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>> THOUGH BUYING INTO A
FRANCHISE CAN LOOK LIKE A GOOD
DEAL AND AN EASY WAY TO OWN YOUR
OWN BUSINESS, IT CAN ALSO TURN
INTO A NIGHTMARE IF IT ISN'T
THE RIGHT DEAL.
>> AFTER INVESTING LARGE SUMS OF
MONEY, THOUSANDS OF PEOPLE HAVE
FOUND THSELVES IN FINANCIAL
RUIN.
EVEN WORSE, FOR MANY, A
FRANCHISE GONE BAD CAN TAKE A
HUGE PERSONAL TOLL, AS SUSAN
WORNICK REPORTS TONIGHT IN PART
THREE OF HER SERIES, "BUYING IN,
LOSING OUT."
>> THESE ARE ROTORBROTORS.
SEE HOW THEY'VE GOT THE THINGS
ON THE SIDES HERE?
>> FOR MANY, BUYING A FRANCHISE
FROM A FORTUNE 500 COMPANY LIKE
SNAP-ON TOOLS LOOKS LIKE THE
PERFECT WAY TO OWN YOUR OWN
BUSINESS.
THE FRANCHISEE BUYS THE TRUCK
AND TOOLS FROM SNAP-ON AND SELLS
DIRECTLY TO ACCOUNTS IN HIS
TERRITORY.
BUT JAY AND LISA NASH FOUND OUT
IT CAN ALSO BE THE WAY TO LOSE
YOUR SHIRT, YOUR FAMILY, AND
YOUR SELF-ESTEEM.
>> IT'S LIKE A MIND GAME.
IT'S MORE THAN A MIND GAME, IT'S
TOTAL CONTROL.
>> HAVING BUILT THEIR OWN HOME,
JAY AND LISA NASH WEREN'T AFRAID
OF HARD WORK, SO WHEN A SNAP-ON
TOOLS FIELD MANAGER SAID THAT'S
ALL THEY NEEDED TO MAKE BIG
MONEY, THEY PAID THE $40,000 AND
SIGNED UP.
BUT DESPITE WORKING SEVEN DAYS A
WEEK FOR NEARLY TWO YEARS, JAY
WAS CONSISTENTLY LOSING MONEY,
AND WHEN HE ASKED FOR HELP, ALL
HIS FIELD MANAGER OFFERED WAS
BLAME.
>> THEY MADE ME BELIEVE IT WAS
MY FAULT BECAUSE I WASN'T DOING
A GOOD ENOUGH JOB, I WASN'T
WORKING HARD ENOUGH, I WASN'T
DOING THIS OR THAT HARD ENOUGH.
>> THEY PUT EVERYTHING THAT THEY
CAN INTO MAKING THE THING
SUCCEED AND THEY'RE TOLD KEEP AT
IT, IT WILL WORK.
>> BUT FRANCHISE ATTORNEY HAROLD
BROWN SAYS IN FACT, THE SNAP-ON
DEALER IS DOOMED FROM THE START.
IN ORDER TO MAKE ANY MONEY, THE
FRANCHISEE HAS TO SELL TOOLS,
BUT IN ORDER TO MAKE A SALE, HE
MUST EXTEND CREDIT.
THAT MEANS THE HE WINDS UP
PAYING CASH UPFRONT TO SNAP-ON,
WHILE GETTING ONLY PARTIAL
PAYMENTS AND I.O.U.'S IN RETURN.
IT IS A FORMULA FOR FINANCIAL
RUIN.
>> IT'S AN ABSOLUTE FRAUD FROM
THE MINUTE GO.
>> ALL JAY EVER HEARD WAS,
"TRUST ME, TRUST ME."
"I'M GONNA ASK YOU TO DO THINGS
YOU'RE NOT GONNA WANT TO DO, BUT
TRUST ME."
>> BUT AT THE SAME TIME, THE
FIELD MANAGER WAS ENCOURAGING
JAY'S WIFE TO HARASS HIM.
>> HE ALMOST HAD MY WIFE
BELIEVING THAT I WASN'T DOING
ALL OF THE THINGS I WAS DOING.
>> THAT'S RIGHT.
I FORGOT ABOUT THAT.
I WOULD START ATTACKING HIM,
SAYING, "CRAIG SAID YOU SHOULD
HAVE DONE IT THIS WAY, HOW COME
YOU DIDN'T DO IT THIS WAY?"
