Can an empire be saved by shaming investors like Ariel Buk?

There are costs involved in maintaining investor confidence and commercial relationships. Some people need to learn to “take one for the team”.

Ariel Buk and Sonia Karabin may need to understand that they should cool down, be quiet and go away about losing a $85,000 deposit on a non-existent Ontario, Canada franchise. They and, by extension, the many hundreds of other “failed franchisees” need to be taught their role in this confidence game by the industry stakeholders: take one for the team or risk being shamed.

1. James Daw presents the story in yesterday’s Toronto Star article,  Ice cream dream becomes nightmare about Mr Buk’s experience with Piazza Gelateria and Café. This is shrewd. For example, Mr. Daw opines:

They [husband and wife] should have looked more closely at the business opportunity, and their decision to use mainly borrowed funds after Buk had lost his job.

They should have considered the minimum $300,000 cost of a lawyer to sue for a refund if things went wrong, and the chances of recovering anything from a relatively young numbered company.

2. Robert Cialdini lists authority as one of Six Weapons of Influence. My experience is that attorneys are given a  lot of authority by new Canadians. Many of us see past their pretensions, BS and fear. [Examples of authority.]

Ben Hanuka of Davis Moldaver LLP is quoted as saying:

“Very few mom-and-pop franchisees ever go to that length (of hiring experts to research a franchise opportunity),” says Hanuka. “It sounds too complicated to them.”

All it well with the world the reader is assured. Go back to sleep because these people get what they deserved. The blame lies with:

1. the anonymous, individual “other” (mildly retarded immigrant scapegoat) deserved what he got (“your success follows from your blind obedience to authority” dogma)  and not that
2. stakeholders align their self-interest in maintaining a facade of legitimacy: not a fake, or a Potemkin village scheme which has preyed upon identifiable groups, in plain sight,  since at least 1971.

Social Psychology-based Hypothesis: Elite stakeholders deflect systemic wrongdoing by using the largely-internal mechanisms of On Cooling the Mark Out by Erving Goffman (shame-humiliation effect) while using the public’s widespread fallacy of theBelief in a Just World, BJW (Melvin Lerner, retired University of Waterloo, Canada) in the country’s largest daily newspaper.

Every dying empire resorts to displays of public humiliation.

Why were people crucified in Jesus’ time?
Crucifixion was a Roman custom used on the worst malefactors and rebellious slaves. Judea was a tributary to Rome at that time. It is recorded by the Jewish historian Josephus that after the last rebellion of the Jews and the capture and razing of Jerusalem, the countryside was practically denuded of trees the Romans crucified so many. WikiAnswer

Detail: Crucifixion was often performed to terrorize onlookers into submission. Victims were left on display after death as warnings. Crucifixion was usually intended to provide a death that was particularly slow, painful (hence the term excruciating, literally “out of crucifying”), gruesome (hence dissuading against the crimes punishable by it), humiliating, and public, using whatever means were most expedient for that goal. Crucifixion methods varied considerably with location and time period…

While a crucifixion was an execution, it was also a humiliation, by making the condemned as vulnerable as possible. Although artists have depicted the figure on a cross with a loin cloth or a covering of the genitals, writings by Seneca the Younger suggest that victims were crucified completely nude. When the criminal had to urinate or defecate, they had to do so in the open, in view of passers-by, resulting in discomfort and the attraction of insects. Despite its frequent use by the Romans, the horrors of crucifixion did not escape mention by some of their eminent orators. Cicero for example, in a speech that appears to have been an early bid for its abolition,  described crucifixion as “a most cruel and disgusting punishment”, and suggested that “the very mention of the cross should be far removed not only from a Roman citizen’s body, but from his mind, his eyes, his ears.” Wikipedia

Humiliation is the most unpredictable, violent and destructive human emotion. It can result in many types of loss (see Bob “Bhupinder” Baber, WikidFranchise)

Too bad about the Toronto Star

The Star used to write excellent franchise investor stories.

Dozens of them I’ve captured on WikidFranchise.org. They were instrumental in getting the Wishart Act in force. The business section followed something called The Atkinson Principles.

But everything changes, I guess, even social justice.

