There are some questions being asked over at Blue MauMau about why intangible property is being written down. It is reported today that Guidant, a major fianncier, has simply closed up shop while teetering systems seem to be desperate for a source of funds.
All of these I think obscures a fundamental change: franchising has reached it’s tipping point: the momentum for change becomes unstoppable.
Mom and pop investors have concluded that it is Unsafe at any Brand (ie. risks are too high to sink money into any franchise).
I outlined what I see as the signs in a Blue MauMau posting called: Better Quality pushes out Lower in a Functioning Community. This is my reasoning:
I would suggest that this historic need to re-value the worth of franchises’ future earnings is manifesting itself in a new phenomenon: a recession and new franchise sales in a tailspin.
The industry’s “conventional wisdom” is being turned on its head (ie. franchise sales increase during recessions) perhaps by three factors:
- very high ratio of new sales v. royalties (reliance on short-term, ponzi-like cash needs),
- significant industry portion that would perish under public scrutiny (unsustainable under more perfect information) and
- dramatically more unstable system brand life (faster, bigger and more blowups versus “bleeding” systems: akin to global warming effects).
I’m speculating here of course. What would reconcile all of these observations is a technology change that is short-circuiting the traditional command and control structure (top-down).
Web 2.0 and other community technologies offer investment information in a much more decentralized, cheaper and faster method than what it replaces. Maybe the industry’s paper is starting to be seen in much the same way as some mortgages now are: a product of a imperfect information?
The ice on the overall industry’s wings may be caused indirectly from the public’s improve ability to discern sustainable from non-sustainable offerings.
This is very good news for legitimate operators, their investors and the percentage of the industry that they represent.
- Not so much for the short-cyclers, no matter their size.