People need to think of themselves as unmanaged, independent and free, if they are to be controlled with maximum success. John Kenneth Galbraith
The story coming out of Blue MauMau is that franchisees are the authors of their own misfortune in several dimensions.
- They’re stupid in not doing what is seen as Killer Due Diligence and therefore deserve their fate (even though the Three Wise Men admit that franchisor opportunism cannot be controlled, avoided, let alone predicted on a pre-sale basis).
- Proof of their stupidity is that there are few independent franchisee association, IndFA around.
- Franchisees compound their lack of intelligence and sloth by not having a franchise bar member manage their independent franchisee association, IndFA.
- Proof of their lack of intelligence is them not spending $.27 per day on some mythical national pro-franchisee lobby effort (the “Let’s not just match but outspend GM+Toyota+Exxon” public policy argument).
Conventional Wisdom: many manifestations of stupidity, one source of stupidity (ie. franchisees).
- I would suggest this is 180 degrees wrong and that franchisees dance like white men because of the cash flow relationships within Big Franchising.
It is my expereinece is that the formation of grups happens along this way:
1. Two, three franchisees grab a few brown pops and start shooting the shit. They figure out they’re not crazy about their concerns and start working out some information sharing between themselves. They start scratching down some numbers on a wet bar napkin and start wising up to how far they’re bending over. Some sober up and continue emailing each other.
2. Other franchisees hear about what Tom, Dick and Harry are doing and want to join in. There are larger group meetings at kitchen tables: Real benefits, great value.
3. One of the still extremely effective but non-directed group mentions that they ought to get some legal advice.
4. They get some $ together and call a franchise bar lawyer who claims to represent franchisees’ interests. The franchisor lawyers up; the franchisees lawyer up. The more money that is spent with the lawyer, the tighter the bonds become to that service provider.
5. The association grows but just seems to fizzle after the initial war chest is used up in legal dances.
- The allegations of stupidity are used to disguise the franchisees’ lawyers role as shepherd. It’s a well-choreographed dance. A false-justice show for the crowd: A conjurer’s trick to maintain the illusion of a balanced industry.
- Let’s not forget that all lawyers are susceptible to cheating because they provide credence good services: franchisees can’t tell if they’re being ripped off.
Franchisees think that by hiring a franchisee “white knight” lawyer that they will continue solve their business problem. Not one of the corporate guys but their “sworn enemies” the ones that scratch themselves and cuss to show how deep they’re into the franchisee brotherhood.
- Why would franchisee lawyers solve (rather than massage) your problems when that would decrease their future cash flows (reputation as an unmanageable in a near-monopoly of professional services)?
Proof: Who is telling you [post-signing] to talk to a franchise law expert rather than an experienced regional lawyer? (It’s the same party saying to come talk to their Ombudsman, btw.)
- The national franchisor trade association or their captured bankers, consultants, government agencies, etc.
No wonder franchisee groups flounder: They’re sabotaged every day by their own contracted legal providers (see infanticide).
- The solution is to grow the IndFA while avoiding being eaten by the Wolf in Sheep’s Clothing lawyer.
- Research indicates you avoid overpaying credence good providers by paying separately for (1) diagnosing the problem and, if needed, (2) contracting for services to solve the problem. The Franchise Bar members insists on doing both (diagnosing and providing service) which is a very dangerous situation. They also will NEVER deal with an IndFA that is also being currently advised by an independent franchise consultant (control issues should not be significant if everything is on the up-and-up: but it isn’t).
- I only diagnose, advise and support the IndFA’s executives in their relationships to their sub-contractors (lawyers, accountants, media, web designers, insurance providers, etc.)
The businesspeople should wag the wolf’s tail, not the other way around.
Postscript: Since writing this 9.5 years ago, I have received zero referrals as a resource via the Franchise Bar in the face of 5,000 ON lawsuits per year. June 201
FranchiseFool.com 
This is an excellent post, Les. I agree with a great deal of this, post it over on BMM to cause a real ruckus!
