Mental Masturbation of FTC Franchise Rule Report

Please read through this quick thought and discussion as if a conversation where one party has been taken out and we are left with a monologue as the other debater is missing. Assume that debater is the compilation of arguments presented and only existing in the 432 page, 10-year late report of the Federal Trade Commission’ Franchise Rule, for it does not exist in reality or in any way lend itself to any sort of modern day economic theory of free markets, free men, the rights of men and created corporate entities to free contract.

The discussion in the Federal Trade Commission report is a discussion of mental masturbation between attorneys who make a living suing and collecting money from those who produce, the entrepreneurs. This discussion, debate and condemnation of over regulation and those who create such situations comes directly from the mind of an entrepreneur who is often not heard, yet creates, builds and toils in blood, sweat and tears to make available all that we see every where we go in our civilization. Since this side of the debate comes from the mind and rants of an entrepreneur furious with the treatment, bad policies, outrageous regulations, over-lawyered industry, there is no sugar coating here. It is as Jack Welch might say “from the gut.”

It is important to hear the other side as all to often government agencies only hear from the so-called professional side, that of lawyers, who have hijacked the law. Until a balance is reached and a reality based set of rules put in place the franchising industry will continue to be stifled and America cannot receive her true potential, some might say franchising is fine. I say it is the world’s greatest business model and could be ten-fold and we are squandering it like fools in this country. We need to open the eyes of the regulators to see what is really going on out there and how this trend is killing our economy. So, read and think about it and perhaps you will be enlightened as to a bigger picture of cause and effect of these insane disclosure regulations (they are completely nuts and it is not just in this industry we have runaway disclosure laws and rules). It is time to tighten up the regs and in doing so deleting much, if not all of the current disclosure now required. I propose that the leading thinkers at the FTC, along with some entrepreneurs sit down with a bunch of red magic markers and go line by line through these regulations and delete as much as humanly possible. I have been involved in such “Red Magic Marker Committees” and they work, and create a renaissance of hope for entrepreneurs and the flow of capital follows, it is truly an inspiring awe to see it take-off, the franchising industry needs that, now more than ever. Reduce the over disclosure requirements.

Now then, on page 21 of the report it states the following:

“The commenters maintained that pre-sale disclosure is a cost-effective way to provide material information to prospective franchisees so they can assess the costs, benefits, and potential financial risks involved in entering into a franchise relationship. In particular, pre-sale disclosure enables prospective franchisees to investigate the franchise offering by providing information that is not readily available, such as the franchisor’s litigation history and franchisee failure rates.” 17

I believe this to be a falsehood and misrepresentation of the actual facts in modern day franchising. One must take into consideration the costs to prepare such documents in the first place. The average total costs to prepare a set of franchise disclosure documents is $25,000 -35,000 and if you read the ABA Forum franchise attorneys this month are up in arms that someone, anyone other than a Franchise Attorney might prepare such documents. They are also upset that anyone might possibly give advice to a franchisor other than an attorney, so much so that they continually lobby many franchise registration states to come down hard on those who might say something that could possibly be construed as “Practicing Law without a License” effectively meaning that little competition exists in franchise disclosure packaging with anyone other than a Lawyer.

Thus there is no competition in the industry for such services and the lawyers in fact can continue through extortion and hi-jacking of the law in this regard. Lack of competition means higher costs, meaning we are moving away from anything that has ever resembled cost-effective into the category of ‘highway robbery’. The fact of the matter is that if the disclosure documents are Really and Truly to help the consumer, then they should be very simple and not create barriers to entry for new franchisors, who are forced to pay these exorbitant costs. Further, new franchisors are led to believe they must rely on what is often, bad advice of lawyers and are scared into believing that the lawyers understand business, who clearly give advice on matters of management, hiring, cash flow and other things they are not qualified to give, yet at the same time condemn Accountants and CPAs for giving advice on the best corporate structures, meanwhile the government in their own definitions of such often give advice in brochures and pamphlets to help consumers.

In addition new franchisors have a very tough time finding most of the important forms required by the government to be filed and the only place to get them is at an attorneys office. It is obvious why many entrepreneurs just say “well, all lawyers should be shot” yes a rather harsh statement especially considering all of us have lawyers in our families, when using this as an argument, entrepreneurs often say; “well you get rid of the ones in your family and we will sacrifice the ones in ours.” Why all the animosity? Well this rule making session is a perfect example, most everyone commenting is a lawyer or has a lawyer commenting for them? The laws are therefore for the lawyers not the people, entrepreneur or betterment of the all, as they are intended to be. Attorneys in general are the most self-serving profession on this planet, which stifles our Capitalistic System at every corner, since no one can debate that comment, I win; Think about it. Oh yah and thanks for listening.

“Lance Winslow” – If you have innovative thoughts and unique perspectives, come think with Lance; www.WorldThinkTank.net/wttbbs

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