Les, you’ve been a disappointment.

An outstanding observation after 4 years of work with a franchisee association.

Generally speaking, espionage offers each spy an opportunity to go crazy in a way he finds irresistible. Kurt Vonnegut Jr. 1922 – 2007

Opportunity Knocks and Liars’ Loans: required reading to understand modern franchising

John Lorinc wrote the book on franchising from a franchisee’s investor viewpoint.

I’m glad to see it is still available to buy online and is in many Canadian libraries.

The hidden banking side is revealed in Chapter 4, The 90% Solution: Franchise Economics, some of which I excerpted in a WikidFranchise.org post.

What did the business press have to say about Lorinc’s work?:

1. National Post: Opportunity Knocks: The Truth about Canada’s Franchise Industry, is an impressively researched look at the myriad of franchises that mushroomed across the country in the past decade. An award-winning magazine journalist, Lorinc has produced an engaging account that charts both the spectacular successes of some franchisers and the utter failure of some franchisees. How franchises seduce those with the most to lose, Jennifer Lanthier, November 2, 1997
2. Globe and Mail: At its worst, Lorinc says, franchising is a haven for the unscrupulous who prey on the unwary – typically recent immigrants willing to labour long hours in dreary businesses, unaware that those operations have little chance of prospering – using them as pawns in a shadowy real estate game. Rather than reflecting an insatiable consumer demand, he inquires acidly, is it possible that all those new doughnut shops may reflect a quiet understanding between landlords and franchisors that the best way to fill fallow commercial property is to sell franchises to credulous investors? Franchise book of interest to anyone who pays taxes, Ann Finlayson, November 1, 1997

Finlayson strikes a cautionary note, specifically about the hinted at misuse of the Canada Small Business Financing program, CSBFP:

Does all this matter to you? Yes, it does. In 1993, in the wake of vigorous complaints by small-business owners that Canadian banks were reluctant to finance them, Ottawa raised the ceiling on loans guaranteed by the Small Business Loans Administration to $250,000 and its guarantee rate from 85 per cent to 90 per cent, sparking a bank lending rush to franchisees and shifting the risk of franchise investments onto taxpayers’ (your) shoulders.

The Risk: Only a fraction of the Liars’ Loans are ever claimed by the banks, thereby grossly understating Industry Canada’s default statistics (Franchised v. Non-Franchised loan performance). The franchisee thinks he signed a government-backed loan but it never gets registered as such. As their bankruptcy, loss of life savings, marital and family breakdown escalate over the life of their 12 to 18 month franchise career, the franchisee NEVER looks to Box 9 of the CSBFP loan application form (Projected Sales ) as the source of their trouble; where the lie is put into the “Liars’ Loan”. The proceeds of these engineered-to-fail loans is split upfront by the franchise banker with the bank, banker, franchisor and sales agent. If questioned, the bank shreds the paperwork and waits for the lawsuit.

And, seriously, how many of these Immigrants as prey losers could or would ever sue a Schedule 1 chartered bank?

• Only one I know of: a father and son PhD/B.Eng. team I worked with. The  Oudovikines (pronounced: ou-doe-VEE-kin), RCMP Commercial Crime Unit affidavit, Country Style, CIBC, lawsuit

The Return: Smashing quarterly earnings goals, record profits, high turnover in the small business division of each of the banks, and making franchise lending the most lucrative form of commercial lending in Canada. Private gain/public loss enabled by a criminogenic environment, moral hazard, regulatory capture…

Lorinc carefully mentions the “windfall profits” in this arrangement of churning:

What’s more, some banks and franchisors have put the SBLA program [predecessor government guaranteed loan program] to questionable use during foreclosure actions against franchisees, says one former owner who has been through the process. When a bank calls a loan against a non-performing franchisee, the 90% guarantee effectively relieves the bank’s receiver from trying to get the best possible value while disposing of the owner’s assets. With most of the loan covered by the Canadian taxpayer, the assets – fixtures, kitchen equipment, inventory, etc. – can be sold quickly at a deep discount, possibly below market value. This allows the franchisor too step in and buy back the property at better-than-firesale prices, thus generating a windfall profit when the store is later re-sold to another franchisee.

An important work that, depressingly, is as relevant in 2012 as it was in 1995.

______

Disclosure: My lol pecuniary interest here and here. Cross posted on FranchiseBanker.ca.

There was one glorious time when the truth about Big Franchising was revealed and recorded

Four days in 2000.

March 6, 7, 8 and 9.

Public hearings into the franchise relationship. Four days of traveling public hearings: Toronto, Sault Ste. Marie, Ottawa and London. Ontario, Canada. Traveling public hearing: extremely rare, if not unheard of, under the Mike Harris government.

Approved by the former Ontario  Minister Robert Runciman over a beer with Tony Martin at the Queen’s Park members’ bar. Two men who share a love of democracy as expressed in the Legislative Assembly of Ontario.

• 35 life stories told in 20 minute chunks to the Standing Committee on Regulations and Private Bill.
• 4 expert witnesses given 45 minutes (John Sotos lawyer, Susan Kezios franchisee expert, Dr. Gillian K. Hadfield scholar and Richard Cunningham franchisor advocate).
• and me, Les Stewart franchisee advocate.

I had the tremendous honour of traveling throughout Ontario as before these life stories were twisted into the Arthur Wishart Act (Franchise Disclosure), 2000. I seemed to have made an impression on the politicians.

