Franchising is just a big-old scam. With a capital “S.”
Are you surprised to see a statement like that coming from me? The Franchise King®?
What’s the deal? Are there actual franchise scams? Is franchising really a scam?
After all, I’m the guy who for years has been 100% focused on providing useful franchise tips, information and advice to prospective franchise owners from around the world. I want people to buy franchises! I want people to become their own bosses. I want people to not have to work in corporate America if at all possible. I want people to be able to live their dreams.
Heck, I’ve written well over 2,000 articles on franchising that are chock-full of useful information! I’ve written some popular franchise ownership books, and the detailed online franchise course I put together has a lot of 5-Star reviews. I produce videos on franchising. And I work one-on-one with people who are interested in someday owning franchises.
So, why do I, The Franchise King®, Joel Libava, think franchising is a scam?
Keep reading if you’d like to find out. For reals.
About Blanket Statements
You know about blanket statements right? You know what they are…correct?
Just in case you don’t know what a blanket statement is, I found this one from Longman Dictionary Online:
Blanket Statements– A statement, rule etc. that affects everyone or includes all possible cases.
How about a few examples to get you headed in the right direction…the direction I’m taking with this article?
Here you go:
“You can’t trust used-car salesmen.”
“Pit Bull Terriers are vicious.”
“Everyone likes chocolate.”
“Everyone likes ice-cream.”
“Politicians are all the same.”
“Men aren’t emotional beings.”
“Thai food is spicy.”
“UFO’s aren’t real.”
“Google knows everything about you.”
“Facebook doesn’t care about your privacy”
What do you think of that fine collection of blanket statements?
Are any of them true?
Are some used car salespeople actually trustworthy?
Are some Pit Bull Terriers really nice dogs? (I’ll never find out, because I’m not getting one.)
Are some politicians honest?
Isn’t some Thai food mild?
Does Google really know everything about you?
Is franchising a scam?
Blanket Statements Can Rile People Up
Has anyone close to you ever made a blanket statement that really, really made you mad?
Have you ever made a blanket statement that upset someone?
I have. Several, actually. Usually to my wife about a topic, person, or place I feel strongly about. They haven’t gone so well. She’s often told me in no uncertain terms that I was “making blanket statements,” and that they “weren’t based on facts.” Jeannine likes facts.
So, I try not to make blanket statements as much.
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Franchise Scams: Franchising Is A Scam
That’s one hell of a statement to make.
It’s almost…a…blanket statement.
Ok. It is.
I guess I need to be careful of making those darn things…statements like that. Some folks could get riled up.
I would never intentionally try to rile someone up.
Well, not unless I felt people would benefit from it.
Keep reading. You will benefit from this article.
Those Darn Franchise Websites And Blogs
There are certain franchise websites and blogs that specialize is getting people riled up about franchising. On how evil franchising is. How evil franchisors are.
These websites…one in particular, has been absolutely bashing the franchise industry for years.
I was even involved with the website I’m referring to several years ago. I was asked to write some articles and bring new visitors. I did. I’m not involved now. I wisely excused myself from the site years ago, because I saw what was starting to happen there. Things were getting cray cray.
The main thing that happened to the site, and the reason I left it, was because of its really dysfunctional commenting forum. Some of the stuff that was allowed to go on there was ridiculous. Cray cray. It hasn’t changed much. It gets so ridiculous…so crazy sometimes. I’m not going to link to the site or mention the name of it. It’s just not worth it. Most of the saner minds in franchising don’t waste their time there, either. It’s not just me that thinks it’s a pretty nutty place. The next section will give you an idea why.
The website I’m referring to chock full of franchising conspiracies. I even have proof. One of the sites’ more active members had a doozy of a conspiracy theory concerning a popular/powerful technique that I have all of my franchise ownership clients do. Check it out. It’s one example of some of the stuff that’s spewed out on the site by supposed “experts” like the one I mentioned in the article I just linked to on an almost weekly basis.
In case you didn’t click that link, it has to do with researching a franchise…how I teach my clients to do it, and how one Canadian franchise attorney commented about the technique I teach. He made it sound like there was a conspiracy taking place in franchising.
(You can find the same franchise research techniques I teach my clients on the franchise blog you’re on now as well as on several other online and offline publications where I’ve been quoted or have written articles.)
No Conspiracy Of Any Kind
There is no conspiracy when it comes to calling and/or visiting franchisees of the franchise business opportunity you’re thinking of buying. Franchisees do not conspire to tell you a bunch of great things about their businesses and great things about their franchisors in order to encourage you to became an owner.
Ignore anyone that even suggests something as nutty as a conspiracy taking place among franchisees.
Most of the things on the website I’m not mentioning by name are 100% anti-franchising. I don’t know why the site is even focused on franchising. If the owner of the site hates franchising so much, why doesn’t he start a website about billiards? Or pets. Or, worm farming in Pennsylvania. Something other than franchising.
