I only know two things about franchising. Here they are.
While I was practicing law, I often came across clients who operated a successful business that they wanted to franchise. They had the idea that they could sign some agreements and then other people would send them money, with very little effort being required on their part.
The most misguided wannabe franchisor who I ever met was a young fellow who had one of the first video rental shops in Toronto. (For you young folks, that was a store where you went to rent movies. You walked up and down the aisles looking at empty boxes of something called VHS tapes. After 30 minutes or so you took the empty box to the front and asked them to lend you the movie that went with the box, and they told you that there were none left and to go back and find something else. The rental costs were reasonable. They made their real money on late fees and charges for ‘failing to rewind’. I could explain that but it would take too much time.)
Anyway, this fellow was raking in money at an unbelievable rate and people would approach him and ask if they could buy a franchise. Wanting to make even more money, he was anxious to grant his first franchise. He met with me to provide me with instructions for the franchise agreement. He explained to me that since it was sometimes difficult to meet the demand for new releases, he wanted the agreement to say that he could hold onto the really hard-to-get titles for his own store if there were not enough copies to share with the franchisee.
It fell upon me to explain to the client that he required an attitude adjustment, and when you become a franchisor, you are going into the business of making other people successful. He seemed incapable of understanding that concept. So he ignored me. I included the provision. He sold the franchise. He made even more money.
The second thing that I learned about franchising I picked up at a seminar organized by the Canadian Franchise Association many years ago. The speaker gave a definition of the ideal franchisee being, “smart, but not too smart. Smart enough to follow the system. Not so smart that they think that they can do it better than the franchisor.”
So there you have it. The franchisors do not necessarily have to be smart to make money (although I imagine that as is the case with Coke, things go better when they have a brain.) It is actually preferred that the franchisees not be too smart.
We lawyers, on the other hand, are supposed to be intelligent. My father used to say, “If you are so smart, why aren’t you rich?” I have thought a lot about that saying over the years. I should have gone into franchising.
By the way, franchising is a great deal more sophisticated than it was in my day. If you are going to get involved with it, you might want to call a lawyer who specializes in it.