Proven Systems?

Posted Wed, 2007/03/28 - 23:46 by jbm

Why does the everyone keep saying that franchises are "proven systems".

Using the word "proven" is gratuitous and self serving. I have not seen one UFOC that provides enough data to the use the word "proven" in any description. Perhaps, you can point to some grand fathers of the franchising industry that can justify the use of "proven" only because historical data and shareholder approval, but most franchises get a lot of mileage out of throwing the term "proven" around with no means of backing up the word.

I will go even further and submit that some concepts are the opposite of "proven" and that they are non-viable from the first day the doors are open. And even worse, over an extended period time - after adding increasing product costs, increasing wages, added competition (in and out of the system) - that the viability falls even further.

Even systems with hundreds or thousands of stores can fall into the non-proven category as the franchiser attempts to pile additional requirements (fees) and modifications onto the franchise system with no regard to the bottom line. I challenge the AAFD to make part of the accreditation process the task of providing sufficient data to justify that the Franchise is a "proven system". If a franchise system wants to use the "proven", I say "ok, then show it". The franchiser cannot just point to corporate stores and "see" without coughing up the data behind those stores to justify their success.

How about - as part of the accreditation process that the Average Unit Expenses be reported along with the Average Unit Volume? Those franchises (franchiser and franchisee) who have been sensitive to the bottom line of the brand will have nothing to fear by providing this data. Include the Average Unit Utilities, Average Unit Lease Cost, Average Unit Labor, Average Unit Product Costs. These values weighed against the Average Unit Volume will give the franchiser, the franchisee, the market analysts and any future investor a snap shot of how "proven" the system really is. Each of these numbers will be an indicator to how well the franchiser and franchisee have done during the quarter at working TOGETHER in promoting the brand.

Over a period of time the Brand improves in stability and quality because to attract future investors the franchiser will need to ensure that the reported Unit Averages reflected a truly "proven system".

I know, I know - don't hold your breath on that one….but it felt good thinking about how good it could be.

-jm

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34 Comments

Dreaming of a Better 'Morrow by Bob Frankman

Submitted by Bob Frankman on Thu, 2007/03/29 - 00:15.

What an easier world it would be to know system-wide financials, average bottom-line earnings, turnover in franchise units, and more. You are on target, jbmont60. I'm with 'ya, and welcome!

Frankman

And then... by Guest

Submitted by Guest on Thu, 2007/03/29 - 09:27.

when franchisee fail, whose fault will it be? When will the franchisees ever be held responsible for engaging in a risky venture. As you rightly point out, just because something is stated as being "proven," does not necessarily make it so. The bottom line is that in some respects, salesmen around the world are the same - they just want their commission. It is thus incumbent upon the franchisee to see beyond the bells, whistles and "kumbaya" songs around the campfire to make a decision as to reasonable likelihood of a return on their investment. Although these franchise agreements are by and large one-sided in favor of the franchisor, there is nothing, to my knowledge, that forces a franchisee to join. While better disclosure is warranted, it does not abrogate the franchisee's own responsibility to exercise common sense aka due diligence when they are playing with their life savings.

Proven Systems ----Proven Liars by Guest

Submitted by Guest on Thu, 2007/03/29 - 12:55.

If only more of the ZORS who hype their "proven systems" could be held accountable and proven to be liars in the courts of our country. But, when "push comes to shove", in reaslity, who gets shoved under the relationship laws of the ZEE to the ZOR under the terms of the contracts of adhesion that are upheld by the courts?

"Proven system" claim by Paul Steinberg

Submitted by Paul Steinberg on Thu, 2007/08/23 - 12:48.

Aug 20, 2007 (Inside Retailing - ABIX via COMTEX) -- An investigation by the Australian Competition & Consumer Commission (ACCC) has led to a favourable outcome for Quizno franchisees. The Quizno Sub franchise was started by a company linked to Wendy's, Quizno Australia, with "franchise territories" sold in various parts of Australia between 2002 and 2006. However, stores that opened under the Quizno Sub banner subsequently closed. The ACCC's investigation into Quizno revealed a number of possible breaches of the Trade Practices Act, including that it had claimed its system was proven when such was not the case. Quizno franchises will now get their fees refunded.

