On the eve of Halloween, let's all gather round by the fire (or glow from the screen) and exchange some scary stories inspired by the world of franchising. We at FranNet love to espouse the benefits of franchising and there are a lot of advantages, but in the spirit of Halloween, we’re going to take a look at some of the scary things that can go wrong when franchising goes awry.
Here are three scary stories from the world of franchising.
1. The Suffocating Stepparents
When a company changes ownership, it can be akin to getting a new parent. And, as anyone who has grown up with a stepparent can attest to, sometimes things don’t always work out when this new style of parenting is suddenly thrust on kids.
When a franchise brand is bought out by a new parent company, as happened to a famous brand in Canada not long ago, sometimes that new company’s way of doing things does not mesh well with the franchisees who are used to the old parent company’s way of doing things.
This is especially true if the original parent company is from a market far outside where the brand was developed. In those cases, the new parent can become a bit too focussed on the bottom line and how to increase that bottom line via cost cutting measures and various other business practices. If done wrong, this can actually damage the brand and cause conflict that boils over into the media, further putting the brand at risk.
2. The Walls Have Eyes
Sometimes franchisees like to band together in associations if they feel like the franchisor doesn’t have their best interests in mind. They feel that if they form a franchisee association, they can have a bit more clout with their franchisor.
When this happens, franchisees who organize and/or join these associations can be labelled formally by the franchisor as “Not in Good Standing,” which could put their businesses at risk, especially in areas of Canada that are not governed by franchise law. (All the franchise-specific laws in Canada -- in Alberta, British Columbia, Manitoba, New Brunswick, Ontario and Prince Edward Island -- guarantee franchisees the right to form associations.)
Informally, franchisees who try to form associations can be labelled by the franchisor as “troublemakers.” The franchisor might feel compelled to keep an eye on these franchisees and in some extreme cases, the franchisor itself will surreptitiously form or fund a franchisee association. Then, any franchisee who joins will be marked as a troublemaker. Basically, it’s like the franchisor spying on its own franchisees via an organization that is ostensibly meant to empower the franchisees. Although there are documented cases of this happening, thankfully it is super rare.
3. The Changeling
When a brand does a refresh, it does it across the board. There’s no use having a new look and only having half your locations adopt it. When it is a franchise brand doing the refresh, it’s usually up to the franchisees to foot the bill for renovating their locations, even if they have little to no say in the new branding the franchise is going with.
This is where the horror comes in. Franchisees have been put out of business by renovation bills that were much more than they were lead to believe. One story in particular involved a person who bought an existing sandwich franchise. The seller assured the buyer that the mandatory renovation would only cost about $15,000. He knew that because his brother had recently undergone the same renovation and that’s how much it cost.
Unfortunately, the buyer did not do his homework and bought the franchise location without checking on the price of the renovation. Only after he bought it did he check the price of the renovation: $60,000. He was stuck because the renovation was part of his franchising agreement. If you’re buying an existing location, that is no reason to skimp on your research. Be thorough!
These stories may be frightening, but don’t let them frighten you away from franchising. With the help of a qualified franchise brokerage like FranNet, you increase your safety dramatically. We will help you research franchises and recommend only reputable ones that treat their franchisees with dignity and respect. Sign up for a free FranNet franchise search and consultation today and we’ll find one for you.