As unaccustomed as I am to public speaking…
Moral indignation is a technique used to endow the idiot with dignity.
The latest pathetic example is the entirely predictable Lick’s “fiasco”.
Please: give me a break. Like it hasn’t been happening for 30, 40 years with the full knowledge of the legal, banking and political communities. Take a look at WikidFranchise.org to hear those inconvenient life stories.
Sure when you lose big-time it hurts. but where were the tears for the thousands of others that went before you?
My experience is that the real reason many franchisees are upset about not being on the power end of the relationship. They got stuck with the shit end of the stick before they could stick the next guy.
And this may sound harsh, but they will double-cross anyone that offers help in good faith.
Drop the scales from your eyes and grow up.
I wouldn’t have seen it if I hadn’t believed it. Marshall McLuhan.
What franchisor sends this message to the retail market?
Is it in acting in bad faith by destroying all existing Lick’s franchisees’ equity?
- Who would buy any of these outlets?
- Lick’s franchisees left fuming as restaurant suddenly closed, Toronto Star, June 28, 2013 (on WikidFranchise.org)
- Lick’s founder denies chain in financial distress, Toronto Sun, June 27, 2013.
- Troubled burger chain Lick’s has closed seven locations in eight months, Toronto Life, June 29, 2013.
- Couple baffled over burger franchise lockout, CBC, June 18, 2013 (link to television coverage).
The franchise bar, with perfect foreknowledge, will take what is left of their money in what will be (in the end) a hopelessly futile attempt at legal justice in Ontario. Talk to your premier and your small business loan provider not your a franchise lawyer.
Let me get this straight: based on 3 years of franchising experience, they’re going to go from 15 to 300 in 5 years? [20 times the size]
Franchisors have never been shy about risking other-peoples’-money.
Quesada President Tom O’Neill in QSR magazine called Canadian Mexican Brand Plans to Hit 300 Units in 5 Years:
The company expects to open about 300 franchised restaurants in the next five years. “Our game plan,” says O’Neill, “is to double in size every 12 months.”
Double every 12 months? Really? Anybody’s business doubling for 2 years in a row nowadays? And the risk to every franchisee when the franchisor spins out of control?
- Brutal…all equity gone.
Canada Franchise AssociationListing
Quesada Franchising of Canada Corp.
Eat More Burritos
Franchise Fee: $20K
Startup Capital Required: $60K-$75K
Investment Required: $152K-$242K
Available Territories: British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Québec, New Brunswick, Nova Scotia, Prince Edward Island
Training: 2 weeks
Franchise Units Canada: 11
Corporate Units Canada: 4
In Business Since: 2004
Franchising Since: 2010
CFA Member Since: 2010
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?:
- 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
- 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.
A clever animation that mentions Subway but is universal.
Spot on for the United States and fundamentally accurate for Canada and any other country.
- Nice touch mentioning the veterans’ franchise program scams (VetFran).
See Little Caesars: Ist U.S. discount program Imported for Canadian military veterans, January 2009 post on FranchiseFool.com.
Cross posted on FranchiseBanker.ca.
Simply being exposed to the claim of low risk/high success can influence you to buy a poo-filled franchiseJuly 26, 2012
Communications designed to persuade mislead and damage you using untruths and half-truths is called propaganda.
Social psychologists define something called priming: unconscious memories influence your behavior. Sometimes fo a very long time. Through repetition (a form of brainwashing).
Franchising trade magazines and trade shows influences potential franchisees to see franchising (in relation to independent business) as lower risk and higher success. Banks write their booklets in a very pro-franchise manner. McDonald’s success and its use as a bell weather (“the McDonald’s of the poo-collection industry”) primes candidates to attribute success where none exists.
Neither of these “truths” is true but that’s irrelevant. By the time the candidate franchisee is looking the low risk/high success bias is part of their DNA. They’ve created a stereotype.
As the scientifically-based research indicates, just looking at words associated with either youth or old age influence how you behave.
What kind of chance do you think you have at a trade show or a franchisor’s open house when every tiny detail is controlled for a positive sales effort? No one’s brain is very good at defending against these extremely powerful persuasion trick and traps. The technology of franchising is the science of neutralizing your defenses and then when the financial loss happens, re-assigning blame from these techniques to you (ie. On Cooling the Mark Out).