Can an empire be saved by shaming investors like Ariel Buk?

August 15, 2010

There are costs involved in maintaining investor confidence and commercial relationships. Some people need to learn to “take one for the team”.Ariel Buk and Sonia Karabin may need to understand that they should cool down, be quiet and go away about losing a $85,000 deposit on a non-existent Ontario, Canada franchise. They and, by extension, the many hundreds of other “failed franchisees” need to be taught their role in this confidence game by the industry stakeholders: take one for the team or risk being shamed.

1. James Daw presents the story in yesterday’s Toronto Star article,  Ice cream dream becomes nightmare about Mr Buk’s experience with Piazza Gelateria and Café. This is shrewd. For example, Mr. Daw opines:

They [husband and wife] should have looked more closely at the business opportunity, and their decision to use mainly borrowed funds after Buk had lost his job.

They should have considered the minimum $300,000 cost of a lawyer to sue for a refund if things went wrong, and the chances of recovering anything from a relatively young numbered company.

2. Robert Cialdini lists authority as one of Six Weapons of Influence. My experience is that attorneys are given a  lot of authority by new Canadians. Many of us see past their pretensions, BS and fear. [Examples of authority.]

Ben Hanuka of Davis Moldaver LLP is quoted as saying:

“Very few mom-and-pop franchisees ever go to that length (of hiring experts to research a franchise opportunity),” says Hanuka. “It sounds too complicated to them.”

All it well with the world the reader is assured. Go back to sleep because these people get what they deserved. The blame lies with:

  1. the anonymous, individual “other” (mildly retarded immigrant scapegoat) deserved what he got (“your success follows from your blind obedience to authority” dogma)  and not that
  2. stakeholders align their self-interest in maintaining a facade of legitimacy: not a fake, or a Potemkin village scheme which has preyed upon identifiable groups, in plain sight,  since at least 1971.

Social Psychology-based Hypothesis: Elite stakeholders deflect systemic wrongdoing by using the largely-internal mechanisms of On Cooling the Mark Out by Erving Goffman (shame-humiliation effect) while using the public’s widespread fallacy of the Belief in a Just World, BJW (Melvin Lerner, retired University of Waterloo, Canada) in the country’s largest daily newspaper.

Every dying empire resorts to displays of public humiliation.

Why were people crucified in Jesus’ time?
Crucifixion was a Roman custom used on the worst malefactors and rebellious slaves. Judea was a tributary to Rome at that time. It is recorded by the Jewish historian Josephus that after the last rebellion of the Jews and the capture and razing of Jerusalem, the countryside was practically denuded of trees the Romans crucified so many. WikiAnswer

Detail: Crucifixion was often performed to terrorize onlookers into submission. Victims were left on display after death as warnings. Crucifixion was usually intended to provide a death that was particularly slow, painful (hence the term excruciating, literally “out of crucifying”), gruesome (hence dissuading against the crimes punishable by it), humiliating, and public, using whatever means were most expedient for that goal. Crucifixion methods varied considerably with location and time period…

While a crucifixion was an execution, it was also a humiliation, by making the condemned as vulnerable as possible. Although artists have depicted the figure on a cross with a loin cloth or a covering of the genitals, writings by Seneca the Younger suggest that victims were crucified completely nude. When the criminal had to urinate or defecate, they had to do so in the open, in view of passers-by, resulting in discomfort and the attraction of insects. Despite its frequent use by the Romans, the horrors of crucifixion did not escape mention by some of their eminent orators. Cicero for example, in a speech that appears to have been an early bid for its abolition,  described crucifixion as “a most cruel and disgusting punishment”, and suggested that “the very mention of the cross should be far removed not only from a Roman citizen’s body, but from his mind, his eyes, his ears.” Wikipedia

Humiliation is the most unpredictable, violent and destructive human emotion. It can result in many types of loss (see Bob “Bhupinder” Baber, WikiFranchise.org)


Too bad about the Toronto Star

March 24, 2010

The Star used to write excellent franchise investor stories.

Dozens of them I’ve captured on WikidFranchise.org. They were instrumental in getting the Wishart Act in force. The business section followed something called The Atkinson Principles.

But everything changes, I guess, even social justice.

Seems like the ongoing carnage isn’t newsworthy to Canada’s largest daily newspaper since they became a member of the Canadian Franchise Association in 2001.


