More garbage info in = better decisions?

July 12, 2008

A good article from the Mr Video situation that illustrates many of the basic problems in franchising, worldwide.

Australia and New Zealand investors and media have really picked up on the industry’s propaganda in the last 12 months or so. As I have increased my knowledge about franchising, the more I want to wash my hands.

Slindile Khanyile reports from South Africa in the Business Report article: Information is franchisees’ best friend in agreement with franchisors.

More is always better?: Partially true in theory but is absolutely misleading in franchise practice. It’s called baffling them with bullshit so the contract is seldom even looked at.

In FranchiseLand, things are often much more complex and counter-intuitive than a “rookie” small business investor would believe. Sheep are useful for both a fine woolen sweater or the barbecue

I would suggest that South Africa’s franchisor-only trade association has some explaining to do. BTW: whenever you see the words “franchising consultant” together, translate that into a commissioned salesperson. You’ll be right 95% of the time.

I took this article into the Information Sharing Project and these are the keywords I extracted:

  • 100 per cent of settlements have gag orders,
  • Access to justice is not available,
  • Apologists,
  • Cannon fodder,
  • Can’t afford to sue,
  • Churning (serial reselling),
  • Complaint letter to franchisors trade association,
  • Designed to fail as franchise investment,
  • Disclosure laws: 10 per cent solution,
  • Disclosure laws: false sense of security,
  • Financial failure of first franchisee a material fact to the second,
  • Franchise laws protect franchisors, not franchisees,
  • Franchise agreements are so complex, they are breached the moment they’re signed
  • Franchise agreements create a License to Lie, Cheat & Steal,
  • Franchise agreements: Masterpieces of deceptive wording and artful omission,
  • Franchisee repudiates loan,
  • Franchisee-on-franchisee opportunism,
  • Franchisor association not trusted by franchisees,
  • Franchisor association not trusted by professional journalists,
  • Franchisors want the minimum regulation they can get away with,
  • Gillian K. Hadfield
  • I own the assets but the franchisor controls them,
  • Incompetent or predatory: for the small business investor, the outcome is the same,
  • Loan repudiation,
  • McLaw: toothless legislation designed to protect the dominant parties,
  • Mediation: information gathering that aids the destruction of valid legal claims,
  • More one-sided information leads to greater deceit,
  • Must sell business (eventually) through franchisor,
  • No franchisor support,
  • Only 3 ways out: resell (next loser), independence (be sued) or abandon (bankruptcy),
  • Opportunism: contract creates powers which are used to strip investor value during relationship,
  • Opportunism: self-interest with deceit,
  • Opportunism Test: If asset ownership were reversed, would decision likely change?,
  • Stores shuttered,
  • System designed to fail for franchisees,
  • Sunk costs: franchisee’s trapped capital keeps them chained to treadmill,
  • Short-term profits to franchisor much higher with cannon fodder investors,
  • Shocked, I tell you: just shocked,
  • Unproven business model,
  • Unsophisticated buyers,

Want to gamble? You better know when you sit down with businesspeople who the chump or the fool is. If you don’t have superior relevant information and power, look for the victim in the mirror.

You may believe you are getting into a sort of a partnership with a franchisor. It is much, much more. You may not care but, believe me, if you ever have to disagree with your franchisor, these parties will create every barrier imaginable to your pathetic attempts at justice.

Usual Suspects

  1. your specific franchisor (good, evil, whenever…),
  2. a national trade association that defends the rights of the best franchisors to behave [if they see fit] as the most predatory [see FASA],
  3. an international network of these apologists & spin doctors (see next logo),
  4. the biggest law firms in the country who are paid 95% by the franchisors to destroy little guys like you [franchise bar],
  5. banks and lenders who love loan pushing, Predatory franchise lending,
  6. franchise consultants/sales agents [only paid when someone says yes],
  7. politicians whose jobs depend on giving the powerful what they want and
  8. monopoly suppliers.

If you don’t understand these issues, you are incompetent to evaluate a franchise offering in any country.

  • You are, however, fully qualified to sign a contract that gives others the right to Lie, Cheat and Steal from you.
  • And you should not be surprised when they, in fact, do so.

Harold Brown, Esq. didn’t call franchising a Trap for the Trusting for nothing.

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