Wonder if litigation exposure will dissuade any brokers or zors from using the "proven system" pitch...

Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400

Number crunching by Jim Blue

Submitted by Jim Blue on Thu, 2007/03/29 - 10:32.

System wide operating unit financials and turmnover stats should be a minimum disclosure requirement. However, numbers can be configured to support a position, at least to some extent.

If a zor is going to claim a proven concept the standard of disclosure should be to reveal the financial character of the system to the exclusion of misleading data and statements. The zor is then free to meet that standard as they see fit. The task of the zor and zees then becomes to find compatibilty so they can move forward as partners with a mutual understanding of disclosed historical risks. Zees can find out what the zor is doing to support the system and the zor can find zees capable of implementing the brand concept succesfully.

I believe a very high number of people pursuing their dream do so with a believe and succeed attitude. That is not a shot at Dale. If you are considering your own business as a zee or an independent you are confident of your ability and expect to be successful. Independently you are on your own. You perform due dilligence to the extent you recognize it. A zor needs to meet a higher standard not to mislead no matter how that may be done.

JimB

what...? by jbm

Submitted by jbm on Sat, 2007/03/31 - 07:07.

Abdicating responsibility?

Noone here is suggesting that the franchisee is abdicating the responsibility of due diligence, the overall risk or day to day operations of the business. Nor is the suggestion that when a franchisee fails it is not the utlimately the responsibility of the franchisee, although, the thought of "straightening deck chairs on the titanic" comes to mind with some of these systems.

This request is actually pretty obvious in it's intention, that is, publish the Unit Averages so that the public can analyze why a "proven" system has a 52% failure rate, 33% on the transfer list and a wake of bankrupt investors. If this were a market securities issue, 60 minutes, 20/20 and the morning shows would be all over it.

There is a word used for advertising and selling investements based on false or undisclosed information - and that F-word is pretty well used by Mr. Purvin.

-jm

FTC Rule Purpose aborted by Language and Practice by Guest

Submitted by Guest on Thu, 2007/08/23 - 13:03.

When the FTC produces a Rule that results in State UFOC's that do not require the ZORS to disclose the KNOWN failure OR success rate of first-generation franchises to NEW prospects, we have to know that the RULE was a DEAL made with the ZORS. While the purpose of the rule is said by the FTC to be to provide essential information to buyers to permit them to assess the risk of the investment, and to compare the investment with other investments, the UFOC's do not do this. Instead! the whole process seems to be a cooperation between government and the franchise industry to obscure the risk and hype the benefits of franchising to new buyers. The purpose of the Rule, of course, was to prevent and cut down on some of the more obvious fraud that was going on in the 70's. The result of the Rule seems to be the enabling of fraud on a larger scale by ZORS with famous brand names who have their way with our legislators and the courts. What is the solution?

Number Crunching ---Visability and Viability? Churning! by Guest

Submitted by Guest on Thu, 2007/03/29 - 11:32.

Thanks JB for your observations. They are right on target. We need better and more honest regulation of franchising and I believe tht the ZOR "needs to meet a higher standard not to mislead no matter how that may be done". Probably, only the Congress can make this happen, and Lou Dobbs indicated last night that perhaps this Congress will be more interested in what is happening to the American "middle class" because of corporate greed and excesses that are undermining the middle class in America today. When Giant Zors like Quiznos and UPS can built their very visible networks to a great extent on the backs of failed first generation franchisees who "transfer" their franchised businesses to second generation franchisees at almost a total loss, and this "churning" is obscured and not revealed in the UFOC's, this is certainly misleading and acts as a subsidy for the churning ZORS at the expense of ZEES. We need TRUTH IN FRANCHISING laws just as we needed Truth in Advertising Laws and we need to regulate Franchising at least as well as securities are regulated.

What? There's something about the truth! by Guest

Submitted by Guest on Sat, 2007/03/31 - 11:57.