Seems like the ongoing carnage isn’t newsworthy to Canada’s largest daily newspaper since they became a member of the Canadian Franchise Association in 2001.

Health care reform “debate”: More industry Canada Goose-stepping

Go ahead: Blame Canada

I’ve held off commenting on the current U.S. health care reform debate.

Until now.

This “debate” is structurally identical to what passes for communication in the franchise industry today.

Propaganda, pure and simple (biased influence)

Unmistakeably, evil if judged by historical wisdom authors. Still corrupting even to most docile sheeple.

Some of it bordering on Große Lüge (The Big Lie), analogous to Big Tobacco defense style, Nineteen Eighty-Four,  modern PR, corporatism…

I think today’s Toronto Star op ed is a good summary of how most Canadians I know feel about our system versus the U.S.’s. In Why I’d rather be sick here than in U.S., Bob Hepburn writes:

For weeks, Americans have been told that Canada pushes its sickest and weakest to the bottom of wait lists, that our health care is inferior, that it’s the government that decides who lives and who dies.

Despite these attacks, the reality is that the overall quality of health care experienced in Canada is far better than in the United States.

If you have any doubt, just ask yourself this simple question:

Would you rather be sick here or in the U. S.?

For me, the answer is obvious.

I have worked and studied in the U.S. for a total of 10 years and, although I have received good care from American doctors and clinics, I’d much rather be sick here.

Some inconvenient data:

1. 87% of Canadians beleive our health care system is better than the U.S. (EKOS survey),
2. +90% happy with quality of care they received,
3. 100% of Canadians have been covered since 1967 while 50 million U.S. have zero coverage,
4. zero Canadians have gone bankrupt because of an health care expenses,
5. zero Canadians have had coverage reduced because of being at a higher risk, and
6. 10% Canadian GDP on health care (16% in U.S., highest in world).

We have problems, absolutely. Were lots of problems when I was hit by a automobile as a kid in 1968. But I know one Canadian family that was not bankrupted by hospital invoices. I went on to work at Royal Victoria Hospital, St. Thomas Psychiatric Hospital and Victoria Hospital as a staff administrator.

Our first question is: How can we help? (not How will you pay?)

Ours is not a 100% government-owned, monolithic system. Many of the elements are privately owned and for-profit. It is wide-ranging but does not cover all health needs.

That said, even the most libertarian politicians know it is political suicide to even hint at tinkering with the founding principles of the Canada Health Act:

1. administration,
2. comprehensiveness,
3. universality,
4. portability and
5. accessibility.

The debate, like in franchising, would normally be seen as just plain silly if it weren’t for the toxic effects on families and communities with these thought reform methods.

By its operating software, antithetical to a sustainable physical, spiritual and mental healthy human life. Machines running man.

Similar to many modern corporate technologies.

Salad Creations Canada: Is this McSalad bar an unintentional FranWhack?

Some imported franchise systems are designed to fail: to make the CDN franchisor and all franchisees’ life savings evaporate.

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:

1. knowingly predatory or
2. 100% well-meaning but, nonetheless,  incompetent or incapable of going the distance.

Since I have tremendous respect for the Toronto Star business journalists, I suspect #2 and not #1.

Case in point, the Canadian launch of Salad Creations (one corporate location, zero franchises).

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).

• I see none of these minimum prerequisites here.

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.

I suggest reviewing what is and is not a FranWhack franchise investment on his website, FranchiseRemedies.com.

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:

• The Subway system under fire
• Why Subway is ‘the biggest problem in franchising.’
• Franchisees Sue Subway Sandwich Chain
• Subway’s disrespect
• Subway franchisee faces bankruptcy
  

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’ll just add this article to WikidFranchise.org and check back in a few years to see how this newly minted CFA member and investors are doing.

• Odd how their U.S. site says they have franchisees in California but that there is no listing for Salad Creations on the Cal-EASI Database.

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.

Earnings Claims in CDN franchising: $75,000 for 12 days work?

This is an advertisement in today’s Toronto Star.

It is a listing under the “Franchising” section. At least 50% of the ad space in this section is hyping the Canadian Franchise Association’s upcoming The Franchise Show.

The Canadian Franchise Association bills themselves as “the national voice for Canadian franchising“.

