Dealing with the Rogue Franchisor

Today the world seems chock full of disgruntled franchisees. Historically, the world always had sufficient unhappy franchisees.

These included franchisees that really had no right to be unhappy because they were making money on their investments, but resistant to the controls inherent in all franchise relationships. This article is not about well performing franchises whose franchisees resist the controls permitted by the terms of their franchise agreements.

This article is really about disgruntled franchisees who have good reason to be upset with their franchise relationship. They are living in a franchise system that is not performing well, and with an abusive franchisor.

The system is not performing well because it is a bozo business model significantly unlike what was sold to them in the sales materials and the FDD, or because it might once have performed well but is now over the hill and in a state of decay. All franchise systems – with the extremely rare exception – eventually come to the end of their life cycle and in those closing years perform just like newer franchises that are simply not competent business models. They are both bad investments, but many people invest in bad franchises.

Over the hill franchise systems have often been sold by their founding owners to bean counter mentalities who are hell bent on maximizing the short term profit on their investment for any of a number of reasons. They want better performance out of the system than the system is capable of providing in the normal course, and a decision is made to extract as much franchisor revenue as can be accomplished regardless of the impact on the franchisees. Franchisee financial performance gets poorer every year, but the burdens keep increasing despite the impact of steepening the rate of decline. As much as the franchisees complain, there is no relief.

Newer, bad business model franchises perform terribly early on. After two or three years there is a growing attrition. Franchises close at alarming rates. Franchisees are working more to service debt than to make a living. While they see the end as being a financial disaster, they have no way to deal with the situation.

You can see them in online forums complaining loudly and calling their franchisor awful names; all to no avail whatsoever. If they form a franchisee association, it is usually done on the cheap with a franchisee or two in the lead who have no idea how to deal with the problems. They are businessmen, not revolt leaders. They have never led a revolt and they have no way to deal with the fact that the rogue franchisor – if it ever appears that they are making headway – can simply find a pretext to terminate them and take their businesses away. Their vulnerability, coupled with their inexperience leading this kind of group in desperate circumstances, make the whole exercise futile. This goes on for quite a few years, never accomplishing anything but noise.

There may be a few crumbs tossed for the sake of appearances, but no substantive improvement in the franchise relationship. If the group has a lawyer, it is usually a lawyer who thinks he can simply point out the right and wrong of the situation and things will start to improve. This kind of lawyer is what the rogue franchisor hopes the group will use, because the rogue can simply tell the lawyer to go to hell – though not in those words. There may be some pretense at cooperation to keep the fool believing something may yet be accomplished, but it is just a game, and the rogue plays that game much better than your usual rules following business lawyer.

What does it really take to deal effectively with a rogue franchisor, one who really doesn’t give a damn and who is hell bent on extracting as much from the system as is humanly extractable no matter the consequences? These people have no long term interest in anything. Their business plan is to get as much out as they can and then leave. This isn’t McDonalds or Burger King. This is your bozo franchisor with a bad system and no moral compunction about putting everyone into bankruptcy.

His franchise agreement says roughly the same thing as the franchise agreements of well managed and well performing franchises. This means that the rogue has all the prerogatives as a matter of terms of agreement that a franchisor in a profitable franchise exercising good business judgment would have. What is lacking is satisfactory financial performance at the franchisee end of the stick, or, at best, worsening financial performance. Soon, if not already, the total cost of being a franchisee in a rogue system approaches 20 % of gross sales. The cost of the affiliation is far more than the value of the name, and nothing is coming out of the franchisor that has the prospect to improve financial performance for the franchisees.

How can you take control of your life and make this kind of franchisor respect the investment protection interests of the franchisees?

You cannot do it with any customary approach. The frat boy, church manners lawyer is completely useless here.

