Study those who Engineer the Trap

June 28, 2008

A senior solicitor with the New Zealand law firm Buddle Findlay made a very accurate observation about investing in a Kiwi businesses.

The solicitor (Kelly Foley) was quoted in a terrific little article by Tina Law at http://www.stuff.co.nz called Subway franchisee faces bankruptcy.

“The Subway chain follows standard New Zealand business practices,” Foley said.

Whenever I see professionals offering exceptional information, I will be sure to point it out to my loyal readers.

Why not give the article a quick read and see what you think of Ms. Clements’ situation? I assure you there are perfectly rational reasons [sunk costs, risk aversion, decision making biases, heuristics, persuasion, etc.] why so much capital was re-distributed since 2005.

This type of failure happens every day in franchising.

  • The contract gives the legal right to lie, cheat and steal the moment the 1st one was signed. [They knew it; she did not].
  • The capital was simply moved across the table over a relatively short time.

Disclosure: I lost $135,000 in 18 months in a stupid landscaping deal. Not proud of it but not ashamed for falling into a well-designed trap either. I’m the one with an M.B.A. [Master in Blind Ambition], had run 5 independent businesses before, took 6 months to complete due diligence at PriceWaterhouse, achieved 24% of my sales projections over 4.5 years, flamed-out at trial, paid the lawyers and then went bankrupt.

I’ll be coming back to this article because it shows how churning can happen to extremely intelligent, hard-working and rational franchisees.

  • You decide: Wanna invest your life savings in any New Zealand franchise?

[Oz? U.S.? U.K.? Canada?]

Am I am bitter? Sure; a bit but that still doesn’t mean I can’t have thought some of this stuff through after 10 years. Rx: Overconfidence Effect, Cognitive Biases

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