This is a tough love tutorial. If you can’t handle the play, stay out of
the game! If this is too tough for your tender sensibilities, feel free to
call me names. It won’t bother me one bit.
There is a business investment formula you do not want to use. For years
new franchise investors used this awful approach and thousands are now
bankrupt as a result. The terrible investment formula is:
Ignorance + Incompetence + Arrogance = Scammed and Broke
Ignorance refers to the fact that if you have never before vetted a
franchised small business investment proposal, you simply do not know how
to go about doing that.
Incompetence includes the fact that you are incapable of sorting out
truths from fictions in the information that a franchise seller is
presenting to you. It makes no difference that it may come in a slick
brochure or in a formalized Franchise Disclosure Document package. Most of
what most franchisors say about their propositions is simply untrue, and
you can’t tell what is from what is not. You also are unable to know when
you call existing franchisees for a reference whether you are hearing
truthful responses or you are hearing untrue responses from people fearful
that you might just be a predatory franchisor’s spy looking for
franchisees who are badmouthing the system so that you can retaliate. When
thieves give you references, the references are unreliable.
Arrogance is the insistence that despite your lack of experience, you
refuse to hire expert pre investment deal and legal due diligence
assistance and decide to go it alone or with only a lawyer to explain the
contract documents. You save fees doing that, but you sign up in total
ignorance of deal quality. Once you have signed you are toast, as only
very expensive lawyers can try – with little chance of success – to get
you out of your deal. It could be said – since the resources you need to
keep from being cheated are readily available – that you have only your
own stupidity to blame for your predicament. Stupidity and arrogance are
just different shades of the same color.
If you go on the Internet to some of the blog sites relating to franchise
problems – like www.BlueMauMau.com for example – you will encounter squads
of cheated franchisees telling you all about the evils of franchising and
how they lost everything they owned in the world due to crooked, abusive
franchisors.
They will also tell you that the problem is not of their making, but
attributable to a failure of the government to regulate franchising in
such a manner that they are bullet proof and cannot be cheated or abused
by their franchisors.
If you suggest that their problems are that they signed deals knowing
nothing about what the risks really were, they call you names and accuse
you of holding all franchisees to be stupid. They refuse to accept any
responsibility for their failures.
The psychodynamic that is at work is that they are in denial and want to
be told that what they didn’t do cannot be done, so it isn’t their fault.
That is plain ridiculous. Signing high risk contracts you can read but not
understand on deals you know nothing about qualitatively, and betting all
you own on the outcome is not an intelligent process. You can do that if
you like, and you can take your limps in bankruptcy court. Most franchise
offerings today are not for real, and the government and the IFA are not
going to do anything about it.
Is that a group that you want to join? Of course not. Do you have to join
that group? Of course not. How do you manage not to be cheated in
franchise transactions?
Look at the articles about
franchise fraud, franchise relationship management through franchisee
associations and the myths and realities of franchise fairness that you
can find on
www.FranchiseRemedies.com.
Yes, that is my website. However all those critically important tutorials
are available to you free of charge. If you don’t like me or my manner,
you are free to hire someone else or ignore what I have told you in all
those tutorials. But, for God sake, educate yourself before you sign away
everything you own and can borrow on a crooked franchise deal that has no
hope of being successful for you. It may be very successful for the
franchisor, but the real question is, despite hundreds of franchises being
sold, whether it will be successful for you as a franchisee of one of
those companies.
There are generational
differences amongst broke franchisees. Many of them bought bad franchise
deals many years ago before competent legal and deal due diligence was
widely available. In many instances they may not have had a realistic
place to turn for help. At least within the last five years, however, that
is not so. Now there is no legitimate excuse for signing bad franchise
deals.
The government is
not going to make franchise investment safe in the sense that there are no
serious investment risks other than your own mismanagement of the business
causing it to fail. Those who want franchises regulated like securities
are regulated won’t accept that many people also get cheated in securities
frauds. The Bernie Madoffs and similar folks out there in the world of
bozo securities are not deterred because of the securities laws.
Similarly, cooked franchisors abound in the system as it now exists in
franchise regulation and would continue to exist were the regulation made
tighter. No political solution has ever succeeded in eliminating crooks.
These same dreamers also
want the government to legislate the rewriting of bad franchise agreements
they signed to make the terms less one sided. But governments and courts
won’t dilute the dynamics of any free markets to impose terms of dealing
that the parties to agreements did not themselves insert into those
contracts. Court after court has refused to do that. Congress has time and
again refused to do that.
The Australian Parliament
has played a smoke and mirrors game to make it seem like that is what they
did, but the Australian remedies are essentially useless. When you are
broke and can’t afford legal representation to handle your case, the
result is the same as if the rights were not there in the first place. The
truth is that it is almost impossible to find a competent trial lawyer to
take on a franchise damages case on a contingent fee. There is too much
uncertainty about recovery. Some dummy lawyer might do it, but anyone who
doesn’t know what he is doing isn’t likely to get you the result you seek.
It is extremely important
that your franchise network have a competently managed independent
franchisee association that is very widely supported and has enough money
in the till to do what may need to be done. Predatory franchisors make
money from the abuses they impose and cannot simply be talked out of it
because you don’t like what is being done or because it is “wrong”. A
competently managed franchisee association can deal with this scenario. A
social club franchisee association cannot.
Go back to my websites,
www.FranchiseRemedies.com
and
www.FranchiseeAssociationManagement.com and read about what I am
talking about here. Once more, if you don’t like me or my manner, then
hire someone else. But use the no charge information to educate yourself
before you make the investment from which you cannot escape except through
bankruptcy or through losing everything you invested and releasing the
crooked franchisor you invested it with.
The reason you won’t get
judicial or legislative relief is that it appears very clearly that you
don’t need it. When you sign up for a franchise investment you agree in
writing, signed by you, that you are financially and experientially
capable of assuming the risks of the investment. You acknowledge that you
were not told anything that is not in the disclosure package the
franchisor gave you, and that if you were, you did not rely on it in
making your investment decision. You agree that there are no promises made
to you except what is specifically promised in the written contract. You
personally guarantee your performance of the agreement. You often agree
that if the business closes – for any reason at all, regardless of fault,
you are liable for a lot of damages and that in closing you caused serious
injury to the franchisor. You may waive jury trial. You may agree to
arbitration and not have any access to any court for any reason. You agree
to waive claims for punitive and exemplary damages, no matter what.
When the courts and
Congress see what you agreed to there is no perceived need for additional
relief in your favor. You just agreed that you are far better than you
really are, so why the hell bother? If you don’t even know the truth about
yourself – which is exactly what I have just described – everyone knows
that you can’t fix stupid – not through the courts and not through
legislation. The answer is not to be stupid in the first place. Recognize
your limitations and get help where you need help. Then you won’t be
stupid and you probably won’t get cheated.
This is the lesson about
franchising that all potential franchise investors need to learn. If you
don’t learn it, you will most likely join the ranks of the thousands of
others who believed lies and signed unbelievably abusive agreements with
crooks and predators. There is no middle choice. Either do it competently
or suffer the consequences.
I make no apologies for
my tough language. The situation in franchising today is beyond political
correctness. Most of my calls these days are from people I cannot help
because they are already too broke to pay for what they need to get out of
the bad deals they signed. You can get just so many of those calls before
you start believing that people need to be told more forcefully about the
dangerous pitfalls they cannot possibly spot on their own. |
