Franchisers, the lowest of the low. (Long)

The BBQ Pit
241

Had an interesting meeting the other day.

A couple called me up. They own a water business here in San Antonio. 6 months in operation, they are very new. I apparently dropped my card off while I was waiting on my car to be detailed (I don’t like sitting and dumbly looking at my phone, I much prefer to be productive) and she kept it.

They are being highly pressured into turning their business into a franchise operation, i.e., they’re being pressured into becoming a franchisor and not a franchisee. This is a company which hasn’t been in operation for 6 months, a company who just had its best month ever @ less than $7,000 in gross revenues, and they were being told the typical high pressure sales tactics:

  1. “The window is very short!”
  2. “This opportunity is hot!”
  3. “We already have people interested in investing in YOUR business! Why, this one guy in Houston already wants to buy five franchises!” (Yes, that last was actually said.)
  4. “We can do all this for $71,900!” (I call bullshit. Hell, the auditing of their financials can easily cost $20k for a competent, but not name-brand, auditor. And what financials - they’re still in the ‘running this business out of my checkbook’ phase!

They watched some of my videos, figured I had the right attitude, and when we met, after I heard the above (and more), I told them that to get rid of these guys just tell them to call you back in 3 years, once they have a demonstrated record of track success.

These people are so new to the business that they didn’t even know that Culligan and Kinetico (similar businesses) also operated on the franchise model. I asked if the franchising salespeople had mentioned this, but… of course… they said ‘no”.

Anyway, just thought this may be of interest to readers of this thread: the high pressure sales tactics used on potential franchisees are also used on potential franchisors. And, yes, the husband had a 20+ year military career, a pension which represents a stream of income to these people’s eyes (I explained how this worked to them as well, the predatory nature of these people looking at taking his pension income and making it theirs).

Anyway, they told the guy to, effectively, go to hell. Crisis averted and friends made!

242

I personally think it’s very interesting. I never thought about someone trying to pull a fast one from the other angle. Thanks for sharing.

243

I do not think it would surprise anyone to find out that part of this arrangement would be for the “franchising organizers”, for want of a better word, to take 1/2 of all franchise fees paid by the franchisees. In other words, they would get 1/2 of the initial franchise fee (typically around $35k, they would get $17.5k of this), 1/2 of the royalties (at 6% (typical), the franchising organization would get 3%), etc.

$71,900 was just the start of the draining.

244

When I hear stories like this I think of parasitoid wasps. There is a separate species of wasp that specializes in laying their eggs on (and the larva eating) just about every single different order of arthropod.

For every different type of transaction, there is going to be someone who is either rent seeking or scamming. If you can find a type where that doesn’t exist, let me know, because I might have a business proposition for you…

245

Are there any examples in the book of “Oh yeah, these guys are great. If you want to franchise, they’re a great choice.”?

I expect not. But if that’s the case, why not lean more into the scamming angle? “Don’t buy a job” is a little on the subtle side. And “The Only Guide to Franchise Disclosure Documents…” sounds like it’s intended to help with some kind of negotiation, as opposed to “Here’s how every one of these is designed to screw you in a dozen different ways.”

246

I’ve read through this entire thread and, all in all…I’ll just stick with the leaches, thank you very much.

247

I wouldn’t say “great” but the obvious example of fast food franchises was mentioned almost from the beginning of the thread. They’re not warm and fuzzy companies you’d want to bring home to momma, but their business model is not outright scamming their franchisees.

248

Well, the book has already been published and I wanted the subtitle to be searchable for the terms ‘franchise’, ‘franchise disclosure’, etc. Someone above suggested ‘The Franchise Trap’, which I gave some consideration to, but decided that ‘DBaJ’… which was the subtitle to my podcast… should be kept.

Anyway, it’s a very niche book, I did want it to be helpful and not merely a rant writ large, and I do have steady sales on the thing (about one a week or so).

The podcast does examine a franchise which isn’t too bad, Cost Cutters, a hair cutting franchise. But the book isn’t an exposé, merely a tool to teach the uninitiated about how these documents are constructed.

I still do the occasional review video and just uploaded my latest, about Wild Birds Unlimited which also has pretty good numbers and rational management.

To the larger question, most reputable franchises do not sell to people who need an SBA loan to cover opening costs. McDonald’s won’t, neither will Chick-Fil-A, and others.

249

Didn’t mean for it to come across as a criticism; it’s your book and your choice about the vibe. Mainly just curious if there were positive examples. Anyway, thanks for the info!

250

Lol, no offense taken, my friend. I’ve been on the internet far too long to get offended by anything, anymore.

251

So lemme get this straight, a new business has someone cold call them & basically state you’re doing so well (w/o looking at any of their books) & states they can make them more money if they’re paid approx a year’s worth of gross revenue or what, two years of income? I think there’s a higher likelihood of that email in your spam/junk folder to be from a real Nigerian prince wanting to give his riches away.
Are the people wanting to turn their business into a franchise in the US or was this all done via email? If they actually laid eyes on their ‘benefactor’ I would strongly advise them to contact their local PD as this is absolutely a scam in the making

252

Great video. How do you keep all of those numbers straight. Is there an off camera cheat sheet?

253

They are based in the US and have been doing this in-person. They’re using the sort of high-pressure sales tactics which are best done face-to-face. And it’s completely legal, of course.

254

Thanks!

I write the numbers down and Inna (camera operator) has them pinned to her shirt. You can see me look at them - I’ll look down at times, lol.

255

There are simple teleprompters out there, starting at $250.

256

Thanks for that!

257

I’m sure Inna’s blouses will thank you!

258

I clicked on this link once and have been peppered with Prompter People ads ever since…

259

Sorry about that. I’ve not bought anything from them but have visited the site a couple times and not seen any ads for them popping up somewhere else. Maybe they’re being squeezed out by the plethora of other ads I do get.

260

Lol, shit, it ain’t your fault. Just the nature of the world nowadays. You should’ve seen my ads when we were car shopping.