One Unit, One Year Old Restaurant Begins Franchising!!???

July 21st, 2010

Chutney Joe's, a one unit, quick casual dining operation in downtown Chicago, is beginning to franchise, with hopefully 5 to 10 franchise agreements signed in 2010 and 30 to 40 next year.The one unit site has apparently been open since February 2009, at 611. S. State Street, in the downtown south loop district. According to NRN, the founder indicated they are developing turnkey management systems and the hope that Chutney Joes could attract pent-up money from sidelined investors.

What would have happened if McDonald's franchised after just one year of operations?

July 21, 2010 - 14:02pm

Re: One Unit, One Year Old Restaurant Begins Franchising!!???

"What would have happened if McDonald's franchised after just one year of operations?"

I don't know...does anyone know, could anyone know?

July 21, 2010 - 14:45pm

MAC IN THE FIFTYS

"What would have happened if McDonald's franchised after just one year of operations?"

I don't know......does anyone know, could anyone know?

We did since they sold the burgers for 19 cents when they were being sold for around 75 cents in cafe.
THey made money on the drinks and fries. Back then we knew what they were doing to make franchising work as opposed to today. GREED rules today!

July 21, 2010 - 16:01pm

Truth be known

Ray Kroc ruled with an iron fist and was ruthless with franchisees. If BMM existed in the 1950s there would have been posts of outraged and discontent on how McDonald's was treating its franchisees with mandatory purchases, strict operating rules, oppressive leases and for forbidding franchisees from owning their own real estate.

July 21, 2010 - 17:38pm

Everyone loves the dead guy

Guest is correct.

Ray Kroc is a warm and fuzzy guy now that he's long dead. But he had zero tolerance for franchisees who didn't do things his way. And as some of the original franchisees were being pushed out in the 1970s and 80s, MCD was not sentimental about jettisoning the folks who put their life's work into building the brand.

Kroc was right about a lot of things. But let's not get all mushy sentimental and buy into this revisionist history.

July 21, 2010 - 14:31pm

Chutney Joe's -- Better chance of success as franchised unit

This is a smart move by Chutney Joe's.

Restaurants are notoriously short-lived, and investors are wary of putting money into restaurants right now.

However, if you take that same Chutney Joe's unit and franchise it, there is a lot of pent-up demand.

This is because franchises are almost guaranteed to succeed. According to the US Dept of Commerce, turning a concept from an independent into a franchised unit lowers the chance of failure from 93.62% down to a mere 3.57%

The reasons for this difference are a closely guarded secret. One time Don DeBolt told his neighbor the secret to the alchemy, but then Don had to kill him.

July 21, 2010 - 16:03pm

Would you deny Cutney Joe's right to sell franchises?

Would you deny people their right to risk their money on a new high risk franchise?

Lionel Hutz PA

July 21, 2010 - 16:48pm

Libertarians tolerate all folks, even the stupid

Would you deny people their right to risk their money on a new high risk franchise?

No.

As Sean Kelly famously said: "Sometimes franchising is God's way of telling people they have too much money."

July 21, 2010 - 17:02pm

Wherever he is, Sean Kelly is always the smartest guy in the

room.

I fantasize about some evening when he and I and anyone else who would like to participate just get knee walking drunk and make fun of franchising - the people in it - the things they do - how shit works - whatever.

I have a new titanium shoulder about a week ago and when I get clearance to travel in another month or so, I am going to try to get that weekend set up somewhere. I know I hope Steinberg and Webster can be there, and maybe Darnelle White (for color). Herr BMM is certainly invited. I know he aint funny, but he can at least buy a round.

OldSaw can come and be the damper on the evening, and someone has to come as President Obama.

July 21, 2010 - 17:54pm

Scandal involving Mr. BMM

Richard, Mr. MauMau might not be able to travel.

You probably heard about the Massage Envy foot fetish scandal.

Well... Mr. MauMau lived in SLC, is interested in franchising, and departed SLC in a hurry. He also wears a bow tie, but says he doesn't need socks since he is a fish.

Coincidence? Yeah, right.

July 21, 2010 - 18:10pm

Oldsaw won't attend

Poor Oldsaw recently went to a failed franchisee whining party where he consumed copious amounts of whine, went on a non-stop whining monologue and passed out. When he awoke the other whiners had shaved his eyebrows, given him a Mohawk and filled his car with shredded franchise agreements.

