franchise Churning: Sell ‘em, Take ‘em back and Sell ‘em again

December 14, 2009

“I should have bought a fucking Hortons,” so Peter told me.

Maybe yes. Maybe no.

Peter Bell is an original.

He and I were Ontario Nutri-Lawn franchisees in the 1990s. He was in a partnership with a “friend” Marc Thiebaud at OGS, in the Oshawa/Whitby area.

Peter is smart. He didn’t take the legal dead-end like I did. But both he and I signed based on false earning claims delivered by wonky pro forma income statements.

In 1998, from the franchisor’s unusual point of view, Nutri-Lawn had 24 successful Ontario territories (ie. open, paying royalties).

From the franchisee investor another picture emerges. From 1990 to 1997 of the 24 territories:

  1. there were 17 franchisee ownership changes,
  2. 3 were on their 3rd franchisee, and
  3. 11 were on their second.

In 8 years in Canada’s most prosperous province.

Zero bankruptcies because everyone else sold their pig of a business to the next mark. I defied their stupid, hard-to-enforce non-compete clause and took my customers into another company while I fought them in Court. Mine (I think) was the only legal challenge and subsequent, rather high-profile bankruptcy.  Summary

Peter and I both got hung out to dry, but God, we had a few laughs.

Churning: the rapid selling, failure, retaking and re-selling of franchises. Can be intentional or unintentional but the outcome is the same for the investor. Useful to change the logo (old on top).

Lipstick on a pig.

A hallmark of even the bluest of “blue chip” systems.


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