Teachers can help break the chains of family or group generational ignorance.
Hail to the King.
Winterized my family dentist’s home lawn sprinkler system yesterday. I’ve always been lucky to know brilliant, strong and beautiful women. I remember: wisdom teeth gone, no pain medication but without a single complaint.
I once told Richard Solomon that I admired his ability to work in franchising for +35 years (135?) while still maintaining the veneer of sanity. Oiling that capital re-allocation machine, 60 hours a week, week-in, week-out with the full knowledge of the human and family costs that are only heard across the kitchen table.
I understand why Ontario politicians have been avoiding the doing what’s right in the franchise file for almost 40 years. I understand why everyone hates being associated with the message I bring and/or me. I understand things take time.
But some days, I have to just shut out the psychopathology: delete some evil. When I retrieve and read my paper, sometimes others have to pinch-hit.
New media is often captured by totalitarian regimes.
Now others use the internet.
I responded recently to a series of posts from Richard Solomon and an anonymous poster called FuwaFuwaUsagi. Fuwa’s motto is, it seems “Never underestimate the power of stupid people in large numbers.”
Near the end, it’s just pathetic.
Attorneys provide services that economists classify as credence goods which are quite susceptible to fraud.
Franchisee attorneys sometimes act on their own self-interest because only the elites know the game and they mostly keep their mouths shut. After the confidentiality agreements are signed, there is very little danger of client complaints.
Here is one perspective on the U.S. Quiznos class action lawsuit settlement process that resonates.
If you were a conspiracy theorist, might you suspect something like…..
The lawyers for both sides colluded to end the case in a manner that got the franchisees nothing; cost the franchisor nothing other than its legal fees (because the debt written off was worthless anyway); the “benefits” to the franchisees are illusory and valuless; the judge would sign off on anything just to clear the case from his docket so long as he had some/any piece of paper in the record saying that the franchisees were getting real value; and they found a valuation “expert” with a degree in alchemy.
NAH! THEY WOULDN’T DO THAT.WOULD THEY?
Richard Solomon has over 40 years of franchise law experience in the United States and his Franchise Remedies site is an important resource.
Coffee Culture Café & Eatery sure looks like a winner. Very rich-looking, solid, many happy-smiling faces.
It is important to look past the flash, however. In the growth phase, who sells the offering says a lot about the credibility of the offering.
“- Store hard costs start from $175,000 (this varies depending on size, conditions, landlord and location).
- Franchise Fee (10 years) $20,000.
- Royalty (weekly) 7%.
- Ad Fund (weekly) 2%.”
Weekly (not monthly) payments and no mention of head lease, equipment or product maximum margins.
When I asked a few central Ontario current, multi-year, coffee franchisees about the offering: Does it…
They were unanimous in their opinion.
If you think you can outsmart professional swindlers all by yourself, you really are not smarter than a fifth grader.
Don’t get me started who’s papering this… (ie. “special relationship” CSBFA-based franchise lender)
The U.S. franchisor comes in, terminates the much smaller CDN licensee and takes over the “x out of 50″ stores that were promised under contract.
This is how nice northern families can end up as cannon fodder.
They blow their brains (and cash) trying to grow under impossible contract terms, the big boys then come in and scoop up what they want. Been done a thousand times in the past in franchising…
To a potential franchisee, it is irrelevant if the national developer/franchisor is:
Since I have tremendous respect for the Toronto Star business journalists, I suspect #2 and not #1.
Lisa Wright interviews Brenda Bot, the franchisor in a story on the front page of the Business Section: Romaine Empire: Green through and through, Salad Creations aims to grow into nation’s Subway of salads.
It takes industry and franchisor experience, adequate capital (very high burn rate, esp. in recession), a business model that has been successfully “transplanted” and a capacity to utilize network effects (exponentially increasing value as unit sales increase).
What I do see is a sincere person who naively believes that you can franchise any business concept and do it profitably for themselves and others. That a single one of a 5,000 Tim Hortons costs way over a million $ to build: yet Ms. Bot thinks she can launch a national chain for less than that?
I also see (and this gives me zero joy to type) is another in a long line of U.S. born, CDN imported “FranWhack” franchise investment scams: hype masquerading as a business.
These easily-duplicated, one-product business “opportunities”‘ are simply not investment-worthy in the opinion of Blue Maumau stalward, 45-year franchise industry expert, Richard Solomon.
In Richard’s always colourful prose, FranWhack Alert: The Cereal Bowl:
This concept was previously reviewed by me and I am of the opinion that, like Dagwood Sandwiches, Cereality and SoupMan, this should be considered a FranWhack franchise offering – one that will take every franchise investor down to bankruptcy.
Get Smart and call Richard in Texas for yourself and ask him if Salad Creations sounds like a FranWhack. He won’t fill your head full with a bunch of phantom dreams as Toronto-based Michael Webster (The Psychology of Scams) so clearly defines.
Don’t gamble with a Walter Mitty-esque longing to Be your own Boss, or Be in business for yourself not by yourself. You will never have fewer alternatives as when you are in a franchior:franchisee relationship.
You and your spouse’s life savings may live to thank you.
Ms. Bot draws the analogy between Salad Creations and Subway. This seems to be a twist on the hackneyed “next McDonald’s” huckster mantra so popular a few years ago. For franchise investors, Subway may leave a bitter taste because that system has had a singular reputation among industry experts.
Folks interested in corporate history as a predictor of future behaviour, might want to check WikidFranchise’s article archive: Subway tradename or maybe a few of the following direct references:
I wish Mr. & Mrs. Bot the very best in this new industry but that sentiment stops cold dead if it requires their their investors lose their life savings. They are green (green as grass?), as the headline editor wryly implies. They have a problem (eg. too much money) and their new best friends (lawyers, consultants, association, banks, etc) will help them overcome.