I WAS RESENTFUL.
>> "DIVIDE AND CONQUER": A
STRATEGY RIGHT OUT OF THE SNAP-
ON TEXTBOOK.
>> NUMBER 18 OF WHAT A FIELD
MANAGER IS SUPPOSED TO DO WAS TO
INVOLVE THE FRANCHISEE'S WIFE
AND TO TELL HER TO ENCOURAGE
HIM, THAT HE'D MAKE IT.
"JUST KEEP ON GOING; HE'S GOING
TO MAKE IT."
IT WAS IMPOSSIBLE TO MAKE IT.
THE NASHES FINALLY REALIZED WHAT
WAS GOING ON AND GOT OUT.
LIKE MORE THAN 100 OTHER SNAP-ON
DEALERS ACROSS THE COUNTRY, THEY
TOOK THEIR CASE TO ARBITRATION
AND WON.
ALTHOUGH THEIR FINANCES WERE A
MESS, THEIR FAMILY WAS INTACT.
HAWAIIAN SNAP-ON DEALER CURTIS
HIGUCHI WAS NOT SO LUCKY.
THE 24-YEAR-OLD HUSBAND AND
FATHER OF TWO FOUND HIMSELF
STEADILY LOSING MONEY AFTER ONLY
SIX WEEKS.
BY HIS CALCULATIONS, HE WAS
DIGGING HIMSELF INTO A HOLE HE
COULD NEVER GET OUT OF.
>> SO HAPPENED HE WAS BRIGHT.
HE HAD TWO COLLEGE DEGREES.
HE LOOKED THINGS OVER, CAREFULLY
MADE SURE THAT HE WAS RIGHT, PUT
ALL HIS AFFAIRS IN ORDER AND
KILLED HIMSELF.
>> THIS SNAP-ON TOOLS CASE MAY
BE EXTREME, BUT THE PROBLEMS IT
REPRESENTS ARE NOT.
>> AFTER READING YOUR BILLS, I
HAVE GREAT HOPES THAT THESE
TYPES OF NIGHTMARES COULD BE
ENDED.
AFTER ALL, THE ONLY WAY TO END A
NIGHTMARE IS TO WAKE UP.
>> RECENTLY, FRANCHISEES
REPRESENTING COMPANIES LARGE AND
SMALL TOOK THEIR CONCERNS ABOUT
THE $750 BILLION FRANCHISING
INDUSTRY TO WASHINGTON.
>> WE HAVE TO PERFORM FOR THE
FRANCHISOR BUT THE FRANCHISOR
HUD BE REQUIRED TO PERFORM FOR
US.
>> THEY COMPLAINED ABOUT
ENCROACHMENT, WHERE A FRANCHISOR
PUTS A NEW STORE SO CLOSE TO AN
EXISTING ONE THAT NO ONE CAN
MAKE A PROFIT.
THEY DESCRIBED BEING SLAVES TO
WHIMS OF DOMINEERING MASTERS.
>> UNILATERAL ACTION AS JUDGE,
JURY AND EXECUTIONER.
>> TWO BILLS, PROPOSED BY NEW
YORK CONGRESSMAN JOHN LA FALCE,
WOULD STRENGTHEN DISCLOSURE LAWS
GOVERNING THE SALE OF FRANCHISES
AND PROMOTE A MORE LEVEL PLAYING
FIELD FOR FRANCHISEES.
>> BASIC CONCEPTS, BUT YOU
WOULDN'T BELIEVE THE
UNBELIEVABLE OPPOSITION.
>> I BELIEVE IT.
>> CURRENTLY, FRANCHISORS ARE
REQUIRED TO MAKE CERTAIN
DISCLOSURES IN WRITING, PRIOR TO
ANY SALE.
BUT THE SINGLEMOST IMPORTANT
PIECE OF INFORMATION, HOW MUCH
MONEY A BUYER CAN EXPECT TO MAKE
FROM THE INVESTMENT, IS NOT
AMONG THEM.
>> TODAY THE FRANCHISE INDUSTRY
IS SO UNBALANCED IN TERMS OF THE
ECONOMIC POWER OF THE
FRANCHISORS VERSUS THE ECONOMIC
POWER OF THE FRANCHISEES THAT
THE MARKETPLACE JUST ISN'T
WORKING.
