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Forbes’ Praise of the Snap-On Franchise Draws Fire, Disbelief

February 28, 2012

When Jim Lager saw that Forbes had named Snap-On Tools #1 on its Top 20 Franchises for the Buck list, he was shocked… then angry.

“Snap-On?  The top franchise opportunity?  You have GOT to be KIDDING me!” Lager exclaimed.


Jim Lager is one of the top 10 Snap-On Tools franchisees in the world.

Despite his financial success, Jim Lager is deeply critical of the Snap-on Tools franchise program and organization.

“Forbes made a serious mistake endorsing this deeply flawed franchise,”  says Lager.

“Unfortunately, Snap-on will use this undeserved ranking to recruit unsuspecting franchisees who will not fully understand what they’re getting into.  For some, it will be the worst mistake they ever make.”

So how did one of the world’s most respected business publications get it so wrong?

Forbes Thought of the DayIn compiling the rankings, the writer made some of the mistakes that lead franchisees into making the wrong decisions.

Forbes Mistake #1:  Average initial investment

One of the deadliest mistakes prospective franchisees make is underestimating the investment required.  Without enough working capital, says Lager, a Snap-on Tools franchisee will surely fail due to the high cost of inventory and Snap-on financing.

The Forbes article states that the average initial investment for the Snap-on Tools franchise is $135,390.

“No way,” says Jim Lager, who owns 5 Snap-on Tools franchises.  “The truck alone is $91,000.  By the time you purchase inventory and incur other expenses, your investment will easily be $250,000.”

Snap-on Tools’ own disclosure document confirms Lager’s contention.  The Snap-on Tools Franchise Disclosure Document (FDD) states “The total investment necessary to begin operation of a Snap-on Standard Franchise will range from $150,614 to $289,080.”

The Forbes Snap-on Tools ranking is based, in part, on an incorrect and misleading investment amount.

Snap-on Franchises Closed

 

 

 

 

Forbes Mistake #2:  Claim of “0 closures” in past three years

Franchisors are masters of cloaking their franchise failures in terms like “transfers” or “franchisees having left the system.”

Often, one must read between the lines to see how many franchisees exit the system without their investments, good credit scores or peace of mind.

The #1 Forbes ranking is based on the notion that Snap-on Tools has had no franchise “closures” in the past 3 years… and the assumption that not a single franchisee has failed.

Lager says that’s just not true.

“Unlike stores or restaurants, mobile tool routes don’t ‘close’ when they fail,” Lager points out.  “When Snap-on franchisees lose their investments and leave the system, the franchisor repackages the route and resells it to someone else.  It might not be a ‘closure,’ but it’s certainly a failure.”

So how many Snap-on franchisees leave or are “terminated” from the Snap-on franchise system?  According to these these reports, (compiled from information gleaned from Snap-on FDDs by research firm Frandata), quite a few:

Snap-on Franchisees who “Terminated” in 2009 (pdf)*

Snap-on Franchisees who “Terminated” in 2010 (pdf)*

In fact, the 3-year total of franchises “reacquired by franchisor” is 835 for the standard franchise and 225 for the “Gateway franchise.

*Note the disclaimer on these lists of “terminated” franchisees:  In some instances franchisees who have left the Snap-on System have signed agreements with provisions restricting their ability to speak openly about their experience with Snap-on.  You may wish to speak with these former franchisees, but be aware that not all franchisees will be able to communicate with you.

Forbes Mistake #3: Not considering Snap-on’s dominance over its franchisees

One of Lager’s main complaints with the Snap-on franchise is the franchisor’s dictatorial control its Snap-on franchisees.  While his industry experience and high sales volume has given him a bit more control, Snap-on controls almost every aspect of the average franchisee’s business, including which customers he can call on, which vendors he can buy from and if and when he can sell his business.

As we stated in an earlier post (SNAP-ON TOOLS Why SBA Won’t Guarantee Snap-On Franchise Loans), the Snap-on franchisor maintains such dominance that its franchisees are not eligible for the Small Business Administration’s (SBA) loan guarantee program.  The SBA has determined that the Snap-on franchise agreements “impose unacceptable control provisions on a franchisee or potential franchisee.”

When it named Snap-on Tools #1, Forbes obviously didn’t take into account that Snap-on Tools has such control over every aspect of the franchisee’s business, the SBA doesn’t even consider Snap-on franchisees business owners.

