International Law

Franchising is the latest Big Con

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Les Stewart, always provocative, makes an important point about the limitations of franchise pre-purchase investigation.

"I believe modern mom-and-pop franchising has largely morphed into a Big Con.

Illusion of Legitimacy: The methods of the confidence game have evolved into a much more difficult fraud to deal with because there is very little difference in the look of a blatant scam and a legitimate business format franchise.

Anyone who says you can tell the difference on a pre-sale basis is a liar and scoundrel.

95% of all problems happen after you sign; when you are caught in an almost impossible situation.

And perfectly good little systems can be turned bad by a change of management or ownership, in the blink of an eye."

There are several important points that I agree with here.

First, given the public nature of franchising enabling documents it is easy to "put lip stick on a pig".  Any one can take the Franchise Disclosure Document of a successful system, make minor modifications in it, and wrap it up in some pig of a franchise system.

Second, Les is correct about the ownership or control issue.  A good franchisor or distributor can be purchased by very dubious ownership: just look at the recent problems Dunkin Donuts has, and what troubles Tasti-D-Lite is running into.

But having acknowledged these points, it is important to remember that the existence of IndFA, independent Franchisee Associations, are what mitigates the control problem.

There is only one trade association in the entire franchising world which supports the creation of the independent franchisee associations is the American Association of Franchisees and Dealers.

I encourage you to visit the AAFD website and make plans to catch one of their conventions.

I will buy you a beer, if you come up and say "hello".

Full post as published by Misleading Advertising Law on September 17, 2008 (boomark / email).