Joel Libava
The NLRB isn’t ruining the franchise model. It’s being hurt from within.
In this post, I’m going to show you how the franchising model is being hurt from within, who’s doing it-and why, and how smart franchisors can help save what’s been called the “the greatest business model ever invented.”
Note: As you read this post, I’d like you to keep something in mind.
Namely, if franchisees go out of business-especially if it’s because they got bad advice or were hoodwinked into investing in a weak-ass business concept, it gives franchising a black eye. Potentially a lot of black eyes.
Let’s begin.
The Franchise Buying Experience
Let’s start out with what today’s prospective franchise buyers experience every day.
Franchise buyers tell me these things all the time:
“I’m so confused. There are so many choices, Joel. I’m getting more confused by the day.”
“I’ve been reading so much stuff online about franchising, my head is spinning. How do I separate good information from bad information.”
“What’s with these franchise experts on YouTube? Are they for real?”
And they ask me things like this:
“Why does buying a franchise have to be so confusing?”
“I’m having trouble figuring out if some of the websites I’m visiting are legit. How can I tell if they are?
“I’m getting to the point where I don’t know who or what to believe. What do I need to do? Who should I believe? How important are rankings?”
For answers to those questions and more, read on.
Are You A Confused Franchise Buyer?
If you’re just starting your search for a franchise business to buy, you’re probably not confused. Yet. But you will be-much faster than you think.
On the other hand, if you’ve been looking at franchises for a month-or longer, I’m confident your state of confusion is on the high side.
As a matter of fact, you may be starting to become annoyed.
Worse yet, you may be at your wit’s end, and ready to call it quits.
“Screw this franchise thing. I’m going job-hunting again.”
I’m so sorry. But it’s not your fault. It’s my industry’s fault. Or at least some of the poor practices still going on and the slippery people behind them. It’s too bad, because there are a lot of benefits to franchising.
Notwithstanding, most of the things you’re confused about shouldn’t even be a “thing.” But they are.
In any event, please don’t lose hope. Because some of us in franchising are trying to change things.
With that in mind, here are specific examples of what and who are confusing franchise buyers, and by doing so are seriously damaging the franchising model.
How Franchise Review Sites Are Destroying Franchising
In this section, I’m going to hammer away at franchise “review” websites. Why?
Because they’re a huge part of how the franchise industry is destroying the franchise model from within.
Note: Companies that provide franchise reviews are not non-profit companies.
To be more specific, money changes hands.
And that fact alone begs this question: Are franchise business reviews legitimate?
And this one: How is the money changing hands?
A Disservice To Franchise Buyers And The Franchise Model
Because of how franchise business “review” sites operate, they’re providing a disservice to thousands of would-be franchise owners. I’m talking about everyday people who are thinking about investing $100,000 or more of their hard-earned money into a franchise business. They’re also slowly chipping away at the franchise model.
Read this post on how the business of franchise reviews operates.
Now if you didn’t choose to click that link to read my overview of franchising review websites, here’s the gist of the post:
These franchise review website owners are making a lot of money.
And as far as I’m concerned, some of them are doing it in a sleazy way. “Why is that, Joel?”
Because they refuse to disclose exactly how they make money.
“But Joel, they post reviews from individual franchisees. How is that sleazy?”
Put it like this.
If a franchisor chooses to get “listed” on some of these websites, and 80% of the franchisees write horrible reviews of their experiences as franchisees, do you think you’d see them?
In other words, how is it that these “reviews” are mostly positive?
It makes no sense.
Unless there’s money changing hands.
Have You Seen Stuff Like This?
Press Release:
Ferdinand’s Frankfurters Was Just Named A Top Franchise By Franchise Business Review
Really?
Or
Press Release:
Organic Charcuterie Restaurant Named A Best Franchise By Franchise Rankings
Rinse and repeat.
Over and over again.
And if you’re a franchisor, getting “named” a “top” or “best” anything makes it easy for your marketing department to type out a Press Release in a half an hour. And once published, it can add to your brand recognition, and may even bring you a bit of web traffic. Or at least it should.
3,500 Franchises Available To Buy, And 3,477 Of Them Are Now “Top Franchises”
Do you see where this is going?
In the near future, it may be possible that every franchise concept available to own in the U.S. will be named a “Top Franchise” by these “review” websites. Then what?
Maybe “Gary’s Mobile Grandfather Clock Repair” (consisting of two franchisees) will be named a “Top, Top, Franchise.”
Hey…there’s an idea. Mobile Grandfather Clock repair. Kidding.
My point?
If every franchise you’re looking at is a “top” franchise, how will you be able make your choice on which one to buy?
Especially when your franchise salesperson and/or franchise consultant is telling you that their franchise is on this “top” list or this “best” list? Sounds confusing.
Oh wait. It’s already happening.
No wonder today’s franchise buyers are confused.
And confused franchise buyers are bad for franchising. Bad for the franchise model.
Why?
Because they’ll either make poor decisions and go out of business soon after buying that “best” franchise…
Or
They’ll leave the franchise market, because they’re so confused and because of it, untrusting.
If You Were The CEO Of A Franchise Company…
If you’re a franchisor with 100 franchisees, and 78 of them wrote poopy reviews- I’m talking about reviews that are so bad it would be embarrassing to post them on a franchise review site, what would you do to change it?
You could tell the website owners to delete your listing.
Or you could hire the website owners to “help” you with your unhappy franchisees, and turn things around. That would be good franchise marketing….the kind you’d like to share.
Heck, maybe you’d become one of those “top” franchises, as named by franchise bizziness-review.com.
