National franchisor sales teams: Creating the Illusion of Respectability

August 19, 2009

GoodHousekeepingSealWhat do all these associations have in common with the Good Housekeeping Seal of Approval?

They are organizations controlled by franchisors that promote the sale of franchises into national jurisdictions.

  • That is all they do: sell.
  • There is no quality, at all, in what they do.

They also have, at best, voluntary Codes of Ethics which are almost never enforced.

In fact, some of the worst predatory franchise systems I have ever known, are long-standing members. It pays for them to join to bolster their credibility.

  • Do not be fooled: these members are NOT  a measure of investor worthiness.

In many cases, predators use this Mask of Respectability to disarm unwary potential franchise investors.

  • World Franchise Council: Enhancing the global Franchise Community Take a look.
  • International Franchise Association
  • Canadian Franchise Association
  • Franchise Council of Australia
  • Franchise Association of New Zealand
  • China Chain Store & Franchise Association
  • The Franchise Association of Southern Africa
  • British Franchise Association

As usual, I am always very pleased to debate any representatives from these organizations.

Or anyone from their financial institutions which buttress this facade.

WorldFranCouncillogoInternationalFranchiseAssociationCanadianFranchiseAssociationFranchiseCouncilofAustraliaFranchiseAssociationofNewZealandChinaChainStore&FranchiseAssociation

FranchiseAssociaitonofSouthernAfricaBritishFranchiseAsscoation


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.

U.K. franchisor leaders record a new ethical Low: Hard-selling to the recently Unemployed

January 26, 2009

the_bfaTalk about stealing a guy’s life savings when he’s down.

And when I thought I had heard it all and that franchise hustlers would do anything for a sale.

Now word out of Liverpool that their franchisor-only trade association, British Franchise Association, BFA is hard-selling directly to recently laid off UK workers, via their former employers.

It’s like a scene out of the movie, GlenGarry Glen Ross, totally hardcore, old-school boiler room ABCs (always be closing):

We’re adding a little something to this month’s sales contest. As you all know, first prize is a Cadillac Eldorado. Anybody want to see second prize? [Holds up prize] Second prize is a set of steak knives. Third prize is you’re fired.

Lie. Cheat. Steal. All In A Day’s Work. Source

It reminds me of the ambulance-chasing personal injury lawyers forcing their business cards into the hands of people lying in the street from a car accident.

Obviously, what I (or the British public) consider to be ethical business behaviour may not be what the BFA brain trust considers to be fair game. The 2 characteristics of an ideal franchisee are: Did their cheque clear and Can they fog a mirror (alive)?

The story (Franchising could be your next career move) is a little awkwardly worded but these are the most flagrant lies that support this propaganda piece:

  1. franchising is a lower risk than non-franchised businesses (proven to be false),
  2. a BFA franchisor is less risk than someone who is not a member (not proven),
  3. the BFA is a benevolent society doing a public service (they serve their members’ interests),
  4. franchisees fail only because of their sloth or stupidity (fraudulent systems?) and
  5. the BFA represents both franchisors and franchisees (only franchisors).

All of these assumptions are false and dangerous. The BFA executives are either incompetent or knowingly perpetuating a cruel fraud, this time on the newly laid-off Brits.

  • You will be preyed upon when you are at your weakest time in your life.
  • Unemployment is an excellent time to buy into a phantom dream (In business for yourself, not by yourself; Be your own Boss) because you want so much to believe it (mortgage, kids, debt, etc.) you are temporarily a very shitty decision maker.

I know. I signed my franchise agreement two weeks before my unemployment benefits were to run out in 1992. BTW: an Ontario Justice said in 2000 that I had done the best due diligence she had ever seen but still lost $140,000 in 4 years, being sued, bankruptcy.

Another veteran but anonymous observer, Lionel Hutz PA, picked up the story and wrote about it on Blue MauMau under the following banner, BFA Wants Unemployed to Buy a Franchise. Lionel leads in with:

The British Franchise Association, the counterpart to America’s International Franchise Association, is directly approaching companies that are laying off employees, to persuade those newly unemployed to buy a franchise from one of their franchisor members.

