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The FranWad Manifesto

I recently thought I had a very bright idea. The idea was that Mike Webster, Paul Steinberg, Joel Libava and I ought to meet in Detroit on August 2nd to discuss putting together a really whiz bang franchise investment due diligence vehicle.

As the story goes/went, this facility would conduct extreme killer due diligence sessions for people who are about to sign franchise agreements and bet the farm on a franchise opportunity investment that they are ill equipped to evaluate for themselves and that their local business lawyers don’t understand either.

Unfortunately, the others whom I invited eagerly accepted my invitation to come to Detroit for the meeting. I hope they didn’t buy nonrefundable tickets, because I now am certain that this would be an expensive and losing venture, and that all their wonderful talents and skills would be no more than pearls cast before the undeserving.

Accordingly, I withdraw my invitation for August 2nd, and I believe I am doing all of us a big favor in making that decision. My reasons are approximately as follows.

We can’t go around the country putting on these franchise due diligence seminars, because if we were to do so in any state in which at least one of us was not a licensed attorney, our doing so would be subject to prosecution as the unauthorized practice of law, a felony in every state. I know that the franchisor constituency would be haranguing the state bars of every state in which we were not licensed to go after us for UPL violations. That would be expensive, a probable bad outcome for all of us, and a reputation damaging event that we don’t deserve.

To organize, promote and execute the operation plan of this project would be very expensive. Think of all the advance expenses we would have to provide resources to cover, and you will realize that none of us will probably wish to put up the money required.

I could live with these first two problems, but the third issue is the straw that breaks my back on this concept.

The third issue is that I see amongst the franchisee community an intense resentment at having to pay significant legal fees to obtain investment risk reduction that they believe they are automatically entitled to from the government and are not getting. People who believe that professionals ought to “step up” and provide protection for investment savvy deficient potential franchisees, either before or after they have been fleeced by crooked franchisors, seem to me to be the heart of the constituency we would be trying to help. Accordingly, I seriously doubt that franchise investors would pony up from $ 500 to $750 plus the cost of attendance at the due diligence seminars. Try as I might, I cannot bring my self to believe that franchisee wannabes who won’t pay for competent due diligence now would suddenly start doing so because we four made this program available.

Mike Webster made a very cogent comment last year that what I have in mind has to be a great deal more “cost friendly” in order to get franchise investors to avail themselves of it. He is right. In my own due diligence practice, the turndown rate is over 80 %. People want to pay $ 200 to have some lawyer – any lawyer – “read the contract”. Every failed franchisee did just that – limited his due diligence costs to just a few hundred dollars. Then they can’t understand why they didn’t get competent help and ended up losing everything they have in this world. The 20 % that see what I am saying about the need for competent pre-investment due diligence don’t get fleeced. The 80 % who are just too damn cheap get slaughtered and end up in bankruptcy. Webster was right and I was wrong.

I have decided to just continue representing those investors who will pay for killer due diligence, and to let the rest of them take their lumps. I aint their babysitter, and I’m not going to invest in trying to change their perception of risk management.

I apologize for getting folks excited about what ought to have been a great idea. I no longer have any faith in it, and I have decided not to try to convince other lawyers to make an investment in it. Sorry folks. When we next meet, I’m buying.

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About RichardSolomon

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I am a lawyer whose practice focuses on franchise matters,antitrust issues and crisis counselling - bet the company situations. My practice information may be found at FranchiseRemedies.com. I have now been doing this for over 49 years, My focus in dealing with conflict resolution is to get into it as early as possible, when the client first suspects it may be coming, and head it off. The avoidance of conflict is just about always the least costly and the least injurious way to deal with it.

Area of Interest
Buying a Franchise