Tuesday, March 30, 2010

The Great Franchising Robbery

So, after months of agonizing about the decision you must make, the inevitable happens. With the advice of former franchisees, your attorney, your accountant, your spouse, and close friends, you end your relationship with Cold Stone. Hopefully, you have protected yourself, both from a legal and a financial standpoint. Remember, Cold Stone will come after you. Now, comes the process of rebuilding your life. It will seem like a daunting task. Looking for a job may be at the top of your list of priorities. Your financial condition may be a real concern. You may have relationship issues to deal with. Begin the work immediately! During this life changing process, you will undoubtedly have questions about why this has happened to you. We have all faced those questions. The answers to your questions can be found in blogs like mine, or by contacting people like Cecil Rolle, or talking to other ex-franchisees.
     So where do we all go from here? Can we take steps together to help each other to cope with what has happened to us? Are there legal steps that we could take either individually, or as a group that might force Cold Stone to pay for their actions? Your first step should be to contact Cecil Rolle, so that he can add your name to our database. I believe that only as a group do we have strength. Your second step is to gather information (e-mails, conversations with area developers or corporate employees, notes from Co-Op meetings, any written correspondence you may have had with Cold Stone, copies of your franchise agreement). This information will be invaluable in the future. Step three would be to educate yourself. Know what is out there.....read blogs (like this one), look for forums online, and talk to other franchisees, and ex-franchisees.

I found a very interesting blog by Carol Cross that many of you might find interesting, called The Great Franchising Robbery. This may give you some insight as to the problems with franchising, and how the deck is stacked against the franchisee. Enjoy!

     With the specter of the global economy and multi-national corporations, who would operate within the global economy, it became necessary for American multi-national corporations to outsource many good American jobs to remain competitive in the global economy. Our manufacturing base has diminished over the years as well, and this has produced a problem for government as to "Where are Americans going to work to realize their American Dream." Where are the jobs of the future?" Franchising has given the government job numbers to report to the American People and franchising has grown disproportionately in our economy because of all of the recessions we have had in the past thirty years.

