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Entrepreneurship Story; Over Regulation in Franchising Part I


Jim and Sally run a successful auto business, which they have built up over two decades and have expanded to three stores and many of their friends keep saying, "You should Franchise." They think about this for about five years read a few books, like "Franchising for Dummies," The "E-Myth", "The Franchising Bible" and many others on the shelves of the new big book store in town with the coffee shop inside. They finally decide that it makes sense especially as they have friends and loyal employees who wish to be associated with them and even own the first franchises. So they set out to franchise. They visit an attorney since that says in all the books to do. Most books about franchising are, at least in part if not whole, written by S2D2s (lawyers: S2P2s; Self-Serving Parasites of Planet) anyway, so they take that advice and visit an attorney. The S2D2 explains the MUD and helps by charging them a good chunk of change; $35,000 to prepare a boilerplate document which is so complicated they could not do it on their own without years of study. They give the S2D2 (scoundrel) the money and they look at the document and start asking questions. They do not ask him about the price gouging laws that their state has after all the flooding from the remnants of Hurricane Ivan, although they feel severally violated in the outrageous costs to prepare the documents. After all there is some new shop equipment they need to test cars to stay in compliance with the latest smog certificates and they are not cheap either. So they ask some typical questions instead of why they had to pay so much.

"But Mr. S2D2, we want to be fair and give this and that assistance to the new franchisees, Bob and Margaret are long time customers of our shop and friends. Joe has been working with our company seven years and they want to buy the first franchises. The S2D2 explains that the Federal Trade Commissions Franchise Group is doing this for the consumer's protection. Jim and Sally understand this but what is all this about termination, litigation, arbitration or mediation? Why does it say we may give you this and that, of course we would support Bob and Margaret and Joe they are dear friends of ours and it is our name on the building, of course we are going to go out of our way to help them."

The S2D2 says, "yes, I understand that but this is for your protection too." Sally says, "great but, it sounds so vindictive and mean, why would anyone sign it?" The S2D2 says "there is much case law and history as to why these things are in these documents and they are to protect you, that what you are paying me for." Jim thinks to himself, we are paying you to pick a fight with our new franchisees and long time dear friends. Attorneys are A-holes. They are our worst customers at the shop and I will never forget that time a one-week temporary worker hurt his hand because he was not paying attention, then sued us. Even though it was on his way to work or so he said, we had to fight the case, we won but it costs us $17,000, gosh, I hate attorneys. Jim just gives a slight aggravated look and gazes towards the window over looking the river and much of downtown. How can anyone call what this guy does work?

So Sally looks at the cover page and the second page and the third and it says: "This sounds mean and ugly almost vindictive." The S2D2 says, "this is to protect you, franchising is very litigious." Sally: "But these are our friends." She looks at Jim and gives him a look, what are we getting ourselves into? The attorney also has an interesting look, a grin. Knowing that soon he will have much work defending them in lawsuits, he thinks to himself; gotta love these entrepreneurial suckers, so na´ve thinking they are going to do good in the world, help people get into business and make money at the same time, living in a dream world, oh well thankfully they do exist, although I am noticing a decline in such folks over the years, but this is live bait, and I will make all I can while they still have money. The S2D2 then starts smiling as they leave. Knowing he can return the favor to some of his fellow attorneys nearby who specialize in divorce law and bankruptcy, etc. He has seen it before, good companies franchise and then the lawsuits, divorce and bankruptcy, he can smell it. He does not think more than a second or two that he and his S2D2 are the cause of all of it. Even if we are, we deserve the money, we are smarter than everyone else, have spent years learning all this dribble and besides I need another new BMW and the golf membership is coming due. Must keep up with the boys to continue to get those referrals.

Jim and Sally are having second thoughts, but are committed to the plan and already have the first three franchises sold to family, friends and loyal employees. "We promised Jim, we gave them our word, they are counting on us." "Yes, but Sally, I really hate attorneys, they seem so cold and they don't care, look at what he is charging us?" Sally says, "yes I know, but if we sell enough franchises we can send our kids to law school, that is where all the money is, look how hard we work to build a business and that fat cat attorney, just sits in that office with the view and works a few hours a day and that paralegal in the back seems to do all the work." Jim observes; "You know Sally, I really want to do this, we have worked so hard. Hey did you notice the way the secretary was looking at the attorney? I think they have something going there? Well maybe he is doing the paralegal too?" Sally says " yes I think you are right about the secretary, but the paralegal is definitely gay, you really think so?" Jim says, "Heck, yes, he seems like the squirrelly type, I do not trust him." Sally says "But, Jim you know his wife is a VIP in town? I agree with your comments did you notice how fast the attorney took you up on that offer too give his car free service?" Jim "Says, well the lawyers are a necessary evil, we ought to double the price whenever they come in with cars to the shop." Sally says, we ought to deny them service, so they do not try to sue us." Jim says "Yah, but there is probably some law against it and then they really would sue us, maybe we should just defer to Caesar on this one?" Sally agrees, "Caesar was Right!" Jim shouts, "Take no prisoners, kill them all, ha, ha, ha." Jim gets on the on ramp and lets all 455 cubic inches roar. "We're gonna pass everything but a gas station from here on out!"