Thanks, JM, for the consise and well stated message of truth about "selling investments based on false or undisclosed information"! You are right! If those churning franchisors who end up as Top 5 in business magazines and in AARP articles were regulated as well as the SEC regulates securities, these cheating and churning franchisors would make it on 60 minutes, 20/20 and the morning shows because it would be "product" for the media. Apparently, some franchisors have been cheating franchisees for so many years under the auspices of "franchise regulation" that it isn't even news any more. While things are a little better, those conditions and circumstances Mr. Purvin points our in his excellent book "Franchise Fraud" are still with us and still need to be worked on.

The Shaping of the Law through new Case Law by Guest

Submitted by Guest on Thu, 2007/08/23 - 13:40.

Always, the shape of the law is changing because of new case law that changes or clarifies existing law. Not being an attorney, I am not sure that what I have read, and thought I understood, has led me to the correct conclusion. There has been case law made in a State Court that indicated that misrepresentation, that was treated as a "crime" under state law, could not then be treated as a tort because it was unconstitutional under the "double jeopardy" bar in The Constitution. The misrepresentation in this case in the State Court of Florida involved franchising and it was a DLA Piper win for the client. Will this decision in the State Court of Florida render Rescission as a "one bite remedy" for ZEES and render the State Franchise Relationship laws ineffective in providing a private right of action for ZEES in the courts? There is, of course, no private right of action for violation of the FTC Rule and this encourages predator ZORS.

12 by Guest

Submitted by Guest on Thu, 2007/08/23 - 14:01.

Never! would we have a better mouse trap or improved and safer products if flawed products were allowed, under the law, to be sold to the public. Never! will we have better and safer franchises until the ZORS are made accountable and CAN'T SELL flawed business opportunities to the public This is bad government policy that supports bad ZOR policies. We neet TRUTH IN FRANCHISING. The DEAL OF THE UFOC NEEDS TO BE EXPOSED.

THIS DOESN'T MAKE SENSE by RichardSolomon

Submitted by RichardSolomon on Thu, 2007/08/23 - 13:58.

This can't be correct. I would have to see the court's full opinion to appreciate reasoning that flies in the face of everything we now know.

There is no double jeopardy defense to a civil action based upon conduct that has already been tried in a criminal case, regadless of the outcome in the criminal case. That is true in every state and in the Federal system.

By way of illustration, O J Simpson was acquitted of murder in a criminal case, but was amenable to trial on the same conduct in a later civil case which he lost. Under the antitrust laws, a justice department criminal conviction obtained against a defendant can be used in later civil litigation to establish the plaintiff's prima facie case.

This whole double jeopardy statement doesn't make any sense.

Richard Solomon
www.FranchiseRemedies.com

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

Shaping Law by Guest

Submitted by Guest on Thu, 2007/08/23 - 19:17.

I'm not sure about Florida. Maryland Law allows two bites. In Maryland Franchising is treated the same as Securities. Then again if Florida law does have a right of private action and DLA Piper is involved there may a first in waiver of right in that State as well. You can go to the: www.nasaa.org This is the North American Securities Administration Assoc. You can find the laws for each State even if they are not a Registration State

DD by Guest

Submitted by Guest on Thu, 2007/08/23 - 19:43.

I'm right thre with you. As a zee I can tell from experience that it would be a welcome relief to sit back and say that I'm 100% accountable for the failure. When the answer is always DD then these people might consider that DD is done on what is being disclosed. If its not bad enough that the UFOC is full of disclosure violations consider the DD in looking at the laws that are to protect you. In DD in Maryland one considers that the UFOC discloses that you should sheck the laws in your state as they may vary. go to www.nasaa.org You can view the laws by State. These laws them selves are not enforceable. While I think that is pretty, I also think that they should be removed from the books if they are not going to be enforced It gives one a false sense of security

Trying to Make Sense of DLA Win by Guest

Submitted by Guest on Thu, 2007/08/23 - 14:12.

