Franchisees stay in money-losing operations much too long because they make a fundamental error (own versus rent).
They see themselves as “owners” of their business, while in fact, they are conditional renters of trademarks and an operating system.
- This makes them overvalue their investment and continue to invest much, much more of their own personal identity in the business.
- This is particularly true because the new renter is much less likely to share in that inflated worth.
This mismatch makes a negotiated sale much less possible, without adding in all the self-interest and network issues that the franchisor can bring to the table.
This video from Dan Ariely (Predictably Irrational) shows some research that was done that tends to support my conclusion. Summary:
- owners (sellers) would sell at $1,400, while the
- buyers valued the tickets at only $170.
Those that thought they were an owner, inflated their value by 8.2 times the market value.