Forbes Mistake #4: Ignoring franchisee lawsuits

Jerry Marks, of the NJ-based law firm Marks & Klein, is a franchise attorney who has represented many disgruntled Snap-on Tools franchisees.

According to Marks, one of the first places to look when assessing a franchise opportunity is the list of franchise lawsuits disclosed in the franchisor’s FDD.

After all, does a favorable ratio of training hours to startup costs really matter if the franchisees are lighting torches and storming the castle?

The 2011 FDD lists nearly 40 lawsuits against Snap-on Tools by its franchisees in the last ten years, including a class action lawsuit that was brought by the Marks & Klein firm and was settled in 2006.  Marks & Klein and the franchisees prevailed, and that class action suit cost Snap-on Tools a total of $125 million dollars including $38 million in settlement fees, attorney fees and other costs.

According to the Snap-on FDD “This complaint set forth various alleged deceptive practices, sought to represent a class for current and former franchisees and independent dealers, sought injunctive relief, and contained counts for alleged violation of RICO, state statutes prohibiting deceptive trade practices, deceptive franchise practices and consumer fraud, common law fraud, breach of contract, breach of fiduciary duty and breach of implied covenant of good faith and fair dealing.”

Out of 4000 or so franchise opportunities available today, does this, seriously, sound like the #1 “Franchise for the Buck” ?

Forbes’ Biggest mistake:  Not consulting franchisees (or UnhappyFranchisee.com)

Every guide to buying a franchise stresses the importance of speaking to current and former franchisees.  This step is so critical in franchise due diligence, the Federal Trade Commission requires franchisors to list the franchisee names and contact information in their FDDs.  Yet the franchise rankings and “top ten” from business publications rarely, if ever, bother to even consult the franchisees of the systems they are praising and endorsing.

Unfortunately, the Forbes “Top 20 Franchises for the Buck” list is certainly no exception.

We highly doubt that any writer or editor who takes the time to read our Mobile Tool Franchise Guide & Index, and the thousands of franchisee comments, will rank Snap-on Tools or any other tool truck franchise, as #1 on any franchise list.

Except, perhaps, the “Top 20 Franchises to Avoid.”

SHOULD FORBES REVISE ITS “TOP FRANCHISES” LIST? WHAT DO YOU THINK?

Contact UnhappyFranchisee.com

Comments

13 Responses to “Forbes’ Praise of the Snap-On Franchise Draws Fire, Disbelief”

  1. richard says:

    im glad that someone with experience in the same business and company has the guts to speak out and tell the truth.
    it is the same with other tool companies too. i have experience with MATCO tools. it wasnt a good one. i underestimated a few thing and was misled alot of times and wound up losing all my money.
    franchises do not care about you. they are after a dollar and you have one, at least when you stated you did. any one with a little money and good credit can own a franchise. getting it upto and keeping it profitable is another story. they wont help you. they already have their money. when you fali they will just get another sucker to take your place.

  2. Well said administrator. I have left a few comments on the forbes site and it appears as though they are not letting anything through to criticize this report. They let my first comment through and now nothing. The scam continues.

    while I know Snap-on is the epitomy of the play ground bully that behaves well in front of grown ups. I never thought they would get caught putting up such a blatent lie. both forbes and Snap-on needs to be exposed.

  3. Todd A. Peterson says:

    I salute Jim Lager! Who even though he is a SUCCESS recognizes that Snap-On as well as all TOOL FRANCHISES are FLAWED!!!

    Just as harsh as he is to Snap-On I am as harsh and truthful about Matco.

    The only difference is Matco DESTROYED my success as they have many others.

  4. Todd A. Peterson says:

    I have posted 3 comments and they are all there. You might have to expand to see them all but they are there. I recommend everyone to post there as this is a PRIME TIME to exploit the these Franchise SCAMS!!!

  5. Todd it makes me sick to hear about dealers that once made money got destroyed by one of these companies. I guess I’m tired of the school yard bully and I am going to stand up to them. thanks for your input.

  6. Todd A. Peterson says:

    By the way, I can’t believe that Snap-On would stand in the way of a SUCCESSFUL businessmen who wanted to sell HIS SUCCESSFUL business. I thought that was one of the PERKS of owning YOUR OWN BUSINESS!!!

  7. Guest says:

    The writer J.J. Colao is just ignoring the many comments left on the article pointing out the inaccuracy of his ranking. I guess he doesn’t care that people may lose their life savings because of his lazy and irresponsible journalism.