I told you, Richard, that I didn't know whether or not I was interpreting what I read correctly because I know what you have said, above, is true. But, I found what it was that gave me this impression and I quote it below. This comes from a DLA site advertising their victories for their clients in franchising: "Successful argument in a Florida state court that part of the Florida Franchise Act was unconstitutional. The provision involved made it a crime (and allowed the filing of a civil action) for a franchisor to make a misrepresentation about the propects or chances of success of a franchise to any party."

Double ? by Guest

Submitted by Guest on Thu, 2007/08/23 - 19:22.

How would this case differ to that in Md.? In looking at thier State Laws it discloses the right of private action. Yet it was held against D&R. Even not accepting recision they still had a right for restitution and damages. So I guess that if you don't take an offer because you have choices then why is it held against them. After all OJ was found not guilty. CB on the other hand was guilty

Maybe you should have performed even a smidgen of due diligence by Guest

Submitted by Guest on Thu, 2007/08/23 - 19:48.

You act as though you were prevented somehow or deprived in some way in doing due diligence. What is your excuse?

RATIONAL EXPLANATION by RichardSolomon

Submitted by RichardSolomon on Thu, 2007/08/23 - 14:19.

It was probably in some county trial court with some bozo judge and the case got settled without an appeal court ever seeing it. Either that or the story is wrong.

Like all states, Florida has some really superb state court trial judges and some that are there for reasons other than capability.

Richard Solomon
www.FranchiseRemedies.com

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

GUILT OR INNOCENSE DOESN'T MATTER by RichardSolomon

Submitted by RichardSolomon on Thu, 2007/08/23 - 19:41.

How the criminal case comes out in the end doesn't matter. Double jeopardy is all about having to be tried twice - both criminally. Once the jury is impanelled, jeopardy attaches and that's it. There are exceptions, but they are for unusual circumstances.

All of this has nothing to do with the two bite issues in Maryland.

In The CB case with R&D, the rescission offer tendered included a release clause. If you release a claim, that's it - it's over. I have a feeling that DLA sneaked that release language into the rescission offer and that release language may not have been specifically authorized by the enforcement agency. But that too is beside the point, as R&D declined to accept the rescission offer. That makes the offer moot. A refused offer is the same as no offer having been made. So their situation isn't about two bites. Had they acccepted a rescission offer without a release clause, then the two bite issue might be there to deal with. As it stands now, however, two bite questions are not part of the R&D war with CB.

Richard Solomon
www.FranchiseRemedies.com

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

Same ole same ole by Guest

Submitted by Guest on Thu, 2007/08/23 - 20:43.

Always the same answer. The absence of DD Which some what reflects the surmation of cases never read yet judged While DD is the best way to get the information needed to make your decision on, you need to do DD in your retaining of an attorney. Sometimes attorneys have been practicing law so long they lose sight of the fact that there are many laws in the big city. Then there are people who do no DD. Are you suggesting that if fraud was the basis of the sale the zor is innocent? So you take into account the advantage one might have over those who have less business savy and experience? Or is it just anger that another one slipped through fingers? As for DD while I believe that it is the absolute way to go, I would also like to know haw many of the DD representatives have a 100% score as in never ever missing the boat on something that was not disclosed

Rational or not ---Advertised by DLA Piper as a victory for ZOR by Guest

Submitted by Guest on Thu, 2007/08/23 - 14:50.

The fact that this kind of case law that made a part of the Florida Franchise Law unconstitutional "because some bozo judge got the case settled without an appeal court ever seeing it" is not very comforting, Richard. I don't suppose you would even go to the trouble to try to find this case and take a look at it. It would be interesting to see if there was any justice for the ZEE. Probably not!! And, of course, this doesn't have anything to do with the CB Case and Dale Cantone and the tale of the Rescission and Consent Decree in Maryland.

ONLY JESUS IS PERFECT by RichardSolomon

Submitted by RichardSolomon on Thu, 2007/08/23 - 21:21.

If you find a lawyer who is like Jesus, hire him/her.

Richard Solomon
www.FranchiseRemedies.com

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

The Moron Army has a general! by Guest

Submitted by Guest on Thu, 2007/08/23 - 15:17.

go forth and conquer

DLA Piper by Guest

Submitted by Guest on Thu, 2007/08/23 - 19:31.

