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.

What is the purpose of an Advisory Council?

It is a very useful surveillance tool.

It an extremely cost-effective way to:

• confuse and distract,
• identify monitor and delete independent thinkers (ie. trouble-makers),
• distract by talking about everything but $ (If it doesn’t jingle, it doesn’t count),
• encourage individual and group despair, passivity and division,
• “vampirize” the genuine credibility of franchisee members,
• use a Good cop/Bad cop trick to avoid cash flow issues,
• create a paper trail that is false (control of minutes, broadcast emails), and
• debase, degrade and whore-out language and pervert/invert reality via lies and bullshit.

These elite-based techniques are centuries old and have been effective.

With some creativity, email and smart phones, the 1% is frozen in fear.

Franchisees normally just slink away into the dark

Cut a deal, sign the gag order and keep your mouth shut.

That was the advice given to me by a group of my peers at Nutri-Lawn when I rented one of those lawn care franchises in the 1990s.

I didn’t go quietly into the night as 98.2% of franchisees do.

I felt I had nothing to be ashamed of and kinda resented the dehumanization of it all.

I guess I still do. I never imagined so many people feel the same way.

[eXperi-MENTAL]

Is franchising life-giving or life-taking?

Almost without exception life-taking.

Those that win financially, lose a big part of what it means to be human.

Their silence indicts and then condemns them.

Never heard the saying: money frequently costs too much?

[Olivia Locher]

Gag orders distort & defeat rational investment decision making

Franchising is as healthy as its secrets.

Confidentiality agreements are used promiscuously:

1. pre-sale (when looking),
2. at any cash payment for “wrongs” during the relationship,
3. at renewal,
4. at listing of business for sale,
5. when you exit, and
6. at any lawsuit end.

In my 15 minutes of fame, I was asked a question:

[John O'Toole] Can you suggest one thing within the framework we’ve defined that would improve – not totally correct; we’ve passed that, we’re not astronauts – but one thing we could do that would make a real impact on these 40,000 victims, self-imposed victims in some cases? What could we do?

Mr Stewart: Outlaw gag orders. Outlaw gag orders.

Confidentiality agreements encourage opportunistic franchisor behavior because they conceal bad behavior to unsuspecting current and future financial market investors. They are a very large source of imperfect investment information.

Silence puts gold in only the pockets of those proposing these “agreements” that are tethered to the franchisee’s life savings.

More corrosively, they operate internally the same way a false prisoner confession works.

Psychologically they create an internal silencing mechanism, part of which is explained by the concepts of cognitive dissonance, learned helplessness, and obedience (Milgram, Stanford prison, Abu Ghraib). The experience of franchising can be engineered to provide a subtle and not so subtle method of mind control as was seen in the ’70s case of est.

The victim becomes convinced that they were the cause of their own suffering.

Don’t know what you’ve got ’til it’s gone

What is a franchisee, employee or independent contractor?

The Coverall decision has franchisors running scared all over North America (Coverall Ruling Sends Shiver through Franchising)

Any publicly-traded company that is underperforming is a target for corporate takeover. That’s a natural thing.  Companies get bought and sold every day.

But because of Coverall,  any potential takeover specialist would heavily discount the target’s stock value if their “franchisees” were really misclassified “employees”.

To protect their sorry, loser asses the current management team would want to re-convert all franchisees to employees as a way to prop up their pathetic share price.

Not great news for disorganized, current franchisees.

Welcome to new world of:

1. no franchise,
2. no job (try servicing your, maybe $200,000 of debt),
3. or a minimum wage job (same debt).

Ignorance costs.

Franchising is a class-based offence against human rights

You’re only as healthy as your secrets.

That goes for a family and I think that goes for an industry too.

Historically, power elites have often enforced compliance by wielding class differences  such as education, income, race, language fluency.

Very obvious to see, when you get an impertinent franchisee (like me) not just speaking, but having the lack of good judgment of being alive.

impertinent adj. 1 rude or arrogant; lacking proper respect. 2 out of place; absurd. 3 esp. Law irrelevant, intrusive

This is exactly why I will attend any franchise law conference that I can afford. Until I die.

And I bring along as many guests as I can find.

Drop me a line. 

The greatest Lies are told in Silence

Himmler at Dachau

Every organization is only as healthy as its secrets.

Below: Reichsfuhrer SS Heinrich Himmler’s speech to the SS officers responsible for carrying out the wholesale extermination of the European Jews. Delivered in Poznan, Poland on October 4, 1943.