The next day, Jim and Sally are over the negative observations and Jim says "Well now we have the documents let's go visit our future franchisees, finally after four months of paperwork." Sally smiles. Jim says "you know I love you honey, we are finally going to do this." Sally says "good, for a second I thought you had the hots for that paralegal, he was sure checking your rear end out." Jim says "oh great! But I think I am more worried about his boss trying to screw both of us in some bizarre three-some."

You see Mr. Federal Trade Commission this is how it all starts, it all starts out on the wrong foot. Why? This MUD is clouding the reasoning and strength of franchising. Franchising is a win-win situation, when it is buried in MUD it creates an adversarial relationship from the beginning.

Jim and Sally are ready and they call the attorney to make sure it is okay for them to visit the prospects, who are already to sign up. The attorney says well, wait a minute we need to discuss this, because there are rules of disclosure and you should also think of setting up a sales department and have forms for compliance.

The cold electronic like S2D2 right on que says; "tell me about these prospects." Sally says "oh they are so very nice. First; Joe has been a trusted employee for years and knows everything about the business and he has a partner and his parents are putting up the money for the equipment for part ownership and helping him qualify for the lease on the building, he already has a location picked out, the same one Jim and I were going to put our fourth store, before we started to franchise instead." Well that is very nice the S2D2 says to Sally "incidentally Sally where do his parents live?" Jim says "They live across the river in IL and his partner is from MI, he will be moving here once the business gets going."

The S2D2 is salivating understanding that MI is a notification state and IL is one of the three worst states to do business for franchisors, some franchisors have even gone to the length to say that the state of IL is on drugs like those 'fruits, nuts and flakes' at the California Department of Corporations along with the rest of the population of girlie men in and around San Francisco, although everyone likes the new 'Governator'. The S2D2 says; "well Jim we have a slight problem." Jim thinks to him self, uh oh, he remembers, 'ah Houston, we have a problem' and then says; "What, it is all set up, the parents already sent a check to Joe for the first and last on the lease and he signed the lease this week, Joe already gave them a deposit." The attorney says "well we need to slow down, first Jim and Sally I do not know how to break this to you, but MI has to be notified that you are offering franchises in their state and IL needs full registration, I of course can do all that for you." (huge smile comes over the S2D2, even feels a tingle in his thing and winks to the paralegal as he reaches for his member in a display of manliness, similar to the movie 'Wallstreet' or 'Boiler Room'.)

Looks like the S2D2's golf membership is in the bag after all he thinks to himself; Sushi tonight, hell for the rest of the week, why not. This is going to be great; he thinks just maybe; I can sneak off with Liz, the secretary, for the weekend and tell his wife it is another very important rule making session in Las Vegas for the Federal Trade Commission's Franchise group where important franchise attorneys from all over the country meet to discuss the franchise rule which has had no changes in 10-years. It has been documented that law enforcement officials, judges, policemen and attorneys are the most likely professions to have extra curricular affairs with either members of their same sex or the other. (Source: Netscape News Online Oct. 2003).

The S2D2 says to Sally and Jim, "The registration for IL could take up to several months, if everything goes perfect." "Several Months" shouts Jim. "Yes, well this is nothing compared to Cal-if-forn-ia." Explains the S2D2 and goes on to say; "our standard fees are $10,000 to register in IL and we can probably do the MI thing for a thousand plus fees." Sally says "But, we are not are only charging $10,000 for the franchise fee to begin with and we are not franchising in IL or MI, surely not for a couple of years, we have a strategic plan to 'Start Small and Finish Big', besides we want our first franchisees close by so we can help them, running a business is not easy you know and we need to be available here."

The S2D2 changes from friend to father daughter mode and in a voice only grandfather's use he says; "Dear Sally, I think you are misinterpreting what I am saying here, I understand you are not franchising in Illinois right now or even Michigan for that matter. But the people involved in your franchise have partners who will have interests in the franchise who live in those states you see and that requires you to be registered in those states or in the case of Michigan to notify you are offering them a franchise." Sally says "but we are not offering them a franchise, we are offering a franchise to Joe our employee. Who is already to start and we want to give him that 'UFO thing', the U-Fuck, I mean U-fock as you call it, you said they have to have it for ten business days and there is a holiday weekend coming up and Joe wants to start ASAP, he has been buying new tools like mad from the Snap on Tool guy, he is so ready, he wants to get busy and make money before the 30 day bill comes in for all those tools." S2D2 explains, "Sally, I understand your frustration, but that is the IL law. It doesn't matter, what you think the law says or what you have worked out with Joe of your own free will, you are in a franchise now. Also Sally remember about the master lease clause and additionally if Joe's parents pay for the lease and are a partner in the company and their residence is IL then we already may have a problem. We will disclose this to the IL registration people, but it may delay application since technically we are in gray area and as per law a technical violation. Meanwhile see if Joe can get his deposit back so you can sign the lease and sublease to him. Also in your franchise agreement we agreed that site selection was part of the franchise fee."

"Lance Winslow" - If you have innovative thoughts and unique perspectives, come think with Lance; www.WorldThinkTank.net/wttbbs


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