Firstly, it is understood that the standards of the “brand” must be upheld through compliance of the operation of franchisee’s branded business under the supervision and control of the franchisor. The brand and the public must be protected and the product/service must live up to its advertised value, etc.. The franchisor reserves the right to terminate the franchisees who don’t comply with their standards after they are given a certain time in which to cure the default, etc…however, they often misuse their terminastion rights, as witness the Quiznos drama over an ounce of meet.

However, your example, Rita, is an example of where you come from. You, apparently, are earning great profits and would be in the position of upgrading as required by your franchisor, and would apparently still remain solvent.

Those frasnchisees, however, who are standing at breakeven and perhaps still servicing debt on the startup etc… and who have NEVER made a dime in profits and who are up to debt to their neck can’t afford to take on more debt that could possibly sink them.

I’m sure Warren Buffet, when he bought Dairy Queen (his first experience with a franchise) was surprised when so many franchisees resisted upgrading and went to court. He is a good human being and he probably thought all of DQ’s were operating at a profit and could easily take on more debt to upgrade with merely the hope that the upgrade would mean more business for them that would, in the end, result in profits for the franchisees. Many of the older DQ units that were barely making a living in older neighborhoods where the populations have moved up the road couldn’t see the value in destroying themselves to comply with the upgrade orders.

However, this is not what we are talking about. We are talking about the FAILURE of the franchisor to disclose the unprofitability on a unit basis of the system, as is known to the franchisor, to new buyers of the franchises.

Franchisors together with government are complicit in hiding these MATERIAL facts of “profitability” and failure of first-owners and subsequent generational owners of the units from the buying public, and also from investors in their systems. There is a difference in franchise systems where 60% or more of their units are realizing profits than those systems where 60% or more are just barely breaking even with no profits.

You will agree, I’m sure Rita! that if the franchisors were sharing in the risk of building the physical units and had an investment in the tangible assets that support the units that things would be different.

As long as the franchise industry won’t clean up its act, and as long as the FTC Rule allows some franchisors to be bad actors, the only solution for prospective franchisees is for ex-franchisees and those who surround franchising to try to educate and advocate for effective regulation by putting pressure on the Congress and the FTC. You, Sean, do your part because you have provided a “voice” for unhappy franchisees and you don’t bar my comments from your website.

It seems like the “good” franchisors that you and Rita are talking about wouldn’t and shouldn’t object to effective regulation and true disclosure of the risks and the rewards of the investment, as known to the franchisors. It seems like good franchisors would lobby for effective regulation that would drive the bad franchisors, the churners and the turners, out of the business.

If, however, franchising can’t stand in free market economies on its merits and compete for the cheap venture capital and cheap labor of franchisees, and with full disclosure of the risks and rewards, as is KNOWN to the franchisor, why should franchising survive in its present state.

The price of churning unsustainable business operations through the act of churning will have a price eventually —maybe sooner than we think –unless the special interests get 90% guarantees out of the IFA and government decides to rescue the franchisors and the cycle starts all over again.

The relationship between the franchisee-franchisor is a hybrid legal scheme that does permit the franchisor to completely control the relationship and he he needs this autocratic control because the franchisor doesn’t own the tangible assets of the system that that he is trying to grow on the backs of the franchisees’ hard-earned savings and cheap labor. Always, the fact that the franchisor can succeed with profits even when the franchisee is only breaking even is a factor that invites abuse. When franchisors do not share in the risk of building the physical units and can grow their chain systems with other people’s money, the window for opportunism is wide open.

I have been involved with the launch of many, many new franchise programs as a consultant. I can tell you that franchisee profitability was always our primary concern, and reputable people in the industry won’t proceed if the franchisees can’t make money under normal conditions. I would never have stayed in the industry you describe, nor worked with the kinds of franchisors you portray. And I worked with a good percentage of the franchise industry at one point or another.

Somewhere in the process of growing or acquisitions, etc. many franchise companies stop valuing their franchisee’s welfare, opinions and profitability and a divide develops. I think there needs to be a lot of discussion and intelligent dialogue that deals with the reality of this complex relationship, instead of promoting an anti-franchise message that’s as simplistic as the franchise fairy tale mags like Entrepreneur paint.

