Site Index

FRANCHISE – CRISIS FUZZY THINKING

I have come to the conclusion that most people who become the victims of franchise scams or of franchise relationship abuse arrive at that status because they are incapable of analytical thought. Their heads are full of mush. They have been taught in secondary school various principles about society and government that are simply untrue, or at least far from competent or complete. When they go to college they are schooled to take tests rather than to evaluate anything, find its essence and sort it out in reality mode. They are frat boy punks who believe/pretend to believe in order to achieve acceptance. When they graduate and go on to work in large business organizations, they subscribe to the mission statements of the organization – always total bullshit – and they never ever acquire the mental discipline to evaluate real risks.

These people are the protoplasm of the business victim profile. Accustomed to swearing allegiance to the signature on a paycheck, they can be told anything – true or not – and they will accept it as true if it is coupled with the promise –usually false – that the acceptance will bring wealth.

When confronted with difficulty while they are working within their business organizations, their first response is a combination of denial and "How dare you!" Neither of these responses represents reality or the ability to engage analytically with realities. Accordingly they will posture, lie, threaten and ultimately hire lawyers who tell them everything will be OK and that it’s just a matter of throwing money at the problem – always someone else’s money (shareholders’). When they come a cropper, it is always someone else’s fault, usually the lawyers they hired.

This article, however, is intended to focus on the franchise victim. The fraud victim who bought a bozo deal because he believed without challenge, and the relationship abuse victim because he failed/fails to understand the chemistry of which his franchise relationship is made and falsely believes he is entitled to things that are not provided for in the agreements he signed while insisting that he was an adult with significant business experience.

I know these things because I deal with the detritus of these issues every day of the year and I witness this exact mental exercise in action every day of the year.

Why am I publishing seemingly insulting epithets addressed to those who represent much of my client base? I am doing this because not everyone can be my client and I feel a need to try to educate people to why and how they get themselves into these situations. If by this pro bono effort I can cause fewer people to volunteer to be martyrs to bad business deals, then I have paid back some of the many blessings I enjoy. Just as the terrorist will not find himself in paradise after self destructing surrounded by 72 virgins to whom he may do whatever enters his mind, the franchise investor who believes business nonsense will not find himself in a franchise heaven surrounded by the perks of financial success. This is a wake up call!

 

First we have to deal with the mush in your head. You are incapable of analytical thought because analytical thought is what you were taught is insulting, rude and politically incorrect – likely to get you cashiered from your job, club, church leadership committee, chamber of commerce.

Analytical thinking is mental assault and battery. It is the practice of assaulting everything that is told to you, to make the people who said it prove it. Since you were taught all your life that you are not supposed to confront people, and you have lived in accordance with that maxim, you lack the ability to call people out and challenge their veracity.

And so, when some smooth bore professional investment salesman tells you that he represents a proven system that participates in a multi billion dollar business segment that has grown by 7 % a year for the last 15 years, and that your becoming a member of that family (always described as a family and as membership – key power words triggering instincts in the mental chemistry of the mush minded), and that you will enjoy buying power (almost always a lie), support (your contract says you get whatever support your franchisor feels like offering from time to time), you sign away everything you own in this world without ever making him prove the truth of everything told to you. And then you go on BlueMauMau.com, or UnhappyFranchisee.com or some other whiners’ club blog site to lament that some smoothbore cleaned your clock leaving you with no money to pay for a trial lawyer to go get your money back.

Is it someone else’s fault that you thought you could outwit the pros? Why did you not hire competent pre investment due diligence assistance to try to reduce the investment risk? Why didn’t you go on to any search engine and do a search on FRANCHISE LAWYER? Why didn’t you then ask the people who showed up on the first page of your search results whether they did franchise pre investment due diligence as a major part of their practice? Why didn’t you ask them if they did due diligence on the deal as well as on the contracts and the disclosure documents? And finally, why didn’t you plan to spend a few thousand dollars on risk reduction before betting the farm that no one could hoodwink your poor innocent self?