July 21, 2010 - 19:00pm

Don't like fact

attack the guy. What does that make you - heros. Oldsword brings up SBA issues that most of you ignore for money reasons. SBA loans are wrong when there is systemic fraud. He wants people to know how it all works and what you end up with.

He also like hookers and only drinks bourbon.

Old Sword

July 21, 2010 - 19:56pm

Not a fan of bourbon

No hookers but a good single malt or excellent cognac with a cigar works.

As for Guest, he's been spanked by everyone here for a complete lack of facts. His mental capacity only allows for ridiculing people - no critical thinking or analytical skills.

I think he keeps coming back because he likes the spanking.

July 21, 2010 - 20:33pm

Oldsaw has good taste vices!

I like it.

July 21, 2010 - 22:01pm

Whenever you're ready.

We'd love to show you how franchising in the City works. We'll start off by meeting with the collateral trustee and then work our way down Wall Street to the Moodys building to learn why DBI decided to give the 144a rating business to S&P. I know Moodys smelt something wrong since they understood Allied Domecq's corporate ownership structure being the primary rating agency for AED issued indentures. Once we get a grip on the fraudulent conveyance, we'll party like it's 2006 and crack jokes about all the franchisee that were swindled by these particular Den of Thieves.

Let me know whenever you're ready to play like a real "swinging dick" on Wall Street. I'll send the corporate jet since we're talking about franchisee marketing expenses. Sound good - Smarty?

July 21, 2010 - 18:00pm

Re: Libertarians tolerate all folks, even the stupid

Lionel, Good to know!

Franchise investments are risky, all of them. Some have more risk, some have less and none are risk-free. I have no tolerance for franchise sellers that promote their concepts as magical investments that are risk-free simply because it is a franchise. Those sellers are to be rebuked and their concepts avoided.

July 21, 2010 - 17:57pm

Consulting firm?

This has 'new Francorp client' written all over it.

July 22, 2010 - 04:30am

Franchising; a niche market

it’s a market niche with zero penetration and thus massive opportunity.

The franchisor might be a little disorientated. He just went out of the food business and into the franchising business so all he has to do is learn how to bullsiht about his proven model.

Get ready for another wave of first generation franchisees to come rolling up to the BMM door.

Build it and they will sign anything.

July 22, 2010 - 13:30pm

Someone should check who the consultant is!

In my opinion I would advise against them franchising and to take their money and open more locations is various markets within the Chicagoland area. What goes on in the South Loop is very unusual and is not representational of what they will experience in other markets with other types of demographics and psychographics. Solunds like the "rainbow" maker consultants are at it again.

July 22, 2010 - 19:31pm

South Loop

Do you want to expand a bit on that, Craig?

July 22, 2010 - 09:16am

A one unit business is not franchiseable because.......

there is no metric history of its being able to be replicated in the hands of investors with attributes of financial returns. No one has taken the supposed "concept" and operated it with demonstrable financial success, taking into account the added cost of the franchise relationship itself.

In this particular instance, it is not even a new "concept", but some brown bag generic food store business with a specific name that is supposed to impute an identity differentiating it from other food businesses. The same psuedo logic could be used on a business becasue it provides two ply toilet paper in the restrooms - Two Ply Tillie's Island Gastric Convulsion secret recipe chicken.

Old Sword

July 22, 2010 - 10:55am

Metric "History". . .Of Financial Returns? Distortions at best

Richard, you claim this system is not franchisable because "there is no metric history of its being able to be replicated in the hands of investors with attributes of financial returns." How often must it be 'replicated' before it receives the Good Richard Seal of Approval? Where is the real "metric history" posted - for this and 90% of all franchises?

Here's a question for you: If franchisors posted the gross revenues attained for each first, second and third year franchisee, how many franchises do you think that franchisor would sell?

Franchisors purposely withhold "metric history" so potential franchisees do not see the true "financial returns" of their systems.

July 22, 2010 - 11:48am

Re: Metric "History"...

Oldsword how would your simplistic Financial Performance Representation work in the real world for A. Chutney Joe's, B, A franchise concept with 5 company units and no franchise units and C. a mature franchise company with 500+ franchise and company units that have operated for 20+ years?

July 22, 2010 - 12:27pm

A has nothing to offer

B has nothing to offer where the company unit financial model and a potential franchisee financial model are typically two different animals. One doesn’t attract additional franchisor revenue streams and invests beyond the financial capabilities of the typical franchisee model in local marketing to sell franchises.