    We should all send emails and letters to Forbes with a link to this story. Here are a few contacts:

    Forbes editorial contact: readers@forbes.com
    Corrections: corrections@forbes.com
    Writer J.J. Colao: jjcolao@forbes.com

  8. ADMIN says:

    UnhappyFranchisee.com sent a letter to the Forbes “correction” email address alerting them to the seeming factual errors brought up by Jim Lager in the post above.

    Here it is. Feel free to copy or adapt it if you’d like to urge Forbes to reconsider:

    The article “Top 20 Franchises for the Buck” is riddled with factual errors, and really not of the quality one would expect from the Forbes brand.

    http://www.forbes.com/sites/jjcolao/2012/02/08/top-20-franchises-for-the-buck/

    The story and its rankings are setting off a bit of a firestorm in the franchise community. Most egregious is the naming of Snap-on Tools as the #1 franchise opportunity. A few years ago, Snap-on lost a $150M class action suit by its franchisees for its deceptive and predatory practices. J.J. Colao awarded the #1 ranking based on 5 criteria. The information used in 3 out of 5 of his criteria is wrong.

    The investment number he used is too low.

    The incorrect investment made the investment-to-training hours ratio incorrect.

    He states there have been “0 failures” in the past three years when in fact more than 1000 franchises were “reacquired” by the franchisor.

    For documentation and more on the flaws of this article, read:

    http://www.unhappyfranchisee.com/forbes-snap-on-franchise/

    Additionally, 2 more franchises listed in his Top 20 are mired in disputes with their franchisees. Liberty Tax has more than 1000 outraged comments on UnhappyFranchisee.com from failed and failing franchise owners. Edible Arrangements is being sued by 170 franchisees for unfair practices.

    Other publications are picking up on this controversy. Hopefully, you address this matter before more damage is done either to the Forbes brand or those buying into this controversial franchise because Forbes didn’t do its homework before giving it the Forbes seal of approval..

    My suggestion would be to make it the “17 best franchises” and delete these three.

  9. ADMIN says:

    In response to our criticism, Forbes has added a related post that is linked-to from its rankings:

    http://www.forbes.com/sites/jjcolao/2012/03/05/our-response-to-criticism-of-top-twenty-franchises-for-the-buck/

    While the post is not exactly a retraction, it does state: “In order to glean the number of closures in a system, and thereby make some judgment as to its health, we tallied events recorded under the labels “Terminations”, “Non-Renewals”, and “Ceased Operations for Other Reasons”, as found in the “Outlets and Franchise Information” section of the Franchise Disclosure Document. We did not include those labeled “Reacquisitions”…

    “…Without fixed locations to shut down, Snap-on generally takes back struggling franchises for a small cash payment or the forgiveness of debt. Very few are ever terminated.

    “If the goal was to express the health of a system, then stating that the Snap-on franchisees experienced zero closures from 2008 to 2011 is misleading. Clearly, franchisees failed but were not accounted for under conventional methods. For the future, a better metric may indicate churn, whereby we take all transfer events, including reacquisitions, into account.”

    So, Forbes is saying that due to the shortcoming in its methodology, Snap-on mistakenly qualified as its #1 Franchise for the Buck. Snap-on, it appears, is free to keep boasting of its #1 franchise designation from Forbes… but at least Forbes will be more diligent in the future.

  10. Good for you, Sean. And Jim.

    Doesn’t Snap-on worry that by failing the SBA’s control test they are about to be Coveralled?

  11. Michael

    Here is a funny statistic. In a 3 year span from 2008 thru 2010 Snap-on reaquired 1060 (failed) routes. Given that there are 365 days in a year, there are only 1095 days in that three year period. In a 3 year period a Snap-on dealer failed every single time the sun set with the exception of 35 days over a 3 year period.

    I can only assume Snap-on has a heart and does not reaquire routes on holidays. There are 11 federal holidays per year in the United states that must account for the 35 days in that period in which Snap-on dealers did not fail, or in Snap-on words, get reaquired.

  12. Bob Huizinga says:

    I was thinking of getting a snapon franchise. Thanks for the heads up

  13. Al Cornish says:

    I was a former Snap On employee known as a “Mobile Store Manager.” Let me be blunt, your life is not your own. You are watched, criticized, and most of your waking life is under their control. This is not sour grapes talking.
    My customers used to tell my manager, “We like this guy. Get lost and leave him alone.”
    Even after working a 10 hour day, I was forced to attend an on line sales presentation and phone call for 90 minutes once a week. It was hell and I was happy to quit.

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