People who think they can vet these bozo deals with their mush brained capabilities also like to go on vacations where people tell them it is safe to swim with sharks. Swimming with sharks is not safe. Any idiot knows that. When you go on these stupid vacations, you are not really swimming with sharks. It is swimming with sharks lets pretend. Any idiot knows that too.

It is the same with investing in franchises. Some are good. Most are not. You cannot tell the difference by yourself.

 

Let’s turn now to those who are already franchisees and having their heads bit off by abusive opportunistic franchisors. I’m no longer talking about you learning that you were cheated and that you have no chance whatsoever of ever making a profit. I’m talking about people who might be making a profit except for the fact that their franchisor is ripping them off every day in every way.

How do you deal with that? In this part I am going to use two actual case histories, actual controversies in which so many franchisees allege the same facts that it is highly unlikely that what they say is not at least close to the truth. How did these mush brained people get into this dilemma? And what are they now doing about it versus how should they have dealt with it to prevent or control the damage?

According to Quiznos franchisees in litigation with their franchisor, Quiznos receives commissions on franchisee purchases with the resulting control of supply giving the vendors a monopoly on selling to Quiznos franchisees. There are other claims in other lawsuits, like there having been 3,000 sold but never opened franchises. But let’s stick to the abuse issues here.

In addition to this vendor deal that makes Quiznos franchisees purchase at seriously noncompetitive prices, the current economic trends and overcrowding in the sandwich business combine to drive retail prices through the floor. In short, Quiznos franchisees claim they can’t make a living and are going broke. They claim life is wrong and unfair, but they signed agreements that provide for the franchisor restricting supply and were told in their pre purchase disclosure package that the franchisor will make money on this vendor restriction program. So they signed with foreknowledge having been given to them. That they claimed they were intelligent business people when they bought the franchise and claim now that they were babes in the woods who didn’t understand what all that really meant goes to show the mush brained thought processes that franchise investors bring to the table when they think they are sorting our the pros and cons about buying a franchise.

In another incarnation, a Franchisor who also has a vender rip off deal going is making his franchisees buy products that fail to perform. The franchisees lose customers due to the defective product and whine about it but do nothing more. Finally the product is so bad that the franchisor’s claim that the real problem is franchisee ineptitude can’t be believed by anyone, not even the franchisor himself. The franchisor decides to do something about it. In the end the franchisees are allowed to buy good product and the franchisor gets a $300,000 payment from the vendor because of defective product. The franchisor didn’t pay for the defective product. The franchisees paid for it. But the franchisor is keeping the $ 300,000 for himself. The franchisees are claiming that this is a violation of the franchise agreement and larceny.

They are legally wrong on both counts, just like the Quiznos franchisees regarding their vendor restrictions program.

In another system, the agreements are separate for each program the franchisor offers. In his franchise agreement you get the right to be his franchisee. To participate in each of the programs however, (and they are all described as potential profit centers) you have to sign an addendum agreement. In each of his addendum agreements, which you will need and sign very quickly after buying the franchise, there is a general release of all claims you may have against the franchisor, including any claims you may not yet even know about. In this manner, so the franchisor’s lawyers have told him, he gets to be exonerated for any misrepresentations he may have made in the selling of the franchise itself. We wouldn’t be having this discussion if there were no misrepresentations in the franchisor’s sales process. This is actually a franchise system in which the franchisees once made money, but it is over the hill and the franchisor has not been upgrading it to keep pace with the times or the industry standards. Today he is selling bozo deals and doesn’t give a tinker’s damn how he does it. He touts his past successes as if they were today’s successes, and describes his outmoded programs as though they complied with the standards his franchisees have to promise their customers they can meet. They are doomed.

This selling of over the hill franchises as if they were up to date and currently relevant is typical of many over the hill companies today. Investors have no way, based upon their own experiences in whatever life they used to live, to figure this out before they are tied in to draconian agreements and are missing payments on loans they took out to do this deal. They claim this is a trick and illegal. They are wrong unless they can find a lawyer who knows how to get past the releases and they still have enough money to pay that lawyer to protect their interests. There is also the problem of an over the hill franchisor having over the hill financials, so that his ability to pay fraud claims gets more doubtful each year.

