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

June 18, 2010

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.


Shocking franchisors into good behavior

December 29, 2008

cattleprod

People tend to behave better when the costs of misbehaving are increased.

As reported at Blue MauMau on December 28th, Bakers Delight is planning to sell more stores in the face of massive controversy (Bakers Delight Plans 150 New Franchises).

To wit:

Entangled in 2008 with government hearings over unfair franchise practices, franchise owner litigation, rumors of financial problems and the recent failure of its attempt to enter the U.S. market, Baker’s Delight remains undaunted. The Australia-based firm announced today that it plans to sell 150 new franchises in Australia, New Zealand and Canada. The statement did not specify when it plans to achieve this.

A well-known Australian franchise windmill tilter, Ray Borradale adds to the posting:

This would explain why the anti-Bakers Delight franchising website [www.bakersdelightlies.com] was purchased from the ex-franchisee who assisted to expose the reality of franchisor behavior and franchisee failures and did enormous damage to the brand.

Mr. Borradale goes on to make an offer that most unsettled former franchisees might want to consider:

I would suggest Roger Gillespie [BD's CEO] doesn’t appreciate that the removal of that web site will do little to find him all his new franchisees; rather, it will increase efforts to ensure he continues to have major obsticles to contend with.  Roger is kidding himself.

He should learn from Midas; it don’t go on for ever baby. How many web sites does he want to buy?  Perhaps ex-BD franchisees can get their money back from Roger through a new entrepreneurial effort setting up sites and selling them back to him at $200k a pop?

Any BD people can contact me if they want some assistance.  It takes a huge effort for 24 hours and then a lot of money; less than $200 will get you started. [my emphasis]

An interesting idea: a few (dozens?) of websites and blogs, each watching, collecting documents and recording a specific franchisor’s every move. Providing and sharing information based on the [almost] no cost of the internet.

Using the network effect of the internet to short-circuit opportunism via former franchisees who are out to make a buck.

  • Private law ordering or digital vigilantism [depends on your viewpoint].
  • Hundreds of copy-cat anti-this trademark system, anti-that trademark systems?
  • Standardized indexing of a www web of national trademark nodes?
  • Organizing to defuse a type of organized crime [but on an electrical platform unlike the law which is strictly lead type].

Reflecting franchising’s unique strength (duplicatabiliy) onto a technology that can condition franchisors into good behavior [operant conditioning: voluntary fair dealings at the end of a cattle prod]. Interesting.

  • But, my God, where will it end? With just one AUS franchisor?

Maybe yes. Maybe no. The new year promises to be very interesting.

PS: This is a secret so don’t tell anyone. Homework: Start collecting everyone’s home email for future bulk emails.


Collusion allegation: AUS bank and franchisor

September 18, 2008

In a Smart Company article by James Thomson called MP renews calls for investigations into mistreatment of Bakers Delight franchisee, he quotes:

NSW parliamentarian Joanna Gash has renewed calls for the Australian Federal Police to launch an investigation into accusations Bakers Delight and ANZ bank colluded to put a franchisee out of business.

Quoting emails between the franchisor and the bank, Gash alleges:

On Monday, Gash revisited the case in Parliament, producing emails from Bakers Delight chief financial officer Richard Taylor and ANZ executives that she says shows “plans had been conspired to terminate Ms de Leeuw’s franchise well ahead of time”.

The bank and franchisor deny all the allegations.

This is the first public AUS public allegation of the key franchisor:franchise banker relationship that I identified and wrote about in a 2005 paper for Industry Canada called Franchising Opportunism [free download].

The Royal Canadian Mounted Police did a 10 month investigation of a related predatory franchise lending matter. [free download: Mounties investigate 'predatory lending', Ottawa Citizen, March 25, 2006]

And Mr. Oudovikine is accusing the bank of transferring the loans to Country Style without his authorization before he had a chance to obtain a business plan and other financial details from Country Style.

Mr. Oudovikine says his case shows how big banks, franchisors and franchise brokers team up to take advantage of franchisees, many of whom are recent immigrants like him.

“It’s predatory lending. (CIBC) didn’t do any of the due diligence they should have done,” says Mr. Oudovikine, who sent the Citizen e-mails confirming the RCMP investigation. An RCMP official said the police force doesn’t confirm or deny investigation.

And the Canadian bank’s reaction?

Mr. Oudovikine says he has repeatedly contacted senior CIBC officials and executives about the loan dispute, to little effect. He alleges that CIBC breached the Canada Small Business Financing Act regulations that require lenders to conduct due diligence on borrowers, including their ability to repay loans.


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