The winners write history

March 17, 2010

What you think as facts has been managed by those in power.

This is what Sir Winston Churchill had to say about Benito Mussolini in 1927:

What a man! I have lost my heart!… Fascism has rendered a service to the entire world… If I were Italian, I am sure I would have been with you entirely from the beginning of your victorious struggle against the bestial appetites and passion of Leninism.

And Thomas Edison’s opinion: The greatest genius of the modern age.

Franchising has only been briefly profitable for most investors.

Those days are long gone, although the propaganda persists.


Is franchising all “bad”?

January 11, 2010

No, of course it isn’t.

But this “good”, “bad” discussion is beside the point and dangerously misleading.

Useful Model

Franchising is a technology.

Franchising (like all technologies or media) extends man’s abilities, like an automobile, chair or book.

As a technology, franchising is influenced by individuals but it also changes them as the same time.  ie. I watch TV and (in a way) television watches me (influences, opportunity costs, passivity, consumerism).

My interest is in the consequences or effects of the technology of franchising: what it does to people and institutions.

That high quality and low quality (unsustainable, predatory)  franchising exists doesn’t matter much, in the bigger picture. Whether it’s 90/10, 60/40…whatever ratio: that’s is of only minor consequence

The effects of franchising are much, much more complex and long-lasting than the individual financial “score cards” would lead an outsider to suspect.

Franchising brands you.


Is your paper boy a franchisee?

January 6, 2010

Maybe yes, Maybe no.

Maybe not the urchin on the street but maybe those that deliver his papers to him.

My understanding is that there are 3 types of legal business relationships in Ontario:

  1. employee:employer,
  2. independent contractor and
  3. franchisee:franchisor.

It seems everyone is happy to consider them as independent contractors but I’m not so sure.

The Ontario Wishart Act defines a “franchise” (at a minimum, based on the U.S. FTC Rule) as having 3 elements:

  1. franchisees make direct or indirect payments to a franchisor (very, very broadly defined),
  2. the distributed good or service is “substantially associated” to the franchisor’s trade- or service-mark and
  3. the franchisor exercises “significant control” or assistance over the offered business opportunity.

Humm…seems like someone could claim that this commercial relationship is in reality and in practice, a franchise and not an independent contracting arrangement.

No one that I’m aware has asked an Ontario court or labour tribunal to determine what actually is and is not a franchise since Wishart was passed in 2000. I’d hate to think that the owners of Canada’s major newspapers are failing to write honestly about franchising because they may have become “accidental franchisors“.

This is an excellent article by Thomas M. Pitgegoff on the topic of these “hidden” franchises.

A clever card trick:

“professional” journalists stop writing about franchise abuses (after the jurisdiction’s 1st toothless law is passed) because they don’t want to draw attention to the fact that their own distributors are now unintentionally franchisees — a secret which would be an expensive hit to an already dying industry.

They talk about an “iron curtain” between the editorial and business sides of newspapers. This is, again, much more of a theory than a practice especially when high levels of corporate concentration, plummeting ad revenue and vertical integration are considered. Franchising is almost never written about now in anything other than an advertorial manner in Canada’s elite daily newspapers (eg. Toronto Star, Globe and Mail and Natinal Post) since Wishart was passed in 2000.

The underlying abuse has not been solved:

Accurate reporting is almost extinct except by non-professional journalists in the new media.

I continue to send out news ideas, run WikidFranchise and continue only to be interviewed by American journalists.

No wonder only fools as I read these papers anymore.

Too bad.


If we forget, We will continue to repeat our mistakes

August 4, 2009

WikidFranchise.orgWe created WikiFranchise.org to house the documents that I have collected and to start a dialogue.

A wiki‘s strength is in its volunteer editors.

Time will tell whether other people find this franchise industry-only indexed archive useful.

It has some merit for teaching and learning about the business risks that sometimes run counter to the overwhelming advertising message to say “yes” to every half-baked concept.

The latest, saddest example I added to WikidFranchise today is from the Washington Times’s Elise Anderson, entitled: Jobless seek future in franchising.

As Elizabeth Winterhalter and her husband, Monte, packed up their house in Glastonbury, Conn., for their move to McLean, they were eager and anxious about trading the pain of unemployment for the promise and peril of something they had never tried before — running a franchise.

