Stewart’s Franchising Laws: Group power growth

ExponentialStewart’s Law (Group power) – the strength of a franchisee group will double every 3 months if not interfered with by a credence good provider.

This network effect-empowered capability is cheaper to deal with from within the group than by the franchisor directly.

Explanation: As franchisees gather together, their power grows exponentially not in a straight line way (ie. not added but MULTIPLIED and CUMULATIVE).

They gain progressively more confidence, build trust and move forward very much independent of the pettiness that revenge breeds.

Click on image (above) to see as you add a few members, their collective power increases by a much greater amount that they ever imagine. (This is what franchisors and their advisors know that franchisees fail to appreciate.)

Well before they realize their own, unleashed capability,  a lawyer usually has been assigned to confuse and derail their efforts.

Credence good providers are paid very, very well by the industry via referrals, new clients, hourly rates, promotion, and publication opportunities.

Franchisees should never start with a brand name attorney as their leader.

This is what differentiates an ordinary IndFA and what I have defined as an Attorneyless franchisee network, AFN: a AFN is franchisee-led  toward success, an IndFA is attorney-captured and almost 100% guaranteed for failure or impotence.

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4 Responses to Stewart’s Franchising Laws: Group power growth

  1. Carol Cross says:

    Les! I am sure you are up on the top of the “lawyers’ hate list” but I buy your point.

    Obviously, the attorneys like the status quo of the law and franchising and all of the activity it produces for the legal industry, and they KNOW that once the contract is signed, the Independent Franchisee Association has limited possibilities to negotiate better terms because of the law of the franchise contract that is upheld by the courts.

    The FTC Rule obviously set the terms of the franchise contracts that do subsidize the franchisors and that treat franchisees merely as resources for franchisors to prove their systems in the local economies. The ABA and its influence on the law of franchising in seen in the FTC Rule.

    Attorneys know, of course, that franchise regulation was also promulgated to protect the standing franchisees, those who are still trying to break even and those who have already broken even from those who may be failing within any particular system, and who may think that the franchise was misrepresented to them in the sales process, or that material risk factors were not disclosed.

    I’m sure attorneys don’t explain this to the franchisees in an IFA who are not thriving who, perhaps, would feel more need to join a franchisee association than those who have attained break even status.

    Doesn’t the model itself of franchising and the unique legal relationship of the franchisor-franchisee work against really effective IFA’s that can bring rewarding change to systems when an attorney gets involved unless the attorney explains that franchising was regulated to primarily protect the franchisor and that they, as franchisees, are merely resources under the law.

    I agree, the non-lawyer MBA like you, that understands the relationship and the special interests who support this hybrid legal relationship to gain an unfair advantage would be better able to work with an Independent Franchisee Association because you could level with the franchisees as to the effect of current law and regulation on their actual and real positions as franchisees.

    The effect of ineffective regulation in pre-sale and in the determination of the actual long-term relationship would not be anything that you would consider secret and NOT suitable to be discussed with the franchisees because of “political correctness” or your License to Practice Law.

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  2. Les Stewart says:

    Carol,

    As individuals, I like attorneys very much.

    How they behave to succeed economically is what I find objectionable.

    Les

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  3. Carol Cross says:

    Obviously, the the big law firms in the US have written franchise law to protect the franchisors in any circumstances, and to treat franchisees as merely contractual resources upon which franchisors can rapidly grow their chain businesses. The franchisors have the big money and have convinced the Congress that the “status quo” serves the greater good and the policy of the United States Department of Commerce.

    Of course, they had to redefine common law fraud to do it through the use of the FTC Rule and subsequent case law in the US Courts. Unfortunately, because there is no private right of action for a failure to disclose under the FTC Rule, the franchisors have been given a blank check to commit fraud, as needed.

    I wonder if all of the attempts by franchisees to get justice in the courts will get the attention of our Congress. I would think that the Courts would be unhappy with the growing perception that “commercial law” that surrounds franchising has been “fixed” and that franchisors can sell unprofitable franchises under cover of government regulation or lack of regulation, with immunity and impunity.

    Have you ever read the case of Jerry Morrison and Helen Morrison, Appellants, vs. Back Yard Burgers, Inc., Appellee, Aug. 9, 1996, and the opinion of The Honorable Richard W. Goldberg, Judge, United States Court of International Trade, sitting by designation?

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  4. Les Stewart says:

    Carol,

    No I haven’t read the case and I don’t think I’ll be able to devote the time to it.

    What does it say?

    Les

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