Franchise heartache

The franchise business model is a very successful one. The model is based on collaboration between the franchisee and franchisor working for the common good to build mutual success.  Unfortunately, real heartache can occur.

Bhupinder "Bob" Baber a franchisee found the whole process so bad he committed suicide and left this message on his death:

"I have struggled hard and did the best I could to create a voice for the franchisees in the system and to create a 'support system' for the franchisees, which does not exist, and to fight the injustices of this franchise system.…Not to bring the system down, but to make it fair."

The contractual franchise agreement determines the relative positions of strength between franchisee and franchisor.  Given that the franchisor draws up the agreement it's no surprise that the franchisee normally ends up in the weaker position.  However, some contractual agreements really can put the franchisee in a no win situation.  For example, contracts preventing franchisees suing their own franchisor are not uncommon.

Entering into a franchise agreement is a big step.  It often attracts people who are new to running a business as it is often perceived that there will be a good support network and a solid business .  But a franchise is a big investment so proper advice is vital from the outset.  Don’t rely on verbal representations of the franchisor. Do get proper advice from someone independent with experience in the sector.  In no way are all franchises bad, but sign up with a bad one and it can be very costly in a number of ways.

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Philip Woodgate

Comments

[Brad Smith]

There are many franchise agreements in the market today that, either out of the franchise company's dominant position or the over-zealousness of the drafting attorneys, contain unfair and even unconscionable provisions. In this context, however, it is important to consider that some "unfair" provisions may actually provide strength to the franchise system.

For instance, a provision that prevents the franchisee from competing for 2 years after expiration or termination of the franchise agreement seems unfair to that franchisee. However, existing franchisees are grateful for the non-compete provision so that a former franchisee does not move in next door and re-direct customers away from the existing franchisee's business....this especially poignant when you consider that the former franchisee received specialized training and often confidential information and trade secrets. The non-compete language protects both franchisor and franchisees.

[Philip Woodgate]

Hi Brad

Your point illustrates just how important it is to get proper advice. Good advice will reveal those clauses that first appear unreasonable are actually created for valid reasons. Importantly, it will also identify the unreasonable terms you describe. Investing in a franchise is a big investment and sometimes the devil really is in the detail.

[Zeeman]

Hi Brad

Its easy to fall in to the trap of believing that it's in the franchisor's interest for you to do well in a franchise business, but this is not necessarily the case. Can I just say that it is BUYER BEWARE in the franchise world, there are both good and bad out there. Anyone considering a franchise should researched very thoroughly - it can be a ruinous experience if it goes wrong, and, despite much that is written, franchises have no better track record for success than other start-ups.

www.bluemaumau.org is a great place to start any research.

Brad Smith's comments on franchise agreements are very pertinent, many franchisors say that the terms are non-negotiable, but this may not be the case. Almost all franchise agreements are onerous, expert advice should always be sought, a BFA listed lawyer should be able to provide some sound advice on this.

Good luck to anyone going down this route, it can be a really great way of starting your own business, but there are many pitfalls for the unwary.

[Philip Woodgate]

Hi Zeeman

Thanks for the comment. The reality vs the dream. Often very difficult to get both. As you point out, anyone considering a franchise should do their research thoroughly. At the very least that should help avoid the dream becoming a nightmare.

[nmartin]

I saw your posting and thought you’d be able to relate or would be interested in getting to know my client who is a serial entrepreneur and franchise expert. His name is Richard Simtob and he has directed the expansion and propelled Wireless Toyz Cellular Superstores into national mega-chain status. In what’s been described as “breakneck speed growth,” Wireless Toyz catapulted onto 2006 Inc. 500’s list of fastest growing privately-held U.S. companies and is ranked #1 in category and 98th fastest-growing franchise by Entrepreneur Magazine in the 2008 Franchise 500.

Before becoming president of finance and franchise development at Wireless Toyz, Simtob was Chief Operating Officer there, managing the expansion of its franchise network through the opening of 66 new stores in 2006 to a total of 180 locations.

Prior to Wireless Toyz, Simtob earned acclaim as a business innovator co-founding Talking Book World Corporation, America’s largest chain of retail outlets specializing in renting audiobooks. He built the company from a concept to a 45-store chain that, by 1999, ranked number 164 on the Inc. 500 list of fastest growing privately held companies. Each year under his leadership Talking Book World was named among Entrepreneur’s top 500 franchises. Learn more about how to choose a franchise or determine whether a franchise business is right for you by contacting Richard Simtob at 866-2FRANCHISE or email him at franchise@wirelesstoyz.com. You may also visit www.wirelesstoyz.com/franchise for more information.

[michael hunt]

Don't make the mistake of assuming churning is limited to new startup chains. Predatory franchisors come in all shapes and sizes today. For example, the
Subway chain is currently the largest QSR franchise in the US and quickly approaching the largest in the world. The president of the chain has received countless awards over 53 years, including 18 times named entrepreneur of the year.

Yet despite these honorable citations, Subway has become the biggest problem in franchising and emerges as one of the key examples of every abuse you can think of according to the US house of representatives, tens of thousands of franchisees and judges at every level of the judicial system.

Complaints range from store stacking (encroachment), to an abusive franchise agreement, a blatant lack of support for franchisees, far reaching fraud, even unconscionable activities like royalty theft audit crusades and boosted compliance violations that produce excessive churn.

Franchise prospects are well advised to do your homework before jumping on the bandwagon of the largest QSR chain. Subway has definitely jumped the tracks! Go here for more info:
http://ripoffreport.com/reports/0/315/RipOff0315931.htm

[Zeeman]

Did I remember reading that Wireless Toyz was being prosecuted for fraud in the US?

also:

"Shazaaam spammer nmartin boasts: “…Simtob earned acclaim as a business innovator co-founding Talking Book World Corporation, America’s largest chain of retail outlets specializing in renting audiobooks. He built the company from a concept to a 45-store chain that, by 1999, ranked number 164 on the Inc. 500 list of fastest growing privately held companies.” How are the Talking Book World franchise owners doing today? It’s hard to tell. The Talking Book World website reads:

***NOTICE***

Talking Book World Corporation has been forced to discontinue its business in the United States at this point in time. We have worked out an agreement with an independent on-line corporation named Audiotogo®, whom we highly recommend.

Investigate and evaluate the Wireless Toyz franchise opportunity for yourself"

- posted on franchisepick.com

A successful franchisor does not automatically translate into a successful franchisee

[Ellie]

Anyone here experienced problems with Community Times Magazine Franchise?

I've just purchased a franchise with them and it has been a nightmare ever since. None of the support and back up has been forthcoming (despite all their literature saying much help would be avaialable) I have now discovered that someone else holds a licence to operate in my patch with them too. Arrggg...how true that one really, REALLY, must do their homework before parting with their hard earned cash.