Failing Franchises To Be Easier to Spot?

In the WSJ today, I saw where the FTC had set up new disclosure rules for the $1.5 Trillion franchise industry  that will take away many of the previous hiding spots for trouble.  Litigation and turnover are now going to be more out in the open, as are territory exclusivity.  Franchises can also receive applications without an in-person meeting, such as via a secure website, streamlining the sales process of a new franchise. (I’m not so sure that’s a good idea.)

Running a franchise is a unique business endeavor. After all, franchisees aren’t quite entrepreneurs — they have to run their businesses according to their parent company’s rules — and aren’t employees, either, because they’ve invested their own money in the store or service they’re running.   Inc Magazine.

Even if these new rules hadn’t happened, franchises that hid lots of dirty laundry from potential franchisees were being found out anyhow.  Social media and forums was already stripping away some of the barriers to knowledge.

The franchise success depends on competence and compliance as well as the competence of the franchisee.  While the franchise offers training and often grand-opening assistance, there is no way for them to know if the business is going to succeed.  Franchises are not a magic bullet, and many customers simply aren’t doing their homework.  So what you have after a while is a bell curve of success.  On one end, savvy owners making a lot of money and living a great lifestyle - while the “fail” end of the bell curve is full of very loudly upset people - often losing a life savings as they go down.

With consumer-generated-media, the franchises are faced with a really hairy reputation monitoring problem where the brand is only as strong as the weakest location.   Unlike company-owned stores, business model franchises have pretty minimal control over their brand name once a franchise is launched.

Franchise brands are like the dancer with big feet, or the boxer with a big head - it’s just such a big target!

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