I don’t do pre-sale due diligence consulting so I would defer to professionals like Solomon and Webster for those answers.
Someone in the family should call me so I can explain how the CDN Krispy Kreme development deal went down. No charge to anyone calling as I have zero franchisor consulting clients, ever.
Jim Amos and Procter & Gamble put their heads together to make the Mr. Clean Car Wash franchisee.
Not even the best cleaners and polishes put out by P&G can possibly spit shine this turd.
The economics of this carwash concept don’t compute, and the choice of franchise leadership is dreadful.
P&G has given birth to a FranWhack here. No one in his right mind should ever consider investing in this debacle in the making.
Everyone should follow these two threads over at Blue MauMau as the pundits ridicule this latest, Is-this-the-best-they-can-do franchise offering.
Solomon is not alone in his skepticism
A tuning fork is an acoustic resonator in the form of a two-pronged fork with the tines formed from a U-shaped bar of elastic metal (usually steel). It resonates at a specific constant pitch when set vibrating by striking it against a surface or with an object… Wikipedia
If what Richard Solomon is saying over at Blue MauMau is NOT resonating with you, you’re a potential individual in…
…a sea of dead franchise fish stinking up the franchise world for many years to come in the near future.
Tens of thousands are exiting companies due to tough economic conditions. They have poor job prospects. They have access to half a million dollars and more in liquidity. They are considering small business ownership as their next move.
Whatever their prior experience, none has ever done pre investment due diligence on any small business investment, and none has ever done pre investment due diligence on franchise investment. Despite their education and experience, they are fish out of water.
You should read every word Solomon has to say. And then make sure your spouse does the same. Then give the article to any family member or friend you’d hit up to save your sorry future ass by throwing good money after bad.
There are three types of franchisees and all of them are in a certain % of denial:
No sane individual should invest or renew in any franchise heading into these worldwide recessionary times.
Richard’s advice stands on its own.
Kevin Tampone of The Central New York Business Journal (Make & Take, franchisees battle in court) starts off pretty hum-drum [Gosh, not another franchise misrepresentation case?]
It warms up substantially when Michael Einbinder’s name is dropped as he is a very heavy-duty lawyer.
Okay…These guys are very good. What next? So it seems the allegations are that the franchisor lied and failed to make a legal franchise offering: No disclosure documents were given and…
State law, he says, forbids companies from making such earnings claims unless they’re contained in a specific document, called a uniform franchise offering circular. Make & Take did not provide the franchisees with that document before actually selling them franchises, Einbinder says.
…the system was not registered to offer franchises in New York state (although there was a legal requirement to do so). The U.S. law defines a franchise very, very broadly and intentionally so, as to stop this weasel marketing efforts.
This is why the franchisor’s lawyers are being sued:
The firm helped Make & Take circumvent state requirements by creating licensing agreements for the company, the suit charges. The actions were part of a “scheme” to sell franchises in violation of the law, according to the suit.
While none of these allegations are proven, this is good example of an Accidental franchise (sometimes called hidden, inadvertant or unintentional franchises).
There is, of course, seldom nothing accidental or unintentional about these situations. These are all grown-up gentlemen and lady lawyers who have a duty to their client and their Courts not to be engaged in a conspiracy to commit fraud against specific investors and the good people of New York state.
And the old “ignorance of the law” chestnut applies to everyone, right? Even lawyers in limited liability corporations, right?
It’s as simple as Richard Solomon explains over at Blue MauMau.
First, Richard spells out the weasel play in an article named The Complicit Loan Broker In Franchise Fraud. [Whether there is a broker or not doesn't matter.]
It is common practice in franchising for a franchisor, especially a fairly new franchisor, to steer its franchise investors to a particular loan broker, and sometimes even to a particular bank. It is also fairly customary for the loan broker or bank to pay the franchisor for the “traffic”.
The information in the business plan always comes from the franchise sales/marketing people of the franchisor. The franchisee has little or no input in the whole matter other than to sign what is put before him by the loan broker without reading it or with scant attention being paid to it. The information is almost always false in the sense that it is full of exaggerations, to put it nicely, and the pro forma financial information has little or no basis in fact.
Richard goes through the details and asks rhetorically with knowing what the answer is:
What is the likelihood that a franchise investor, on these facts and with this testimony, will get a favorable verdict? Anyone care to guess? Since it may be a somewhat novel case, what is the likelihood that a favorable verdict will be upheld on appeal? Anyone care to guess?
And when Michael Webster asks a pertinent question:
How can the franchisor provided information to the loan broker, an agent of the franchisee, which amounts to an earnings claim when the franchisor disclaims making earnings claims in their Item 19?
Richard goes on to explain:
In the mind of the jailhouse lawyer crooked franchisor, providing information to help a franchise investor obtain a loan and complete a business plan (which it all total crapola anyway), is not considered (by them) to be the making of an earnings claim. In the weasel word play of franchising there is the FDD, and then there is everything else. The position that we weren’t defrauding the franchisee; if anything we gave the bank false information by providing it for the franchise investor’s business plan, is not just some cynical homorous thaing I made up. That’s how it really goes down.
It is useful to read the whole thread and then keep an eye on the posting.
Here’s a clip from one comment (named appropriately Hindsight) that has shown up:
How I wish I had read an article like this 12 months ago. This type of article should be covered on a major publication small business section.
Betcha wish you had read this article before signing up, eh?