“Franchise Ownership? There’s No Such Thing.” Veteran franchisee Jim Lager dispels the myth that franchisees are business owners. They own nothing, says Lager. The real value in operating a franchise is education & experience.
(UnhappyFranchisee.Com) Jim Lager has been a franchisee of three national brands over the span of four decades. The biggest misconception about franchise ownership, according to Lager, is that it exists. By Sean Kelly
Franchise sellers describe franchising as the safest route to the American Dream of business ownership.
“Tell me…” Lager asks. “What do franchisees own?
“The trademarks? No. The trade name they build recognition for over the years? No.
“The goodwill and customer relationships they take years to earn? No.
“Are they free to sell their business to whomever they like with terms that they decide? Definitely not.”
Lager says that when one reaches the end of their franchise term, it’s like turning over a leased car. You hand over the keys and walk away.
“You own nothing,” says Lager.
“You don’t OWN a franchise business. You RENT a franchise business.”
– Jim Lager
Lager’s insights are based on four decades as a franchisee of three national brands: Snap-On Tools, AmericInn lodging and a national mobile hose replacement service.
“There are benefits to renting a business,” says Lager. “As long as you know that that’s what you’re doing and why you’re doing it.”
“Operating franchise businesses has provided me with a business education,” says Lager. “Each franchise system I’ve been part of provided me with systems, tools and principles to run their business model profitably, and trained me in how to use those tools. They provided support in things like HR, inventory management, marketing and accounting. I have four decades of hands-on experience building multi-million dollar businesses. I could have never received that experience in school or on my own.”
“But could I have used that education to open a competing business?” Says Lager. “No way. The franchise agreement imposes a non-compete clause that makes it virtually impossible to open a competing business and use the experience and education I’ve acquired.
“A lot of my fellow franchisees are upset when they realize that, after decades building their business, franchisors rarely let a franchisee sell their business for more than the hard assets are worth. I wasn’t angry because I understood the business wasn’t mine to sell.
“Understand, it’s the franchisor’s field, their ball, their referee and their ball game. Plus, they made up the rules.”
“You won’t get rich with a franchised business. But you WILL get educated.”
– Jim Lager
“Honestly,” Lager says. “Very few franchisees ever get rich operating a franchise business. But if they’re smart, they are going to get an education.”
“I’ve owned franchises from three separate brands. I followed their systems faithfully and diligently. Don’t get me wrong, I made a good living. But I didn’t get wealthy when the franchisors bought out my successful territories. That’s not how franchising is supposed to work.”
After four decades wearing a franchise brand, Jim Lager is now striking out on his own an independent distributor for Parker Hose Products in Dallas TX.
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TAGS: franchise, franchise opportunity, franchise complaints, franchise advice, franchise opportunity, how to buy a franchise, buying a franchise, Snap-on Tools, AmericInn franchise, Why Smart Franchisees Fail, Why Smart People Fail, unhappy franchisee
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View Comments
Mr. Lager has no clue. He is totally off base. Maybe the fact his he had nothing to sell. He clearly is grinding an ax. Many franchisees are able to build wealth that can last for generations.
Ron:
Could you please elaborate on what you mean... without the ad hominem attacks. It's neither fair nor correct to say Jim Lager has no clue. He's been through this process with three national franchises. That is his experience... It might not be true with every franchise chain.
Can you give examples of franchisees who built true wealth, other than the "very good living" Lager acknowledge?
He's not the first one to object to the term "franchise owner."
Seems like a valid point.
Franchisees don't own the "franchise," the franchisor does, right?
Most franchisees lease a system and a trademark for a set term, and when that term is over they must walk away (often with a noncompete).
I think it's an interesting topic for discussion.
What do franchisees own?
Do many cash out with a profit when they wish to sell, or are they just getting compensated for their assets?
ADMIN
In reality, Franchisees are glorified managers and not independent businesspeople as claimed by 7-Eleven Inc and they're mostly in full control of its day to day operation. Franchisees are used and abused by 7-Eleven Inc according to their convenience. Nothing will change under the current upper - management because they are only concern about their compensation package on their way out without any consideration of the word " Fairness ".
The franchisee is renting a trademark, using a business system, with some transfer rights. Yes, this is less than full business ownership.
But you’re by yourself anytime the franchisor doesn’t want to be held responsible for something it is doing wrong.
The franchisor selects its rhetoric to match whatever its needs are at the moment. During franchise sales, “Go into business for yourself but not by yourself (and give me a hefty franchise fee so you won’t be alone).”
And when something goes wrong: “You’re in independent company, franchisee, and it’s all on you” (even when.... and especially when.... the franchisor is at fault).
In the psychology world we call this “abuse.”
Add a power differential to the situation (as is found in franchise agreements and as is apparent in any relationship with an extreme financial difference)..... and you have a very serious offender-victim relationship.
And this serious offender-victim relationship is happening en masse, is affecting the economy, and is being funded by the taxpayer due to the fraudulent use of SBA lending.
Depends on how large and powerful the franchisee is, viz. number of units.
It depends on the power differential between the franchisee and the franchisor.
The number of units a franchisor has can never justify the franchisor deceiving the franchisee to take a franchise fee or the franchisees’ life savings to grow the franchisors’ business.
Number of units is a red herring.
What is important is the power differential. The power differential is known because the franchise agreement puts it into writing and because, in almost all cases, the franchisee is going to the franchisor for “help” and “support” to “go into business.” The relationship begins with a power differential because it is inherently built on a power differential.
Most "new" franchisees don't understand this power differential until after they sign on the dotted line, become "part of the family" and there is a problem. Going in, they believe the franchisor truly is there to "help" and "support" them - a very general term that is usually very narrowly defined in the agreement. If the franchisee really gets into trouble, the help he will likely get is the help to "leave the family".
As a former franchisee for over 17 years, I agree with much of the sentiment of this article.
In many cases, buying a franchise is in essence, buying a job; however, if you are smart enough or lucky enough to get into the right franchise, at the right time, it can be a road to significant wealth. Potential franchisees should always hire a GREAT attorney (with tons of franchise experience), really do good due diligence, and don't sign the agreement without a full understanding of, among other things, the non-compete clause, the almost unlimited personal guaranty, and virtually unlimited control the franchisor can exert if it wishes. Once the agreement is signed, the franchisee's negotiating position is void of leverage.
Hiring a great attorney and doing due diligence will work when the FTC is actually regulating the industry. It’s not very effective right now because franchisors have little incentive to disclose honestly.
Any agreement that gives all power to one party once the agreement is signed is a faulty agreement. The fact that this is the status quo demonstrates that the industry is corrupt.
At this point, I think the answer is getting attorneys with criminal prosecution experience to file civil RICO lawsuits against franchisors to recover some of the money franchisors and others have corruptly stolen.
Franchisees need to get out of the traps set up for them in contract law and due to the fact that the Franchise Rule is completely unenforceable (because franchisors convinced the FTC not to give franchisees a private right of action when the Franchise Rule was revised in 2007..... another indication of corruption).
Civil RICO with the right prosecutors is way out... and the path to restitution for fraud victims.
A wave of civil RICO lawsuits may also help reform an industry that up until now has been completely resistant to change because the people making the rules are making the money.
Corruption.