What is an independent franchisee association?

February 17, 2015

Properly organized, even a small number of franchisees (6 to 12 of 1,000) can defend themselves extremely well.

Organize

Every franchisor knows that franchisees using the latest communication devices (see example) and the internet, can make even the most ruthless vulture capitalist turn tail.

An independent franchisee association is NOT:

  • a bitch or social group,
  • a lapdog franchisor-sponsored advisory board,
  • a way to raise money for a “white-knight lawyer” to save you (only a fool falls for a legal-only approach),
  • a cynical mechanism for over-entitled franchisee posers to feather their own nest, or
  • a temporary or “knee-jerk reaction”.

It is a pragmatic re-investment in, for example, Tim Hortons’ franchisees, protecting their $1.8-billion in equity (3,600 stores times $500,000).

Without specialized training and experience, no franchisee has the time to learn what will and will not work.

It starts at some franchisee’s kitchen table with 2 other franchisees and me.


A man in debt is so far a slave.

June 16, 2010

When there is an Independent Franchisee Association present, most people figure that members are best split into two camps. Those that are:

  1. members (pay their share) and
  2. non-members (free riders).

[This mindset is the greatest obstacle to effective advocacy, btw.]

The only real, relevant differentiating factor is:

  • those who are slaves (ie have a killer amount of DEBT) and
  • free men; those little or no debt.

The behavior of franchisees has much more to do with their perceived debt load (v. than their character).

With enough debt, any saint becomes a sinner.

Guaranteed. 100%.

Ralph Waldo Emerson (1803 – 1882)


Sterns’ warning: Don’t do a half-assed job on disclosure reviews

April 9, 2010

Ontario’s 35,000 lawyers should consider themselves warned.This is not just outstanding peer-to-peer legal advice (which it is: both carrot and stick) but it’s also crucial information for all current Canadian franchise investors.

The benefit of collective franchisee action has never been more justified.

David Sterns of Toronto’s Sotos LLP writes in March’s Canadian Lawyer magazine an article called: Advising the purchaser of a franchise business.

Sterns’ bottom-line advice to lawyers? (especially general attorneys):

The harsh reality is that some franchises have a failure rate as high as or even higher than non-franchised businesses. When the franchised business fails, the results are often catastrophic for the franchisee. The legal advice provided by the reviewing lawyer will come under close scrutiny, particularly if the franchisee misses the rescission window because it was unaware of its rights…

Lawyers should allocate sufficient time and charge a sufficient fee to permit a proper document review and reporting to the client. Otherwise, they should decline the retainer.

Lots of implications for the general and franchise Ontario bar.

But, hey, huge importance for the 40,000 ON investors in a current franchise relationships who are organized. Disclosure requirements are not just for the entering but whenever a material change happens to the relationship (ie. during, at renewal: any time a material or “significant” franchisor decision is made).

Did you get proper disclosure documents the last time your franchisor decided to change the rules in the middle of the game?

These are the business risks I assigned and that appear in the WikiFranchise.org entry:

  1. Arthur Wishart Act (Franchise Disclosure), 2000, Canada,
  2. Buying an existing outlet even riskier than from scratch,
  3. Courts extremely picky about shoddy disclosure practices,
  4. Disclosure documents are deficient,
  5. Disclosure document: one, bound and delivered at the same time,
  6. Disclosure document certificate,
  7. Disclosure document must disclose all material facts,
  8. Disclosure document must include third party contracts (suppliers),
  9. Disclosure documents never given,
  10. Disclosure documents not given within proper timeframe,
  11. Duty of care,
  12. Franchise law being ignored,
  13. Independent businesses survive longer than franchised ones,
  14. Independent businesses much higher profit than franchised ones,
  15. Lawyer alert: advise only prospects with adequate legal due diligence budgets or risk being sued,
  16. Lawyers being threatened with lawsuits for speaking out,
  17. Material facts were not disclosed,
  18. Outstanding advice,
  19. Professional negligence,
  20. Refuses to take client,
  21. Rescission,
  22. Sue the lawyer,
  23. Unintentional or hidden franchises

This is an important article that I will visit again.


Go ahead and choose your executioner: call a franchise expert

February 2, 2010

Rules of franchise groups:

1. A dead association is worth more than an alive one.

2. The owner of the logo pays someone else if they cannot execute themselves. The hooded one is either the charming outsider or the loud insider.

3. Franchise lawyering insists on a quick kill rather than a future, recurring cash flow/life cycle.

4. As an association executive, you’ll go along with the game or become a defendant.

5. A token truth added, infinitely strengthens the Big Lie.

6. 99.5% of visible U.S. independent franchisee associations are Potemkin villages (valuable to the status quo as franchisee false hope, example: FranchiseeAssociationManagement.com).

7. Leaders act as a doctor would because franchisees are in a type of daydream. Democracy is a noble concept but achievable only when debtors break their chains.

8. There is a narrow path but it requires patience, self-reliance, trust and one franchisee.

Call for a meeting.


Litigation group: Lawyer-led franchisee groups

August 2, 2009

TreasureChestI’ d like to discuss  an email I recieved this week.

Seems a Canadian restaurant franchise system (30 stores) is trying to organize themselves. I was emailed with the information that there is a meeting happening in 2 weeks and was wondering if I wanted to attend?

In a word: no.

The clincher was that the franchisee’s lawyer was “helping” them organize themselves, presumably under the pretense of affecting “change”.

The only change is usually what is left once the hat is passed to build a “war chest”.

I tend to leave these types of groups well enough alone.

The professional is most-likely creating a litigation group (a fundraising mechanism for a lawsuit) rather than a sustainable franchisee group like an IndFA, let along an Attorneyless Franchisee Network, AFN that harnesses the exponential group power in something like a buying group.

