Franchise Myth #1: That Franchisees OWN Their Own Businesses

Franchise sellers promote franchise “ownership” as a way to “Own Your Own Business!” and “Be Your Own Boss!”  We commonly refer to franchisees as “franchise owners.”   But are franchisees truly franchise owners… or franchise renters?  by Sean Kelly

(UnhappyFranchisee.Com)  My good friend and colleague Jim Lager is a nationally recognized, highly successful former franchisee of several brands.

He credits the franchise model as providing him with both an invaluable education and the opportunity to make a good living.

But he’ll be the first to tell you: despite four decades as a franchisee, he wasn’t a true business owner until he started his independent business, Texas Hose Pro.

“Franchising provided me with some great advantages,” says Lager, who went on to pioneer the “Fairchising” franchise alternative with American Hose Pro.  “But business ownership was not one of them. 

“As a franchisee, I was a business renter.”

“As a Franchisee, I Was a Business Renter.”  –  Jim Lager, Founder, American Hose Pro

Franchise sellers often describe franchising as “the safest route to the American Dream of business ownership.”

Despite our habit of using such terms as “buying” a franchise and referring to franchisees as franchise “owners,” make no mistake:

Franchisees do not own the businesses that they build.

They are, at best, franchise renters.

There may be advantages to renting a franchise just as there are advantages to, say, renting rather than buying a house or leasing rather than buying a car.

But renting is not the same as buying.

And leasing is not the same as owning.

Ask Yourself: What Do Franchisees Actually Own?

Ask yourself:  What Do Franchisees Actually Own?

Franchisees do not own the name of their business, nor the trademark or slogans.

They do not own the name recognition nor the goodwill they’ve built in their local market.

In most cases, they do not own the customer lists they’ve built up for years.

They do not own their business phone numbers, nor the business email address they use.

They do not own their social media accounts, including their business Facebook, Yelp! Or Instagram pages.

In most cases, they do not own the online customer reviews their hard work and customer service has generated.

This Short “Donut People” Video Shows a Common Franchise “Ownership” Trap

Unfortunately, the false promise of franchising as a “safe & proven path to business ownership” is increasingly exploited by commission-driven brokers who gain trust by calling themselves “franchise consultants.” These brokers earn $30K+ for each opportunity seeker who signs up with one of their commission-aying franchise sellers.

This short video featuring a mobile mini-donut franchise reveals the all-too-common deception:

Franchisees Own the Hard Assets of The Business.

Franchisees own the hard assets of the business – the counters, the vehicles, the equipment – but only after being stripped of any identifying logos or trade dress.

They do not have the ability to sell their franchise to whomever they like nor even to advertise it without approval.

And with non-compete provisions so prevalent in franchise agreements, they may not even own the ability to continue to do business within the same industry in their home market for a period of years.

So what do you own if and when you reach the end of your franchise rental term?

American Hose Pro founder Jim Lager once described reaching the end of a franchise agreement as equivalent to returning a vehicle at the end of its lease:

“You hand over the keys and walk away,” says Lager. “You own nothing.”

Franchisees Own the Risks.  And They Own the Debt.

There’s a popular saying used ad nauseum by franchise sellers:  With franchising, you’re in business FOR yourself, not BY yourself.

The pages of Unhappy Franchisee contain countless stories of those who will tell you how alone they felt when they realized that they could not sustain their franchise business and had to close.

They very much owned the SBA loans, the equipment leases, and the contractual obligations of their property lease.

Many franchisors will remind them that they own the unpaid royalties and fees (liquidated damages) they contractually owe for the remaining term of their franchise agreement.

If You Pursue Franchise Ownership, Be Sure to Do It with Your Eyes Wide Open

Before embarking on a major investment of time, money and resources… before committing 5, 10 or 15 years to build a successful business, you should ask yourself:

Whose business am I building?

Who am I building it for?

And who, at the end of the day, will it belong to?

About Sean Kelly:

Sean Kelly is a leading franchise expert, publisher, and fair franchising advocate. As a consultant, director of marketing and creative agency head, he has worked with hundreds of franchise companies and thousands of franchisees. As founder of the Franchise Truth Initiative and publisher of UnhappyFranchisee.Com, he gives a voice to industry whistleblowers and calls attention to predatory sales practices.