Let’s see exactly what this alleged franchisor has to say for itself:

1. Earn $75,000 per year for 1 day of work per month. I guess that corresponds to $781.25 per hour (8 hours per day). Or if you wanted to work 2,000 hours per year, you’d be making $1,562,500 peddling branded drinks. This is what passes for investor protection in Ontario, more than 8 years after the passage of the Arthur Wishart Act (Franchise Disclosure).

2. Note how the extremely unknown franchise system trades on transnational brand titans such as Pepsi, Doritos, Lays, Red Bull, etc. This is a classic persuasion technique the confers legitimacy by associating with authority (this time, marketing or brand strength that “Attracts Customers like a Powerful Money Magnet!“)

3. It promises a system: it bundles locations with package. Why the heck at these revenue per hour figures doesn’t the franchisor just hire some flunky to stock the machines? This goes to the usual “turn key” proposition of a “proven system” that usually turns out to be nothing of the kind.

4. The flash “Now Launching in the GTA!” serves two masters: (a) it explains why no one has ever heard of Sip-N-Snack and (b) it lures those that want something new, special or up-and-coming. The phrase “This here poo-collecting franchise is the next McDonald’s…” is a related rhetorical come-on for the overly-trusting.

5. Placing the advertisement in the franchise section is intended to confer legitimacy or utilize social proof: other better-known franchise brands in the ads around this ad. This is important because this might well be the cheesiest fly by-night equipment business opportunity scam imaginable.

6. The total price point is important. At $16,995, if this were a total scam, very few investors would sue to recover their loses. The cops usually won’t investigate anything under $250,000 and the retainer for a lawyer is +$1,000. Like 99% of the defrauded, they won’t even report it to the local police and the Competition Bureau is a bloody lapdog.

7. Note the recognizable logo: Pespsi-Cola. And 5 exclamation points. This must be a hot deal!!!!! (Just because it is corny does not mean it isn’t really effective on a certain percentage of the population.) Fraud cuts across many socio-economic levels.

8. If this is a scam, the money is quickly sent away; well beyond the reach of any litigation or police investigation. Con games are well-thought out beforehand and the three-card monte table is quickly folded up.

9. But still if 10 people bite, that’s an okay return on investment for the franchisor and it keeps the revenue wheels turning at The Toronto Star, too.

10. Canada is a well-known white-collar crime incubator as recently portrayed by the CBC Marketplace in Buying into the pitch to become rich. In all confidence games, more than 50% of the marks are good for a second fleecing.

Any comments, particularly from those knowledgable about business opportunity frauds are welcomed.

I’m junk but I’m still holding up this little wild bouquet

I’ll miss newspapers when they’re gone.

McLuhan said you didn’t read a newspaper, you step into one, like taking a bath.

President-elect Obama will be visiting Canada soon. The Toronto Star reports that CBC Radio is holding a poll to select some songs to give to the President as a gift from all Canadians (CBC shuffles Obama’s iPod).

Here’s one of our best. A quirky, abridged version but Is it possible to to hear too much of The Voice?

I love the country but I can’t stand the scene.
And I’m neither left or right
I’m just staying home tonight,
getting lost in that hopeless little screen.
But I’m stubborn as those garbage bags
that Time cannot decay,
I’m junk but I’m still holding up this little wild bouquet:
Democracy is coming to the U.S.A.

Democracy, Leonard Cohen

It’s coming through a hole in the air,
from those nights in Tiananmen Square.
It’s coming from the feel
that this ain’t exactly real,
or it’s real, but it ain’t exactly there.
From the wars against disorder,
from the sirens night and day,
from the fires of the homeless,
from the ashes of the gay:
Democracy is coming to the U.S.A.

It’s coming from the sorrow in the street,
the holy places where the races meet;
from the homicidal bitchin’
that goes down in every kitchen
to determine who will serve and who will eat.
It’s coming to America first,
the cradle of the best and of the worst.
It’s here they got the range
and the machinery of change
and it’s here they got the spiritual thirst.

It’s here the family’s broken
and it’s here the lonely say
that the heart has got to open
in a fundamental way:
Democracy is coming to the U.S.A.