C has it but won’t share it. The ‘Mature’ franchise; you mean like ActionCoach with 1,000 down to 800 at last count but where even at the 1,000 unit mark it apparently maintained for many years it had a franchisee attrition rate of 95%. Or did you mean Maccas?

July 22, 2010 - 12:38pm

Mature does not refer to chronology or to numerosity of units.

Maturity, in investment vetting refers to where the concept/company is in its life cycle.

Life clcle analysis starts with the introductory stage (live or die); then, if it lives, the growth stage (rapid replication and substantial profits in the potentially successful model. This - if it happens - attracts additional competitive entry into the business (how rapidly depends upon the pricing models used - short term profit maximizing pricing, for instance, will increase the rate of entry by new competition). Then comes Maturity, in which saturation is approached, characterized by burgeoning price competition and marginalizing profitability. Maturity is followed by the Decay stage in which no more investment is made and the concept is simply milked until it dies - think of systems, for example, that put formerly exclusive distribution products into super markets and discount stores - milking the product until it dies.

Old Sword

July 22, 2010 - 13:16pm

Metric "History", Maturity and Financial Data

Richard, my understanding of the story and your comments is this: No one should purchase a franchise in this system because full financial data is unavailable.

Regardless of whether a system is one, five, twenty or thirty years old, most systems do not provide transparent financial data. The amount of financial information regarding the success of this business is not much less than that of most systems in franchising today.

I don't think I have to repeat the many names of horrible systems that exist and continue to proliferate because the franchisor manipulates the data. To some extent is the information available (i.e. Quiznos) out in the public domain? Yes. But do franchisees suspect that franchisors, or anyone for that matter, have the legal ability to contract out fraud? No. Thus, these newbies believe the financial information put forth by the company. If these newbies actually saw the real revenues - especially the first three years worth - do you think they would purchase these things?

July 22, 2010 - 13:38pm

World Without Risk Amen!

Franchisors are at fault for making franchising sound risk-free and prospective franchisees are at fault for believing there are risk-franchises for sale.

July 22, 2010 - 13:59pm

Wrong again, but I am out of gas trying to lay it out for you.

You need some fun time, OldWad.

Old Sword

July 22, 2010 - 15:00pm

Believe me, YOU are never out of gas

Funny, you've admitted numerous times before that 80% of the franchise systems are not profitable. If the information was so easy to get then why do so many systems continue to exist?

All of us on BMM are acutely aware of your belief that the world revolves around you. Truth be told, few people outside the established franchise community know of you. In fact, all we know of franchising is the "good" thing - you know, "proven successful business model" and 95% success rate.

Google "franchising" and "franchises". See how long it takes to get to a site that discusses the frauds. By the tenth page for both I gave up. Do you really think people go into this thinking "I'll google franchise fraud or franchise sc-m"? They don't because franchising has been sold to the masses as a sure thing.

My point? YOU may be able to figure out the good from the bad. But, few potential franchisees (and current) know of you. There are many attorneys claiming to be "franchise" attorneys. Newbies don't know the problems with franchises (which is why they are looking into them) and therefore don't know between a good franchise attorney and a not so good one.

YOU'RE tired of laying it out for ME? Try being on this side and talking to a self absorbed egomaniac!

July 22, 2010 - 15:14pm

Oldsaw wears poor Solomon out!

Did you exhaust Richard's patience with your nescience.

Old Sword

July 22, 2010 - 15:35pm

Guest, Faber College: "Knowledge is Good"

I will be burning with anticipation over the next two weeks to see what the Word of the Month club is going to teach you for August!

July 22, 2010 - 17:35pm

Re: Guest, Faber College: "Knowledge is Good"

Oldsaw, you should never stop learning, but in your case my advice is for you to start. It's not too late, even for you.

July 22, 2010 - 17:11pm

Geez, OldWad - You can't Google either?

Try searching on Google - or any other search engine - for Frachise Lawyer. DUH!

Old Sword

July 22, 2010 - 17:32pm

Oh Great King Solomon, you are truly smarter than the masses

As with most people, I dealt within my state. Why? Because most people believe franchising is safe and successful. The franchising industry has successfully marketed franchising as safe - so most believe there is little to fear. Hell, the government even promotes it thru financing, doesn't it? (another marketing pitch used by franchisors).

As I said, people don't know who you are - not because you are not very good - but because the real story of franchise profitability has been successfully hidden.