“Big Brother is Out To Get You, Franchisees.”
That’s pretty much the tone of the website I’m referring to. And, “Big Brother” is The International Franchise Association in this case. (IFA)
Just so you know, I almost always disagree with things the IFA does. The largest franchise association around seems to be more interested in raising money for Republicans, than anything else.
Wait: Wasn’t that kind of a blanket statement?
Let Me Try Again
How about this: The IFA seems to have lost their focus. Maybe being headquartered in Washington D.C. near all of the other lobbying machines has something to do with it. I’m not really sure. I’m not a member.
Steve Caldiera, an ex Dunkin’ Donuts executive, is the current IFA President. He’s the reason why the organization has turned into a serious lobbying organization. A Republican one.
According to The Hill, The IFA has grown its political action committee (PAC), raising roughly $1.2 million in 2012 and $894,000 in 2014. The group has doled out nearly $432,000 to candidates this election cycle, mostly to Republicans, compared to just $304,000 back in 2010.
But, why has the IFA become so involved in politics? Couldn’t they raise money for other things? Things that would help their members with their franchise businesses? Some, charity work?
Franchising And Politics
Some food for thought:
If you’re a member of the IFA, and you’ve always voted Democratic throughout your life, why do you pay membership dues to an association…a lobbying group, really, which donates well over 80% of their money, and expends more than 80% of their energy on Republican candidates and initiatives? How do you sleep at night? It doesn’t make sense to me. What do you do? Do you just pretend you agree with some of the right-wing stuff that’s spewed out? Like the stuff this guy says? (I’ll bet he was paid a lot of money from dues to speak at that IFA convention.)
I actually got angry enough to jump into the political fray myself a while back. You may want to read this.
An open question to the IFA:
Why has so much money, time, and energy been spent on Republican candidates and politics in general, as opposed to well…franchising?
I know…I know. Republicans are the ones who support business.
Wait. Was that another blanket statement?
By golly, I think so!
I’m up to at least 13 of them now. Don’t tell Jeannine. It may ruin my chances of getting a new dog for The Castle.
(Update: We rescued a dog. Check out @FranchiseDog on Twitter when you get a minute.)
Franchising Is A Scam Because Of The IFA
By and large, this is why franchising is a scam. Otherwise, the organization wouldn’t be the topic of conversation as often as it is on the website that I’m not naming.
Seriously, if you spend a few hours on the site, you may actually start believing the IFA is out to get franchisees. I mean, they’re always trying to screw someone, by golly.
No they’re not.
Either is the U.S. Government.
You want me to go there? Ok. Here’s one:
“The government is trying to ban guns.”
Call that #14.
And, no…they’re not.
Franchise Attorneys Are Saying Franchising Is A Scam
Maybe franchise attorneys like the one below are trying to convince would-be franchise owners franchising is just a big, old scam. Talk about a possible conspiracy. Except this conspiracy is in favor of franchisees. It’s been a hot topic of discussion of late in the dysfunctional commenting forum on the website I’m not mentioning. I’ll tell you what: Every anti-franchising advocate that hangs out there is having a field day with what this guy said. That’s because it makes a lot of the site’s more active members feel validated about the things they spew out. Kind of like, “We told you so! We’ve been telling you for years that franchisees are getting screwed, and the videotape of what this franchise attorney said is proof.”
A Royal Screw-Up By A Franchise Attorney
Not only once, but twice, did he screw up. Watch this really short video.
1. He said that franchisees “don’t have equity.” According to this “expert,” when franchisees’ franchise agreements end, they have no equity and get no equity. (Most franchise agreements are 10 years in length. Some are 5, and some are even longer than 10.)
Did I hear that right? Did he say franchisees have no equity…and it’s not part of the bargain when they sign on the dotted line and invest their own money into the venture?
Wrong. Franchisees can sell their franchise. For a profit. They would have what’s called “equity.”
2. The other royal screw-up has to do with franchise success rates vs. independent business success rates. He mistakenly quoted numbers that the IFA put a letter out to its membership (years ago) stating not to quote. That’s because they were wrong.
A Portion Of That Letter
From IFA President Matthew Shay
May 2, 2005
It has come to our attention that some IFA-member companies may be providing information about franchising that is long out of date and no longer presents an accurate picture of the sector.
Of particular concern is information claiming that the success rate of franchised establishments is much greater than that of independent small businesses.
Many years ago, the U.S. Department of Commerce conducted studies about franchising which presented such statistics. That information is no longer valid. The agency stopped conducting such studies in 1987.
We strongly urge you to remove any information from your Web site and published materials that make such a claim. The use of such data, in the absence of current research, could mislead prospective franchisees who are attempting to conduct responsible investigations.
