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Abusive Franchise Relationships: Freedom Isn't Free

Author Richard Solomon is a conflicts and crisis management lawyer with 50 years of experience in business development, antitrust and franchise law, management counseling and dispute resolution including trials and crisis management.

There is a mistaken belief that what franchisees really need in order to facilitate rationalizing franchise relationships into harmonious mutual peace and profit making is a collective voice competently expressing franchisee needs to a "reasonable" franchisor. The reasons that is a mistake in so many instances is that the abusive franchisor isn't interested in being reasonable, believing that the terms of his franchise agreement relieve him of any such obligation; what the franchisees want (what seems reasonable to them) would represent a reduced revenue from the relationship for the franchisor; and, finally, franchisors believe that once the franchisees sign contracts that provide for franchisor top down configuration of the business model, they are not required to "let the inmates run the asylum".

In such - all too frequent these days - situations, "reasonable accommodation" is not to be found anywhere in the franchise agreement; anywhere in the law applicable to franchise agreements; or anywhere in the "art of the possible" as seen through the eyes of educated ladies and gentlemen possessed of law licenses. There are a few exceptions.

If franchisee existence is to become rationalized, resort will have to be had to leadership that is not parlor trained, church manners, play by the rules as they are written, ladies and gentlemen. Freedom isn't free. Running your mouth on Internet blog sites, screaming epithets at the franchisor, never accomplishes anything positive. Moreover, it so poisons the atmosphere that in response to each epithet blogged, the recalcitrant franchisor only digs in his heels that much harder.

Today there are a few misled franchisee groups running their mouths on www.BlueMauMau.org, providing us with typical examples of impotent whining and name calling on the part of disgruntled, cowardly franchisees who either do not have a clue (nor does their leadership) about how to get to YES; are too cheap to provide resources to retain competent leadership for this kind of confrontation; who believe, incredulously, that all they have to do is keep on whining and cursing and eventually the franchisor will "see the light" and come to Jesus on the subject of giving them what they want; or all of the above. These groups are doomed to failure. In their insistence that they are entitled to better circumstances by some impelling notion of fundamental fairness, they are bogged down in an impossible regimen. They believe that intractable dictatorships of franchise abuse can be brought to "justice" by whining and hurling epithets, and that some divine or quasi divine power, God or the government, will come to their aid. Could there be anything on this planet less realistic?

Leadership to facilitate rationalizing the existence of franchisees who bought into bad deals and are living with abusive franchisors is different from leadership to facilitate rationalizing life in a good business model run by a franchisor with a long view to the future viability of the system.

The tough guy punk franchisors who couldn't care less if their franchisees go on line and call them bad names - at least not enough to change anything - must be dealt with differently.

There is a long human history of victims having to try to overcome terrible circumstances in which the situation is extremely unjust, and the rules are drastically skewed against them. None of these vignettes of history apply to the matter of solving an immediate problem of having bought into a bad deal with a bad franchisor who really - no matter what he may say about it - doesn't give a damn. These guys are in it for present tense interests only. They didn't form the franchise system for long terms durability in the first place. Had they considered long term interests, the franchise business model would perform in a way that enables long term durability.

In most of these situations the costs of carrying the relationship - all costs, not just those in the FDD - is close to or above 20 % of sales. The franchisees are mostly marginal, and the failure rate is accelerating. A similar situation may be found in franchise systems that are really over the hill. Their business segments have become saturated to the point at which the name on the door does not generate sufficient differentiation to matter. The name is not worth paying for anymore, and in many instances it was never worth paying for. The franchisor did not achieve the ability to make the brand strong enough to have commercial presence. If you are in a good location - that you had to pick out in the beginning anyway - and are giving good value, the franchisor's name is not contributing anything worth paying for. In reality, when a franchise system presents this profile and the franchisor is telling everyone to go to hell, the clearest observation is that the rules provide nothing that could change this game for the better over any short term.

Most of the people who seek to be retained by disgruntled franchisee groups are believers in the gentlemanly art of rational persuasion. They play by the rules. They espouse irrelevant notions like franchise fairness standards. No tough franchisor will ever give a damn about franchise fairness standards, and franchisees lack the resources to enthuse any government agency to come to their rescue. If it were otherwise, life would be better for these victims. This isn't a recent phenomenon.

Effective leadership of franchisee groups in this situation has to be able and willing to change the rules - to stretch them so far that they are not even recognizable anymore - without actually violating any of them.

