Joel Libava
In this post, I’m going to provide a franchise brokerage fact-check.
Specifically, I’m going to fact-check an article about franchise brokerages and franchise brokers that was recently published on another website.
Now, as a result of what I’m about to tell you, any* franchise broker who reads this is going to be less than thrilled with the information I’m sharing.
*Except J or J. Keep reading to see who I’m referring to.
That said, the information contained in this post is really meant for people who are looking to (potentially) buy a franchise. If that’s you, pay attention.
Especially if you’re thinking of working with a franchise broker…or already are.
How Absurd!
I couldn’t believe my eyes.
I had just read the most absurd article about the franchise brokerage industry-and franchise brokers (franchising consultants, coaches) I’d ever seen. My first thought?
I need to find a way to bury that freaking article. No one thinking about using a franchise broker to find a franchise to own should read it. But how? And why should the article be buried?
How To Bury An Article
Generally speaking, it’s quite difficult to “bury” an article. Especially if it’s published on a highly-trafficked website that has an impressive (high) ranking on every search engine known to man.
That said, there is a way that sometimes works, but I’ve never tried it myself, nor would I. I’m too (?) ethical to do it. Plus in this specific case, I’m too grateful to mess around with it.
Fun fact: A few years ago, someone I know was on the receiving end of a campaign to bury negative articles he had written about a franchise organization owned by the bottom-dweller pictured here.
At the time, word was that Sugars (the subject of the article I linked to above) had paid a lot of money to counter bury the growing number of negative, honest articles and seemingly never-ending negative and blunt comment streams associated with his franchise. In a nutshell, he tried to get his own articles to appear on the 1st page of Google etc., instead of the negative ones that were dominating search results. And if I remember correctly, it worked.
In contrast, this amazing thing we call the internet has allowed people and companies with opposing views to create platforms to share them on. Let’s call these places counterweights.
Case in point: a website created by franchisees of the franchise organization mentioned in the tagline located on top of said website:
“Trying, very hard…, to keep ActionCoach honest…” Site
Note: fact-checking websites are great examples of counterweights.
And as you’ll soon see, I’ll be doing some fact-checking of my own.
But first, I have some explaining to do.
On Ethics
This says it all.
“I had taken a course in Ethics. I read a thick textbook, heard the class discussions and came out of it saying I hadn’t learned a thing I didn’t know before about morals and what is right or wrong in human conduct.”
– Carl Sandburg
To be blunt, when it comes to ethics, some people don’t have any. They don’t care if they lie to you or use underhanded business practices as long as they get what they want. Anyone come to mind?
Following that, there are the folks who seem ethical. They’re the ones who come across as honest, caring individuals who only want to “help” you or your business succeed. Problem is they usually don’t. But they’re damn good good at “selling” you. What is more is they tend to make themselves scarce after they collect their money. You know the type, right?
Finally, there are those who won’t cross the line no matter what. The ethical ones.
Those are the people I include in my business network.
That said, I would never pay a company or a bunch of individuals to “bury” negative or less-than-truthful stuff.
Instead, I do what I’m doing now.
I share the truth. And if I have to, I call out the lies. And I fact-check them-as you’ll see in a couple of minutes.
But if you’re impatient like me, and you want to get to the heart of the matter right now, scroll down a couple of paragraphs.
Another Reason I Won’t Do It
In 2012, a popular website for current and future entrepreneurs and small business owners permitted me to pen several articles about franchising. Why?
A. I just released my first hardcover book on franchising.
B. My publisher, Wiley (as part of the book launch), contacted Entrepreneur® Magazine. My job was to follow up with their contact to see what the interest level was concerning my book.
Well, I’m happy to say that their interest level was high. This was the result.
(A 4-page feature story about me, my book, and my services)
In addition, after the story was published, the editor allowed me to write several franchise articles for Entrepreneur.com-which I did. Even better?
Lauren (the editor) and I became friends. She’s good people. And the entire team at Entrepreneur Magazine was good to me.
Furthermore, several of their former writers continue to use me as an expert source when they have articles to write about franchising.
In any event, I would never try to bury an article written on the Entrepreneur platform. I’m too grateful to the company for helping me increase my visibility.
But unfortunately, there is an article on the Entrepreneur website I need to fact-check.
Why does it need to be fact-checked?
Because some of the items the author states in the article are absurd. They’re just not factual.
The other reason I need to fact-check the article has to do with the process.
The Franchise Sales Process And You
If you decide to pursue franchise business ownership, you need to know as much as you can about the franchise sales process. Why?
Because there’s a lot of money involved. Your money. But that’s not all.
The franchise-buying process can be is intense. You’re going to experience a whole range of emotions. Including:
- Excitement
- Confusion
- Anticipation
- Fear
- Nervousness
- Stress
That said, it’s normal to feel those emotions. You may feel others too.
However, your decision to buy a franchise needs to be a fact-based decision.
But how do you get the facts you need to make a smart yes or no decision on a franchise to own?