Good grief.

I wish the Winterhalter, Dillen, and Prioleau families all the very best as a personal and financial outcome but I hope Ms. Anderson follows up with them in 6 or 12 months. As for the expert that Anderson solely relies on?: Alisa Harrison has been with the franchise industry for a total of 1 1/2 years.

Banks won’t do Franchise loans: It is true that there are no normal or even government-subsidized (SBA) loans to be had now.

The reason: an emerging crisis that implicates the 7(a) Loan program of the U.S. Small Business Administration which has a long and consistently scandalous history.

Predatory franchise loans are becoming visible to everyone: loan brokers, banks, re-packagers and politicians. The public bailout of the franchise industry’s greed is what is freezing everyone in their tracks: not a recession. Pending fraud indictments tend to chill even the shadiest franchising financing scam.

Estimates of a public bailout of $70 to 80-billion will seem quaint if an accurate, non-biased accounting were to ever take place.

Don’t expect to see any breaking news stories about this on Franchise-Chat.com or BlueMauMau.org either: these off-message stories are skimmed off before they hit any franchise RSS feed. Keep the kids busy talking about the evil empires (MBE, Quiznos) or arbitration reform or how franchisees are to blame.

What I do: I took the article, coded it and saved it in WikidFranchise. Here are the business risks I assigned to it:

  1. Cannon fodder,
  2. Desperation causes bad decision making,
  3. False hope,
  4. Financing with 401k money is totally reckless,
  5. International Franchise Association, IFA,
  6. Only one side presented,
  7. Loss Aversion: people dislike losing much more than winning (the same $),
  8. Professional journalistic standards,
  9. Retirement savings gone,
  10. Severance package financing dream,
  11. Sold during time of psychological vulnerability, especially unemployment,
  12. Sold only to people with no small business experience (very naïve),
  13. Success or failure is within the direct control of the individual franchisee,
  14. Unproven business model,
  15. Unskilled and unaware of risks, and
  16. Who pays for the research?

Many families are going through very desperate times and are searching for help.

  • This article is just plain cruel.

I collected the already-published documents to give a sense of history for new investors.

WikiFranchise.org is a revolutionary tool for those willing to use it.


Deer: Are We Trade Show Activists?

February 13, 2009

wolfdeer5A good question but a better one is:

Can we afford not to understand how we got roped into a losing deal?

I think you better Get Smart or you’ll find yourself on the wrong side of the next buffet.

  • In confidence games, it’s a fact that more than 50% of the chumps are good for at least a 2nd fleecing.

I took a look at a trade show advertisement this week and the posting was picked up on Michael Webster’s weblog.

Anyone who contacts me is invited to join me in interpreting how a trade show works. Live.

It is a very sophisticated and well-thought out selling environment that is used to qualify candidates; economically but mostly psychologically.

Your lack of awareness of the dangers [ignorance?] is really your admission ticket.

The first step in protecting your family is education.

I’ll be relying on the Six “Weapons of Influence”: social proof, authority,commitment and consistency, reciprocation, liking and scarcity. Bring your copies. You’ll get a tutorial on not only the Science of Persuasion but on relevant cognitive biases (especially confirmation), The Tipping Point, behavioral economics, Theories of Unusual Events and Risk Homeostatis, heuristics (eg. human thinking shortcuts that usually help us but sometimes result in catastrophic errors) and 10 years of intense industry analysis.

Agenda

  1. We’ll go over the basic confidence game role structure and process: house, roper, inside man, shill, chump, fixer, etc.
  2. Why it is so critical to have independent legal advice before you sign (goes double for deals less than $20,000).
  3. The selling value of comparing (anchoring) a new system with the best, most successful franchisor: McDonald’s.
  4. What something called “Prospect Theory” has to say why you will stay in a losing business much, much longer than you could ever imagine.
  5. Why you should only sign when there is an Independent Franchisee Association, IndFA present (versus the lapdog Franchisor Advisory Council).
  6. We’ll decode the hidden messages within the marketing material (worked for an advertising design studio + Ivey MBA + McLuhan disciple).
  7. I’ll explain the role of the current SME loan guarantee program.
  8. Why Canada is a safe harbour for white-collar crime.
  9. How this recession is shattering the conventional wisdom that franchises sell better, the worse the economy gets [HINT: new sales, now, are the worst on record].
  10. Why the hook has to be planted in the male first.
  11. How shame is invoked to silence particularly new Canadians.
  12. Why exceptionally thorough pre-sale due diligence is much more limited than you think and could in fact increase your chance of business failure.
  13. The role of the expert seminar.
  14. Why the most rational and dodgiest should absolutely force a copy of Ontario’s franchise law into your hands.