:You are exactly right. There are many who use the DD answer for anything and everything that wuld other wise require reading. Dla Piper is making quite a few land mark wins, that if go uncontested will cause even greater hardships for a zee to ever get Justice In less then a year they have managed to Change Florida Franchise Law And set a precedent in an arbitrator's ability to over rule a State Securities Commissioner. There may be quite a few law firms that will either not be aware that this happened or too lazy along with lacking the knowledge to understand that at some point you have to stop explaining away the loss of our legal rights to SOME BOZO JUDGE. Most attorneys will tell you that it may have been a bozo judge but that case will be cited when you least expect it.

With the Moron Army and the Bozo Judges --ZORS have it MADE by Guest

Submitted by Guest on Thu, 2007/08/23 - 16:12.

Because of the Moron Army and the Bozo Judges and bozo attorneys, the ZORS appear to have it made and The Patriot Express Loan Initiative will be very successful for the ZORS who will send VETS into the ranks of the Moron Army. The Moron Army serves their country because they provide the fuel to keep the fires of business development burning brightly in the economy. To prevent joining the Moron Army, be sure to do your due diligence with Richard Solomon who KNOWS the truth about franchising and franchising fraud and who will help you not to get caught in the trap of a very bad deal that looks so great from the outside and is just rotten on the inside --but legal, of course, and the government will be happy to guarantee a quickie SBA Loan for you to buy that rotten franchise. Richard Solomon advises that he will counsel VETS of Afghanistan and Iraq for nothing and he offers a really good $1,000 NEGATIVE Due Diligence Tool that would be very useful to all of those attorneys our there who merely check the contract and have no idea of how to Vet the offering and also helpful to prospective franchisees. LET THE BUYER BEWARE --of franchising in general and of those who defend the government's right to permit ZORS to exploit and cheat those ZEES who do no personal due diligence befiore they invest in all of those high risk franchises on the government's SBA's Franchise Registry. All Generals have to march and if there is no victory at the end of the march, there is victory in the marching if the marching is for a good cause.

RAISON D'ETRE by RichardSolomon

Submitted by RichardSolomon on Thu, 2007/08/23 - 16:30.

That's why we're in here - to try to educate folks and make that situation start to change.

Richard Solomon
www.FranchiseRemedies.com

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

RAISIN DATES by Bob Frankman

Submitted by Bob Frankman on Thu, 2007/08/23 - 16:52.

Yep. RAISIN DATES, that's why we're here.

Anyone hungry?

Raising morons is hard... by Guest

Submitted by Guest on Thu, 2007/08/23 - 17:00.

Sort of like herding cats!

I KNOW SOMEONE WHO DOES THAT by RichardSolomon

Submitted by RichardSolomon on Thu, 2007/08/23 - 18:08.

My girlfriend actually does that very effectively.

Richard Solomon
www.FranchiseRemedies.com

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

SAINT BELINDA by RichardSolomon

Submitted by RichardSolomon on Thu, 2007/08/23 - 18:46.

I know you thought I was just being my usual flippant self.I wasn't. Consider the perspective of just one of the cats:

http://www.seamusmuldoon.com/puddins_gospel.htm

Richard A. Solomon
www.FranchiseRemedies.com

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

Thanks, "Old Muldoon" who loves a cat lover! by Guest

Submitted by Guest on Thu, 2007/08/23 - 19:49.

As a cat lover and a lover of people who love cats ---because there are special and different and independent like their kitty cats, I really enjoyed your tribute to Saint Belinda. Ah! again! just another facet of our many faceted gems, Muldoon and Solomon, who bring wisdon, wit, humor, and other stuff, but not humility, to morons and geniuses alike who hang around on Blue Mau Mau.

Weird Cat Stuff by franpro

Submitted by franpro on Thu, 2007/08/23 - 22:34.

Richard,

We have not bonded as of yet, but I do read and consider what you have to say once in awhile. I know I joined this comment stream a few months late, but I thought this was really about pigs..

not little freakin kitty cats!

