Franchise Article: Don't Be Foolish

Don't Be Foolish, They Don't Love You - click title to view original article online
Submitted by Mark Frank on Tue, 2009/03/31 - 20:12.

A friend let me know that a mutual friend; someone we both know well, recently closed his franchise business. The particular friend and subject of this post cashed in his company profit sharing account with about 100K net (ten years of service with the company) and borrowed an additional 400K in opening his franchise two years ago. When all this was in the initial phase and only an idea this friend called and since this is the business I’m in asked, “what should I do before entering into a franchise agreement”, I provided for free what I normally charge others for, hoping he would take my advice.

A couple of times before he signed the agreement he asked fairly standard questions and I provided honest and time proven answers I’ve learned through experience. I was troubled by his responses and in some instances lack of response he provided. I got the feeling he had fallen in love with the franchise and was not willing too find conflicting facts; his mind was made.

He was unable or unwilling to push hard enough getting specific and verifiable answers to even the most basic questions; every corporate response was clouded in secrecy and propriety. Calls to franchisees were not much more revealing, he reached out to at least 25 franchisees and only spoke with one and that franchisee was not of much value in terms of information. All the while the franchise sales pitch continued, weakening under the overall pressure and rationalizing that the company has over 100 franchise owners and they must have already done the work, he signed up.

The reality of his situation is now different than the original Alice in Wonderland depiction. His business is gone, along with his money; he has substantial bank debt, a long term personally guaranteed lease, an additional personal loan, his home signed as collateral, no job and significant challenges in his marriage that he and his wife may not overcome. Troubling too, he has no job and may actually be forced to move in with his in-laws, assuming his marriage survives.

My friend is well educated and intentioned, his success in his corporate work life should have translated into success in his business, but in this instance it didn’t. While he looks in the mirror and blames the economy the real reason for his failure is that he did not complete a modicum of due diligence and bought the franchisor’s music lock-stock-and- barrel.

I’ve seen this happen time and time again, intelligent managers making poor franchise decisions. At least twice in the past four years friends have made disastrous decisions because they fell in love with a franchise business model as presented, making this life-changing decision based upon little more than a peek under the tent. Anyone considering franchising should take due diligence very seriously and like the old maxim about marriage, while looking keep both eyes fully open and once married keep both eyes half closed.

Did the franchisor break any laws, more than likely not? Were proper documents provided, more than likely yes? Was the franchise honest, more than likely yes (at least in answering those questions asked)? Was the franchisor an open book and absolutely transparent? No. There is not one franchisor in the world, even world-class franchisors that will absolutely provide every ghost in the closet scenario for you as a would-be franchisee.

The franchisor’s job is not protecting you from yourself, but rather selling franchisees. In the case of smaller upstart franchise operations in particular selling is virtually all they care about. As they grow and mature greater care is taken regarding the selection process. The job of the prospective franchisee is making a well-informed decision considering all the facts (those pesky little things) beforehand. You're being sold and as such should have your guard up. You wouldn’t buy a car because you like the sales pitch, the salesman, or well appointed restrooms? I doubt the size of the conference room; the sales manager's nice suit and polished presentation would be considerations in the deal.

Yet, purchasing a franchise simply because the franchise broker is a good salesperson, or the franchisor put his arms around you and told you how wonderful you are and how much he wished he had more franchise owners like you. No, your job is finding answers, never rest until you have determined the facts as presented are verifiable; this is your life after all. Historically, I have found most put forth too little effort before making a franchise decision, blinded by the clever sales pitch of the franchisor (they’re getting better all the time) during the early courtship stage.

I written before about this, as have hundreds of others, there is absolutely no shortage of information on the Internet and print designed too help any person make a better, more informed decision, if one will only take the time and put forth a little effort. Do I feel sorry for my friend? Absolutely. Could this disaster have been avoided with a little effort and perhaps a few dollars comparatively speaking, absolutely? There are no shortcuts for due diligence, either complete it in earnest yourself, or hire someone who will.