I’m sentimental, if you know what I mean
I love the country but I can’t stand the scene.
And I’m neither left or right
I’m just staying home tonight,
getting lost in that hopeless little screen.
But I’m stubborn as those garbage bags
that Time cannot decay,
I’m junk but I’m still holding up this little wild bouquet:
Democracy is coming to the U.S.A.

Sail on, sail on
O mighty Ship of State!
To the Shores of Need
Past the Reefs of Greed
Through the Squalls of Hate

Unused verse:

It ain’t comin’ to us European-style,
Concentration camp behind the smile;
It ain’t comin’ from the east
With its temporary feast
As Count Dracula comes strolling down the aisle. (source)

Madoff investor takes own life

I know very little about hedge funds and how they are managed.

I do, however,  have some experience in dealing with people who are confused, suffering from temporary distorted thinking and have had their confidence in themselves profoundly shaken.

Fraud is primarily a violent attack on the victim’s identity and his core belief in the predictability, if not fairness, of his world. No one I have known lists economic loss as even a minor consideration, if they come out of the valley. Excuse me for  suspending  judgment as I remember those that didn’t make it out of franchising alive.

The New York Times reports that Mr. Rene-Thierry Magon de las Villehuchet, founder and CEO of hedge fund Access International Advisors, LLC, was found dead yesterday. It appears that that the fund has about $1.4-billion exposure in the Bernard Madoff affair.

I do not know precisely the pain that drove who appears to be an extremely sophisticated, successful and dignified individual to commit suicide. If the coverage in The Toronto Star is any indication, he presented as one classy person.

• Beyond that, I have no right to judge anyone else.

Maybe he felt he had committed an unforgivable error by trusting Madoff? That he subscribed to the belief that “To those whom much is given, Much is expected“? Maybe he felt if he was smarter, worked harder, paid more direct attention he could have prevented this loss? Maybe it’s just random, there is no connection at all: It’s just the media picking up on mob’s cries for “some rich elitist bastard to pay” (regurgitation of Storming of the Bastille, off with his head).

• Who knows? Only time will tell but that story carries its own biases.

Galbraith‘s The Great Crash 1929, however asserts quite strongly that the incidence of suicide did NOT increase because of Wall Street’s collapse:

In the United States the suicide wave that followed the stock market crash is also part of the legend of 1929. In fact, there was none.  p. 131

I suspect that time and hindsight will reveal that Madoff’s alleged (in quotes) “ponzi scheme” was business as usual in today’s perverted form of casino capitalism (eg. the only difference is that this sausage exploded; hundreds of other fraud sausages happily robbing Peter to pay Paul).

What I do know, is that his family will miss him and that this loss sucks at this time of year. I’ve lost way too many people in December.

When everything’s black, let’s hope that each of us has at least one person to talk to.

• Let’s keep in touch with each other, ok?

The Case of the $100,000 fee bonus

Once upon a time…

A group of seven Canadian automotive franchisees were enduring 3 1/2 years of litigaton hell: 28 delays from the franchisor, unemployment, marital stress & breakup, poverty, being right on the edge of sanity. The usual condition.

Let’s not forget the recurring threats from their own lawyers to keep paying or they will be dropped as a client.

I get involved and encourage them to talk to the Toronto Star, Canada’s largest circulation daily newspaper. They do and a franchisee-bleeding style of article is written. Pretty sympathetic for guys: Not so much for the franchisor.

The franchisees are scheduled for arbitration. After two days, not a single concession, let alone a settlement is in sight.

I faxed the Toronto Star article to 150 United States franchisees of the same system from my office above my garage. Time-consuming but always effective.

All hell breaks loose the next day in arbitration. The franchisor accuses the franchisee’s lawyer of knowing about the faxing (he didn’t), being a communist, yadda, yadda, yadda.

Anyway, the franchisor cuts one cheque to settle the lawsuit.

However, a mysterious $100,000 in fees is added onto the franchisees’ bill by the franchisee attorney (my contact was the treasurer of the small group).

What would you do?

1. Refuse to pay and everyone gets $0.
2. Keep you mouth shut and let the lawyer pay himself an extra $100,000.

He signed the confidentiality agreement and has never said a word about it. I have never signed any gag order.