Lionel goes onto say and pose a most relevant question:

Note the false claims that franchised businesses have higher success rates, and the assertion that British Franchise Association members must “meet the strict ethical and business criteria.” I wonder if the BFA has ever expelled a franchisor for bad franchising conduct?

Ray Borradale, a very effective Australian franchisee advocate and mouthpiece chips in with:

AFA, BFA, IFA and FCA read from the same book.  This is symptomatic of franchisors; good and bad – and it is dangerous.  I note the reference; “educate people about the many benefits of buying into a franchise” with contempt.  Where is the education about risk and due diligence?  This unbalanced marketing of franchising is not new and BMM has covered many similar stories. It is misleading and deceptive but it appears to be accepted by authorities in every country. [I would add the CFA to Ray’s list of talking heads.]

Remember: Franchising is practiced identically around the world. Some countries know about the dark side of franchising and have developed national spokespeople to combat the propaganda. Some countries (like the U.K.) do not know.

IN CONTRAST, note the level of discernment found in this Australian headline of January 26th (care of Franchise-Chat.com), The Franchising Trap:

The Australian dream of becoming self-employed can be the path to financial security, but it can also go disastrously wrong.

For years franchising has been viewed as a reliable, somewhat less-risky option for small investors looking to start their own business. But the 500-plus complaints received by the Australian Competition and Consumer Commission every year arising from disputed between franchisees and franchisors show that franchising is often not the easy entry to business that some people think.

In the U.K. there is a greater danger than is faced by franchise investors in Australia.  Aus does not have a small business government guaranteed program, but the U.K. does.

  • A guaranteed loan program can be misused to fuel franchise fraud. I wrote about it in Canada, I know that that it is happening in the U.S. and also in the U.K.’s aptly named Small Firms Loan Guarantee Scheme.

Heads up to these other countries that have a similar loan guarantee program for small business (Canada CSBFA, U.S. SBA 7(a), and U.K. SFLG):

  1. Korea,
  2. Japan,
  3. European Union (Netherlands, Denmark, Belgium, France & Germany),
  4. Indonesia,
  5. Malaysia,
  6. Nepal,
  7. Philippines and
  8. Taiwan.

Every country gets the type of journalism that it is willing to accept from it’s traditional media outlets. This type of breathless and mindless regurgitating of franchising propaganda is almost never seen in the U.S., Australia or Canada anymore. It was pushed out by volunteer franchisees getting on the back of its nation’s business editors.

  • These blatant lies will continue as long as they are not shot down by a small group of knowledgeable, experienced and vigorous group of Web 2.0 U.K. warriors.

Their basic training can begin once they choose to speak out.


Little Caesars: Ist U.S. discount program Imported for Canadian military veterans

January 9, 2009

litceausvetfran2litceacdnvetfran

Canada has always been the first country that U.S. franchise systems export their concepts.

Congratulations to Franchise-chat.com for catching the product of two press releases this week:

  1. U.S. franchises may lose 10,000 locations and
  2. Little Caesars Pizza Announces Industry-Leading Franchise Program for Canadian Veterans.

1. The International Franchise Association, IFA which bills itself as “ the world’s oldest and largest organization representing franchising” is quoted as saying:

The national group estimates the number of franchise establishments will decline by 1.2 percent this year, or an estimated 10,000 locations…Franchise closings will cost 207,000 jobs this year, the group says.

This report is interesting to those 1st time business investors risking their life savings as a civilian because the IFA both:

  1. funded this 2009 economic forecast by PricewaterhouseCoopers and
  2. is the industry association which is controlled by the sellers of franchises (eg. franchisors).

The IFA promotes a veterans program called VetFran in America which I wrote  about in July. Carol Cross and I share both a similar military/franchising background and a little bit more than ambivalent view of this marketing program.