By following the franchise-purchasing steps located here.
Not by listening to everything a franchise broker tells you.
Keep reading to find out why you shouldn’t listen (and do) everything a broker suggests.
You want to protect yourself, right?
An Article About Franchise Brokerages and Franchise Brokers
Recently, Scott Greenberg, who bills himself as a “Franchise Speaker, Consultant and author,” wrote an article at Entrepreneur.com titled: “Finding Post-Pandemic Franchise Opportunities With Broker Consultant Groups.” From what I can tell, Scott used to own a few franchises.
In the article, Greenberg writes that, “Franchise broker and consultants specialize in matching aspiring business owners with suitable franchise options. Unlike a franchisor’s internal development team whose job is to grow their own franchise network, external consultants assess the needs and goals of their clients and expose them to a variety of options.”
So far, so good. It’s a pretty accurate description of what brokers do. Except the article goes downhill from there. Waaaay downhill.
Now watch me destroy shoot holes through it.
Franchise Brokerage Fact-Check: The Following 4 Statements Are Total B.S.
“We detach ourselves from the outcome,” explains Susan Scotts, one of the top coaches with The Entrepreneur’s Source. “I still feel great success, even when my clients decide franchise ownership or the timing isn’t right for them. My job is to help them realize their truth at that time.”
Thank you for that. Not.
My turn to “realize” the truth.
Fact Check 1: Realizing Their Truth
Susan’s job isn’t to “help them realize their truth.”
On the contrary, it’s to match them to a franchise she represents so she can “realize” her truth…her dream of receiving a $20,000 commission check in the mail.
Trust me, this “coach” (Susan-or fill in a name of any coach) doesn’t feel “great success” when yet another franchise prospect she spent 2-3 months with decides to “go another route.”
That’s because, like any sales-related activity, franchise brokerage is a numbers game. Moreover, in franchising, most people who look into buying a franchise…don’t buy a franchise. She needs to talk to a lot of people.
Next: Should You Be Suspicious?
Let’s get back to the article.
According to Greenberg, “Some people are suspicious of this arrangement. They expect there’ll be surprise costs or that they’ll pay a higher franchise fee if they’re brought in by a consultant. Typically, this isn’t true. Franchise fees are declared in the brand’s Franchise Disclosure Document (FDD) you’ll be given prior to committing. The amount is the same whether a broker consultant is involved or not.”
Really?
Franchise Brokerage Fact-Check 2: Those Damn Franchise Fees!
While it’s true that the amount of the franchise fee is the same (on every franchise contract the franchisor sends out), the franchise fee shown may not have always been that amount. I’ll explain.
Let’s say that 1-800-Remove-That-Dinosaur (a relatively young franchise concept), has only sold 5 franchises in the 3 years they’ve been franchising. Obviously, they need to sell more franchises.
In view of that, the CEO, Janet Montana, starts researching “how to sell more franchises” online. She comes across a franchise brokerage website and requests information.
The company, Wapakoneta, Ohio-based Franchisee Finders Deluxe Inc., has their representative, Steve, follow up with her. He explains that their 100+ franchise brokers are always looking for new franchise concepts to represent. If she signs on with the company, anytime a broker sells a franchise for her, she would have to send a check in for 50% of the franchise fee. Let’s do the math.
Let’s say the current franchise fee for 1-800-Remove-That-Dinosaur is $20,000. Based on that, she’d have to pay $10,000 (50%) to the broker who sold the franchise unit. But there’s a problem. The average broker commission these days (2020) is close to $20,000. So much for that idea, right? It would be silly to part with her entire upfront franchise fee. Young franchisors need cash flow! Now what? No worries. Steve has a solution.
“Janet, to make this work for you, all you need to do is raise the franchise fee. $20,000 is on the low-side anyway. I suggest raising it to $40,000. It’s more in line with typical franchise fees, and you can now afford to pay 50% to add a new franchisee to your business…and you can still keep $20,000 for yourself! What do you think? Would you like to signup with us?”
Janet signs up with the brokerage group. She shells out the $2,000 “registration fee” and gets with her franchise attorney so she can raise her franchise fee to $40,000, and get it in the FDD. Then she hopes for the best.
So much for “The amount is the same whether a broker consultant is involved or not.”
Note: Unless you’re a franchise broker or a franchisor, you have no way of knowing what I just disclosed.
Now, it’s very likely that the author of that article didn’t know that some franchisors raise their franchisees so they can afford to pay brokers. Or did he?
Nah. I don’t think he did.
But he does now!
Time For A Coffee Break?
If you’d like to step away for a few minutes, to:
- Walk your dog or cat
- Brew some fresh coffee or tea
- Make some silk-or anything else
Go ahead. And please make sure you read the statement below when you return.
In case you’re new to my site, you should know that I was a franchise broker for 10 years. My knowledge of the franchise brokerage industry is based on real-life experiences.