July 22, 2010 - 17:38pm

Then go Thou and roll back the clouds of ignorance, that my

name may be known throughout the earth, and thou shall be as if my prophet, though lacking in profit from having invested in a franchise without you-know-what.

Peel the blinders away from the ignorant masses and send them to me while they yet have money to pay lawyers. Shine always upon the path to me door.

Old Sword

July 22, 2010 - 18:18pm

At your service oh Great King Solomon

Great King Solomon, my attempt to educate the masses has been upended by thou's insatiable appetite to hear thyself talk. Perhaps, thou, with such great wisdom, can understand that shooting the messenger kills the message and that the message can only go forth thruout the land if the messenger, whose message is proven, receives the backing of the king rather than his wrath.

My sword, old but gleaming bright, reflects the sun to illuminate the darkness called franchising and is at your service.

Long live King Solomon.

July 22, 2010 - 18:26pm

Oldsword you should

stick your rusty sword where the sun doesn't shine.

You are in no position to help anyone since your don't buy a franchise advice is impractical for those people intent on buying one. People should get experienced advice on their franchise purchase just not from you.

Old Sword

July 22, 2010 - 19:37pm

Guest, fear is not a good thing

Guest, your fear is palpable (perhaps you will learn that word next month). It exudes from all of your writings. It seems that the arguments about specific franchises don't rile you up as much as my comments about the franchisor wide efforts to inflate SBA projections. That seems to be the one message you don't want people to hear.

I'm sure this "one hit wonder" franchisor will quickly learn how to get the SBA loan through the process.

July 22, 2010 - 19:45pm

?

Oldsword

Your broad generalizations about franchising are the problem and the fact you have little to no resident knowledge.

Old Sword

July 22, 2010 - 19:54pm

Re: ?

Ahhh Guest. Always long in invectives, always short on facts.

July 22, 2010 - 21:52pm

Truth to tell - OldWad has a lot of pertinent knowledge and

experience. He and I have a go at each other from time to time, but in private we are friends. I know him and I know of his experience, even though he has never been a client of mine.

You make a big mistake if you take our poking at each other seriously. He makes serious points by goading me, trying to get me to support his positions. His positions are meritorious, but I do not always support them because they often border on the impossible.

He wants his martyrdom to count for something. I respect that.

July 22, 2010 - 22:10pm

Then Richard

why don't you help Oldsaw do something useful?

July 22, 2010 - 22:18pm

OldSword and the SBA Loan Fraud

What most people fail to understand is that Oldsword's franchise system is a) a well known name in the industry, and b) likely committed on systemic basis fraud if the SBA loan preparation companies they used gave to the banks more than the item 19 disclosure.

So, tell me - how does the SBA and Bank get numbers that the franchisor denies to the prospective franchisee?

If this happened the way Oldsword said it happened, it is wrong, a fraud, and deserves to be talked about much more as an illegal earnings claim.

Worse is the IFA championing up more SBA loans, without regard to this type of systemic fraud.

July 22, 2010 - 22:25pm

Then Michael

why don't you help Oldsaw do something useful about it? Since what he is doing isn't especially helpful to anyone and certainly doesn't punish any guilty parties or prevent future bad acts.

July 22, 2010 - 22:41pm

SBA Help

Guest asks why I don't do something about the SBA loan fraud.

This is a good question - I have written a number of articles about the SBA process.

But I admit to defeat, at this time.

Nobody wants to hear that the SBA may be funding frauds.

Everyone wants to hear that the SBA is helping franchisee systems with employment growth.

Right now is not a good time to call out the Emperor for wearing no clothes.

We were close with the Cuppy's fraud - but the banks just wanted to cut their losses.

July 22, 2010 - 23:06pm

Re: SBA Help

No I said "why don't you help Oldsaw do something useful about it? Since what he is doing isn't especially helpful etc..." I think plenty of people including me want to not only hear about potential SBA loan fraud, but also want something done about it if it is in fact true. In any event Oldsaw's wholesale attacks on franchising only serves to alienate people in franchising that do play by the rules and despise the fraudsters.

July 23, 2010 - 04:10am

Playing by the rules

I don't but then again I learnt the hard way that the franchising rules are made to be broken and can at anytime. I'm possibly the nastiest critic of franchising in my country and yet I work in franchising where it works and I manage to like it as narrow as it is.

Oldsword and I often wonder why quality franchising doesn't publicly object to the abusers but bad franchising is a disgusting argument better avoided if one already has something that works. Until franchising's reputation suffers some carnal damage then all of franchising will look the other way. I am of the opinion that most of franchising spends too much time over the line beccause the worst show that anything is laughably allowed .... and very profitable in the short term.

