The Marriage: The Courtship

Franchising is much riskier than non-franchised businesses

• Banker says franchised is less risky than independent business
• Bootstrapping the assets of a corporation
• Fraud is widespread
• Futility of taking legal action
• Independent businesses much higher profit than franchised ones
• Independent businesses survive longer than franchised ones
• Internet, franchisor competes against franchisees
• Location chosen by franchisor
• Malfeasance
• No protection from monopoly
• Opportunism: contract creates powers which are used to strip investor value during relationship
• Risk much higher for franchisee than independent business
• Sympathy for the franchisor
• When the franchisor tanks, so does the franchisee
• Why franchisors sublease to franchisees

Psychology: human foibles are a fraudster's bread and butter

• American Dream
• Bargaining
• Blame the other franchisees
• Cognitive Dissonance: stress caused by holding 2 contradictory opinions at 1 time
• Collaborators
• Death wish
• Delusional thinking
• Envy
• Framing
• Franchisees who appear to have lost their mind
• Greed
• Happy serfs
• Heuristics: rule of thumb decision making that can sometimes result in catastrophe
• Hindsight Bias: tendency to view the past as more predictable than it was
• Hubris
• I did drugs because I was sad
• Inherited money targeted
• Insight into self
• Loss Aversion: people dislike losing much more than winning (the same $)
• Love money
• Narcissism
• Necessary illusions
• Neuroeconomics: the study how people make decisions (psychology, economic & neuroscience)
• Psychological denial
• Psychological testing
• Psychopathology
• Seminar selling
• Shame
• Siren song
• Social cascades
• Sold during time of psychological vulnerability, especially unemployment
• Unsophisticated buyers
• Wanted: sheep

Pre-sale information is managed by master salesmen

• 100 per cent of settlements have gag orders
• 1st generation of investors knowingly sacrificed
• 55 per cent of franchisees would not advise others to join their system
• 75 per cent of new franchise systems die within 10 years
• Anti-trust provisions not applied to franchising
• Cannon fodder
• Can't talk to politicians
• Contracts across systems are virtually the same
• Cruellest lies are often told in silence
• Current franchisees can’t talk freely
• Disclosure documents are deficient
• Franchise investors deprived of information
• Gag order (confidentiality agreement)
• Gag order muzzles self & descendants
• Gag order, court-mandated
• Imbalance of information and power
• Misleading advertising
• Overstatement of sales and profits
• Pro forma income statements questions
• Quiet settlement
• Success rate, Timothy Bates’ study
• Success rates fudged

Laws are created by those able to influence the political process

• Beyond the Tipping Point
• Can't collect on court decision
• Charade of public consultations
• Credibility
• Disclosure laws: 10 per cent solution
• Feudal relationships
• Franchise laws protect franchisors, not franchisees
• McLaw: toothless legislation designed to protect the dominant parties
• Relationship legislation
• Toothless law
• Trust
• Weak law worse than no law
• White-collar crime is widespread

Confidence game

• Bankruptcies, several
• Blame themselves
• Canada: white-collar crime haven
• Confidence
• Deceptive marketing practices
• Defrauded more than once
• Defrauding the public
• Deposit money not refunded
• Disclosure documents never given
• Easy to sell around a disclosure document
• Emboldens industry bottom-feeders
• Franchise show
• Franchisee advisory group (lap-dog)
• Franchisor owns more than one systems (subsidizes dog from cash cow)
• Franchisor was once a franchisee
• Franchisor's associate
• Government corruption
• Hefty severance packages
• House negro
• Initial public offering, IPO
• Integral part of the deception
• Lawsuit that would crush whole sector
• Lawsuits, group
• Paid informers
• Persuasion
• Ponzi (pyramid) scheme
• Pump-and-dump scheme
• Qualify as franchisee if you fog a mirror & the check clears
• Related scammers
• Relative of franchisor buys assets from Trustee
• Self-delusion
• Selling around a disclosure document
• South Sea Bubble
• Strong back and weak mind
• The game is rigged
• Trading in false hope
• Victims are highly intelligent and educated