Little Ceasars while participating in the IFA/VetFran program in the United States, offers a discount from $10,000 to $68,000 for a business that has a startup cost of $50,000 to $150,000 and a total investment of $185,050 to $519,000. Source

2. To the best of my knowledge, Little Caesars is the 1st franchisor to offer a program (with a difference) to Canadian retiring military personnel. Their press release states:

The Little Caesars Veterans Program was launched by Little Caesars in the U.S. in 2006 and is making a difference for veterans,” said Richard Greville, general manager and vice president, Little Caesars of Canada, “Little Caesars wants to provide a similar opportunity to Canadian veterans…

The Same with a little Difference:  Little Caesars will give a bigger discount if the veteran is “medically released“. Actually, if you qualify, you can get up to a $35,000  discount rather than the $10,000 for able-bodied Canadian soldiers.

  • That is a 250% bump in discount franchise sales qualifies under the joint Department of National Defence and Veterans Affairs Canada, Transition Assistance Program, TAP.

The press release states:

Little Caesars has developed relationships with the Transition Assistance Program (T.A.P. part of the Department of National Defense [sic] – Veterans Affairs Canada Centre for the support of injured veterans and their families), Veterans Affairs Canada and Right Management (a job placement partnership contracted by Veterans Canada to help honorably released veterans transitioning to work in civilian life).

Please note the difference in range of discounts (U.S v. CDN) while being silent on both the CDN startup costs and total investments. Little Caesars Canada appears not to be a member of the Canadian Franchise Association, CFA and therefore chooses not to, necessarily,…

“…abide by this Code of Ethics and to further the Associations goals in encouraging and promoting ethical franchising in Canada” [Quote].

Followup: When I called Veterans Affairs Canada at 866-522-2122, they knew nothing of this program but were very helpful. A call to the TAP (800-883-6094) has not been returned just yet.

  • The Honourable Peter MacKay is the current Minister of National Defence.

I will be following this discounting to Canadian military veterans very, very closely.


Reza Solhi and 3 for 1 Pizza & Wings

December 22, 2008

3for1pizza11

Sean over at FranchisePick asked me if I knew of Mr. Solhi’s work.

Please note the first 6 articles that the Information Sharing Project would return if it were alive on the internet (searched for tradename). Download the entire article if you like.

  1. Frustrated franchisees call for legislation, The Globe and Mail, December 3, 1998 Excerpt from article: Jesu Dasan figures he lost $180,000 in the 20 months he operated a fast-food franchise in Scarborough, He alleges the franchisor changed the terms of the contract, which drastically reduced the number of homes his business was allowed to service. [download pdf]
  2. Ontario introduces bill to protect franchisees, The Toronto Star, December 4, 1998 Excerpt from article: “Everything goes to (the chain) … These people cheat us and we’ve lost everything.”…Vahdati said she and her husband spent $100,000 on legal costs in a fruitless court fight against the pizza-chain owner. [download pdf]
  3. New franchising  law called sales job: Ignores ongoing illicit practices, operator rep say, The Toronto Star, December 5, 1998 Excerpt from article: “This is the wooliest thing I’ve ever seen,”…Commercial Relations Minister Dave Tsubouchi “is just like one of the franchise hustlers,” said Stewart. “He’s selling an idea and there’s nothing in it.” [download pdf]
  4. Franchise laws welcome, The Toronto Sun, December 8, 1998 Excerpt from article: “What a disappointment.”…“This law is worse than what exists now, which is nothing,” snapped Les Stewart, founder of the Canadian Alliance of Franchise Operators. “It will only lull potential entrepreneurs into a false sense of security.” [download pdf]
  5. A declaration of war: breaking into the business, The desperation tactic of gaining entry to a locked business, known as ‘self-help’, is seen as an occasionally useful skill when relations hit a sour note., The Globe and Mail, January 13, 1999 Excerpt from article: Gaining entry to a locked business under cover of darkness isn’t taught in franchise manuals, but it’s a skill that both franchisees and franchisors occasionally find useful. [download pdf]
  6. The great franchise trap, The Indo-Canadian Voice, January 15-27, 1999 Excerpt from article: The family lost $150,000 and sadly, the man who put his life’s savings on this scheme, is today on welfare…“These people need to be protected. It is mostly the new immigrants who fall victims to such schemes. And in Ontario, there is very little by way of laws that can protect them in times of dispute.” [download pdf]

Anyone know what happened to these franchisees who were mentioned in the articles?

