Due diligence is like taking a picture.
It’s only good for a certain specific time.
Business risks change; sometimes dramatically during the relationship.
Just like entropy (going from order to disorder), things in business normally turn to shit.
Business risks increase (19 out of 20 times…) as the franchise agreement runs but your sunk costs keep you hooked up to a babe that’s turned into a wolf. Every half-baked new cash-grab scheme, you’re “All-in”.
But that does not stop the thought machine, sometimes run by “world class” CDN franchise bankers.
Jamba Juice‘s response to McDonald’s getting into their core smoothie business is clever but ultimately futile.
Problem with succeeding at 1. and 2.:
The erosion of franchisee-pioneers’ sales are no laughing matter for Jamba Juice or all the other smoothie-dependent investors.
Equity in business: Who wants to buy you out of your death-struggle with a nearly-unassailable, cultural icon with an almost perfect record of supply management brilliance ?
[This mindset is the greatest obstacle to effective advocacy, btw.]
The only real, relevant differentiating factor is:
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.
— Ralph Waldo Emerson (1803 – 1882)
Before you start an investment, you need to add up all types and then compare them to the likelihood of achieving returns to see if the proposal makes sense to do.
In franchising, you cannot do this with any degree of accuracy before you sign.
Your investment is often tied (a sunk cost) to a losing concept of a self-interested franchisor.
Your debt will be used to make you comply to others interests; not your own.
1. The Known Risks: research your brains out by interviewing current franchisees, make sure the technology is okay, study the vertical market the proposed investment would operate in, do 5 years worth of monthly cash flow statements, talk to lawyers, accountants, former franchisees. Get some type of idea.
2. The UnKnown Risks: these are real but discoverable. These are ones that come as a surprise that you need to find out before you sign. A good defense: take a minimum of 6 months; do not be pressured into signing. The best defense is to work as a labourer within a franchise, for free if you must. If you don’t think you can afford that investment in lost wages, believe me, you can’t afford to be a franchisee.
The Unknowable Risks: these are real but you (or any mortal) cannot quantify or scale them. They’re random but when they strike, they knock you out of the whole game: all your labour, 90% of your investment…all of it: gone. People (especially young people) think that the world is rational and foreseeable. It is not. There are winners in franchising just as there are winners at Casino Rama or Vegas.
Franchising is awash with unrecognized, rapidly increasing business risks.
These are all real life examples I have seen that are featured on WikiFranchise.org case studies.
Why Brant wrote this is fairly apparent in the prologue:
For profit and salutary instruction, admonition and pursuit of wisdom, reason and good manners: Also for contempt and punishment of folly, blindness, error, and stupidity of all stations and kinds of men.
It is a classic piece of literature that was instantly popular and still speaks of mans universal tendency to act foolishly (ie. to set sail on a journey of self-delusion).
Note the hat symbolism: the donkey ears.
Brant used satire to point out the abuses of power he saw in the state and the Roman Catholic Church. He did that to keep his head attached to his neck.
I chose the fool theme here at FranchiseFool and on WikiFranchise.org (thousands of case studies) to draw attention to the hypocrisy and dangers within modern franchising without being sued for the 3rd time. My message is ultra-serious but I need to teach in an indirect manner.
Any legitimate industry or authority should be able to handle satire from one person.
Historically, another role of a is to speak truth to authority.
Franchise “leaders” cannot tolerate my persistence that mom-and-pop franchising is the height of folly: It’s Unsafe at any Speed because the franchisor can strip value (exercise unilateral opportunism) while you have little or no defence to protect your sunk costs.
When you hear anyone say either:
…that is a best indication you’re dealing with a 100% genuine jackass travel agent.