However, I do have some other observations. Whenever I hear franchisees talking about “corporate”, especially when “corporate” runs no stores, I cringe. Put your head in a noose, pull hard and then complain you cannot breathe.
From the other side of the table, I agree and most franchise lawyers would agree, that the forming of an IndFA while in crisis is generally short lived.
So why don’t the franchisees recognize the benefits of coordination when not in crisis mode? Why do they think that joining the Board of Directors of their IndFA is akin to being elected to the country club? Why won’t they spend the time to put together the formal structure of an incorporated co-op; hire an executive director to manage and grow their finances?
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Michael,
I would suggest that the influence and mere presence of a lawyer explains many of the shortcomings. Lawyers are trained to view matters in legal ways.
But not just in legal ways: In a very narrow, specific type of law.
There are many types of laws around the world and the British common system is but just one. It’s big weakness is in weighting WRITTEN, two-party evidence much, much more heavily than ORAL, relationship-based evidence.
Franchisees represent much more of an oral or aboriginal culture. And so do franchisors.
However, franchisors have chosen to dominate by sub-contracting coercive control of their franchisees to the franchise bar that uses written “if it’s not within the 4 corners of the contract it doesn’t exist” mind set.
In Canada, wise guys like Champlain understood you needed to co-operate with First Nations in order to survive, let alone thrive. In a more temperate climate like the U.S., it’s much easier to impregnate blankets with small pox.
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Hard for US prospective franchisees to overcome the constructive fraud of the “package” of the government mandated disclosure document and the binding, boilerplate, non-negotiable contract that becomes a long-term malicious legal trap. All oral hype and “success” representations are erased when franchisees, in great good faith, sign the franchise agreement that will govern the long-term relationship in success and in failure.
And, just who would put themselves at great personal risk of losing all that they have to buy a franchise if they knew and understood the actual risk, as known to the seller of the franchise, the franchisor? While it is true that the prospects “need” and “desire” to find a means of producing income and that their need often sets them up for the franchisor, the government helps the franchisors to take advantage of human nature with the subsidy of ineffective regulation.
Of course the government and the BAR use the “due diligence” argument to excuse their complicity in the development of the ugly and immoral status quo of franchising and the law in the United States. As if it were even actually possible to do effective due diligence on Item 20! — and when there is no Item 19 “earnings claim” and no corporate units, the Franchise Disclosure Document is just a long-winded red herring that diverts the buyer’s attention from the actual risk of the investment in the franchise itself and protects the franchisor from fraud in the sale of the franchise.
At least the Minister of Industry of the United Kingdom was smart enough NOT to especially regulate franchising because she realized that government regulation would provide a false sense of security to new buyers of franchises. In a hearing, she even indicated that the troops would be returning home, etc.. and made other comments that indicated she didn’t want to repeat the mistakes of US Regulation of Franchising.
While nobody wants to talk about the FTC Rule, it is pretty obvious that franchising was regulated to protect franchisors from charges of common law fraud in the State Courts. The FTC Rule is a form of insurance for franchisors that acts as an inducement for them to become entrepreneurs and franchise their concepts through the use of the cheap labor and cheap venture capital of prospective franchisees, who, under contract law, are merely expendable resources for their franchisors.
Obviously, the franchisors and the regulators knew there would always be failures —-even in the most successful franchised operations. They knew that the “failure rate” and the “success rate” would be “material” to new buyers and that regulation therefore would have to deem that success and failure information on a UNIT basis of the system was NOT material information that would have to be disclosed to new buyers of franchises by the franchisors, the sellers.
Who knows? Maybe when there is an investigation of the “securitization” of franchised businesses, there will be more transparency and franchisors will be required by governments to disclose unit historical performance statistics to both prospective franchisees and to investors in the franchisors’ paper systems.
“Oh! What a tangled web we weave. When first we practice to deceive!”
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