If the franchisees have a good claim against the franchisor and go to litigation or arbitration, recovery is possible. Despite what you may think, this rarely happens. It doesn’t happen because the franchisees won’t pay for the required legal services and the claims are not of a kind that some contingent fee law firm would take them on as clients. Often the claims that may once have been valid are lost due to delay. Often there are other defenses to the claims. Good contingent fee litigators take only the most platinum cases where, when they win, the franchisor is so financially sound that collecting the judgment is not an issue. Most rogue franchisors are low capital organizations with high risk of not being collectible when a victory is won. Potential judgments will probably be worth toilet paper, and contingent fee law firms shun those cases. In many instances the franchisor is itself possessed of little money or other assets. Some related parent company is taking most of the revenue upstream. The franchising company – the only one with its name on the franchise agreement – doesn’t show a profit of any significance. They believe that the parent is immune and that they can defeat any claim simply by keeping the franchising company lean and potentially uncollectible.

It is also likely that, since there are problems with the probable outcome of litigation, that is not the right avenue anyway. What is the alternative?

In finding the right alternative, the first order of business for an experienced leader is to determine the realities of the situation – is this franchisor really a rogue franchisor or is this a situation where the franchisees are not in command of a competent understanding of their rights and obligations. This is more than just a contract reading exercise because all franchise contracts say essentially the same things. Many times the franchisees are upset about matters that are common to most franchise system operations, and adjustment in their thinking about how life really works is the first order of business.

It is more about rational balancing of interests and orderly administration of the franchise system. With the rogue franchisor much is arbitrary and without traceable reason. It is difficult to link what is demanded with any perceivable benefit. One might generalize that things can be vaguely supportive of enhancing gross sales, but vague generalities do not rationally support expensive programs. Reasonable franchisors tend to have documented support for their programs. Rogues usually do not, and with rogues the story often changes frequently so that reliable consistency is missing. Simple dishonesty is a universal problem with the rogue franchisor.

A competent leader does not start throwing bombs if there is a possibility of establishing a professional working relationship with the franchisor. Where the franchisor is wall to wall hostile and unwilling to communicate in any meaningful fashion, good manners and board room professionalism is a waste of time. Hostility must be dealt with for what it is. Sometimes attitudes tend to change for the better once the franchisee association is established, but with a real rogue one may expect continued implacability. Leadership needs to be able to adjust to the ambient conditions and not try to pretend that something is what it isn’t.

The alternative that works against even an absolutely terrible franchisor works like this.

A small group of organizers who trust each other – not more than four or five people – hire an expert on franchisee association formation and management who can protect them from being identified by the franchisor as the organizers. This leader has to be an attorney so that the communications with him/her are privileged and confidential. The organizers retain the attorney to advise and assist them lawfully to establish an independent franchisee association and they are his clients. He prepares and sends out the recruitment materials to the entire franchisee population, inviting them on behalf of his clients to join and explaining the purposes and the benefits to be expected from membership. All membership applications go to the attorney and the dues sent in go into his trust account, held for the benefit of the association. But the checks for dues do not get deposited unless and until there is an adequate membership population for the new association to be viable. If the attorney and the organizers decide there is not sufficient support, the checks are put into the shredder and no one ever knows who was involved. The organizers, in that unfortunate event, then know that there is no sense bothering further and they can go on with their lives acting only in their own interests. Franchisees without sufficient strength of commitment to save themselves just end up getting what people like that get.

If there is sufficient membership support, the association is established, but in the early period – maybe a year or so – the members are taught to communicate mainly to the attorney to protect confidentialities until the rogue franchisor has come down off his horse and accepted the fait accompli of the existence of a franchisee association that is not under his thumb.

By this time the issues have been sorted out in order of seriousness, and a plan has been formulated to deal with them as they deserve. The attorney association Managing Director must be adept at the tactics needed to make the association’s positions reasonable and well supported. In that way if there is no cooperation from the franchisor, the association has accumulated the facts and evidence necessary to take more drastic measures as necessary. The priority is always to try to work things out in a reasonable business manner with the franchisor, but sometimes it takes a while for that to start to happen. Things must be done to win hearts and minds, if you know what that means.