     Thirty years ago the franchisors and the special interests who surround franchising, to include the federal and state governments, determined that franchising could grow jobs and financial activity in the economy, especially during recessions, when those with the financial resources to invest in themselves, and who had lost their jobs and income, would invest in franchises to restore their income and security. These investments and the redistribution of the savings/assets of franchisees would provide the cheap "venture" capital and the cheap labor to encourage those with successful businesses to franchise these businesses and grow jobs within the slowing economy.
     McDonald's, the great American success story, was, and is, the inspiration for franchisors to franchise their businesses to grow a chain that will make them millionaires within a few years if their "concept" catches on and the American people fall in love with THEIR concept.
     It is the Franchisors who are the ENTREPRENEURS and the franchisees are merely the resources of the franchisors used to grow the franchisors' chain operations. Of course, all franchisors are delighted if ALL of their "founding" franchisees are successful and make it, at least, to a "breakeven" status. But, realistically, there are always a certain percentage of "founding" franchisees that will fail and lose their entire investments. The only reliable research available from academics indicate that all startup small businesses, whether independent or franchised, fail at a rate of 50% at sometime within the first five years and only 29% are still standing at ten years.
     Apparently, in spite of and because of this grim reality, the Federal Government regulated franchising and took the business model out from under the purview of the States in the late 70's because they wanted to grow franchising and in order to grow franchising, they had to protect the franchisors from the certain percentage of franchisees who would fail and who would believe that they were fraudulently induced to contract because of misrepresentations made in the sales process as to the success and profits they would enjoy when they bought the franchise in good faith.
     The failure of "founding" franchisees, however, is not failure for the franchisors if the tangible and intangible assets of the failed founding franchisees can be retained within the system to continue to serve the franchisor. The franchisor has no capital investment in the hard assets of the franchisee's business operation and doesn't fail if these failed units can be CHURNED in fire sales to second-generation franchisees that, perhaps, can bring the business to breakeven status because they buy the business for just pennies on the dollar of the original investor, the founding franchisee.
     Unfortunately, "Churning" has become a management tool for some exploitive and dishonest franchisors whose franchises DO NOT produce profits for the majority of the franchisees and whose founding franchisees fail at a rate that, if known and disclosed, would prevent them from selling their franchises to new prospects.
     Unfortunately, The FTC Rule of the Federal Trade Commission that regulates franchisors appears to, in practive, permit franchisors to obscure the failure rate of their founding franchisees in the sales process and to sell their franchises to the public without making any representations at all concerning success or profits in the written disclosure document, the FDD, or the written franchise agreement. Franchisees are tricked by the appearance of government regulation to believe that there is some oversight of franchisors by the government and that government wouldn't permit the franchisors to sell franchises with high failure rates of founding franchisees and low profitability experience to innocent prospects who invest their life savings in these "pigs" and "dogs" that are eligible, often, for 90% guaranteed loans through the Small Business Administration (SBA).
     Many franchise experts have indicated that there is a fatal flaw in the FTC Franchise Rule that misleads that portion of the “American Public” who invests in franchises. The fatal flaw being that franchisors, themselves, are not mandated to disclose the unit historical financial performance statistics of their systems to new buyers or to investors in the franchisors' commercial paper.
     Apparently, the fatal flaw in the FTC Rule continues to be ignored by the regulators and by the Congress because they feel they can't change the law to make the franchisors disclose unit performance statistics because if the REAL RISK were disclosed to prospective buyers of franchises, this in itself would slow the economy. The Artifice of Item 20 of the Franchise Disclosure Document, whereon prospective franchisees are supposed to do their due diligence with current and ex-franchisees, actually acts to immunize the franchisors from fraudulent inducement/fraudulent concealment in the forming of the contract, and all of their inducements outside of the franchise disclosure document and the written franchise agreement are now moot and not actionable.
       So we have a Catch 22 that has resulted in great pain and suffering for thousands and thousands of Americans who have been unknowingly sucked into buying unprofitable franchises that often fail or that premeditatedly indenture them in long-term one-sided contracts from which there is no reasonable exit.
     The Great Franchising Robbery of franchisees continues and franchising continues to grow in our economy. Because the franchisors know that they are protected from claims of fraud and because they can sell their franchises without making any claims of success or profit in the written documents, franchisors have been encouraged to commit intentional torts and frauds against franchisees to themselves survive --that are NOW going to come to the attention of the courts in great numbers by way of class and mass actions. The government subsidy of the old and the mature franchisors and the startup franchisors will be exposed and there will be some kind of change.
     The Robbery will not stop until there is TRUTH in DISCLOSURE OF THE RISK in buying a New Franchise from a new franchisor or from an established and mature franchisor.

Sunday, January 10, 2010

What About the Stress?

Your health matters! During the four years operating my Cold Stone stores, I completely ignored the health issues that had been building inside me due to the immense stress I faced each and every day. There were some days I'd go into the bathroom just to throw up. I felt a tightness in my chest constantly! My blood pressure had skyrocketed to 180/115, and I developed Type 2 diabeties. I've had franchisee's tell me that there were days they could'nt get out of bed. Cecil Rolle's latest e-mail included a section on this very topic, and with Cecil's permission I'd like to re-print it:

"The stress associated with operating a Cold Stone Creamery franchise is caustic and overwhelming. Franchisees report time and time again that their stress level is constantly elevated by the financial shortfall from Cold Stone's failed business model. The constant worry of making payroll every 14 days, Sysco/Sygma payments, rent, utilities, royalties, money, money, money--stress, stress, stress.

Franchisees often have to pull money from their savings, investments, kids' college fund, 401(k), or invest their inheritance from their hard-working parents, borrow against the equity in their homes or other property. They borrow from their friends, family and whatever source they are able to procure cash from to keep their unprofitable stores open. Many report that they are often concerned about such issues as having their power and water disconnected. They report that Kahala-Cold Stone's constant, active and aggressive effort to terminate and take stores for the company's own financial benefit is an enormous source of stress even for franchisees operating well between the lines.