  • Wasim Ansari,
  • Tarek Fatah,
  • Rayappu Jesudasan [Jesu Dasan],
  • Ali Mahmoudzadeh,
  • Nhan Van Nguyen,
  • Fereshteh Vahdati, or
  • Ali Mehmood Zadeh

Or the other  people?

Richard Cunningham, John Deverell, Peter Macrae Dillon, Howard Hampton, Mike Harris, Murray Katzman, Linda Leatherdale, Ned Levitt, Tony Martin, Reza Solhi, John Southerst, David Sterns, David Tsubouchi, Dawn Walton

And these organizations?

Ministry of Consumer and Commercial Relations, Canadian Alliance of Franchise Operators, Canadian Franchise Association, 3 For 1 Pizza and Wings, McDonald’s, Tim Hortons, Golden Griddle,  Siskinds, Cromarty, Ivey & Dowler, Canadian Tire, 3 for 3 Pizza Ltd., Canada Post, Ontario New Democratic Party

The sympathetic Toronto lawyers are there to manage your anger. That’s their job for the industry: a soft landing, breeding passivity.

A franchisee white knight (the appearance of franchisee advocacy while acting to weaken franchisees’ rights; a traitor) lawyer:

  • to ensure that learned helplessness infects the immigrant leaders by raising then dashing your hopes for justice.

No Canadian lawyer can survive financially by representing only franchisees. It is impossible. They HAVE to have to behave in an acceptable manner (don’t rock the boat) or the industry elite will not allow them to exist.

  1. The appearance of an opposing position provides the pretense of industry balance to outsiders.
  2. You are NOT protected by a lawyer’s theoretical fiduciary duty to a client when you talk to them initially. That protection is ONLY when you are in a solicitor:client relationship (a contract: agreement, money exchanged, etc.). Do NOT rely on his advice at this stage: He maybe protecting the industry’s interests (not yours).
  3. Because law services are a credence good, you never know exactly how or when your interests were sold down the river.

The antidote to compromised legal representation is a knowledgeable second opinion (ie. a consultant who does not make his living from the industry). They’re rare but if you know where to look for them, they’re out there.

But I’m the most special of all:

I seldom charge anything for my advice to franchisees.

It’s my way of giving back to an industry that has given so much to me and my family over the last 10 years. Call today 1-705-737-4635 and let’s discuss if the lawyers or I was more accurate in predicting Ontario’s franchise industry’s degeneration from 1998 to 2008.


CFA says Bank says Franchises 4 times more successful?

December 1, 2008

waynestateuusdeptcommerce1In a Blue MauMau post called Canada’s Misleading Franchise Success Rate Claims, Lionel Hutz PA quotes Ms. Lorraine McLachlan, president and CEO of the Canadian Franchise Association, as claiming:

McLachlan said that a recent study released by BMO [Bank of Montreal] indicated that nearly four times as many franchises succeed compared to independent small business.

“When you go into an established system, which is the hallmark of a franchise, the probability of success is obviously incrementally increased,” McLachlan said. “The fact that there are more than a couple of locations currently operating using that brand, using that system, suggests that it’s not a flash in the pan and that there is some history that it will succeed.”

… “in economic times such as these, the fact that you are dealing with an established system that has predictable success means that the bank in all likelihood is going to look somewhat more favourably on your application,” McLachlan said. “In many cases, the franchisor will help you work with the bank.”

The full article can be found at The Sudbury Star.

This is problematic because the franchise industry historically has been very loose with their success/failure statistics. Indeed this is what Dr. Timothy Bates of Wayne State University had to say:

Knowledgeable scholars who study franchising issues routinely express contempt for the failure rate statistics publicized by franchisors.

Francine Lafontaine, for example, states ‘one of the major selling points of franchising to franchisees over the years has been the statistics vehiculated by the trade press on the very low failure rates of franchised businesses compared to independent operations. These statistics never had real scientific basis’ (p. 14, 1994).

