The Trump Blog

On January 17, Trump University Professor Richard Parker wrote a post on this blog, entitled, “Seven Reasons Why Buying a New Franchise Business Is a Disastrous Mistake.” It triggered a strong response from Trump University Member 1711781, who offered arguments in support of franchise ownership.

Professor Parker has now responded to member 1711781. The result is an exchange that contains a lot of valuable information for anyone contemplating business ownership. So much good information, we decided to publish it on this blog. The first installment has appeared on this blog. Today, we publish the second and final installment.

Put on your thinking cap and get ready to learn from this exchange of ideas.

Member Comments:  "Not everyone is suited to operate a franchise." No $hit! Most people aren't suited do run a business, PERIOD, much less a franchise! Again, having somebody else do some of the work for you, and do it in a way that is PROVEN to be effective, is not a bad thing. Franchises have some of the best marketing and ad campaigns in business. Wouldn't you be relieved that you'd be using a marketing campaign that you already know is going to work?”

Parker’s Response: Normally, I would never even engage in a dialogue with anyone who sees fit to use profanity - I am not certain if you have done so as a means to emphasize a condescending point or a failure to articulate effectively. Nevertheless, I do agree with the point that following a proven marketing strategy is effective but that is on a macro scale. Reducing that to a micro environment for an independent franchisee simply does not translate or even reflect reality.  Take a look at the failure rate table produced by data from the Small Business Administration based upon cases where they provided the financing to new franchises.

Regarding your comments that most people aren’t suited to run a business, I cannot endorse that perspective. I fundamentally believe that anyone who can survive in a demanding job and who has a burning desire to be successful can easily achieve that goal simply by working hard in their own business, conducting effective research, educating themselves, and adopting a “never give up” attitude.

Member Comments: “It's difficult to make money in any business! Ask ANY small business owner in America! And keep in mind that franchise businesses are ALWAYS open to new ideas and looking for new ways to grow the business. In a lot of cases, they look to their FRANCHISEES for ideas. And yes, there is a chance a franchise business can become stagnant, but so can an independent company. That's why an entrepreneur has to be smart about what business he chooses to buy, franchise or otherwise.

Parker’s Response: The key issue here is that you cannot alter to franchise model to any extent because it does not trickle down to the individual franchisees ownership. Franchisors need cohesiveness to success. In fact, their agenda is to get every aspect of the operation in every location homogenous. This includes marketing and even the very franchise agreement itself.

Member Comments: I have EIGHT Starbuck's locations in my city to choose from and I know several of the owners myself. The parking lots are always packed and ALL of their businesses are thriving.

Parker’s Response: That’s great except for one problem: Starbucks does not franchise. As such, using them as an example is simply not applicable. Here’s a direct quote from the Starbucks website:

“Starbucks does not franchise operations and has no plans to franchise in the foreseeable future. In North America, the majority of our stores are Company-operated. As an exception, Starbucks may enter into licensing arrangements with companies who provide access to real estate which would otherwise be unavailable such as airport locations, national grocery chains, major food services corporations, college and university campuses and hospitals.”

Member Comments: If you own a franchise business and you tell your franchisers that you're business is failing and something needs to be changed, don't tell me they aren't going to oblige. Franchisers INVEST in their franchisees (for the most part), and they aren't going to let one of their investments lose its ability to make them money without a fight. I guarantee you that franchisers will tweak their marketing and ad campaigns to make your business successful in your particular location.

Parker’s Response: At this point I can only draw the assumption that you have never owned a franchise and I am shocked that you would “guarantee” that franchisors would tweak their marketing campaign to cater to a single franchisee. I stated earlier that I would attack your points and not the person, but with all due respect, your comment is ridiculous. Instead of me drawing any conclusions, I think the following results of the Johnson Franchise Consulting survey of 1000 franchisees addresses your erroneous assumptions quite effectively:

• 56% feel that the franchisor has not helped them improve their business
• 53% do not consider their business to be a financial success
• 40% feel their franchisor cannot be trusted to help them and their business
• 44% would not have purchased their franchise knowing what they know today
• 62% of franchisees do not feel they are currently receiving full value for their advertising fees paid to the franchisor
• 15% are in some type of dispute with their franchisor

Member Comments: Yes, there CAN BE restrictive rules in the sale of your franchise, but only sometimes. Again, this is another aspect that you should carefully consider before you even purchase the franchise. An entrepreneur, if he's smart, will ALWAYS prepare an exit plan.

Parker Response: The restrictive issues to sell a franchise are not “sometimes” as you quote but almost always. Typical clauses in nearly every franchise agreement include:

• The right of first refusal for the franchisor to purchase the unit.
• Substantial transfer fees.
• The requirement for buyers to undergo training BEFORE they are approved (this is actually a wonderful idea for the franchisor but a real deal-breaker for the buyer)

Member Comments: I'm really just pointing out that yes there are downsides to opening a franchise, but most of those downsides apply to independent companies, as well. This is the beauty of being an entrepreneur, you're always going to take a risk.

Parker’s Response: While there are downsides to independent businesses, they pale in comparison to opening a new franchise. Identifying these issues was specifically the intent of my posting. While I wholeheartedly agree that the “beauty” of being an entrepreneur is the fact that the rewards are commensurate with the risk, one can drastically reduce the risk simply by making well-informed decisions based upon fact, not opinion, but more importantly, anyone can dramatically diminish the risk simply by acquiring an ongoing, existing business, franchise or otherwise, that has a verifiable history of success rather than a start-up (in any guise) where the failure rates are dismal.