This is a sequel article to a main publication on this subject that has appeared on two of my professional websites. The main article can be reviewed at FranchiseRemedies.com. I am trying not to repeat the important information contained in that article, so I strongly recommend that the two be read together.

There is usually a reluctance to participate. Many will join up immediately if the assessment of the seriousness of the situation has been accurate. Others will join up once the association has been formed and announced. There will always be a segment of the franchisee population for whom the association is simply too late to be helpful. They are too close to financial collapse and probably won’t be around within a year anyway. Some will cynically believe they can get the same benefits without having to join. That is a ridiculous fallacy, no matter how attractive it can be made to sound. There are no free rides in a well organized and managed independent franchisee association. There are simply too many instances where individual members need immediate expert help from a professional who has made it his business to learn about this franchise and how to deal with the issues. Members will have “no fee” access to this level of expert assistance. Non members will be out there on their own, having to find their own lawyer and pay for him to learn what the Managing Director of the association already knows.

Some will say they can't afford to join. That is nonsense. It will cost more each year not to be a member than it will to pay the dues and get the benefits. That response to membership needs to be answered just this way. You can’t afford not to join. Dues will amount to about the price of a pack of cigarettes a day, paid annually in advance. People spend that much each year at Starbucks. They can certainly afford to pay association dues to help themselves to effective franchise relationship management.

When you get tired of so called gentleman lawyers failing to get you to yes in your relationship with your rogue franchisor, try doing it this way. The consequences of the rogue franchisor refusing to cooperate are much more drastic than he wants to deal with. You can show him that he is not able to treat franchisees like dogs, no matter what the contract says.

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Comments

Very interesting article.

Will you be posting another article about the action this Franchisee Association could take? How would they put pressure on the Franchisor? I'd be curious to know if there are any examples of this kind of organisation. 

Where you say:

'This means that the rogue has all the prerogatives as a matter of terms of agreement that a franchisor in a profitable franchise exercising good business judgment would have. What is lacking is satisfactory financial performance at the franchisee end of the stick, or, at best, worsening financial performance'

Doesn't this mean that the situation might be out of the Franchisor's hands? I once worked for a Franchisor that was losing money rapidly, they were simply not profitting (largely due to the economic downturn and also due to strong competitors).  Franchisee discontentment was rife due to the financial strain - however I do believe the Franchisor was acting reasonable at all times.  In this situation wouldn't it be better to sell and try to get out?

Sell out to whom? Are you invoking the "greater fool" theory of

economics. That is the national economic theory of Texas. According to the Greater Fool theory, it doesn't matter what I bought or how much I paid for it. There will always be a bigger fool than me to whom I can sell it.

A franchisor whose system is going down the drain can be taken

over by organized franchisees with determination. If left to his own devices, the moribund franchisor will take a lot more franchisees down with him. The sooner franchisees seize control over their own destiny the less they will suffer.

Seriously Richard, how many

Seriously Richard, how many franchisees would be foolish enough to take on a bad franchisor on their lonesome or attempt to coordinate a combined franchisee action while skipping the parts where they access how they get franchisees to contribute more than hearty good wishes, what is actually achievable and whether they have the knowledge and experience to pull it off? And would there be any franchisee foolish enough to fight everyone’s battles without expert support?

I know of one such dill and I hope others learn from my mistakes. When my battle began with a new franchisor intent on maximizing his profit to the absolute detriment of franchisees, terminations and closures were at the kindergarten stage with only a small handful. By the time I had fought the stupid fight there were 190 franchisees that had been rolled. 

Thankfully I only lost my home, business, shares and some other trivial possessions such as my reputation, health and credit rating. It was annoying that my wife was in the same boat so we went down together. Bankruptcy comes and goes and I’m assured one day some bastard will give me another piece of plastic.

The point is that most of the 190 that went down could have been saved if we were smarter.  Most of the 190 were in business with all the typical personal assets but the common response was that the franchise abuse meant that they were doing it tough and could not afford a lawyer. Besides; they were agreed that I was doing a marvellous job on their behalf having already dedicated a few months to research while operating a business and being distracted as the obvious target.