But, I explained my views on franchising, above, and if you would bother to resd, http://www.unhappyfranchise.com/2009/02/carolcross/ you would know where I come from.

As I told you, one of my biggest complaints about franchising is that the franchisors and the special interests who support franchising have bought law and process and this taints our courts.

There are bigger issues here than your “happiness” and my “bitterness” —–as you describe my efforts to educate prospective and failed franchisees.

First- I own Jenny Craig Weight Loss Centres. I am not ashamed, or “secretive” about this fact. It’s funny to me that you want full disclosures from franchisors and people like me posting, but you will still never answer the questions if you (personally) have actually ever owned a franchise yourself. I would like to understand your credability. Do you work for someone, or not at all? Is all your background just based on internet research? Research is only as good as the sources and what the researcher is looking for. If you go to the internet with the intention of finding negativity about franchising, you will be able to find it. But there are a LOT of success stories out there.

Secondly, three of my locations gross over 1M annually with a Margin of 20%. I am able to write off lots of expenses such as my car, cell, travel, wardrobe/uniforms and enjoy a host of luxuries pre-tax which drives my personal income even higher. How are we so profitable? We follow the operations system just as written. We hit the streets with flyers, we call inactive clients, we sell just as they tell us to sell, we hire just as they have told us to hire- That why we purchased a system.

Many of the poeple complaining on this site, never followed the system correctly and the franchisor cannot be blamed for that. They give the tools, but the franchisee must bring the individual unit alive.

Third- You do own your business when franchising, you just do not own the “brand” and the copyrights. I can sell at anytime and in fact have sold operating units for up to 10X gross sales. When someone buys your franchise from you, another term is issued (or at least in the case of JC) by the franchisor. Just like if someone were to buy a Courtyard by Marriott- They are not going to deflag the hotel property because of a change in ownership, it would be too expensive capital wise.

There are TONS of good PR and testimonials about franchising. To me, bitter people focus on only the negative….would you find yourself in this category? Hundreds of people have become Millionaires being franchisees of McDonalds, Hampton Inns, Denny’s, nad even service related businesses like Hair Salons.

I am glad that you love to post and give debatable material– but I still question if you have any “real world” experience behind you or are you just envious of the dream that others are accomplishing?

Rita

Even Rita Wilson hasn’t come on and identified her six units and how happy and profitable she is. I do notice how the franchisors use the Internet for Press Releases and other PR to make “constructive” earnings claims to prospective franchisees. I do notice how the business press does more pro-franchise stories than anti-franchise stories. I do understand that the FTC and the SBA and Fran Data push franchising as beneficial to the economy, etc..

It would be against the law, however, for franchisors, themselves, to post on these sites in defense of their franchisors, and tell us how profitable and successful they are, except, of course, they are free to post their FDD’s and use them as a sales tool. The FDD acts to legitimize the franchisor and to indicate that he/she is selling something of value to that portion of the public who is looking for a means of producing a job and income.

I believe that franchising as a business model is as pure rip-off when there are NO profits for the franchisee, who is stuck in a long-term, indenturing contract regardless of whether or not there are ever any profits. I believe that the franchisor practice of taking the profits off of the gross sales instead of the bottom line profits from the first minute the unit is open is really a rip off and a handicap that is difficult for franchisees to overcome.

I believe that franchising most is self-employment that results in the transfer of wealth of the self-employed to the bigger corporate sector who can then avoid the expense and responsibility of being employers while exploiting the self-employed, and the employees of the self-employed.

I believe that it is a “crock” that a franchise is a business of one’s own. It is not. A franchise is a wasting asset that often has no value at the end of the contract term.

It seems you are right! I am anti-franchising. I do recognize, Sean, that you are a generous and good man who believes in free speech and who provides a voice for unhappy franchisees. Thank you!

http://unhappyfranchisee.com/2009/02/carolcross

The So you know anything about me Sean? and the For all you know… comments were from my new bud, the subtle and introspective “Bloody Franchise.”