Whenever I hear the words ‘family values’ I reach for my revolver.

December 6, 2010

Teachers can help break the chains of family or group generational ignorance.

If you do your part.

Hail to the King.

[ThemThanks]


Beyond my understanding

October 22, 2010

Four inches (10 cm?), first snowfall today.

Winterized my family dentist’s home lawn sprinkler system yesterday. I’ve always been lucky to know brilliant, strong and beautiful women. I remember: wisdom teeth gone, no pain medication but without a single complaint.

I once told Richard Solomon that I admired his ability to work in franchising for +35 years (135?) while still maintaining the veneer of sanity. Oiling that capital re-allocation machine, 60 hours a week, week-in, week-out with the full knowledge of the human and family costs that are only heard across the kitchen table.

I understand why Ontario politicians have been avoiding the doing what’s right in the franchise file for almost 40 years. I understand why everyone hates being associated with the message I bring and/or me. I understand things take time.

But some days, I have to just shut out the psychopathology: delete some evil. When I retrieve and read my paper, sometimes others have to pinch-hit.


Thought control, the digital media and empires

October 20, 2010

New media is often captured by totalitarian regimes.

PhD, one-time, legally appointed Chancellor Goebbels and Leni Riefenstahl used motion pictures.

Now others use the internet.

I responded recently to a series of posts from Richard Solomon and an anonymous poster called FuwaFuwaUsagi. Fuwa’s motto is, it seems “Never underestimate the power of stupid people in large numbers.”

http://en.wikipedia.org/wiki/File:Bundesarchiv_Bild_183-R99035,_Adolf_Hitler_und_Leni_Riefenstahl.jpg

Near the end, it’s just pathetic.


Do franchisee attorneys cheat at settlement time?

October 6, 2010

Attorneys provide services that economists classify as credence goods which are quite susceptible to fraud.

Franchisee attorneys sometimes act on their own self-interest because only the elites know the game and they mostly keep their mouths shut. After the confidentiality agreements are signed, there is very little danger of client complaints.

Here is one perspective on the U.S. Quiznos class action lawsuit settlement process that resonates.

If you were a conspiracy theorist, might you suspect something like…..

The lawyers for both sides colluded to end the case in a manner that got the franchisees nothing; cost the franchisor nothing other than its legal fees (because the debt written off was worthless anyway); the “benefits” to the franchisees are illusory and valuless; the judge would sign off on anything just to clear the case from his docket so long as he had some/any piece of paper in the record saying that the franchisees were getting real value; and they found a valuation “expert” with a degree in alchemy.

NAH! THEY WOULDN’T DO THAT.WOULD THEY?

Richard Solomon has over 40 years of franchise law experience in the United States and his Franchise Remedies site is an important resource.


Coffee Culture: likely legit or a FranWhack?

April 29, 2010

Nothing is certain in life and that goes for franchising, too.

Coffee Culture Café & Eatery sure looks like a winner. Very rich-looking, solid, many happy-smiling faces.

It is important to look past the flash, however. In the growth phase, who sells the offering says a lot about the credibility of the offering.

CJ Woodburn and Associates appears to be the 3rd party sales agent and lists the investment qualifications as:

“- Store hard costs start from $175,000 (this varies depending on size, conditions, landlord and location).
– Franchise Fee (10 years) $20,000.
– Royalty (weekly) 7%.
– Ad Fund (weekly) 2%.”

Weekly (not monthly) payments and no mention of head lease, equipment or product maximum margins.

When I asked a few central Ontario current, multi-year, coffee franchisees about the offering: Does it…

  1. look like a good deal  or
  2. is it what Richard Solomon defines as a FranWhack?

They were unanimous in their opinion.

Solomon’s The New Franchisor Scampaper in his Franchise Fraud series is good investment reading. The old bastard sums up:

If you think you can outsmart professional swindlers all by yourself, you really are not smarter than a fifth grader.

Don’t get me started who’s papering this… (ie. “special relationship” CSBFA-based franchise lender)


Salad Creations Canada: Is this McSalad bar an unintentional FranWhack?

July 27, 2009

SaladCreationsSome imported franchise systems are designed to fail: to make the CDN franchisor and all franchisees’ life savings evaporate.

The U.S. franchisor comes in, terminates the much smaller CDN licensee and takes over the “x out of 50” stores that were promised under contract.

This is how nice northern families can  end up as cannon fodder.

They blow their brains (and cash) trying to grow under impossible contract terms, the big boys then come in and scoop up what they want. Been done a thousand times in the past in franchising…

To a potential franchisee, it is irrelevant if the national developer/franchisor is:

  1. knowingly predatory or
  2. 100% well-meaning but, nonetheless,  incompetent or incapable of going the distance.

Since I have tremendous respect for the Toronto Star business journalists, I suspect #2 and not #1.

Case in point, the Canadian launch of Salad Creations (one corporate location, zero franchises).

Lisa Wright interviews Brenda Bot, the franchisor in a story on the front page of the Business Section: Romaine Empire: Green through and through, Salad Creations aims to grow into nation’s Subway of salads.