Such criticism does not deter the industry.
— Survival Patterns among Franchisee and Nonfranchised firms started in 1986 and 1987, U.S. Department of Commerce, p. 6.

I am unaware of any study since that time that would contradict this.

UPDATE

BMO Bank of Montreal: I had telephone conversation with Steve Iskierski, Senior Manager, National Franchising Services for BMO Bank of Montreal. Iskierski was unaware of the basis for this 4 times notion and their is certainly no study that he is aware that BMO has. He was unclear as to why Ms. McLachlan of the CFA would quote that figure and ascribed it to reporter misquotation.

Canadian Franchise Association: Emailed for copy of report. No response.

The Sudbury Star: Left a message for Janice Leuschen. No response.


The Value of Knowing which questions to Ask

October 10, 2008

Frank Zaid is a Canadian lawyer with Osler, Hoskin & Harcourt LLP.

1. From his wikipedia page:

He has been listed as one of the leading franchise law practitioners in every published edition of the Canadian Legal Lexpert Directory, the Lexpert/American Lawyer Guide to the Leading 500 Lawyers in Canada.

In the 2005 and 2006 editions of Who’s Who Legal Frank was ranked as one of the most highly regarded franchise lawyers in the world, and as the most highly nominated practitioner outside of the United States.

In the 2006 edition of the Lexpert Legal Directory he was ranked as the most frequently recommended franchise lawyer in Canada and Osler was ranked as one of the most consistently recommended major full service law firms in franchising.

Further under Professional Affiliations:

  • American Bar Association (Forum on Franchising)
  • Canadian Franchise Association (Past General Counsel and past member of the Executive Committee and Board of Directors)

2. Mr. Zaid gave testimony before the Standing Committee on Regulation and Private Members Bills of the Legislative Assembly of Ontario on March 6, 2000 in consideration of Bill 33, Franchise Disclosure Act on behalf of the business law section of the Canadian Bar Association. This bill resulted in Ontario’s first franchise law, Arthur Wishart Act (Franchise Disclosure), 2000.

The Acting Chair (Hon. George Smitherman) exercised his discretion in allowing additional time for questions. I know this because I was in the Committee room listening very carefully to Mr. Zaid. I had just come back from lunch with Susan Kezios and John Sotos.

This is an excerpt from the transcript.

The Acting Chair: We’ve got a few minutes left for questions. We’ll start with Tony Martin.

Questions

Mr Martin: Certainly, your presentation flies in the face of some of the information presented to us, particularly this morning by Susan Kezios from the American Franchisee Association, who suggests other than that franchisor systems flee states where there’s good legislation. I suggest that maybe bad franchisors flee, and who would argue against that?

Were you the counsel for the Pizza Pizza franchisor?

Mr Zaid:
I was one of the counsels.

Mr Martin: Were you the counsel in the Bulk Barn case for the franchisor?

Mr Zaid: I’m involved in that.

Mr Martin:
You’re not the person who sent out the letters of threat to anybody who would intervene in any way in terms of that action?

Mr Zaid: I’m not going to answer that question.

Mr Martin: OK, thanks.

The Acting Chair:
Further questions? Seeing none, thank you very much for your presentation.

Full pdf download

The motto on the Legislature’s Coat of Arms, AUDI ALTERAM PARTEM, challenges the legislators to “Hear the Other Side.” Also note that the Mace (top and crossed on the Shield of Arms) is the traditional symbol of the authority of the Speaker of the Assembly.

Mr. Martin served as the Deputy Speaker of the House at that time. I had the great privilege of acting as a volunteer industry researcher to him.


Can litigation be used to gag New Zealand franchisees?

September 24, 2008

I dislike when anyone tries to decrease freedom of speech, especially on the internet.

Maybe it’s because I was sued [1, 2, 3 & 4] about this very issue, that I am fairly touchy about the subject.

Right and wrong has nothing to do with it. It’s the Golden Rule: Whoever has the gold, makes the rules.