All of these fraudproofing skills are entirely understandable, applicable to many situations and will last a lifetime. I was taught by the best.

In these days of Bernie Madoff, BIM, CitiGroup, etc., I don’t think you (or anyone you know in the traditional or new media) can afford to turn not to learn more about the Science of Persuasion and applied psychology.

Offer to Sellers: You can join us as well. I will gladly discuss my views in front of anyone, at anytime. These persuasion techniques have been proven scientifically and it’s time that more people understood how skillfully they are applied in franchising.

If I were in your shoes, I’d much rather guarantee us free rein rather than be seen to be resisting evaluation. That old hand-in-the-lens shot sells television shows but is, by its airing, basic proof of guilt.

Consumer education is good and only the fraudsters have anything to hide.

Cost?: Nothing

Just call me at 705-737-4635. Bring the whole family. les.j.stewart@gmail.com

PS: Do me a favour: Sign up to receive each new post (see top right, RSS feed). FranchiseFool is now read in 44 countries. Not bad for a single Canuck in one year, I think.

— UPDATED for Fall 2009


Vendmax & Your Candy Company: Coming to a City near You

February 11, 2009

vendmaxbigIn a previous posting today, I drew everyone’s attention to an ad that appeared in today’s Toronto Star.

It identified itself as Sip-N-Snack and claimed three things:

  1. Attracts Customers Like a Powerful Magnet!
  2. Now Launching in the GTA!
  3. Takes only one day a month
  4. Over $75,000 Annual Potential
  5. Including Locations from $16, 995! and
  6. Free Brochure 1-866-622-8722

Now click to this Vancouver Sun/The Province newspaper .pdf. Look at bottom left corner advertisement. Notice anything similar in this October 22, 2003 ad?

This ad identifies itself as Vendamax and Your Candy Company:

  1. Attracts Customers Like a Powerful Magnet! [same]
  2. Coming to Vancouver & Vicinity, [new city]
  3. Less than 2 hours per week (1 day per month?), [same]
  4. $40,000 Annual Potential [$75k in 2009]
  5. Locations included…$14,995 to get started, and [$16, 995, locations included]
  6. Free Brochure 1-866-622-8722 [same offer and telephone number]

I wonder how the investors in British Columbia made out with Vendmax and Your Candy Company? I wonder why a successful franchisor like this would want to change their company (specifically not mentioning the Vendmax name) but not bother changing the marketing?

Vendmax’s website: lists Tom Semeniuk as president, Barry Sobovitch, and Buffy Babb. Notice the heavy reliance on the Better Business Bureau. Fastest growing.

NOTE: An ad wanting to sell 5o machines for $100 each.

Your Candy Company: seems to have a South African connection, FAQs.


Earnings Claims in CDN franchising: $75,000 for 12 days work?

February 11, 2009

sipnsnackThis is an advertisement in today’s Toronto Star.

It is a listing under the “Franchising” section. At least 50% of the ad space in this section is hyping the Canadian Franchise Association’s upcoming The Franchise Show.

The Canadian Franchise Association bills themselves as “the national voice for Canadian franchising“.

Let’s see exactly what this alleged franchisor has to say for itself:

1. Earn $75,000 per year for 1 day of work per month. I guess that corresponds to $781.25 per hour (8 hours per day). Or if you wanted to work 2,000 hours per year, you’d be making $1,562,500 peddling branded drinks. This is what passes for investor protection in Ontario, more than 8 years after the passage of the Arthur Wishart Act (Franchise Disclosure).

2. Note how the extremely unknown franchise system trades on transnational brand titans such as Pepsi, Doritos, Lays, Red Bull, etc. This is a classic persuasion technique the confers legitimacy by associating with authority (this time, marketing or brand strength that “Attracts Customers like a Powerful Money Magnet!“)

3. It promises a system: it bundles locations with package. Why the heck at these revenue per hour figures doesn’t the franchisor just hire some flunky to stock the machines? This goes to the usual “turn key” proposition of a “proven system” that usually turns out to be nothing of the kind.

