The franchisee lifestyle can change but your sunk costs do not.

May 23, 2012

Due diligence is like taking a picture.

It’s only good for a certain specific time.

Business risks change; sometimes dramatically during the relationship.

Risks change: Pre-sale due diligence does not

October 24, 2010

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.

— Thanks: Wolves of Wednesday on

It’s a sin tethering your life savings to easily copied core products

August 22, 2010

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.:

  1. create a new consumer niche,
  2. work to broaden appeal and
  3. watch as THE corporate ideology gobbles it up.

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 ?

Pure martyrdom.

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)

Blazing Saddles shows franchise relationship in 6:34 minutes

April 16, 2010

Pure genius.

For those with a significant tan, one thought:

Q: What is the shovel in 2010?

A: Email addresses.

BTW: Credit-where-credit-is-due: Councilman posting over at Blue MauMau.

3 Classes of Risk: The Known, The Unknown and The Unknowable

September 11, 2009

PetlandElizabethCarlisleAny business has to manage risk.

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.

Some examples:

  1. a nice franchisor sells out/retires/decides/is forced to give control to someone not so nice or patient,
  2. your VP of government relations cracks jokes about your corporation killing 22 Canadians (food poisoning),
  3. your store is a staggering success and the franchisor wants it for his own,
  4. you are smarter than the franchisor or his heirs (become a threat),
  5. after years of 3 to 4 hours sleep you drive your truck into a group of children,
  6. physical illness requires you to leave (the franchisor picks it up for a song and flips it in 3 months),
  7. the new territory manager decides he likes your store and he happens to be the franchisor’s brother-in-law,
  8. the franchisor racks up too much debt so decides to go insolvent to shake off his creditors,
  9. you spend all your time at work and become divorced (Can you divide your net worth by the number “2”?),
  10. you talk to a few of your peers and get terminated for trying to better your business,
  11. your tradename is sabotaged by some food tampering incident showing up on YouTube (Domino’s),
  12. you’re a Petland franchisee and a photo of 2 drowned bunnies  goes onto Facebook (above and here),
  13. the W.H.O. decides tanning is a deadly health risk,
  14. a competitor contracts for a social media site to trash your shared tradename,
  15. etc., etc., etc.

Franchising is awash with unrecognized, rapidly increasing business risks.

These are all real life examples I have seen that are featured on case studies.

All aboard the McShip of Fools: Das Narrenschiff

August 31, 2009

narrenschiffBuying a franchise is a real trip.

  1. Really good writing survives a very long time.
  2. Lies move quickly but truth lasts.
  3. Lies do not become true over time, no matter how many times they are repeated by shills.

In 1494, a German theologian and lawyer wrote a best seller called Das Narrenschiff (Latin = Stultifera Navis, English = Ship of Fools).

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 (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:

  1. But no one can predict the future or,
  2. that person lost money and is therefore untrustworthy or,
  3. He’s just antifranchising

…that is a best indication you’re dealing with a 100% genuine jackass travel agent.

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