Why do these so called and self proclaimed intelligent and experienced business people get into these abuse dilemmas? Are there ways to confront and prevent abuses that are seemingly permitted by the language of contracts that they signed? Of course there are, but what do people have to do to protect themselves when there is little or no possibility that any court or arbitrator will be coming to their aid?

How do franchisees prevent what they signed agreements that permit? How can they keep from going broke through years of trying just to stay afloat and pay off loans? Why are they engaging in wishful thinking about useless fantasies, like the notion that the government will step in to protect them? Well, for one thing, mush brained thinking causes you to think you are entitled to government protection against fraud and abuse.

There is no right that you have – and I mean NO right whatsoever – that is self executing. You have only the right to protect yourself against fraud and abuse. You right to be free from fraud and abuse is merely the right to take competent steps to protect yourself from fraud and abuse. Statutes that prohibit fraud do not prevent fraud any more than statutes that prohibit murder prevent murder.

 

When you start to understand how reality works, you can maybe begin to comprehend that only you can protect you, and that in certain kinds of situations, you really don’t know what to do or how to do it. The single most effective tool for any franchisee group – whether your franchisor is being abusive or not – is to form an independent franchisee association as early as possible, and to adopt the approaches to doing so that will help you get as close to 100 % participation as possible.

If you wait until you are in trouble you will not get the support you have to have. Franchisees in trouble lack the ability to be militant, fearing that participation will result in serious worsening of their situations and that they will be targeted for retaliation by a vindictive franchisor. Thousands of abused franchisees have learned this lesson the hard way and have gone into total failure when they could have prevented the harm in the first place had they only stood together from the very beginning.

It is also imperative that you recognize that a franchisee association is not a social club. You do not need officers, directors and committee chairmen like you would in your Rotary Club. You need competent, experienced association management, professionals who understand franchising because they have many years experience dealing with all the issues you could possibly face. You have to pay them and they are the best investment in an abuse free future that you can possibly make.

If you use our service, we will show you how to maximize membership and we will teach you the art and science of franchise relationship management from the franchisee’s position.

There is one indispensible maxim – no matter what your franchise contract says, no franchisor can force abuse down your throat if he is confronted with a united phalanx of determined franchisees who have provided the resources needed to get the job done.

People who tell you that there is such a thing as “fair franchising” and touchy feely nonsense like that will never be able to lead you to a reasonably safe future. Abusive franchisors don’t give a tinker’s damn about chatters and whiners. They believe their contracts give them the right to do whatever they feel like, and only confrontation can deter the abuse. Abuse always carries with it the generation of additional revenue from the franchisees that they never contemplated when they signed their contracts. Abusive, opportunistic franchisors do not forego revenue streams because some sissy threatened to call them a name or to give them adverse publicity. Only with a united and funded independent franchisee association can you counter these kinds of people.

Do not confuse what I am telling you with an attitude of constant confrontation. The goal is not to have to confront your franchisor. You don’t have to confront anyone who has come to believe that you are a cohesive and organized force that will resist abuse. Being able to confront usually means you rarely need to confront.

On the other hand, you never ever try to reassure your franchisor that you are not there ready to sue his ass off if that is what he needs. You never suggest to any potential adversary that you would even remotely think of taking any of your options off the table. Look at your contract. Your franchisor is not taking any of his options off the table. Get real. You avoid confrontation by being strong. You are there to do business, not to fight with people. But if you are weak you will attract bullying. That is an ever constant truth in all of life. Your economic options in franchising come only through strength. Strength enables you to keep the benefits you were promised when you were thinking of buying the franchise. These are all economic, whether you understand that or not. They all affect the capital value of your business and the health of your expected revenue stream. This is why you went into business in the first place.

Life is not always fair. People do take undue advantage. You have to defend your investment or it will be destroyed by predatory franchising tactics. Your fate is in your own hands and there is no substitute for united strength.

This is tough love, straight talk about your future. Clear your mind of all wishful thinking. You can get fleeced because you don’t know how to vet franchise investment opportunities for fraud, and you can have your business value destroyed if you don’t know how to stand up and defend it.

I make no apologies for my direct manner of speaking. This is not a parlor game or a tea party.