Since Australia and New Zealand are in the franchise regulation news lately, here are three August 2001 articles from Jon Stephenson of The Independent that illustrate how little distinction some franchisors make between fundamental human rights freedoms and their ability to control their message.

You may note that it was only after the original court decision was reversed that the 13 Wordsites International franchisees regained their ability to defend themselves.

I have seen the names Worldsites International Network and WSI applied to the same Canadian-based system. Based on their membership information at the Canadian Franchise Association, WSI has been a CFA member since 2007, has over 1,500 franchises and has been franchising since 1996. I recall that Dan Monaghan and Nigel Mayne co-founded WSI.

WSI and Mr. Monaghan are involved with Make Child Poverty History.

Nigel Mayne is listed by the CFA as president of MatchPoint which claims to be “Canada’s largest Franchise broker.” (In business since 2006, CFA member since 2007).

  • Constitutional rights can be taken away and you have to fight to have them restored. Better have US$20,000 buried in the back yard if you want to live to fight another day.

BTW, whenever you see the following it should be a very red flag for you:

  • this franchise is the next “McDonald’s of dog poop business” for example, and
  • franchisor registered in Bahamas with disputes heard in Delaware, U.S.A.

I wonder what happened to the unlucky 13?

These articles brought to you by the fine people at the Informaton Sharing Project.


Big Franchising

July 18, 2008

Most small business investors define franchising in an inaccurate and childlike way.Everyone knows McDonald’s and that it has made many franchisees millionaires.

McDonald’s is a franchise and so all businesses that are franchised must be a success. Maybe the relationship is not 100% causal but it’s a close relationship. Right?

Wrong!!

We Deceive Ourselves: We notice the flashy new sub sandwich shop or the prestigious dog poop scooping service trucks. We always wanted to go out on our own but didn’t want to risk too much. Franchising is pre-sold as a less risky alternative.

We think we might like to look into buying a franchise and this one seems pretty good, so far. Unconsciously we have started down the road in remembering information that would support a yes decision but also ignoring any negative data [confirmation bias].

Humans tend to over-rely on the physical, on what you can see, hear and touch. That evolutionary predisposition has worked well for thousands of years but in a complex, commercial setting spanning international corporations, our “lizard brain” is not too well equipped to deliver a good decision.

 

WHAT IS BIG FRANCHISING?

Little franchising is what you can see [the branches, leaves of the tree]. Big Franchising is what you can see plus the invisible organizations that feed and nourish the organism [the roots].

  • As the son of a farmer’s daughter, lawn care operator and retired agronomist, I know that 90% of the weight of a plant is underground. The power and danger of franchising is hidden.

Relationship: the first factual error that the power dynamics are simple; that they are limited between the franchisor and the franchisee. The unwary pre-sale or unaware ex-franchisee believe that it is fairly simple David and Goliath story and that this individual franchisor is either a “good guy” or a “bad guy“.

Nothing could be further from the truth.

Public Policy: the true face of Big Franchising is revealed when you watch closely what happens when a law is proposed. Most of the aligned interests prefer the shadows and only come into the light when their favoured positions are threatened.

Big Franchising: Expert specialists

Definition: an informal understanding between legally independent corporations and organizations that serves their mutual commercial, power and political interests.

Members & Role

1. Product franchisors: The Big 3 [Auto, Grocery & Oil] but also very large corporate concerns such as Coca-Cola. Massive, aggressive and willing to get on the phone and bully any politician into the middle of next week.

2. Business-format franchisors: The Blue Chippers [McDonald’s, getting fewer and fewer]. Largely co-ordinated through the national peak trade association [ie. AU National Franchise Association, Kiwi Franchise Association of New Zealand, Canadian Franchise Association or the U.S. International Franchise Association. or their subservient members and the other [usually] 80 to 85% of franchisors who do not belong to the national franchisor association. These are public apologists and training centres for franchisor opportunism.

3. Franchise Bar: The very few large international law firms that have a very lucrative franchise specialty and other boutique practices. A useless law to investors [McLaw} is a great law for The Bar because of the irrelevant, but seriously misleading disclosure documents that need to be written. This is a very protective group of extremely sensitive businesspeople who happen to discuss law in their spare time.