And far easier than operating in good faith with a long term plan where human nature demands that whatever you get ain't good enough. I've met few franchisors and franchisees that I would rely on. Oldsword is one and one with an agenda that isn't self-serving. You see it as an Oldsword vendetta. Most of us see him trying to help people avoid what he experienced and what he learnt from. Guest you don't seem to have had much experience in real life franchising outside of your narrow tunnel.

From the information available it seems SBA approved loans are enjoyed by some, cause substantial damage to thers and totally screw over others. Damn them to hell no matter what level of varying culpability the franchisee owns. Thy real sinners are thee that profit from thy dark instrument. Blessed are the fires.

Old Sword

July 23, 2010 - 08:27am

Re: Re: Guest and SBA

With no insults or condescending remarks Guest, let's now deal with this professionally.

1. I have continuously stated on BMM that there are good franchise systems. My personal opinion? I do believe they are few and far between (a sentiment echoed by Mr. Solomon and Mr. Webster). My attacks are not "wholesale". If systems are truly profitable (meaning the great majority of franchisees are profitable - so it truly is a "proven successful business model") then the franchisor should be able to prove it. The FTC's Franchise Rule allows bad franchisors to hide the financial mess.

2. Why has nothing been done about SBA loans? Need I mention Bates, Shane and the two self researched studies by the SBA? All four concluded franchising is not what it says it is. The response by franchisors and the IFA? An all out assault (personal, disgusting, disgraceful attacks) against the authors and a blitzkreig on Congress with huge amounts of lobbying dollars to pay off their silence. They stopped the SBA from further action. Heck, they attacked the SBA employee who authored one of the "self-researched" studies!

The U.S. Gov't undertook 4 studies, took months (sometimes longer than a year) to do the research, had access to thousands of pages of private information including all SBA loan files and yet, those studies were trashed by the IFA claiming they were poorly researched. If, with all this information at their disposal, the U.S. Gov't couldn't come up with accurate information about franchising (which is what the IFA claimed), then how do you expect a potential franchisee to do a proper analysis with just an FDD?

The IFA lobby is strong and refuses to allow the system to be fixed - just look at the pressure they are now putting on Congress to increase SBA lending. Heck, they even got the lending standards LOWERED! They are lying about success rates and Congress doesn't realize it.

There is more I know about the SBA that I can't mention. I also can't mention my franchisor out of fear they will sue me to shut me up. I am just trying to make sure others don't follow in my footsteps.

July 23, 2010 - 09:41am

Re: Re: Re: Guest and SBA

First of all it is unlikely the FTC Rule will change anytime soon with regard to Item 19 FPRs. While I believe franchisors should make an Item 19 claim many do not, however hundreds of franchisors do and some provide better information than others.

Why not direct people away from franchises that don't make performance claims and then drill down deeply on those that do?

Regarding Shane and Bates, their studies are empirically weak and the SBA doesn't even know how many franchise loans it guarantees. On loan fraud the likely culprit are the dubious folks that help people get SBA guaranteed loans from banks and these fraudulently obtained loans are not limited to franchisees.

Why haven't you blown the whistle on the fraudster that created your fiction of an SBA loan package?

On the things "you know" but cannot say, well neither does anyone else. We don't know if what "you know" is fact, opinion or a well crafted fiction and can't consider it.

A final note on the IFA, I think that they do an awful job of enforcing their code of ethics and it is a shame since it is a stain on the association.

Old Sword

July 23, 2010 - 09:58am

Guest and SBA, Maybe we agree on something

Agreed, Item 19 won't change soon, especially since most franchisees are unwilling to stand up to fight.

However, the whole FDD is nothing but a charade. Read Richard's latest blog it is excellent.

Also, if you believe that Bates and Shane are "empirically weak" - which I don't believe - my question again is: With all the information at their disposal, including loan files, income tax returns, et al, if they can't (according to you and others)come up with a solid conclusion then how do you expect a lowly franchisee, with no access to any of the multitudes of information that Bates and Shane had, and a time period of days as opposed to many months, to come up with a reasonable conclusion on a franchise.

As for my "situation" I am unable to go into any specifics at this time.

Lastly, you and I agree on the IFA.

July 23, 2010 - 10:06am

RE: Guest and SBA, Maybe we agree on something

Bates and Shane were not studying a specific franchise concept to purchase.