Of the current MPPs (107), I know 29 of them. One Minister since I was 17 years old. 45 minutes from my house to their House.

It happened once.

It can happen again.

– The Legislative Assembly of Ontario, looking north to the main doors, University Avenue, Toronto Ontario

Sunshine is the best disinfectant — including franchising disputes.

The franchising industry (legal bar, banking, franchisor, suppliers) is highly organized.

The franchise bar reigns supreme not just intellectually but on a tightly-controlled cash flow basis. Variation from the established social norms are not tolerated. Everyone knows their place.

An interesting article by Jennifer Dolman of Osler LLP about their clients’ dreams:  Who’s the fairest franchise party of all?

Author:

Jennifer Dolman is a litigation partner with Osler, Hoskin & Harcourt LLP in Toronto. A frequent speaker and writer on franchise law, Jennifer has particular expertise representing franchisors on franchise disputes. She was named Toronto Franchise Lawyer of the Year by The Best Lawyers in Canada 2012 and a Franchise Times Legal Eagle 2012. Jennifer can be reached at jdolman@osler.com or  (416) 862-5911.

Advice: Have us fight for you in the shadows, and not in the light of day (ie. an ON  Court of law).

– quote by  by Justice Lewis Brandeis 1856 – 1941

Franchisor-fronted, franchise bar-controlled and franchise banker-enabled associations fit the sociological definition of Organized Crime

The rules are well-known and ruthlessly enforced in associations like the IFA, CFA, BFA, and FCA.

The price for defecting from the group is very high.

Organized Crime
Ashley Crossman

Definition: Organized crime is a social system distinguished by a complex structure resembling a formal organization rather than a loose-knit collection of criminals. Criminal organizations have a hierarchical power structure, a complex division of labor that includes a management system, a formal system for keeping records, and clearly articulated rules that everyone is expected to follow. As criminal organizations become more complex, so do the varieties of crime they engage in. Some criminal organizations are even organized as franchises, much like fast-food restaurants.

Source: About.com Guide

It is a lot more complex than a traditional Cosa Nostra model.

Closer, perhaps, to an international cyber crime organization, trading  in intellectual properties and industry best (worst?) practices (see Cyber-capos: How cybercriminals mirror the mafia and businesses).

It’s the behavior, not what you call it that matters.

Franchising stops non-conformists from making a living

Being blackballed economically shows where the fascists work.

black*ball

tr.v. black·balled, black·ball·ing, black·balls

1. To vote against, especially to veto the admission of.
2. To shut out from social or commercial participation; ostracize or boycott.to blackball

People shouldn’t take it personally. It’s how Big Franchising rides.

This 19th century ballot box helped coin the term “black ball.” The box was passed around and members chose either a white ball for a “yes” or a black ball for “no.” The balls were put in the funnel and collected in the closed portion of the box. The box was then opened and it took only one black ball to defeat the vote (or candidate).

Are you a goat or a sheep?

Most times it’s safer together.

When the polarity reverses, that inverts.

[ThemThangs]

A spy upon your insatiable greed.

Diogenes of Sinope (Greek: Διογένης ὁ Σινωπεύς Diogenes ho Sinopeus), was a Greek philosopher and one of the founders of Cynic philosophy. Also known as Diogenes the Cynic, he was born in Sinope (modern-day Sinop, Turkey) in 412 or 404 BCE and died at Corinth in 323 BCE.[1]

Diogenes was one of the few men to ever publicly mock Alexander the Great and live. He intellectually humiliated Plato and was the only pupil ever accepted by Antisthenes, whom he saw as the true heir of Socrates. Diogenes taught his philosophy of Cynicism to Crates who taught it to Zeno of Citium who fashioned it into the school of Stoicism, one of the most enduring branches of Greek philosophy.

Wikipedia

– Alexander and Diogenes, Caspar de Crayer (1582-1669)

When Plato styled him a dog, Diogenes said:

Quite true, for I come back again and again to those who have sold me.

– Diogenes, Jean-Léon Gérôme (1824-1904)

When high risk is disguised, franchise investors behave more recklessly because they are human beings

Perceived risk.

Big Franchising tries to minimize the public’s perceived risk of buying all franchises.

They:

1. anchor their false legitimacy in “badges of authority” (FTC, banks, trade associations that claim to have a credible Code of Ethics or Ombuds program, justice system, toothless regulation and disclosure laws, government guaranteed loan programs, etc.),
2. blame the fraud victims for their situation (ad hominem attacks),
3. goes after military pensions by discounting worthless franchises (VetFran) and
4. trot out the most blatant franchisee shills imaginable to hype foreign predatory systems.

Potential franchisees respond by buying higher risky offerings to satisfy their pre-existing tolerance for risks (see Target Risk: free online book by Gerald J. S. Wilde)

This is why franchising remains much, much riskier than independent businesses.

And getting riskier.

And without effective safeguards, franchising is Unsafe at any Brand.

So long you loser hosers.

Not much time today, I’m afraid.

I’m busy putting my house in order.

I’ve applied for a job in Australia.

When the Holy Franchise Empire collapses:

• which country will be the last to shatter like a crystal vase? (the Excited States of America)
• which country will be second last? (Canuckistan)
• the first?

My peers are setting a banquet here, here, here, here, and (especially) here.

Oh how I will enjoy the bugs…

I always thought an ombuds function would be quickly corrupted by the usual suspects.

Go figure: I was wrong once in my life

Commonwealth means recognizing wealth as a common good, to some degree. My Dad always spoke very well of these people