franchise Churning: Sell ’em, Take ’em back and Sell ’em again

“I should have bought a fucking Hortons,” so Peter told me.

Maybe yes. Maybe no.

Peter Bell is an original.

He and I were Ontario Nutri-Lawn franchisees in the 1990s. He was in a partnership with a “friend” Marc Thiebaud at OGS, in the Oshawa/Whitby area.

Peter is smart. He didn’t take the legal dead-end like I did. But both he and I signed based on false earning claims delivered by wonky pro forma income statements.

In 1998, from the franchisor’s unusual point of view, Nutri-Lawn had 24 successful Ontario territories (ie. open, paying royalties).

From the franchisee investor another picture emerges. From 1990 to 1997 of the 24 territories:

  1. there were 17 franchisee ownership changes,
  2. 3 were on their 3rd franchisee, and
  3. 11 were on their second.

In 8 years in Canada’s most prosperous province.

Zero bankruptcies because everyone else sold their pig of a business to the next mark. I defied their stupid, hard-to-enforce non-compete clause and took my customers into another company while I fought them in Court. Mine (I think) was the only legal challenge and subsequent, rather high-profile bankruptcy.  Summary

Peter and I both got hung out to dry, but God, we had a few laughs.

Churning: the rapid selling, failure, retaking and re-selling of franchises. Can be intentional or unintentional but the outcome is the same for the investor. Useful to change the logo (old on top).

Lipstick on a pig.

A hallmark of even the bluest of “blue chip” systems.

One Response to franchise Churning: Sell ’em, Take ’em back and Sell ’em again

  1. Carol Cross says:

    I read your testimony, Les, and I understand what a good man you are and where you are coming from. The perspective of the “honest” man is always a danger to those who work the “system” to their advantage and want no changes. At least you can be proud that Ontario has a private right of action for failure to disclose in accordance with the law, (if a franchisee can afford it) and that you are helping others, all over the world, to look at the ugliness of the business model and the “big picture” and law that allows the big to eat the little with impunity under laws that the “big” influence.

    In a business model where only the one party, the “startup franchisee” really loses big and the other parties can only win, it appears that majority rule is at work —even in democratic Republics. Franchisees are expendable as necessary but so often their assets continue to serve the brand.

    I agree with all that you say! CHURNING, which I thought must be illegal, appears to be premeditated by the FTC Rule and legitimized for franchisors in their process of their compliance with the FTC Rule. Taking advantage of those who need a job in a recession is why franchising grows in a recession and “churning” is what has made franchising so durable.

    Government puts lipstick on the pig by way of subsidizing “big franchising” and the startup franchisors and the policy makers, as said by the International Franchise Association, don’t know the difference between a franchisor and a franchisee and that is why the SBA is in the position of guaranteeing loans on so many pigs and dogs that appear on the SBA Franchise Registry.

    It appears that “guile” under cover of regulation together with the “learned” incompetence of our Congress has promoted the guaranteeing of loans on unsustainable small businesses because this helps big business and the other special interests.

    Thanks for eductating me with Meritus on Banking — I read it again recently and I am wondering why the policy makers ignore these statistics when they make policy decisions and then end up subsidizing “big franchising.”

    I continue my march.
    Articles: Franchise Regulation Realities — Deception or Patriotism.


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