Any lawyer hoping to join the club better play by the rules. Rule Number 1 is serve Big Franchising who arranges to pay 95% of all legal fees. You can usually find the majority of the Franchise bar in the national franchisor association’s membership lists. [Australia, New Zealand, Canada]

Franchisee clients are thought of as a means to pay the rent until you can do some serious billing to the franchisors. When I was in high school, certain girls were considered practice girl friends. I believe I don’t have to go into too much detail here. The high school male and the struggling franchisee lawyer have the same thing in mind.

Each country has a King Rat franchisor lawyer. His job is to discipline the Big Franchising members and instill fear in dissenting opinions. I could name the U.S., Canadian and Oz/Kiwi guys but I promised my wife, no more lawsuits.

4. International peak association: the World Franchise Council is an information sharing project for Big Franchising. It provides training in keeping each nation’s public asleep to the true nature of franchising [higher risk, rent not own business, churning, on and on]. It keeps all their members aware of the defenses available to thie members: The “How-to” of defeating all franchise investors’ claims.

Responds to Oz’s public understanding is a babe in the woods when compared to the U.S. and Canada. The U.K. are still in Big Franchising’s womb, largely because of a very docile business media.

5. Financial Institutions: franchising is extremely lucrative for lenders and financial service providers. National programs are set up that kick back millions of franchisees’ dollars every year to franchisors. Lenders often will disregard the law when they fake their lender’s due diligence duties. They often engage in a cluster of behaviors I have defined as Predatory franchise lending. [Australia, New Zealand, Canada]

6. Product suppliers: franchised businesses are higher margin customers. The franchisor negotiates their kickbacks and the franchisee is forced to pay the inflated price. This is really an undisclosed add-on franchisee fee [often, at least, doubling what you thought you would be paying]. Here is an example: A franchisee paying more for shipping [franchisor] than he did for rent [no head lease].

7. Salespeople: these charming individuals call themeelves consultants, business brokers or researchers. Some even hide behind their PhDs. They steer you to those systems who pay them for for their ability to invoke your trust. Don’t be fooled: Almost 100% of the time, they don’t get paid until you say yes and only from the franchise system that they get paid a commission from. They may charge you a few thousand bucks to find the “right fit” but the real dough will flow when the trap snaps shut [sign the franchise agreement or loan papers]. [Australia, New Zealand, Canada]

8. Media: this is the more subtle one. Experienced journalists know all the sordid details of franchising and have known them for many years. Editors do not publish stories that interfere with the commercial interests of their bosses which are in the same Big Franchising club. Occasionally, stories are published but they are simple open-and-shut cases that would never give the public an idea that the problems are systemic [affecting all parts] rather than individualistic [blame the victim]. The lies the media tell are told in silence.

9. Politicians/Regulators: politics is the brokering of competing interests. Big Franchising represents some of the world’s biggest corporations.

Politicians and regulators know their career is short and corporations’ memories are long. The practice of law has almost entirely been taken over with corporate interests. The widespread use of compulsory private law contract provisions [arbitration and mediation] hides the industry’s abuse.

Franchisees are unorganized mom-and-pop shops, mostly. People that think that even national inquiries will discover the truth and then the truth will will result in a good law [reflects reality] are hopelessly naive about how power works.

10. Miscellaneous: this category includes academics, especially [with some notable Oz exceptions] those pesky consulting fee-dependent business administration professors, Trustees in Bankruptcy, equipment and business appraisers, mediators, arbitrators, non-franchise bar law firms, financial services ombudsmen [apologists for predatory lending practices], national privacy commissioners, law societies [very attentive listeners to large law firms’ economic concerns].

Summary: There exists a complex web of invisible but very real relationships that created, supports and aggressively defends the franchise industry’s dominant power structure [status quo].

  • All things being equal: You may be profitable or achieve your financial goals.
  • But, all things are not equal in franchising, are they?

Ignorance of your potential adversary’s power and influence is no excuse. At least for those with ears to hear.


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