The greatest misrepresentation is: “franchises are less risky than independent businesses”.
- It is Große Lüge
- The Big Lie
- A propaganda technique.
Much of Nassim Nicholas Taleb‘s work is about risk.
Humans are extremely limited in their ability to determine financial risk accurately.
It is now the scientific consensus that our risk-avoidance mechanism is not mediated by the cognitive modules of our brain, but rather by the emotional ones. This may have made us fit for the Pleistocene era.
Our risk machinery is designed to run away from tigers; it is not designed for the information-laden modern world.
Mom-and-pops who are 1st and only “one-off” small business owners face an impossible task in assessing franchise risks.
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What is terrible from the individual franchisee’s point of view is the asymmetry on the guarantee.
Why should mom and pop guarantee anything if the franchisor isn’t putting a similar guarantee on the line.
Your are putting enough in, you don’t need put your other assets on the line in order to help minimize the franchisor’s geographical risk.
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But Mom and Pop franchisees are deceived by the appearance that the franchise model is more successful because, of course, the churning and pumping and dumping of units within the system is not visible to the new buyer and is not disclolsed prior to the sale by the seller of the franchise.
The very visibility of franchised units in the economy presents the false notion that visibility equates to viability and profits.
Public policy ignores the very bad odds of the success of any small business, franchised or independent because, apparently, the powers that be believe that churning of small businesses and the survival of the franchiSORS is vital to local economies.
http://thegreatfranchisingrobbery.blogspot.com
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