The misconception of a Franchise being ‘a proven business’
I have been reading a lot of different articles recently in preparation for a book on Franchising that I am writing —- www.businessfranchiseinformation.com/course . What strikes me on nearly every single one is that early on the term franchising is described as something like ‘ a way of buying into a proven, tried and tested business’.
Sometimes this is true but in many cases this just perpetuates an industry myth.
Did you realise that it is possible to get a franchise up and running without ever really proving any success of the model?
Even under the guidance of many of the stringent Franchise regulatory bodies it is possible to launch a Franchise and be accredited after a limited ‘pilot test’. That pilot test can be as little as a few short months. There are very few checks on the level of success of the pilot or to assess if the ’system’ is replicable. It doesn’t even need to be profitable.
If you are considering a Franchise then don’t just assume that the model works. Question everything!!
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Finally, someone with the balls to talk about these issues. `Well done.
I advocate systemizing a business but there’s no reason to pay the massive upfront fees and crippling royalties for what is often a very simple (but well documented) business concept.
Thanks Pete, I will try to put as much relevant, impartial content on the blog as I possibly can. Good luck with the systemisation business - looks good.
Sure! But franchises are sold to dummies who think they are buying a “proven” plan. This is why they buy a franchise —-They think that the business plan is already “proven” and that is what they are paying for. They believe that the franchise will produce a job and profits, as well, as indicated by the franchisor in all of the pre-sale advertising.
The FTC advises that they have made the franchisor disclose to protect the franchisees but the FTC doesn’t require franchisors to disclose MATERIAL unit performance statistics, even on the new protypes, upon which new buyers can make informed decisions.
The fact is that the FTC Rule and the State FDD packaged with the binding franchise agreement acts a constructive fraud against new buyers of franchises. New buyers believe that the only way they can access the job and profits promised and implied outside of contract is to sign the boilerplate, non-negotiable franchise agreement, that post sale serves to protect the franchisor from charges of fraud by failed franchisees in arbitration and the courts.
Apparently, as long as franchisors appear to be compliant with the FDD, they can sell franchises at any degree of risk of failure and/or unprofitability with immunity under federal regulatory policy. The FDD and the Franchise Agreement is really a license to lie, cheat, and steal in the hands of those franchisors who are so inclined. (See Richard Solomon of Franchise Remedies excellent tutorial on the effect of Acknowledgement and Reliance Clauses in Franchise Agreements)