Franpro

Franpro is:

Joel Libava, President
Franchise Selection Specialists Inc.

Cleveland, Ohio

LES CHATS by RichardSolomon

Submitted by RichardSolomon on Thu, 2007/08/23 - 21:45.

The cats come to me for advice even more than franchisees -

http://www.seamusmuldoon.com/the_feast_of_saint_belinda.htm

Richard Solomon
www.FranchiseRemedies.com

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

Booger and Bubba --For cat lovers only ---Personal by Guest

Submitted by Guest on Thu, 2007/08/23 - 23:39.

Booger and Bubba would have loved my Cleopatra, my good friend and companion of so many years Cleo was a regal kind of gal who thought she was pure Siamese but her Momma ran around with the wrong breed and she she was more beautiful than any old pure Siamese Cat could ever be. It was an accident that she came to live with us. One of the children, our compassionate first son, found her in front of a Quick Trip store sick and straggly and in need of help and brought her home to us because he just couldn't leave her there sick and all alone. She was listless and cold and silent when he brought her to us and seemed not to care if she lived or died. We already had a cat who had suffered a nervous breakdown in a recent 1,000 mile move. Junior Frankenstein(the kids named him) was highly suspicious of anything that walked on four feet and coveted his "only cat" status in our household, He had recently fallen off the deck when attacked by some marauding feline and it took all of our discretionary money to get the local Vet to try to save him. He had to live with a little red cast on his leg and had lost his desire to live but daughter and I cuddled and coddled him and spoon fed him Heinz Baby Chicken and he regained his desire to live and to again be a cat. We didn't think that Junior could survive another cat in the house. His sister whom he had loved and worshiped, Muriel Senator (kids named her after the Cigar) had been killed by a bird lover who didn't allow cats in his yard but we didn't think Junior would take to this new pussy cat. His Mother had disappeared and we believed she met the same fate and Junior was all we had left. We decided to take Cleo to the Vet and have her cleaned up and nursed to health and then we would advertise for her owner or for someone who wanted a pure-blooded? Siamese Cat. We were surpised when the Vet told us she has recently mothered kittens and we knew that she had probably seen better days and was just unceremoniously dumped to the streets by her owner(s). We were surprised too that she cleaned up so good and was so beautiful. We kept Junior and Cleo separated; one on the first floor, and one upstairs and we decided we would run an ad in the newspaper announcing that we had a beautiful Siamese Cat (who would know?) that needed a home who had her shots etc. up to date etc.. We waited until the weekend to place the ad and Cleo shared the bed with us, and was especially attracted to my feet. She followed me about and whenever I sat down, she was in my lap. We became very friendly. When the ad ran, we had a couple of calls and one very insistant lady who said that I should bring the cat to her because she loved Siamese Cats and would take good care of her. When I wrapped Cleopatra up in her little blanket and we got in the car, I felt a kind of grief that I wouldn't be seeing her anymore It was decided when we arrived at the address that I would deliver Cleo to her new owner. As I walked up the sidewalk of the modest and well-kept house, I heard the barking of dogs, many dogs, and Cleo stiffened in my arms, and tried to get free. A wild looking woman then exited the house and shouted "Oh, you are here! Give her to me." And suddenly, I just couldn't leave her there! No way could I leave her there with this wild looking lady and all of those dogs. I turned quickly and said that I was sorry, I said nothing more and ran back to the car and told my dear best other to get us out of there! The wild woman was approaching the car shouting "I want that cat" "Why are you leaving?" I gave her my best smile as we sped away. Cleo slept on my feet for 13 years. She and Junior became best friends. Cleo, however, ran the roost. She loved to groom the children and would spend hours, if you'd let her, working on their hair. She loved to play games with them and would observe all games with small balls and then demand her turn. When she didn't like the ornaments on the Christmas tree, she would send them flying down the stairs into the foyer. We all loved her. I miss her, even today. I hope the Feast of Saint Belinda will be well attended

Proven Systems?

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