One by one we all went to hell while the spectators hid until it was their turn.

My hindsight and franchising history proves to me that Richard’s advice is accurate and should be absolutely understood by every franchisee on the planet. Even if you are in a good franchise chances are it could turn to poo one day.  Investors tend to keep abreast of their particular industry’s developments but forget they are in the franchising industry as well and ignore an education until their failings bit them on the ass.  

Had Richard’s approach been followed those many years ago many franchisees may have been saved and even if they had still chosen to sit on the fence; my family’s lot would still be very different today.  I first read Richard’s website 8 years ago but I wanted confirmation that I was dealing with an ahole and failed to digest much of the critical warnings - an expensive error for this dill and his family.

I lost count of how many were churned leading up to the franchisor going into administration. I know it was actually more than 190.  The franchisor deservedly ended up busted ass broke but that didn’t do anyone else any good at all. It took too freakin long.

In terms of the end result, there is often little difference

between one or a few franchisees taking on the rogue franchisor by themselves and a larger group that is ineptly led.

In a declining performance fracnhise system, the ineffectual larger group ends up the same way as the impotent loners.

Militance is not what business people know well. Militance is just what its name implies - a military approach to dealing with the rogues. It entails secrecy, the application of group force in the tenderest places on the franchisor's finiancial anatomy, and the kinds of force multiplication tactics that an elite military unit would bring to bear to vanquish an apparent larger/stronger adversary. 

When the adversary cannot identify the franchisee leadership, he goes after the retained leader. In the instance in which I currently am involved as the leader, the franchisor actually filed a disciplinary action with the Texas State Bar attacking my law license. Of course he failed to get anywhere with that ridiculous gambit, but it would have scared off 99 % of the franchise lawyers, to whom a formal attack on their ethical standards seeking to have their law licenses revoked is their worst nightmare.

Leadership in these situations needs to be willing and capable to push the envelope as far as it will stretch, taking on himself the risks that in the normal situation are borne by franchisee organizers.

In my case, I know where the franchisor can and cannot go. I am not some novice when it comes to confrontation. No franchisee group, led by franchisees, can possibly deflect franchisor retaliation in the early phase of association formation. They are usually debt ridden. The debt all accelerates if the franchisee is defaulted/terminated. By taking the retaliation risk on myself, I relieve the franchisees from exposure to that franchisor tactic.

Or alternatively

The inept and the impotent can choose to learn as they fail. It is an expensive education.

One more point I consider worth mentioning; I firmly believe there is no franchise network out there, good or bad, that won’t benefit from an independent franchisees association. The gains relate to all the business benefits an association can offer and deter the ‘bean counter’ franchisor investor or the franchisor determined to squeeze the last drops from a dying model.

The brand is stronger when a collaborative franchisee association is in existence. The franchisees’ investments have far greater protection. The franchisor has better protection and the brand performs more efficiently potentially producing a longer life with better returns for everyone.

I recommend that prospective franchisees never consider an offering where the brand has no independent franchisees association.

Of course I agree with that. But I am talking not about good

brands that can be made better. I am focusing on bad business models in which franchisees are trapped by their bad investment decisions, and in which a absolutely awful franchisor is teraing their hearts out financially and in every other way.

Webster and Steinberg are the guys for the good franchisors' franchisee associations. My territory in this field is the "badlands".

Bad Business Model

It is important that people understand both the value and limitations of Richard's approach.  If you are in a bad business model that has to be changed, then Richard's form of militant economic behavior is designed to drastically change that relationship.  This can work.

On the other hand, if you are simply in a business relationship that needs work, the IAFD's model is what you should look at.

Importantly, it is often hard to tell at the beginning where you really are.

Webster is being a polite Canadian

While I agree with Mike Webster, I put the issue more bluntly:

What is the franchisee cause of action?

