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

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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.


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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