Stress has a long term--adverse affect on your quality of life. The sleepless nights, nervousness, irritability, cause irreparable damage to your health, not to mention the damage that it does to your relationships.

I hear from franchisees all the time regarding the relief they feel once they have closed their stores.

Stress has been definitively linked to premature aging, sleeplessness, anxiety, nervousness, frequent urination, frequent stomachaches, urinary track and other infections, irregular menstruation, immune suppression causing chronic infection and disease, and other conditions. It causes the onset of diabetes, high blood pressure, cardiovascular disease, abnormal circulation, depression, hardening of the arteries and other diseases. According to wikipedia.org:

Stress is how the body reacts to a stressor, real or imagined, a stimulus that causes stress. [A Cold Stone franchise clearly qualifies.]

Alarm is the first stage. . .

Resistance is the second stage. If the stressor persists, it becomes necessary to attempt some means of coping with the stress. Although the body begins to try to adapt to the strains or demands of the environment, the body cannot keep this up indefinitely, so its resources are gradually depleted. [Emphasis added.]

Exhaustion is the third and final stage. . . . At this point, all of the body's resources are eventually depleted and the body is unable to maintain normal function. At this point the initial autonomic nervous system symptoms may reappear (sweating, raised heart rate etc.). If stage three is extended, long term damage may result as the capacity of glands, especially the adrenal gland, and the immune system is exhausted and function is impaired resulting in decompensation. [Emphasis added.]

The result can manifest itself in obvious illnesses such as ulcers, depression, diabetes, trouble with the digestive system or even cardiovascular problems, along with other mental illnesses.

Responses to stress include adaptation, psychological coping such as stress management, anxiety, and depression. Over the long term, distress can lead to diminished health and/or increased propensity to illness; to avoid this, stress must be managed. [Emphasis added.]

Your health matters and it should take precedence over even your finances. You can live--even thrive without money. (Many Cold Stone Creamery franchisees are firsthand proof of that.) But you cannot live a quality life without good health.

You should rid your life of the stress associated with operating your unprofitable Cold Stone Creamery store by closing it immediately.."

Cecil's comments on the effects of Cold Stone Creamery's failed business model on your health are right on point. He does not mention (so as not to add to your stress) the very real possibility of suicide. QSR magazine, the trade magazine for the quick service industry did an article on Quizno's franchisees who were strugling, much like we are, and pointed out that because of the financial devastation faced by many of their franchisees, two of them had committed suicide.

SUICIDE IS NOT AN OPTION!  Cold Stone is not worth it. There are many of us out here who have been in your place.  We can help you through the minefield.  Cecil's phone is always on!  My phone is always on!  There is a better life after Cold Stone, you just need to believe that.

I found this model of grief very insightful.  It perfectly matched with what I went through during and after the process of closing my stores:

7 Stages of Grief


You will probably react to the financial collapse of your business with numbed disbelief. You may deny the reality of the loss at some level, in order to avoid the pain. Shock provides emotional protection from being overwhelmed all at once. This may last for weeks.


As the shock wears off, it is replaced with the suffering of unbelievable pain. Although excruciating and almost unbearable, it is important that you experience the pain fully, and not hide it, avoid it or escape from it with alcohol or drugs.

You may have guilty feelings or remorse over things you did or didn't do for your business. Life feels chaotic and scary during this phase.


Frustration gives way to anger, and you may lash out and lay unwarranted blame for the collapse on someone else. Please try to control this, as permanent damage to your relationships may result. This is a time for the release of bottled up emotion.

You may rail against fate, questioning "Why me?" You may also try to bargain in vain with the powers that be for a way out of your despair


Just when your friends may think you should be getting on with your life, a long period of sad reflection will likely overtake you. This is a normal stage of grief, so do not be "talked out of it" by well-meaning outsiders. Encouragement from others is not helpful to you during this stage of grieving.

During this time, you finally realize the true magnitude of your loss, and it depresses you. You may isolate yourself on purpose, reflect on things you did or did not do, and focus on what could have been. You may sense feelings of emptiness or despair.