That is to say: What legally cognizable claim can the franchisee make? If you are seeking to form an independent franchisee association (IndFA), that is one thing. If you are seeking to litigate, that is a different matter.

While there are some folks who are lovers and fighters, a lot of attorneys tend to be one or the other--not both.

If you are a franchisee and you are speaking with an attorney, a proper question to ask is what potential cause(s) of action you may have. Just because your franchisor is the spawn of Satan does not mean that you have legal recourse.

While law is (to a great extent) grounded in morality, the two are distinct... especially in the 7th Circuit ;)

If you have no viable cause of action, litigation may be not merely fruitless but even counterproductive.

  • I remember some years ago speaking with a QSR franchisee who wanted to bring a claim under the FTC Franchise Rule. He had been told by a (famous) franchisee-side attorney that this was the way to go, and that the local franchisees should band together and come up with $7500 plus a monthly payment to cover the cost of suit. I showed the franchisee a copy of a decision by a Denver federal court in which the court threw out a suit against the same franchisor on precisely the lack of standing (there being no private right of action under the Rule).
  • Last week, I had a franchisee-purchaser of an existing site who wanted to bring suit based on a clause in his lease. The clause provided that upon assignment of the lease, the rent went up by $500 per month. The franchisee knew of the clause when he bought the franchise, and had been represented by counsel who appraised him of the lease provisions prior to purchase. Nevertheless, the franchisee felt the increase was not "fair" and could not understand why I would not take the case.
  • Franchisee attorneys also frequently deal with franchisees who have an arbitration clause but who want to bring suit. I have seen attorneys who will gladly take the client's money to bring suit, only to have the court dismiss the suit. The result is a franchisee who has wasted time and  money on a frivolous action.

Bottom line here: the Judge is not your priest, nor is the Judge your momma.

No matter how nasty your franchisor, if you have no viable legal claim the attorney should inform you of that.

Certainly there are cases where you might still proceed and seek to change or modify the existing law, or where you might seek to distinguish your case. And if you understand that you are likely pissing into the wind, that is your decision.

Most importantly: if you have a tenuous legal claim and seek to engage in "militant economic behavior" then you should get appropriate legal counsel as to the risks of doing so. For example, we have all heard of attorneys telling franchisees to withhold royalty payments based on the fact that the franchisor has breached the contract. Such action is likely to fail, and as a matter of law can be catastrophic for the franchisees.

As Webster notes, it can be difficult to determine the optimal degree of militancy at the outset. But it is a bit easier to assess your potential cause(s) of action and the legal merits thereof, and that may dictate your strategy--and indeed, whether you want to have a lawyer as the head of your IndFA in the first place.

Canadian Militancy

Paul;

One of Richard's greatest instincts is to understand the bully.   Further, he has a number of interesting litigation moves based on state laws, which can work to level the playing field.

Richard has played both sides of the field and he understands what can be done, and indeed talked me out of some legally dubious causes of action in the Cuppy's fiasco.  I very much doubt that he would make the elementary mistakes that you correctly have highlighted.

Should an attorney be the head of an association?  Yes, precisely when that group of people need a) freedom of association and b) need to do so in relative secrecy because of fear of retaliation.  It is sad but true that there are some American franchisors who don't believe in a substantive freedom of assembly, and instead believe that anyone can contract away these freedoms.

I am reliably informed that these "American" franchisors are actually descendants of French collaborators.

Canadian free speech

Canadian free speech has a long and proud tradition.

...well, sometimes not proud, but...

POG, baby, POG

Corbin Williston being an American Scholar, meaning that whatever happens outside the boroughs is of no interest, fails to inform the readers that the Canadian Constitution is premised on Peace, Order, and Good Government, or POG.  

As compared to the American libertarian creed which couldn't even rally enough people protect their national capital in 1812.  (Habs 4 - Capitals 3)

But, I do love the American inventiveness - after being burned out of their capital in 1812, they comprised a song, now the national anthem, celebrating how they ran the British out of New Orleans after the war was officially over.