Money Questions
The bad part of what these review website owners do…the part that’s damaging the franchise model, is this:
Since they don’t disclose how they make their money, franchise buyers who visit these websites may be persuaded by the positive franchisee reviews about a franchise opportunity they’re interested in buying, and base their decision on said reviews.
As in, “Hey, the reviews were good, so I’m going to go ahead and buy that franchise.”
I know…I know.
“But Joel, people don’t base their franchise purchasing decision just on a few reviews they read.”
How do you know?
Do you think every franchise buyer is smart enough to invest $38 to learn the ins and outs of how to do franchise research?
Or hires a franchise lawyer and a small business accountant to help them make a fact-based decision?
Or writes a detailed business plan?
Just some food for thought.
Finally, one of the best ways to keep the franchise model strong and on the up and up is full disclosure.
And you know who doesn’t think full disclosure is needed in franchising?
Cowards.
How The Lack Of Full Disclosure Hurts The Franchise Model
“Corporate executives and business owners need to realize that there can be no compromise when it comes to ethics, and there are no easy shortcuts to success. Ethics need to be carefully sown into the fabric of their companies.”
– Vivek Wadhwa
For almost 4 years, a guy who owns and operates a “magazine” style franchising website, posted articles that were never fully disclosed as advertisements for franchise companies. And it was so obvious. But he kept doing it (of course).
Now I don’t know about you, but if an article like this was written about me, I’d change some things! Or if this one was!
Interestingly enough, as of late, that website owner seems to be making advertising disclosures the proper way. Looks like the pressure got to him.
A proper example of how a paid post should be disclosed
That said, either you’re ethical or you’re not. There’s no halfway point.
Tip: if you’re a franchisor, you need to get pickier about who you spend your marketing and/or PR dollars with. This shit always catches up. And it hurts the franchise business model if paid franchise advertising isn’t disclosed.
Finally, I’ll leave it to your imagination on how advertising on the wrong website can lead to franchisee lawsuits. Expensive ones at that.
How Franchise Consultants/Brokers/Coaches Hurt The Franchise Model
In case you didn’t know, this is how most franchise brokerage companies describe how their consultants work:
“Today’s franchise consultants work just like Realtors who can show you multiple homes. There’s no charge to work with one, and instead of showing you ‘homes,’ they show you franchise opportunities.”
But it’s not true.
Case in point; if you’ve bought a house in recent years, you know that there’s something you need to sign before you enter into an agreement with your Realtor. It’s a disclosure form.
In a nutshell, the form states who the Realtor work for and how much she gets paid upon a successful sale. Hint: it ain’t you she works for.
That’s right; when you’re working with a Realtor to find and buy a house, your Realtor works for the seller. Why?
Because the seller is paying the Realtor’s commission.
Would you like to know who a franchise consultant works for?
Hint: it ain’t you.
Quick! Who Does A Franchise Broker Work For?
Franchise consultants work for the franchisors they have sales contracts with. That’s not all. They only work with franchisors that will pay them lots of money. How much do they get paid?
40-50% of the upfront franchise fee.
So if you buy a franchise that has a $40,000 franchise fee, the franchise consultant who worked with you for free and matched you to the franchise you bought, gets a $20,000 check overnighted to him.
And to think you were never given a disclosure form, similar* to a Realtor’s to sign, stating who your consultant works for and gets paid by.
*I can see it now.
Someone from a franchise brokerage company, after reading this, will put together a “Franchise Brokerage Disclaimer” document their brokers can use.
But she’ll do it in a way that doesn’t get to the heart of the matter. A non-disclosure, disclosure that totally sidesteps the facts and spins the way the fees are paid. Those darn slicksters.
“But Joel, I don’t care if the consultant gets paid, as long as she finds me a good franchise.”
That’s easy to say upfront, but what if the consultant doesn’t have your best interests in mind?
Worded differently, what if the promise of a $20,000 check sways her to point you to a franchise that may have some “issues?” And you buy it. And it turns out to be a freaking junkyard dog. What will you do? What CAN you do?
More importantly, how long will it take you to recover your investment, not to mention the time and effort you put into your now defunct franchise business?
I know what you’re thinking.
“That’s a worse-case scenario, Joel. It probably won’t happen.”
You’re right. It probably won’t happen. And there are several good franchise consultants out there. But do you know how to find them? I do.
Finally, you’re probably wondering how franchise brokers/consultants/coaches hurt the franchise model.
The way they harm the franchising model is by focusing on their own business instead of your potential new franchise business. Putting their financial needs before yours. Especially if they haven’t successfully “matched” anyone to a franchise opportunity they represent for several months.
And don’t think for one moment disgruntled former franchisees keep quiet about how they found the franchise business they ended up losing money on and closing.
Have you ever heard of social media?
On Keeping The Franchising Model Strong
The things I shared in this post are slowly ruining the franchise model. It’s a shame, because franchising is so good.
I just mentioned one of those reasons above. Social media. And the internet. As in nothing can be hidden from view anymore.
Everything from questionable short-cuts in business to flat-out misrepresentations of franchisee success will be discovered. Maybe not right away, but trust me, word gets out. And lawsuits happen.
In conclusion, the things that are chipping away at the franchise model may not be that worrisome to you. But this stuff is happening. Franchise buyers are getting more and more things thrown at them.
More marketing messages.
More crap.
But it doesn’t need to be this way.
Whatever happened to doing the right thing?
Especially if you have complete confidence in your franchise concept, your marketing program, or your franchise-related website.
Remember, word of mouth is still a “thing.”
Disillusioned former franchisees talk.
And that hurts franchising.
Do you really want to hear stuff like this?
“Franchising is just a scam! Don’t buy a franchise!”
What are your thoughts?
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