I sent along some links to this very nice lady that should show a +10 year history of predatory franchisor actions by her head office and that I knew what I was talking about.

  • Very few lawyers choose to work with me.
  • In 10 years of being available to help franchisee groups, make that 3 different ones.
  • I develop the case. Deliver it in a bow and soon: Thanks but “why is Les still around?”.

Maybe read what Canadian-born law and economics professor Gillian K. Hadfield has to say about the business of law before you hop into a much more difficult credence good relationship (than a franchisee:franchisor one)?

I wish the restaurant group all the best but I would suggest that they also write out their own narratives and consider submitting them to WikiFranchise.org. At least they could do is to send up a signal to the next wave of investors.

I tend to leave the door open but have learned to ask for payment in advance for 2nd opinions.

Really nice people in difficult times tend to choose the wrong people to trust.

I know. I did.


Franchisee associations: House versus field negroes

May 15, 2009

Organizing a franchisee association is fraught with peril.mousetrapIt can be just another cynical trap for the trusting.

There are three types of groups of franchisees:

  1. unorganized (no groups).
  2. franchisee advisory boards (an obvious lapdog) and
  3. independent franchise associations, IndFA.

Most people think that any type of IndFA is preferable to #1 or #2.

  • They’re wrong.
  • They’re wrong.
  • They’re wrong

The worst type of franchisee organization is an IndFA that gives the appearance of independence but is, in fact, serves their executives’ personal or their advisors’ needs. These I call house negro IndFAs. It’s called deceit and betrayal.

  • They auction off their access to information to the highest bidder: the franchisor.

It should come as no surprise that the IndFA’s legal counsel is the role that becomes the most compromised (credence good cheaters). They make much more money and status from leaking information than they ever do representing franchisees or charging an executive. They can’t help themselves: they could not earn a living playing it straight.

Listen to J.K Galbraith:

People need to think of themselves as unmanaged, independent and free, if they are to be controlled with maximum success.

House negro IndFAs are there not to solve problems, but to create obstacles to real change. They are charming, they whisper compromises and they will use a leader’s ambition to turn his or her head. They are stuffed with talking heads mouthing words that seem worthwhile but are designed to trick you.

I am a field negro and I only associate with other field negroes: individually and in groups.

I get paid for giving advice, not for making promises that will never come true. I promise nothing except confidentiality, friendship and a chance to live with dignity. I have no “black box” of association management services. There are no advertisements here or on WikiFranchise.org because commercial interests always favour the dominant economic power, directly or indirectly. I do not make ” a very good living”. I do not auction off access to information to the highest bidder. I always make sure the ownership and control of all data is in the franchisees’ hands (not just mine). I do not “manage” franchisees: I work specific projects on behalf of them. The lessons franchisees learn organizing themselves, stays with franchisees.

I am not the most charming person in franchising but because of how I operate, I may be the loneliest.

I don’t bait traps for franchisees: I spring ’em.


Difference between a Cooperative and a Franchise?

December 2, 2008

Much, much less than you’d think.itsawonderfullife1

1. A franchise promises a proven business model that the investor can use over a specific time period to achieve a reasonable rate of return. In exchange, the investor loses significant human and economic rights and a little-appreciated sunk cost regime. You rent a trademark, method and operating manual.

  • For many operators, this promise proves to be a cruel lie.

Modern franchising is often a way of re-distributing cash from the investor to the franchisor. A deceit to capture capital and labour while avoiding labour laws.

Not all systems are managed in an opportunistic way but 100%  franchise systems reserves the right to do so upon their whim.

2. A cooperative (co-op) is:

…defined by the International Co-operative Alliance’s Statement on the Co-operative Identity as an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically-controlled enterprise. Source

You are an owner: As it becomes more profitable, you as an equity owner benefit.

A credit union is an example of financial services that are rapidly organizing themselves to serve national small business shareholders/owners (not customers). Desjardins has 5 million Canadian member-owners. In the province of Quebec, the  caisse populaire have evolved are extremely important for retail customers.

  • The best-known representation would have been The Bailey Savings & Loan in the 1946 Christmas classic, It’s a Wonderful Life. Something about not having to crawl to Potter?

But the cooperative impulse manifests itself in much more creative ways. One of the cornerstones of every franchise system should be a franchisee-directed, professionally-managed buying group. Every industry has their sector-specific product buying groups, financial and insurance service providers, etc.

  • For example, MedBuy is a Group Purchasing Organization, GPO which is owned by several large Canadian teaching hospitals. It negotiates supply contracts on behalf of its shareholders for drugs, medical and surgical supplies, linen, etc. It has been running very successfully since I helped write it’s original business plan at Victoria Hospital in London in 1990.
  • I did the preliminary work on creating a fertilizer and pesticide GPO for 24 independent lawn care operators that I knew through Landscape Ontario and the Professional Lawn Care Association of Ontario.
  • My experience is that franchisees who pay, say, 6% royalties have at least an additional 6% hidden royalty because of the franchisor’s margins on their product purchases.

Sometimes the margin on equipment, supplies, software, renovations, etc. is much worse. It is a lie that tied buying provisions are chiseled in stone. Everything is negotiable if you know where to look for adequate leverage. Don’t expect flowers, but the NPV of purchasing freedom is very substantial.

Most franchisees conclude very quickly after signing up that there is no secret sauce and precious little value in the royalty and advertising fund payments. It’s just best to consider those payments as a form of charity.

  • With some help and some solidarity, most unthinking, boilerplate franchise systems can be converted to a franchisee-lead cooperative.

Whether or not franchisees are wise enough to invest in their own future, is an open question.

The best place to start is the greatest commodity of all: cash [financial services].


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