Ballmer

Actually, the anthem was celebrating how we ran the Brits away from Baltimore harbor. The lyrics are original, but the melody is a British tavern song.

The Battle of New Orleans was won by Andrew Jackson, who had the politics of Les Stewart mixed with the temperament of Richard Solomon. You can win a bar bet by asking "Who was the only US President to kill a man?" (Some suspect Kennedy or Nixon, but only Jackson is documented).

Canadian QSR chains oh my

Canadian QSR chains oh my goodness are the worst ones ......especially run by groups pertaining to some religious denomiation ...... I dont want to mention.

Once you have signed on the

Once you have signed on the dotted lines you are done.Its pays to keep your eyes wide open before due diligence.Afterward it is better to be half shut........Most of the Toronto franchisees are not making any money they are just their to service their Small Business Loans because there is 25% personal indemnity should you close down along with personal indemnification on their lease contracts.
I was listening to an interview with George Soros the billionaire who said the the surest way to go bankrupt is to get into a franchise industry.You put a lot of money and effort and then it seems this consistency has to work.If I put a little more effort it has to work.People go broke this way.They should think okay its fine I just have to put this behind me.
Its crazy that most franchisees are obsessed to continue when they cant write three pages why they should continue to be in business and the future is better than the present.Unfortunately they continue their business with slave like wages into an obsession.

Most of Canadian QSR chains

Most of Canadian QSR chains oh my goodness are the worst ones ......especially run by groups pertaining to some religious denomination ...... I dont want to mention.Highly corrupt and worse than even their American counterparts.Kenneth Lay of Enron would be even turning in his grave...

Ahh, yes...finding the right lawyer...

...those forming franchisee associations better beware of the lawyer that says the contract clauses are unconscionable or contestable. Beware of the franchise lawyer that puts the onus on you of deciding whether you litigate or not. The good franchise lawyer gives you a roadmap of various alternatives that should be based on most probable outcome relative to case law.

Franchising is the wild wild west of the judicial system.

To Michael - I have a lot of respect for your point of view on the board, but I've attempted to understand what the IAFD has accomplished with small-medium systems.

Oh, and Andrew Jackson was my favorite president when I studied history...him and Eisenhower.

IAFD and small/medium systems

Guest asks: "I've attempted to understand what the IAFD has accomplished with small-medium systems."

The IAFD offers tools to any association, irrespective of its size, to build its membership and vendor support.  When Steve Ellerhorst was at Curves he used a simple method involving a website, newsletter, and his vendor contacts to build their organization from 0 unpaid to near 1,000 paid.

The same techniques can be used for a 100, 1,000 or 10,000 unit system.

Give me a call to discuss your specific situation.

Richard, I couldn't agree with you more...

...in aging systems especially those not in compliance with updated state regulations, even a divorce from the franchisor might be possible. 200 franchisees spending $2k could work to save the franchisees from thousands in top line franchise expenses with no value.

A good example of this are franchisors that charge $4k to $6k or more in annual 'software renewal' fees...when the software has neither been upgraded, maintained...imagine what a great lawyer can do for an association just on managing that renewal cost alone and how much you could save in the long run.

That's what franchisees have to understand...your franchisor's bottom line comes from your top line.

When to kiss

You bring up another point that franchisees don’t get.  At least until they are in the middle of the conflict that comes from being targeted by a bad franchisor and even then it doesn’t dawn on many franchisees as to why.

My case in not unusual. The franchisor attempted to buy me off in the early days but I wasn’t that stupid as to not realise that staying in a system that had evolved into ridiculously obvious profit draining mandatory new costs with an advertising fund being stripped of millions every year would mean eventual failure anyway. Besides; I had been in the system for almost 14 years at that time with ‘friends’ across the country in the same boat.

Many thought the conflict had become personal when it became obvious that the franchisor was spending a fortune to shut me down and up. That spending went on long after I had been terminated and amounted to much more than could ever be realized through the recovery of legal costs.