One of the rules that must be pushed is the apparent requirement that you tell the franchisee group you may seek to represent that you agree with them totally. Much of what franchisees believe is "wrong" is actually not wrong at all. Many franchisee notions of what should and should not be permitted are simply misplaced. The examples of these wrongheaded notions include the basis for determining when a franchisor must approve a franchise resale. The reality is that a franchisor can blow up a resale opportunity with virtual impunity under the terms of the contract the franchisees signed. That the franchisees failed to recognize the reality of this when they signed on is not grounds for changing this game. Between the franchisor's arbitrary right - arbitrary if for no other reason than the absence of an economically affordable remedy - to refuse consent to any resale, and the franchisor's ability to change the rules of engagement with every new agreement, including increasing the cost of the relationship itself, the capital value of your business in any resale context is never going to be what you think it is. And aside from the legal/economic analysis of this dynamic, there is the fact that on a "visit" by your buyer to franchise HQ for a screening interview, any tough franchisor can poison any resale deal just by his conduct. Tough franchisors ask why they should approve a resale or buy you out if they can default you under the contract and just take your business back for next to nothing - at most the cost of a lawsuit or arbitration that they can afford and you can't.

Are you starting to get this picture into clearer focus?

Franchisee leadership must know the realities and must have the guts to tell his prospective clients about the issues where they are simply wrong and have little or no prospect for success. They must also know and be able to teach the techniques for dealing with situations where the franchisees are probably wrong on the law, but can still change the game by adopting effectively militant relationship management techniques. Even the transfer scenario can be changed with the right tactics. But realities must be dealt with as realities, and franchisees have to be taught what the realities of each situation are.

Confronting tough guy franchisors in a business destroying mode can only be done through militant resistance.

What does effective militancy require?

It requires that the franchisees recognize when they are dealing with an intractable franchisor in a business destroying mode. Those two essential factors mean - in reality - that hiring leadership to reason with the franchisor is a waste of time and money. These "frat boy" office gentlemen are no match for a street smart tough guy franchisor. All he has to do is tell them in some polite and politically correct manner to go to hell, and the game is over. How go to hell is expressed includes delay, promises of consideration, propagandistic pretense to the adoption of fairer methods of dealing, and other nonsense responses that will never see the day when the talk is actually walked. The history of the now defunct AAFD franchisor appeasement club is a vignette on the subject of frat boy nonsense and bestowing BS awards upon some of the worst tyrants and opportunists of franchising. The AAFD published carefully parsed standards of franchise fairness that had no affect whatsoever upon any tough guy franchisor.

Once franchisees recognize that they are in a situation like this, they have to seek out someone who can show them how to organize effectively militant resistance and who can protect the organizers from franchisor retaliation. One of the main barriers to effective franchisee group action is franchisor retaliation against franchisee leadership. Tough guy franchisors don't have to destroy the ineffective leaders of nonsense franchisee groups. Why bother the impotent? But they will go after effective leadership, and that leadership has to be invulnerable.

Invulnerability involves the retained leadership resource having the ability and the sheer guts to make himself the group leader so that the only place heat can be applied by the franchisor is on him. That leadership must also be capable of protecting the identity of the group leaders who are franchisees. The ways in which tough guy franchisors try to find out who is behind the movement must be known, and methods to resist that must be mastered. Lessons must be taught about how to be militant, and they must be taught by someone who is good at it, not by someone who may have read some books on it but never done it.

The franchisees must be provided with avenues of protected communication that are impenetrable by the franchisor. The retained leadership must know how to accomplish that. Password protected channels of communication are useless. Some Judas franchisee will give the franchisor his password or forward the communications to the franchisor in the hope of some inside favoritism. There are Judas franchisees in every franchisee group, and how to prevent them from imploding the group is another subject in which the leadership must be adept.

The franchisees must be told at the outset that there will be no possibility of success unless there is pervasive membership in the group and financial resources to support what is required. Protestations about not being able to afford what is called for need to be stymied. The cost of a pervasively supported franchisee organization is rarely more than the price of a pack of cigarettes a day. If franchisees can't handle $ 1,500 a year in simple annual dues, paid in advance, they are not salvageable and will simply be written off. The truth is that the cost of not joining is far more every year than the cost of joining. Franchisees who cannot recognize that will experience what franchisees who elect to go without effective leadership experience. You cannot do this on nickels and dimes.

The lesson is that tough situations must be met with tough solutions. Tough solutions cost money, but not a prohibitive amount of money. Franchisees have to have sufficient intestinal fortitude to do what is called for, and they must be teachable. When the tough confrontation stage of franchisee group action is completed and the franchisor has come to terms in conduct as well as in words, the group can always go hire some frat boy advisor who plays by gentlemen's rules. But until that time comes, leadership that knows how to wage the right kind of confrontation, to get the tough franchisor to recognize what is going to happen to rationalize relationship management one way or another, is the only solution.

Freedom is not free. Cowardice is incredibly expensive. It is bad enough if you bought into a really bad deal. But if you don't do something about it by forming a militant independent franchisee association, it will eat your guts out until you are in bankruptcy. Thus endeth the lesson.

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