor toward the power of the Operations Manual.
When franchisees have completed killer due diligence and then get scammed they may still have reason to complain and seek remedy.
Franchising is a tricky business. Stupid people need to blame someone … else. People legitimately complain and no one really listens. Then comes the time for even harder decisions ….. walk away if they must or litigate if they can?
Not many franchisees get expert advice on the way to ‘too late’. Many dig an even deeper hole for themselves and their families by not getting expert advice before they sign, during the period where they realize they have a problems and/or before they stick their foot in their mouth.
Those that cannot pursue an affordable remedy tend to pursue a ‘public’ justice system in the age of social media and the age of exposing the scams. God love ‘em.