As you start to adjust to life without your business, your life becomes a little calmer and more organized. Your physical symptoms lessen, and your "depression" begins to lift slightly.


As you become more functional, your mind starts working again, and you will find yourself seeking realistic solutions to problems posed by the loss of your business. You will start to work on practical and financial problems and reconstructing yourself and your life.


During this, the last of the seven stages in this grief model, you learn to accept and deal with the reality of your situation. Acceptance does not necessarily mean instant happiness. Given the pain and turmoil you have experienced, you can never return to the carefree, untroubled YOU that existed before this tragedy. But you will find a way forward.

You will start to look forward and actually plan things for the future. Eventually, you will be able to think about your situation without pain; sadness, yes, but the wrenching pain will be gone. You will once again anticipate some good times to come, and yes, even find joy again in the experience of living.

Thursday, January 7, 2010

What Next?

You've finally realized what is happening (deep down you already knew). The situation seems to be spiraling out of control. You are continually "robbing Peter to pay Paul". You are having trouble paying Sysco (they might even have you on C.O.D.). You have payroll on Tuesday, and there is no money in the account. You are afraid to answer the phone. The bank calls to tell you that your account is seriously negative........

Things are not going to get better. Cold Stone is not going to rescue you. You have exhausted all of your savings, closed your 401K, borrowed from most of your family (and now cannot pay them back). Your house has liens on it to secure your loans. Your ability to borrow against it is gone(you realize you might even lose it!). You may even be having relationship issues because of your situation. What do you do now? The first thing is to realize that you are not alone. Often times, you go to a Co-Op meeting, and everyone else seems to be fine, maybe even doing well. That's what Cold Stone wants you to think. You are afraid to talk to your fellow franchisees about your situation, maybe out of fear or shame. Trust me, more than 50% of them are in the same situation!

Please, the next thing to do is critical. Call or contact Cecil Rolle! His phone number is 352-262-6798, and his e-mail address is cdrolle@bellsouth.net. He knows what you are going through. He's been there. He will put you into his database, and he will keep you informed about any legal action that may take place, but more so, through his semi-monthly e-mails, he will give you insight and answers to many of the questions you may have. He will also keep you informed about what strategies Cold Stone is currently employing to mislead and misdirect you about their efforts to "help" you.

The next thing to do is to begin to gather and consolidate any and all information, e-mails, communications, and conservations you may have had with Cold Stone/Area Developers about your situation. Start building a file that includes all documents pertaining to your association with Cold Stone. This will include things like your UFOC documents, your QSC & E results, and any written communication you have had with Cold Stone or your Area Developers. Save, and print any e-mails you send or receive from Cold Stone/Area Developers. All of this information will be extremely valuable to you as you move forward with your dealings with Cold Stone.

Now this is extremely important.....do not under any circumstance, sign any document with Cold Stone that ask you to give up any rights of litigation. Trust me, this verbiage will most likely be included in any document Cold Stone wants you to sign from now on. DO NOT TRUST THEM to do the right thing!

Once Cold Stone discovers that you are in financial trouble, they will begin to do everything they can to take your store. They will base their decision on "Out of Compliance" issues which, according to your franchise agreement, can be almost anything. Why do they want your store? When they acquire it, it becomes an instant asset! It cost them almost nothing to acquire it, and they will resell it for .30 to .5o cents on the dollar(this is called "churning"). The liability is on you!

This is where Cecil can help you. He will give you strategies to preserve assets you may have left,and what legal strategies you may need to move forward. I urge you again to contact Cecil!

You are going to be hurt financially. You are going to "fall off the truck..." You just need to minimize how much you will be hurt in the fall! I've been through the entire ugly process. The sooner you decide to walk through that door, then close it, the sooner other doors will open up for you.

I didn't think I could survive the fall, or even if I wanted to survive. I thank God every day when someone forwarded me an e-mail from Cecil Rolle. Cecil saved my life,and gave me hope. You've got to take that first step if you're going to move forward. You can call me at 559-999-2599 if you need someone to talk to, but make that first phone call to Cecil. You'll be glad you did.