DEADLY FRANCHISE MYTHS: The Trustworthy Franchisor (Part 1)

DEADLY FRANCHISE MYTHS:  The Trustworthy Franchisor (Part 1)

Franchisees, for the most part, are smart, responsible, educated people.  So why do so many of them enter complex, binding long-term franchise agreements without thoroughly reading or understanding them?   Before you bash franchisees for investing without reading and understanding the Franchise Disclosure Document (FDD) and Franchise Agreement (FA), tell me: On how many cell phone, software & credit card contracts and updates have you clicked ACCEPT without reading? We’re all guilty of granting blind trust where we shouldn’t. But if you’re considering a franchise investment, and are confident you’ve found a franchisor you can put your trust in, please read on. Even their FDD warns you that that’s a bad idea.

Note: The PIRTEK franchise is used here as one example, but not necessarily because it’s the worst. All companies and individuals discussed here are invited to provide corrections, explanations, rebuttals or alternative views which we will respectfully publish.

(UnhappyFranchisee.Com)  Be honest: When your phone, computer or credit card company sends you their agreement or new Terms of Service, you just click “Agree” without reading a word, don’t you?

We all do.

We all know the hundreds of pages of microscopic fine print gives these corporations total control over the consumer relationship (and probably our first born child should we default), but our choices are to either 1) Trust them and click “Accept” or 2) Live in a shack in the Yukon.

We choose to believe that these big companies are (relatively) trustworthy and that they won’t screw us over (at least too badly).

And the stakes aren’t THAT high with a software or cell phone contract (we hope).

Unfortunately, most prospective franchisees take the same approach when they accept the Franchise Disclosure Document (FDD) and Franchise Agreement (FA) without reading or understanding them. Many seemingly helpful franchise salespersons will assure them it’s just a bunch of legal mumbo jumbo, like their cell phone contract, and a mere formality anyway.

However, the FDD and FA are neither legal mumbo jumbo nor a mere formality… and the stakes ARE that high.

Those insufferably boring pages may be the difference between a happy and prosperous life and the loss of all you’ve worked for, including your assets, your credit score, the well-being of your family and your mental and emotional health.

Sadly, by the time many franchisees take a careful look at the documents they signed, it’s too late.

The franchise brochure, the video presentation, the caring franchise salesperson, the sincere CEO and VPs assured them they’d be part of a “franchise family” dedicated to helping them achieve their dreams of freedom and independence. They locked hands and sang Kumbaya with their hand-picked franchisees at Discovery Day, right? Why risk killing the Success Fairy by reading those old disclosure documents?

A few years after the honeymoon phase is over, many franchisees find themselves rummaging through boxes and old hard drives trying to find the unread agreement. It dawns on them for the first time that the happy franchisee pictures on the website were stock photos (the Happy, Empowered Zees collection from Getty Images). They now feel more like indentured servants on a whaling ship in the 1800s or sharecroppers in the Old South than business owners in business for themself but not by themself (as the brochure had promised).

I’ve been told that when franchisor PIRTEK USA was taken over by the owners of the original PIRTEK in Australia, things changed significantly for PIRTEK franchisees. Headed by Glenn Duncan, son of the founder Peter Duncan, the new management reportedly was dictatorial from the start, and made controversial changes that appeared to fatten the franchisor’s bottom line at the PIRTEK franchisees’ expense.

Under Duncan, the franchisor reportedly started charging franchisees freight charges for their inventory shipments. PIRTEK USA eliminated a number of franchisee perks and rebates, including a $7500 van signage reimbursement made to them from their own marketing contributions. Duncan’s management allegedly informed franchisees they could no longer use credit cards to purchase inventory and supplies, eliminating the cash-back rebates or frequent flyer points franchisees relied on to travel to company event.

Under Duncan’s management, 50% of the franchisee marketing fund was redirected from initiatives that might boost franchisee sales to expensive and risky NASCAR sponsorships with no measurable benefit for franchisees. The ill-fated NASCAR sponsorships appeared to either indulge the Australian owners’ personal interests, or impress and recruit new franchisees, or a bit of both.

One lesson in the cautionary tale of the PIRTEK franchise may be that franchisees justify signing an onerous, one-sided agreement because they feel that the franchisor is trustworthy and truly dedicated to their (franchisee) profitability. Because of that trust, franchisees may choose to overlook some very scary clauses because they can’t imagine the benevolent franchisor exercising them, except in extreme circumstances against a problem franchisee.

However, prospective franchisees can easily and swiftly end up being shackled by the same one-sided agreement to a new franchisor or management team – one intent on maximizing corporate profits at franchisee expense. And a franchisee may one day find that those scary clauses giving the franchisor complete domination, the provisions they trusted would be used against only the worst, non-compliant franchisees, are being used against those who played by the rules and diligently followed the system.

In fact, we’ve seen a number of instances where the most successful franchisees were the ones targeted by new owners or new management, specifically so they could take over, split up and/or resell the successful territories it took these franchisees years to develop.

PIRTEK’s and similar stories hold a lesson for prospective franchisees: Trust in the franchisor can easily become misplaced, since franchisor companies are sold and management teams are replaced all the time. Don’t ignore or justify troubling clauses and covenants in the franchise agreement because you like or trust this franchisor. When carefully reviewing these documents with a qualified, experienced professional, imagine that you’re putting this control in the hands of a different franchisor or management regime than the one you trust.

In fact, imagine that you are bestowing your freedom and autonomy unto a franchisor who sees franchisees simply as a means to their goal of maximizing franchisor profits. While that may seem overly negative, there’s a very good chance that your fate will end up in the hands of someone less benevolent and less trustworthy than the one signed your contract in the first place.

Check Back for PART TWO…

ALSO READ:

FRANCHISE DISCUSSIONS by Company

Jim Lager: Why Smart Franchisees Fail (Series Index)

Franchise Ownership?  There’s No Such Thing

Why Smart Franchisees Fail? Rose-Colored Glasses

Why Smart Franchisees Fail? Getting Rickrolled

Why Smart Franchisees Fail? Mark-ups, Add-ons & Kickbacks

ARE YOU A FRANCHISE OWNER OR FRANCHISEE WHO HAS A DIFFERENT FRANCHISOR THAN THEY STARTED WITH?  SHARE A COMMENT BELOW.

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