It takes industry and franchisor experience, adequate capital (very high burn rate, esp. in recession), a business model that has been successfully “transplanted”  and a capacity to utilize network effects (exponentially increasing value as unit sales increase).

  • I see none of these minimum prerequisites here.

What I do see is a sincere person who naively believes that you can franchise any business concept and do it profitably for themselves and others. That a single one of a 5,000 Tim Hortons costs way over a million $ to build: yet Ms. Bot thinks she can launch a national chain for less than that?

I also see (and this gives me zero joy to type)  is another in a long line of U.S. born, CDN imported “FranWhack” franchise investment scams: hype masquerading as a business.

These easily-duplicated, one-product business “opportunities”‘  are simply not investment-worthy in the opinion of Blue Maumau stalward, 45-year franchise industry expert, Richard Solomon.

In Richard’s always colourful prose, FranWhack Alert: The Cereal Bowl:

This concept was previously reviewed by me and I am of the opinion that, like Dagwood Sandwiches, Cereality and SoupMan, this should be considered a FranWhack franchise offering – one that will take every franchise investor down to bankruptcy.

I suggest reviewing what is and is not a FranWhack franchise investment on his website, FranchiseRemedies.com.

Get Smart and call Richard in Texas for yourself and ask him if Salad Creations sounds like a FranWhack. He won’t fill your head full with a bunch of phantom dreams as Toronto-based Michael Webster (The Psychology of Scams) so clearly defines.

Don’t gamble with a Walter Mitty-esque longing to Be your own Boss, or Be in business for yourself not by yourself. You will never have fewer alternatives as when you are in a franchior:franchisee relationship.

You and your spouse’s life savings may live to thank you.

Ms. Bot draws the analogy between Salad Creations and Subway. This seems to be a twist on the hackneyed “next McDonald’s” huckster mantra so popular a few years ago. For franchise investors, Subway may leave a bitter taste because that system has had a singular reputation among industry experts.

Folks interested in corporate history as a predictor of future behaviour, might want to check WikidFranchise’s article archive: Subway tradename or maybe a few of the following direct references:

I wish Mr. & Mrs. Bot the very best in this new industry but that sentiment stops cold dead if it requires their their investors lose their life savings. They are green (green as grass?), as the headline editor wryly implies. They have a problem (eg. too much money) and their new best friends (lawyers, consultants, association, banks, etc) will help them overcome.

I’ll just add this article to WikiFranchise.org and check back in a few years to see how this newly minted CFA member and investors are doing.

  • Odd how their U.S. site says they have franchisees in California but that there is no listing for Salad Creations on the Cal-EASI Database.

I don’t do pre-sale due diligence consulting so I would defer to professionals like Solomon and Webster for those answers.

Someone in the family should call me so I can explain how the CDN Krispy Kreme development deal went down. No charge to anyone calling as I have zero franchisor consulting clients, ever.


Mr. Clean Car Wash: Poo-filled franchise systems will Not do

February 11, 2009

mrcleanRichard Solomon hit this nail right on the head, I think.

Jim Amos and Procter & Gamble put their heads together to make the Mr. Clean Car Wash franchisee.

Solomon calls it a FranWhack: an “investment” that will inevitably fail for the franchisee:

Not even the best cleaners and polishes put out by P&G can possibly spit shine this turd.

The economics of this carwash concept don’t compute, and the choice of franchise leadership is dreadful.

P&G has given birth to a FranWhack here. No one in his right mind should ever consider investing in this debacle in the making.

Everyone should follow these two threads over at Blue MauMau as the pundits ridicule this latest, Is-this-the-best-they-can-do franchise offering.

  1. Controversial Amos Leads P&G to Launch Mr. Clean Car Wash Franchise Nationwide, Don Sniegowski
  2. Can Proctor & Gamble Succeed with Jim Amos at the Helm?, W. Michael Garner

Solomon is not alone in his skepticism

I have never seen such unanimous condemnation. See: Paul Steinberg, Joel Libava, Nick Bibby, Michael Webster, Bob Frankman, Guest: Brice Food litigation, and me (On the road to The Tipping Point?).


The Coming Franchise Investment Bloodbath

November 10, 2008

tuningforkA tuning fork is an acoustic resonator in the form of a two-pronged fork with the tines formed from a U-shaped bar of elastic metal (usually steel). It resonates at a specific constant pitch when set vibrating by striking it against a surface or with an object… Wikipedia

If what Richard Solomon is saying over at Blue MauMau is NOT resonating with you, you’re a potential individual in…

…a sea of dead franchise fish stinking up the franchise world for many years to come in the near future.

Why?

Tens of thousands are exiting companies due to tough economic conditions. They have poor job prospects. They have access to half a million dollars and more in liquidity. They are considering small business ownership as their next move.

Whatever their prior experience, none has ever done pre investment due diligence on any small business investment, and none has ever done pre investment due diligence on franchise investment. Despite their education and experience, they are fish out of water.