With this in mind I want you to know that I’m not against franchise brokers making a living. I just feel they need to be much more transparent about how they make their money. Especially since their relationship with you is a little strange. Let me show you what I mean.
If you decide you want to try working with a franchise broker, there’s something unique you’re going to experience as you go through their process.
Specifically, you’re going to feel like the broker is working for you. Except he’s not. He’s actually working for the 150 or so franchisors he has signed contracts with. And if you do buy a franchise he has a contract with, (one of the franchise opportunities he presented to you), he’ll receive a generous ($20,000, or more) commission check in the mail.
But do a franchise brokers tell you that?
No.
Will they ever get woke enough to do so?
I predict they will, but the wording they use will be carefully crafted.
In any event, I felt that it was important for you to know that I used to be a broker.
So, without exception, before you decide to use a broker, you need to use Google or DuckDuckGo to research the background of the broker you’re thinking of working with. That way you know who you’re dealing with going in. Especially, since you’re probably never going to meet this person face-to-face.
Franchise Brokerage Fact-Check 3: Brokers Help You Do The Homework
From the article:
“There are several advantages of using a consultant. First, they can do a lot of homework for you. There are thousands of franchise systems around. A consultant can help you narrow that down.”
I’m going to keep this fact-check short and sweet.
“A consultant can help you narrow that down.”
Really?
“Narrow it down” to which franchise opportunity?
One that the franchise broker has a contract with.
Correction: only to a franchise opportunity that the broker has a contract with.
To summarize, now that you know a bit more about how franchise brokers work, do you really think a broker is going to help you buy a franchise opportunity you found on your own? One they’ll never get paid on?
“But Joel, the broker I’m working with told me that she wants to help me become my own boss. She said that she would do whatever it takes to make sure I never have to work in a corporate job again. Are you saying she only wants to help me if she gets paid a commission?”
“Well…yes. I am.”
Franchise Brokerage Fact-Check 4: You’ve Got Nothing To Lose When You Work With A Franchise Broker
The article I’m shooting holes through provides an example of a franchisee who worked with a franchise broker to find his franchise business.
“You’re not paying anything, so you’ve got nothing to lose. They’re trying to help you and they know what they’re talking about it. Keep an open mind.”
That advice comes courtesy of Vincent, a Kitchen-Tune-Up franchisee. Thanks, Vince!
Let me start off by saying that I do agree with one thing he suggested. You should keep an open mind. But in a different way. And franchise brokers aren’t going to like this. Here goes.
If you choose to work with a franchise broker, franchise consultant, franchise coach, basically anyone who offers to “match you to a franchise that’s the right fit,” this is what I want you to do.
Agree to get contacted by the franchisor (s) he recommends (and you’re interested in). Then contact at least two direct competitors of the franchise.
Next, once you’ve heard back from them, follow the exact same process the broker wants you to use to investigate the franchise opportunity he recommended. Now instead of only looking at one franchise, you’re all of a sudden looking at 3 franchises in the same space. You want choices right? That’s how to stay “open-minded.”
As to the “They’re trying to help you” part that the Kitchen Tune-Up franchisee said, obviously, I just fact-checked that silliness. That leaves one more thing to fact-check. It’s this quote from Vincent.
“You’re not paying anything, so you’ve got nothing to lose.”
Nothing to lose?
Unless you buy the franchise your broker recommended and it ends up being a total disaster!
And if that happens, you could go out of business. And lose your:
- Money
- Credit rating
- Marriage
But that’s not all.
You may even have to go out and get a job-which may not be easy to do.
And that “free franchise matching service” your broker provided?
Turns out it wasn’t really free after all.
The Upshot Of All Of This Fact-Checking?
In reality, living in the “Information Age” isn’t all that it’s cracked up to be.
Granted, it’s quite empowering to have information on any and all topics only a click or 3 away. Unfortunately, the volume of information available to us can sometimes be too much. Add to that the amount of misinformation around these days…and your “search” can quickly become a royal cluster.
To demonstrate, think back on the last time you searched for information about something. How did your search go? I know how mine went.
That’s how I looked moments after I did a simple search for “a laptop under $1,000.” And I’m good at internet research. Really* good.
*Feel free to ask the folks who purchased my franchise research guide how good I am at using the internet. They’ve all used the proven online research techniques I taught them in my guide to get the straight facts on the specific franchise opportunities they were investigating.
The Bottom Line?
The information you discover online is only as good as the source.
In this case, the source, Entrepreneur.com is a credible one.
But the author of the article on franchise brokerages and brokers I just fact-checked for you?
I really don’t know.
But I do know this.
Either he is (secretly) a franchise broker himself, in which case the piece he wrote was totally self-promotional, or
He got put-together by a franchise brokerage group for the sole purpose of promoting the use of franchise brokers when searching for a franchise.
Either way, the falsehoods he included in the article needed to be exposed.
Finally, unless you’re as talented as Jon, Stephen, Carol, or Chris Brogan
So now you know how franchise brokerages and franchise brokers really work.
Questions?
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