4. The flash “Now Launching in the GTA!” serves two masters: (a) it explains why no one has ever heard of Sip-N-Snack and (b) it lures those that want something new, special or up-and-coming. The phrase “This here poo-collecting franchise is the next McDonald’s…” is a related rhetorical come-on for the overly-trusting.

5. Placing the advertisement in the franchise section is intended to confer legitimacy or utilize social proof: other better-known franchise brands in the ads around this ad. This is important because this might well be the cheesiest fly by-night equipment business opportunity scam imaginable.

6. The total price point is important. At $16,995, if this were a total scam, very few investors would sue to recover their loses. The cops usually won’t investigate anything under $250,000 and the retainer for a lawyer is +$1,000. Like 99% of the defrauded, they won’t even report it to the local police and the Competition Bureau is a bloody lapdog.

7. Note the recognizable logo: Pespsi-Cola. And 5 exclamation points. This must be a hot deal!!!!! (Just because it is corny does not mean it isn’t really effective on a certain percentage of the population.) Fraud cuts across many socio-economic levels.

8. If this is a scam, the money is quickly sent away; well beyond the reach of any litigation or police investigation. Con games are well-thought out beforehand and the three-card monte table is quickly folded up.

9. But still if 10 people bite, that’s an okay return on investment for the franchisor and it keeps the revenue wheels turning at The Toronto Star, too.

10. Canada is a well-known white-collar crime incubator as recently portrayed by the CBC Marketplace in Buying into the pitch to become rich. In all confidence games, more than 50% of the marks are good for a second fleecing.

Any comments, particularly from those knowledgable about business opportunity frauds are welcomed.


Trade Show activism: Counterspin the Lies on their Selling Field

February 11, 2009

franchiseshowThis ad appeared in today’s Toronto Star.

Just a few points:

1. Contrary to the heading, you do not “buy” a franchise. You sink cash into this type of business opportunity and hope to achieve a salary and ROI over the life of your license of using the trademark using a promised “proven system”.

2. Small business is always a lot harder than you’d ever think. It takes years to develop the technical, management and decision making skills to be a success. Often the cash burn rate in franchising is so great that you never get to see profitable times: You simply flame out too early.

3. Your first contact with a trademark franchise system should never be at  a trade show. You are at a very big disadvantage at a trade show: they control the atmosphere, appear much more successful than they actually are and give the false sense of being in a group of profitable businesses.

Big Show costing Big Dough: National franchise associations such as the Canadian Franchise Association rely very heavily on the revenue that these shows deliver. These types of shows are ground-zero in the subtle and not-so subtle art of persuading mom and pop investors that the next franchise will make them a millionaire.

In 1998, I showed up with a CBC television crew to the fall CFA show. We handed out pamphlets warning attendees, intercepted the minister as he was exiting from his franchisor rah-rah speech (the last time an Ontario minister showed up, I think) and barged our way into the trade show to get some grip-and-grin footage with thinly smiling salespeople.

  • The CFA and their supporters were not amused.
  • Everyone pays a lot of money to bamboozle the next chump.
  • They certainly don’t need anyone coming to piss on their parade.

Their carefully planned PR news puff piece, was turned inside out: Toronto viewers instead saw a be careful of the predators out there story instead.

I guess it was predictable that Dan Farmer of the Royal Bank of Canada would insist that I never show up at another franchise trade show if I wanted financial support for the Canadian Alliance of Franchise Operators. I kept my word although I never saw $1 from any of the 5 banks that financially underlay all Canadian franchising.

In 1998 we had to convince a television editor to assign a reporter, a videographer, record, edit and then air the results. Tough getting media attention because franchise fraud is pegged as a niche audience item.

A little over 10 years later, someone just needs to:

  1. slip a digital camera in their jacket,
  2. record a few clips,
  3. use free edit software,and
  4. create and post YouTube video (I’ve already reserved a FranchiseFool channel, btw) that shows examples of how franchise salesmen openly lie at a trade show because the franchise agreements that give them a License to Lie, Cheat and Steal (kudos to Blue MauMau) from mom and pop investors.

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