Potemkin village franchise offerings

There are many very good business and political reasons for deceit.

It is important to know your history.

A potemkin village:

…has come to mean, especially in a political context, any hollow or false construct, physical or figurative, meant to hide an undesirable or potentially damaging situation

Examples of Potemkin villages

The Theresienstadt concentration camp, called “the Paradise Ghetto” in World War II, was designed as a concentration camp that could be shown to the Red Cross, but it was really a Potemkin village: attractive at first, but deceptive and ultimately lethal, with high death rates from malnutrition and contagious diseases, and it ultimately served as a way-station to Auschwitz-Birkenau.

A Concentration Camp passed off as a Retreat

Unlike other Holocaust camps, Jews entered Theresianstadt willingly, even eagerly, because Nazi lies led them to believe it would be a peaceful retreat. The deception continued even after it was clear that Theresienstadt was a ghetto. The Nazis used the camp to film a pro-concentration camp propaganda film and fool Red Cross officials into believing the Jews were being well cared for.

Theresiandstadt currency was created to further the charade. It was never used or had any value and can be seen here.

  • I agree with Richard Solomon that 80% of new franchise systems have no investment value. They are all Potemkin villages.

The Gate is translated as: Work brings Freedom.

In Auschwitz-Birkenau where the ashes fell like snow, the area where the valuables were easily stolen was called Kanada 1 and Kanada 2. You can look it up yourself.

One Response to Potemkin village franchise offerings

  1. Carol Cross says:

    The Potemkin syndrone can be demonstrated by looking at the US Regulation of Franchising that was implemented by a Rule of the Federal Trade Commission in the late 1970’s that demonstrates the public policy of the federal government and the states regarding regulation of the franchising industry.

    The Federal Trade Commission indicated that the “purpose” of the rule was to protect franchisees and to make franchisors disclose essemtial information that would enable the prospective franchisees to assess the risks and rewards of the franchise offered for sale. And, of course, prospective Mom and Pop franchisees are so ignorant tjat they think this is the purpose of the government regulation and are lulled into a false sense of security when buying franchises—especially, the highly visible franchises.

    Obviously, the FTC was being disingenuous because the FTC Rule and the State UFOC/FDD’s don’t accomplish what was said to be the “purpose” of the FTC Rule. In fact, the FTC Rule acts like a red herring, in my opinion, to disguise the risk of the investment in the franchise itself from new inexperienced and unsophisticated buyers.

    No earnings and no UNIT performance statistics are required to be disclosed to new buyers of franchises by the franchisors themselves under the FTC Rule and the State UFOC. Attorneys who are franchisee advocates have indicated in public comments to the FTC that this is the FATAL FLAW of the FTC rule that amounts to misrepresentation by ommission.

    The majority of franchisors in the US, after thirty years, make no earnings claims in their FDD’s (it is an optional item under FTC Rule and it is against federal and state law to make earnings claims outside of the FDD. When franchisors violate the FDD, it appears that only the federal government or the State government has the standing to sue the franchisor or negotiate rescissions, etc. (that favor the franchisors There is no private right of action provided under regulatory policy. It appears that regulatory policy actually enables franchisors to sell their franchises at any percentage of risk of failure and lack of profits as long as they are compliant with the FDD. It appears that regulatory policy enables “churning” and “encroachment” by franchisors out of view of the public that buys franchises and out of view of the regulators. The regulatory policy becomes “public policy” that is protected under law of contracts.

    The FTC Rule does require the disclosure of information in Item 20 about ex-franchisees and current franchisees who are offered as references but Item 20 acts as an artifice to protect the franchisors, themselves, from making any representations in the FDD about the risk and rewards of the investment; i.e., profitability, survivability, etc.. and when new prospects act on the representations of the franchisee references and buy a franchise that fails, the damages they suffer are proximate to the representations of the franchisee references and NOT to any representations made by the franchisors in the FDD or the signed franchise agreement.

    The franchisor is generally “home free” in the courts when the buyer of the franchise in good faith signs the “boilerplate” adhesory agreement wherein the buyer indicates he is buying the franchise with no reliance on anything except what is contained in the FDD and that he is buying the franchise with no promise from the franchisor of profits and success. Of course, the judges must know that this is not true but they don’t make the laws or originally promulgate public policy and are charged with upholding the law of contracts that is essential to the protection of commercial activities throughout the world.

    The franchisee understands, of course, at some leve, that there will be some few failures but doesn’t understand that the franchisor will not be held responsible for the “constructive” earnings claims made outside of the contract and that the buyer of the franchise has received no proof whatsoever of profitability or survivability of his/her investment in terms of disclosure of UNIT financial performance statistics from the proprietor and owner of the branded system. It is one matter to know that there is risk involved and quite another matter for the known risk of the failure of first owners of franchises not to be disclosed to new buyers of the franchises.

    In Ontario, Canada, at least there is a private right of action permitted for violation of franchise disclosure laws. Les Stewart indicates that this is not enough because most “destroyed” franchisees don’t have the financial resources to address the courts or to arbitrate the matter, etc.. and just fade away into obscurity. Franchisees are still not made aware of the unit performance statistics and it is still “public policy” to permit franchisors to sell their franchises at any degree of risk of unprofitability and as long as they are compliant with the disclosure regulations. It is still public policy to permit franchisors to sell franchises at any degree of risk to new buyers because this public policy is deemed by all of the special interests to serve the “greater good.”

    Let’s hope the Australians can produce some fairer regulation and not buy into the Potemkin syndrome. Maybe the Australians could be the first to find out whether or not franchising can survive when franchisees can look at the UNIT financial performance statistics of franchise systems and there is COMPETITION among franchisors to capture the cheap labor and the cheap “venture” capital of the prospective buyers of franchises.

    Like

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