OK it was partly personal but making an example of me was worth an enormous investment by that franchisor.  The main reason a franchisor will hit an inept and impotent leader hard is to save facing a repeat of the array of costs brought on by any future revolt. He needed to set an example.

Even if you find a franchisee in a position to throw $400,000 at conflict that conflict isn’t close to dealing with 200 franchisees willing to throw $2k at representation. The financial potential of an independent franchisees association will force a franchisor to rethink. 

The costs to the franchisor are far more than legal costs.  Conflict is an expensive distraction from the business and will shut down the ability to sell franchises. In my case the franchisor could not absorb any more failed franchises into a flawed system and coverage of the conflict stopped the sale of franchises. Morale was destroyed within the company, senior staff jumped ship rather than be implicated, replacement staff became difficult to attract and company shops lost a fortune. Creditors became nervous when accounts hit 5 months.

Franchisors may bluff but they understand these consequences and business considerations change immediately an independent franchisees association arrives. Franchisors may poke at an association to see how tough it is but if it doesn’t shrink away then everything changes.

But if franchisees think they can set up a conflict driven association they are fooling themselves.  If you cannot totally appreciate the franchisor’s AND the franchisees’ entire position legally and strategically you will get hit from left field. Full blown franchise conflict is a filthy thing and you need a seriously bad ass expert who understands when to be patient, when to kiss and when to kick low.

Re: Why hasn't your association hired a lawyer.

If we are all talking the same franchise system there are several reasons:

1. Complete, abject fear of the franchisor. The owners of the franchisor IMO have no concern for the franchisee in any way and will take over the franchise site in a heartbeat if they think they can resell it. (Happening less and less though. Their own child bought an existing site, couldn't make it work and sold it for about $10,000. Interesting since a new "startup" site would cost about $250,000 easy before even opening the doors. Great ROI)

2. No money. Franchisees are up in arms because so few are profitable. Not much different than in the past but now you can't sell your site and even the minority percentage that were profitable has significantly shrunk.

3. For the longest time the association was "controlled" by those profitable centers. They refused to rock the boat to the point of trying to shut down any dissenting opinion. However, I was once told by one of the former "leaders" of the association that they received letters from the franchisor lawyers threatening lawsuits if certain things were said or "alluded" to on the assoc. website.

It is not unusual for the most successful franchisees to control

the agenda of an independent franchisee association. Traditionally, it is they who provide the resources, and he who pays the piper calls the tune. Like I tell everyone - if you don't join and support the association, you have no grounds for complaint and no expectation of benefit. If the less than the most successful franchisees leave the field for the most successful, what on earth would you expect.

In this particular instance, if this is the franchisor I think it is, the only mneaningful agenda is for those better off franchisees who do control the association to make a group decision to leave the system. If they can actually prove what they claim the facts really are, they will not have exposure to the liquidated damages clause in their agreements, and the enforceability of a non compete provision by an end stage franchisor is highly unlikely.

This particular franchisor has for many years enjoyed bullying and has a law firm that is known for being a very effective bully. But when the facts change - as they are claimed to have changed as of today - the bully can be faced down and the exit strategy of the still not dead broke franchisees can be carried out.

Yes, the good days for this franchisor are over...

...when a franchisor has to use a collections agency rather than their big bully lawfirm to attempt to collect back due royalties from struggling franchisees...it is possibly an indication a state of a difficult financial situation.

The right strategy for an aging system (imho) is to determine whether or not a divorce is possible and hope that the franchisees who are not dead broke can survive as a result while the more profitable franchisees get the royalty and cost of selling/renewing the franchise off their back.

Re: Yes, the good days for this franchisor are over - Thank God

Actually, if you look at the growth of this franchise system, it falls right in line with the real estate market. As the real estate values increased, potential clients were able to tap their equity to pay the high cost of this (I believe way overrated) service.