The text of the speech scrolls in both the original German and its English Translation.

Is your paper boy a franchisee?

Maybe yes, Maybe no.

Maybe not the urchin on the street but maybe those that deliver his papers to him.

My understanding is that there are 3 types of legal business relationships in Ontario:

1. employee:employer,
2. independent contractor and
3. franchisee:franchisor.

It seems everyone is happy to consider them as independent contractors but I’m not so sure.

The Ontario Wishart Act defines a “franchise” (at a minimum, based on the U.S. FTC Rule) as having 3 elements:

1. franchisees make direct or indirect payments to a franchisor (very, very broadly defined),
2. the distributed good or service is “substantially associated” to the franchisor’s trade- or service-mark and
3. the franchisor exercises “significant control” or assistance over the offered business opportunity.

Humm…seems like someone could claim that this commercial relationship is in reality and in practice, a franchise and not an independent contracting arrangement.

No one that I’m aware has asked an Ontario court or labour tribunal to determine what actually is and is not a franchise since Wishart was passed in 2000. I’d hate to think that the owners of Canada’s major newspapers are failing to write honestly about franchising because they may have become “accidental franchisors“.

This is an excellent article by Thomas M. Pitgegoff on the topic of these “hidden” franchises.

A clever card trick:

“professional” journalists stop writing about franchise abuses (after the jurisdiction’s 1st toothless law is passed) because they don’t want to draw attention to the fact that their own distributors are now unintentionally franchisees — a secret which would be an expensive hit to an already dying industry.

They talk about an “iron curtain” between the editorial and business sides of newspapers. This is, again, much more of a theory than a practice especially when high levels of corporate concentration, plummeting ad revenue and vertical integration are considered. Franchising is almost never written about now in anything other than an advertorial manner in Canada’s elite daily newspapers (eg. Toronto Star, Globe and Mail and Natinal Post) since Wishart was passed in 2000.

The underlying abuse has not been solved:

Accurate reporting is almost extinct except by non-professional journalists in the new media.

I continue to send out news ideas, run WikidFranchise and continue only to be interviewed by American journalists.

No wonder only fools as I read these papers anymore.

Too bad.

Nazis burned books 70 years ago. Fishy blocks writers/viewers today?

A  dead fish’s reputation washed up on the shores of Australia last week.

Carol Cross is a friend of mine.

She drives me crazy at times with her repetition. But, then again, I irritate people too.

I allow anyone to post on FranchiseFool. Carol tells me she is still banned from contributing at the FranchiseeFishNet.org.

This is unacceptable to me.

Carol cannot even see The Fish on her computer: that’s right, she’s that blocked. This is wrong on so many levels.

It’s not wrong because she’s my friend: It’s evil because she is  a person. Plus a citizen of the greatest democracy on earth. A veteran’s wife. A former franchisee invest0r.

This is  offensive to anyone that ever believed in the right of free speech, natural justice, military honour, the rule of law, democracy…

If you feel you “have to” block, censor, gag or burn books, you better take another look at your business model.

And, I suggest, the “friends” you have as advisors.

Any industry that can be shown to be fascists by an  little old lady isn’t deserving of any investment, let alone respect.

PS: I was stopped for a day (Nov 12, 2009) as a registered contributor to The Fish last week. I’ve put up with 1,001 cheap shot comments for a full 3 years (459 points) now. I have no fishy, behind-the-scenes telephone calls: I never explain or complain or apologize. I had to post as a Guest and was reinstated for a day.

My offense?  I wrote and posted a very valid post (I think) about economic fascism (Arguments in the Service of Power (subjective truth)) that was clearly addressed to Ray Borradale in Australia. I intentionally hid the Hitler, Goebbels and Mussolini quotes. I wonder when the post will be deleted? Good thing I captured it beforehand.

If anyone else alive or brain-dead took offence to having their behaviour compared to fascists…well..if the show fits…

Then the fish goes ahead and wears it.

That post and and 16 McLuhan quotes were thrown into the fish’s text ghetto: Ranter’s Soapbox, Way Off Topic Posts.  This is where all politically honest objective truth posts are put.

I was reinstated and my posts exist (for now). Some old lady named Carol is still is banned from the fish. I tested the waters, intentionally, one day after Canada’s Remembrance Day. My parents both fought and my Uncle Neil died resisting historical Nazis in WWII. I was not going to be bullied by a Guest troll.

You decide if totalitarianism is alive or dead in franchising today. Who is crooked, misleading and/or tyrants?

Either way, your comments are welcomed.