>> BUT THE TRADE ASSOCIATION FOR
FRANCHISORS DISAGREES AND
DOESN'T SEE A NEED FOR
LEGISLATION.
>> WE DON'T THINK IT WILL MAKE
THE PROBLEMS GO AWAY.
IN FACT, IT MAY EXACERBATE THESE
PROBLEMS.
>> ARGUMENTS OVER THE PENDING
LEGISLATION ARE LIKELY TO
CONTINUE FOR THE NEXT SEVERAL
MONTHS.
IN THE MEANTIME, THERE ARE
IMPORTANT THINGS YOU SHOULD
KNOW AND DO BEFORE INVESTING IN
A FRANCHISE:
GET GOOD LEGAL AND FINANCIAL
ADVICE.
ASK FOR AND STUDY DISCLOSURE
DOCUMENTS.
INTERVIEW CURRENT AND FORMER
FRANCHISEES.
>> THERE ARE 300 FRANCHISEES TO
EVERY ONE FRANCHISOR IN THIS
COUNTRY, AND THEY NEED TO KNOW
THAT THEY CAN HAVE A CLECTIVE
VOICE TO MAKE THINGS BETTER.
AND WHEN THAT HAPPENS, YOU WILL
SEE THIS INDUSTRY WORK THE WAY
IT IS SUPPOSED TO.
>> FRANCHISEES, WHO MAY HAVE
LITTLE POWER INDIVIDUALLY, ARE
BEGINNING TO ORGANIZE TO GAIN
MORE RIGHTS COLLECTIVELY.
UNFORTUNATELY, MANY ARE STILL
AFRAID TO SPEAK OUT FOR FEAR OF
RETRIBUTION.
AS WITH SOME OF THE OTHER
FRANCHISES WE LOOKED AT THIS
WEEK, THERE ARE SATISFIED SNAP
ON FRANCHISEES.
THESE TEND TO BE DEALERS WHO
HAVE BEEN WITH THE COMPANY
LONG ENOUGH TO HAVE A LARGE
TERRITORY.
BUT JDGING FROM THE HUNDREDS
OF CASES STILL PENDING AGAINST
SNAP ON, THE LEVEL OF OUTRAGE
OVER MANY OF THEIR PRACTICES IS
VERY HIGH.
WE CAN'T STRESS ENOUHE
IMPORTANCE OF INVESTIGATING A
FRANCHISE THOROUGHLY BEFORE YOU
SIGN ON.
REMEMBER, LAWYERS ARE EXPENSIVE
AND LAWSUITS CAN TAKE YEARS.
TOO MANY FRANCHISEES FIND THEY
HAVE TO WALK AWAY FROM A BAD
SITUATION WITH ABSOLUTELY
NOTHING BECAUSE THEY CAN'T
AFFORD TO FIGHT.
>> LAWYERS ARE EXPENSIVE ON
THE BACK SIDE BUT NOT SO
EXPENSIVE INITIALLY TO LOOK AT
THAT FRANCHISE AGREEMENT TO
SAVE MONEY.
CERTAINLY SOME FRANCHISES ARE
TERRIFIC AND WORK WELL AND
PEOPLE MAKE MONEY.
>> ABSOLUTELY.
>> YOU DON'T HAVE ENOUGH TIME
TO GO INTO ALL THE DETAILS,
BUT A COUPLE KEY POINTS PEOPLE
COULD LOOK FOR, THAT SHOWS WHY
THE GOOD ONES WORK?
>> WE HAVE TOLD PEOPLE ALL
ALONG THE MOST IMPORTANT THING
TO DO BEFORE YOU SIGN ANYTHING
IS HAVE-- HAVE NOT ONLY AN
OWNER BUT SOMEBODY WHO KNOWS
SOMETHING ABOUT FRANCHISE LAW
LOOK AT YOUR AGREEMENT, MAKE
SURE YOU'RE COVERED.
GET EXPERT FINANCIAL ADVICE AS
WELL AS EXABOUT PERT LEGAL
ADVICE AND EVEN SOME SNAP-ON
FRANCHISEES ARE HAPPY.
>> SURE.
>> PEOPLE WHO GOT INTO IT
EARLY, HAVE A GOOD TERRITORY
ARE HAPPY.
YOU'VE GOT TO MAKE SURE YOU