You should read every word Solomon has to say. And then make sure your spouse does the same. Then give the article to any family member or friend you’d hit up to save your sorry future ass by throwing good  money after bad.

  • This advice goes double for those poor pathetic souls stuck in franchising now.

There are three types of franchisees and all of them are in a certain % of denial:

  1. the smug profitable ones (so the future is the same as the past? okay…),
  2. the ones just scraping by (can’t make ROI in good times but in bad times…?) and
  3. the ones bleed internally and anally.

No sane individual should invest or renew in any franchise heading into these worldwide recessionary times.

Richard’s advice stands on its own.


Accidental franchises: Sue franchisor and their lawyer

September 21, 2008

When a franchisor and their lawyers pretends that a franchise is a license or distributorship, sometimes they end up shooting themselves in the foot.

An interesting article on FranchiseChat.com this week demonstrates how an Accidental franchise happens. And the consequences can be very profound.

Kevin Tampone of The Central New York Business Journal (Make & Take, franchisees battle in court) starts off pretty hum-drum [Gosh, not another franchise misrepresentation case?]

It warms up substantially when Michael Einbinder’s name is dropped as he is a very heavy-duty lawyer.

Okay…These guys are very good. What next? So it seems the allegations are that the franchisor lied and failed to make a legal franchise offering: No disclosure documents were given and…

State law, he says, forbids companies from making such earnings claims unless they’re contained in a specific document, called a uniform franchise offering circular. Make & Take did not provide the franchisees with that document before actually selling them franchises, Einbinder says.

…the system was not registered to offer franchises in New York state (although there was a legal requirement to do so). The U.S. law defines a franchise very, very broadly and intentionally so, as to stop this weasel marketing efforts.

This is why the franchisor’s lawyers are being sued:

The firm helped Make & Take circumvent state requirements by creating licensing agreements for the company, the suit charges. The actions were part of a “schemeto sell franchises in violation of the law, according to the suit.

While none of these allegations are proven, this is good example of an Accidental franchise (sometimes called hidden, inadvertant or unintentional franchises).

  • Accidental franchises are disguised as distributorships or licenses so as to avoid state and federal legal requirement and obligations [read: consumer protection laws].

There is, of course, seldom nothing accidental or unintentional about these situations. These are all grown-up gentlemen and lady lawyers who have a duty to their client and their Courts not to be engaged in a conspiracy to commit fraud against specific investors and the good people of New York state.

And the old “ignorance of the law” chestnut applies to everyone, right? Even lawyers in limited liability corporations, right?

  • With the operating losses in the $2-million for each of the three plaintiffs, you’d wonder why the lending institutions were not named in the lawsuit because they should have not released any funds without having on file the appropriate client paperwork [releasing the funds would have breached their lending duty]
  • Statements of Claim can always be amended, I suppose but…
  • Richard Solomon explains how proving predatory franchise lending is so tough.

How can banks get away with repeatedly and knowingly lending into crapola franchises?

September 20, 2008

It ain’t called a bank shot for nothing.

It’s as simple as Richard Solomon explains over at Blue MauMau.

First, Richard spells out the weasel play in an article named The Complicit Loan Broker In Franchise Fraud. [Whether there is a broker or not doesn’t matter.]

It is common practice in franchising for a franchisor, especially a fairly new franchisor, to steer its franchise investors to a particular loan broker, and sometimes even to a particular bank. It is also fairly customary for the loan broker or bank to pay the franchisor for the “traffic”.

The information in the business plan always comes from the franchise sales/marketing people of the franchisor. The franchisee has little or no input in the whole matter other than to sign what is put before him by the loan broker without reading it or with scant attention being paid to it. The information is almost always false in the sense that it is full of exaggerations, to put it nicely, and the pro forma financial information has little or no basis in fact.

Richard goes through the details and asks rhetorically with knowing what the answer is:

What is the likelihood that a franchise investor, on these facts and with this testimony, will get a favorable verdict? Anyone care to guess? Since it may be a somewhat novel case, what is the likelihood that a favorable verdict will be upheld on appeal? Anyone care to guess?

And when Michael Webster asks a pertinent question:

How can the franchisor provided information to the loan broker, an agent of the franchisee, which amounts to an earnings claim when the franchisor disclaims making earnings claims in their Item 19?

Richard goes on to explain:

In the mind of the jailhouse lawyer crooked franchisor, providing information to help a franchise investor obtain a loan and complete a business plan (which it all total crapola anyway), is not considered (by them) to be the making of an earnings claim. In the weasel word play of franchising there is the FDD, and then there is everything else. The position that we weren’t defrauding the franchisee; if anything we gave the bank false information by providing it for the franchise investor’s business plan, is not just some cynical homorous thaing I made up. That’s how it really goes down.

It is useful to read the whole thread and then keep an eye on the posting.

Here’s a clip from one comment (named appropriately Hindsight) that has shown up:

How I wish I had read an article like this 12 months ago. This type of article should be covered on a major publication small business section.

Betcha wish you had read this article before signing up, eh?


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