Think about it, after very slow growth for years, they filed bankruptcy around 1999 (not to mention the successful lawsuit against the franchisors for stealing money from the ad fund - but I digress). After regrouping they branded themselves (at least to potential franchisees who went to discovery day) as "recession proof"! Then, with the housing bubble beginning to churn (funny how that word pops up with franchising), they grow the system - only to have it come crashing down on them with the great majority of franchisees unprofitable. The financial design of this system only works in a handful of instances, as so many of you have come to learn after ignoring my comments over these many months.

It is time for the franchisees to finally band together and take this franchisor to the mat. What could possibly happen? You can't sell your franchise - no one wants them (not even the franchisor's own kid). You are not making money - mostly because the system doesn't work, and now a large sub-business of this franchise is being stripped away from franchisees and sold as a separate franchise - thereby almost assuring the franchisees' financial implosion. Unfortunately, you appear to be the only one from this franchise willing to post anything. The rest of your "brethren" are like frightened deer in the headlights; unable to move, think or speak.

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My franchise was such a questionable investment

that I refused to get involved in selling it and embroiling myself in that liability. Losing all my money to me was a better alternative. It let me sleep at night.

Just selling out can have consequences if you are aware of fraud. You will undoubtedly sign transfer agreements that could put you on the hook.

Getting an attorney to help franchisees manage the aftermath of the investment as an association is the smartest thing to do.

Franchisees collectively are a much larger business and revenue entity than the franchisor, typically.

Dear Prudence

Our Franchisor has moved on, he outsourced his customer service obligations to a management team of hyper-helpers without telling his royalty fee paying customers. Many of the customers are also independently wealthy and they assume their reinvigorated trade association will filter out the BS to focus on the “real” issues. The trade association was organized under the “old” school code of conduct. Not long ago, the market had shifted the landscape to a “new” school code of conduct. Our customer service trade association did not get the “intangible” market memo. Independently, the member customers have been bitching about their profitability with the future trend indicating diminishing returns. The Franchisor did whisper to me that it wasn’t quite true because the primary job of the hyper-helpers is to manage the distribution pricing spreads under the “approved” supplier platform. Wider the spread, fatter the man's profit. Some customers are getting concerned that they are not hearing the association’s voice. One member customer made a good point by questioning why they haven’t been vocal on the monthly conference calls –especially, over the past two years. The customers do hear some faint voices from the hyper-helper’s advisory member council representatives on the conference calls once in a while. The advisory council also participates in answering customer asked questions, on behalf of the outsourced management team, during some of the calls.

Here we have an organized association that is not aware of all the various “new” relationships in the inverted environment. If they knew the details of the outsourcing deal, they’d be able to leverage the opportunity and change what they don’t like about the “new” codes of conduct to increase their profitability. More importantly, the Franchisor trustee would welcome the opportunity to negotiate since it’ll allow him to make right decisions with the syndicate of trademark holders. How can the independent customers take advantage of this opportunity to deal with the hyper-helpers if the current association is still focused on membership growth? I suppose they can address the issue upon reaching 90% support and building a customer service platform to tackle the issues going forward. Unfortunately, the window will close before they “see” it open. The train wreck ahead will be a result of the damned eternal life in diminishing customer profitability land.

How can the “badlands” help pull together a system of recognized customers to avoid the inevitable train wreck ahead?

Respectfully submitted,

C.W. Alterego

You might want to find out the answer to that question before

it is too late.

Hmmmmmm. Now how might one go about doing than? I wonder. Stay tuned to see if they figure it out.

Small systems

I’ve seen examples of where very unsophisticated attempts within very small franchises has still achieved a result.  Forte School of Music was one but their result could have been far greater had they have begun the process the right way. But the point is that the coming together of financially committed franchisees in any circumstance will deliver an attitude change from a bad franchisor.  

A financial commitment in an association of franchisees will deliver a return on that commitment if franchisees go about it with a level of sophistication that comes from experienced assistance.

I doubt it will happen HERE.

Hoe do you know that this is not already happening CW Alterego?

If the voices are faint, maybe you aren't hearing them clearly, or just aren't listening carefully enough.

It's happening.

Fred T.B