It was wishful thinking that I could be profitable as a Mom-and-Pop operator when I got hooked up with, what turned out to be (see hindsight bias) a system that didn’t have a proven business model. I kept putting more and more time and money in (sunk costs) believing I could turn the corner.
Michael Kernaghan of the Weed Man was right: I didn’t have enough money to grow the business quickly enough to be sustainable.
Once in the soup, I created an internal fallacy or illusion. It was fueled in part with my increasing attachment to the money I had lost (loss aversion) which is usually 2 times as powerful as the desire for a comparable economic gain (prospect theory).
It was very difficult to square this failure with the frequent successes I had had in my life up to the at time (cognitive dissonance). And the franchisor could always be counted on to counsel perseverance and asking relatives for more money.
- Very Large Note: I had no flipping clue (at the time) that I was in a very real way acting in a delusional way. I thought I was being perfectly rational. I had did not know I had Drunk the Kool-Aid so badly. (Most other cult members don’t think so, either.
Whether a system is predatory or incompetent, it does not matter: The investor will lose it all, in all likelihood. The only difference will be the style you exit with.
Of the tens of thousands of dollars I have spent on professional advice, the most useful franchise expenditure was with my Bankruptcy Trustee.
He once mentioned that the average indebtedness of a client was $25,000.
My former franchisor realized less than seven per cent (7%) of their claim on my business’s disposal. That was no surprise to a 1,800 franchisee multi-brand international corporations.
- I believed I could turn early losses around by working harder and investing more. I was wrong (see pride). Perversely enough, the harder you work, the more you become attached to being a franchisee. It works like a Boy Scout knot that tightens as you struggle with it.
- I went 3 to 4 years too long. They call it “protection” under federal law for a very good reason. I was over-optimistic.
- Bankruptcy was the best business decision possible.
- The manner in which I bailed was important to me (no credit card debt, only the likely suspects got burned).
- My spouse never signed anything…ever. (Everyone notice this?)
- My retirement savings were with a life insurance company which, for me, proved to be beyond the reach of bankruptcy law. (Talk to your financial advisor about protecting yourself before investigating anything.)
- Going independent delayed the inevitable and it allowed me to acquire the start of my franchising education.
- Financial counselling before I actually declared bankruptcy (ie advice in helping to decide) from a Trustee in Bankruptcy was the 2nd best money I ever spent.
- Bankruptcy’s stigma (acting through the human emotion of shame) kept me going. I thought that if I was going down, I may as well learn as much as I could about franchising as I went.
- Industry insiders told me stuff that they never imagined I would using in 10 years. Everyone cuts a deal, signs a gag order and exits feeling it was mostly their fault.
- I got hooked on learning how this trap is laid, especially the psychology that makes a franchisee seem to so comprehensively collaborate in their own imprisonment (thought reform).
Credit counselling is a part of the process of being a first-time bankrupt. It went pretty smoothly for me.
When my counsellor said, “What lessons have you learned, Les?” and I replied: “Don’t buy another franchise?“, the questions stopped.