Here are the real franchise success and failure rates.
The attorney in that video probably got blasted when his colleagues heard his statements, so I’m not going to participate in a blasting here. But, I’m certainly not going to apologize for posting a YouTube video that’s available in the public domain of him saying the things he did. (It’s available so far. It could be deleted anytime. That would be a bad PR move.)
But, since this guy stated two pretty big things about A. Franchisee equity-or lack thereof, and B. Franchise success rates…well, they must be true.
Based on his statements, franchising is a scam.
That is a blanket statement.
Important Franchising Issues Need To Be Addressed
All kidding aside, (temporarily) there are some important issues that need to be addressed in franchising. One of them needs to be addressed quickly.
The NLRB Franchise Decision
The National Labor Relations Board (NLRB) recently announced that its Office of the General Counsel is going to name McDonald’s as a “joint employer” in upcoming court cases. The courts cases are based on complaints against McDonald’s franchisees.
In a nutshell, what this means is McDonald’s franchisees and McDonald’s Corporation are both employers. That they’re one and the same.
The ruling makes no sense.
It’s pretty simple.
1. McDonald’s Corporation is the franchisor.
McDonald’s sells the franchise license, along with everything else the franchisees need to start and operate their businesses. And, they support the franchisees. The franchisees pay for this support.
A McDonald’s franchisee owns the business.
2. Franchisees invest their own money, and own and operate the business they’ve invested in.
But, for some bizarre reason, the NLRB doesn’t see it that way anymore. Either do the unions, which have been waiting for this moment for a long time.
The Guardian just wrote a great article concerning the NLRB decision. Here’s a portion of it:
“On July 29, in response to sifting through 181 complaints lobbed at individual McDonald’s franchises — many by people charging that, because of their participation in the fast-food workers strike over the summer, franchise owners significantly cut back their hours — the NLRB released the opinion that individual McDonald’s franchisees and McDonald’s franchiser, McDonald’s USA LLC, would be named as a joint employer respondent.”
The articles goes on to say, “Essentially, the ‘joint employer respondent’ language means that whatever complaints stick against an individual franchisee, the franchiser would be found liable as well. Forty-three of those cases against McDonald’s franchises were found to have merit, while another 64 are still under investigation. The others were found to have no merit.”
You should read the entire article.
The entire franchise industry needs to band together on this issue. The impact will be huge if the NLRB goes after other franchise systems. Think about it: If one franchisee gets sued by a customer who burns themselves on a hot beverage, the franchisor would take a hit, too. The franchisor would then have to raise the costs…maybe even the cost of entry to become a franchisee.
Another thing that could happen has to do with why people go into a franchise business in the first place. The reason has to do with control. They want more of it in their lives. A lot of them are used to being controlled by their bosses…their company’s. If they’re going into a franchise to “be the boss,” but aren’t really the boss…heck, they wouldn’t even be the employers if the NLRB and the unions have their way, why even do it? It would be like investing in a franchise-but in all actuality, running a company store.
Would you invest money to buy a franchise if you’d only be “kind of” the boss? Why would you leave a job you hate to become a franchise owner if you kind of weren’t an owner?
Wouldn’t you want the franchise business to be yours?
Franchising as we know it could go away if the NLRB ruling stands.
A thought: What would the owner of the website I’m not naming do if franchising went away? How would he make money if no one advertised on his franchising website? He’d even have to remove his money-making Google Ads, because they would quickly become a waste of valuable web real estate.
Fact: There are 18 million people involved in franchising today. It’s a huge industry. And, it’s a good industry.
The Minimum Wage Issue.
This issue is a biggie. But, if it’s handled right, everyone can win. The franchisors, the franchisees, and the consumers.
The problem is the minimum wage increase ($15.00 an hour in some cases) is being forced on franchise owners and other small business owners in certain areas of the country, instead of being debated-Seattle being one of them.
KIRO-TV in Seattle asked me to speak (on camera) about the topic. Here
A Debate Needs To Happen
A debate about the important things happening in franchising today isn’t going to happen because we have a do-nothing Congress. And, most of the do-nothing folks in Congress now are Republicans…the exact same people the IFA has decided to throw money at to re-elect. That makes sense. Not.
A warning to the grammar police: A run-on sentence is coming.
Instead of hobnobbing around with politicians who refuse to entertain anything that will actually move the economy forward, and stop the gridlock that’s been taking place ever since President Obama took office, maybe some of the IFA executive members, (who seem to be enjoying all the attention they’re getting from these powerful people) can put their egos and their own personal politics aside and make one little suggestion while they’re at dinner and some of the other VIP events they attend where these elected officials hang out.
Here’s my suggestion:
Tell them to work with the other side to get some things done.
This is where an association like the IFA can enter the debate and actually do some good. They don’t have to, nor should they, throw money around like crazy people in the hopes their agenda will be taken seriously, and the things they want will get taken care of.
Things always go better in our country when our elected officials get together on the major issues. Nothing happens if nothing happens between the two parties.
In other words, nothing changes if nothing changes.
Attention Steve Caldiera: This isn’t about you. It’s about franchising. It’s about our country. It’s about small business. It’s about everybody in Washington working together. If you want to be involved with politics so darn bad, run for freaking office. But, Steve…stop adding to the problem.
I’m not done…
Steve, you don’t have to belly up to the political bar and hang out with people who aren’t helping our country. There are better ways to impact franchising…to get things done. Make some positive suggestions. Better yet, tell your Republican cronies to get off their butts and find ways to get things done. Tell them to show up and open the floor for a vote on these matters and dozens of others that have been sitting in the corner growing green-just about ready to turn into black-mold.
This is your chance to help lawmakers get the facts about how the franchise business model works, and how the relationship between franchisors and franchisees is supposed to work. Who’s who…and what’s what. This is a chance for all lawmakers to learn about our wonderful business model. And to write bills that will help our industry stay intact.
Now, I know that it’s not just Republicans that are blocking things in Washington. But, it’s mostly them. Anyone who thinks otherwise is living in another dimension.
Be the change.
The Thing That Compelled Me To Write This
U.S. Franchise Unit Turnover Rate Is 122 Percent
That headline…and it’s a good one, is from the website I’m still not mentioning.
The article below that headline is about a research study on franchise turnover in the U.S. that was recently done by a guy from Canada who’s background includes being a Canadian franchisee and starting an internal franchisee association. His current business…his web business, consists of selling expensive franchise reports and selling high-priced consultations. Whatever.
Jeff Lefler gathered Item 20* outlet information from 1,695 Franchise Disclosure Documents from a total of 2,430 franchise systems that have advertised to recruit franchise buyers or filed FDD’s in registration states. Data was then aggregated to 10 sectors in franchising so that franchise systems could be graded against their competitors and their sectors.
*Arguably the most critical Item in the entire Franchise Disclosure Document, Item #20 reads like a chart, providing you with accurate data on every franchise location that has opened or closed in the past three years. Courtesy of Indy Franchise Law.
The study is an independent one. I have no idea if it was audited. It reminds me of a ‘study” the franchise brokerage I was a franchisee of years ago did on their success rates placing franchisees. It was an internal study with no outside vetting or auditing. Look.
The U.S. franchisee turnover study by a Canadian came up with the following figures:
From 2010-2013, 135,289 new franchise locations opened in the U.S.
Great to hear!
But net growth during the period was only 16,644.
According to an article about the study published by Fortune.com, “About half of the 118,645 franchises that disappeared in the last three years ceased operations, meaning they went out of business or simply closed up shop. A third were terminated due to alleged franchise agreement violations. The remaining stores were either reacquired by franchisors or their owners decided not to renew.”
But, here’s the thing: Transfers…franchise units that franchisees sold, were not included in the figures. The study didn’t separate out franchisees that sold their franchises or got them purchased back from franchisors. It seems kind of silly to not include data like that. Data that would change the turnover numbers….a lot, probably.
If you’re a data-driven person, you may find the report interesting. But, here’s what I find interesting, and it has all the hallmarks of a conspiracy.
Why Did A Canadian Do This Study?
Did a Canadian decide to do the “study,” an incomplete one at that, to show people that the U.S. franchise industry is one big scam?
Did this Canadian do this study to mess with U.S. citizens looking into franchise business ownership?
I think he did.
I think the guy, who runs a Canadian franchise website, wants U.S. citizens to move to Canada, and start franchises up there. In his country. In the Great White North.
It’s obviously a conspiracy.
Franchising Is Not A Scam
Do several things in our industry need to be fixed? You betcha. All businesses and business models need minor and sometimes even major fixes during their lifetimes. But the way to do it isn’t by slamming the entire franchise industry. It’s not by running websites that are anti-franchising.
Sure, there are franchise systems out there that suck…that suck the lives out of people. They grab their hard-earned dollars for the sake of a sale. I’ve pointed them out in the past, and I’ll continue to do so.
Am I guilty of sometimes being negative about franchising, myself? Absolutely.
But, my heart is in the right place. It always has been. I care about the franchise industry. I love the franchise industry.
For franchising to continue as a viable business model, and as a way for everyday people to go after The American Dream, there are two things that need to take place.
1. Franchisors need to only award franchises to the most highly-qualified people.
2. Would-be franchise owners need to do great franchise research, and make sure they have enough money in the bank to sustain them through the start-up period of their business before they buy.
Seriously. Those two things will go a long way in keeping the franchise industry vibrant.
I certainly don’t want to see franchising turn into a scam.