Q: I am considering the purchase of a Mail Boxes Etc. franchise and have
talked to several longtime franchise owners in various states, both in
person and on the telephone. So far, I have not gotten any negative feedback.
Is this franchise really that good, or am I not asking the right questions of
the right people?
J.K., Lee's Summit, Mo.
A: Getting feedback from franchise owners is essential, and in person is
best. However, if you haven't heard a single negative comment and this
goes for any franchise company you're either not talking to the right
people or not talking to enough people or both, experts say. Every
business, franchise or independent, has its downside. So either these owners
are not being honest with you, or you've stumbled across a crop of cockeyed
There is one other possibility: "MBE uses an area-representative type of
system, so make certain that the franchisees [you are] speaking with are not
area reps. One of their jobs is to sell franchises," says Michael H. Seid,
managing director of Michael H. Seid & Associates, a Hartford (Conn.)
franchising consultant. Seid has done litigation-support work for the company
in the past.
Make sure that you ask the right questions, says Susan P. Kezios, president
of the Chicago-based American Franchisee Assn. Ask how long it took
these franchisees to break even and then to make a profit. "Are they
making the kind of money they thought they would be making? Knowing what they
do now, would they buy the franchise again?" Kezios asks.
Take your search further, to more franchisees and some business advisers. You
should be able to find the names and phone numbers of former franchise owners
in the franchise-disclosure document that the Federal Trade Commission
requires every franchisor to give you at your first substantial meeting with
them. If you are thinking about purchasing a unit that is replacing a closed
franchise, contact the former franchisee and ask why his or her business did
not do well.
Do additional research on the company before you decide to buy in. Mail Boxes
Etc., based in San Diego, has more than 4,000 outlets nationally and in 60
countries around the world. The company settled out of court with more than
30 former franchisees for about $5 million in cash and company stock in early
1997. The plaintiffs, who alleged encroachment, fraud, and breach of
contract, claimed that the company's circulars and promotional materials
described the success rates of franchises in a misleading way. The company
contended that it merely repeated widely quoted Chamber of Commerce
statistics but decided to settle to avoid additional court costs. Kezios
advises that you ask franchise owners about the case and attempt to talk to
some of the plaintiffs.
Franchisors must list lawsuits in their disclosure document. In general, it's
worth looking up the particular cases that involve significant amounts of
money or a large number of plaintiffs in a legal database, such as
Lexis-Nexis. Remember that almost every company gets sued but a large
number of lawsuits may be a red flag.
Mail Boxes Etc. President and CEO James Amos says there is detailed
information about the lawsuits in the company's disclosure documents. He
joined the company about the time they were settled.
Mail Boxes Etc., founded 20 years ago this year, has ranked first in the mailboxes
and postal service franchise sector and seventh overall in an Entrepreneur poll
of franchise companies, Amos says. "All franchising depends
on the unit economics of the individual franchisees," he notes. "We've
instituted an entire division that is devoted to franchise relationships; we
have a senior vice-president of franchise relationships; we have instituted formal
mediation and arbitration plans; and we have 1-800 hotlines and support
lines that are manned specifically so that we can resolve issues that
franchisees may need to have resolved out in the marketplace." Amos is on the
board of directors of the International Franchise Assn. (IFA) and will
be chairperson of that group next year.
There is a tremendous amount of information on the Internet about franchising.
The Web site of the IFA (www.franchise.org), contains a number of how-to articles,
including the FTC's "Consumer Guide to Buying a Franchise,"
and a number of documents for purchase, including a 51-page booklet that
covers many aspects of purchasing a franchise, "Investigate Before
Investing," available for $6 plus shipping and handling. Another publication,
called, "The IFA Franchise Opportunities Guide," has information on some
2,000 franchises, including snapshots of the companies, with names, contact
numbers, investment levels, qualifications, and company history.
The AFA, a group that represents franchisees, has a Web site at
www.franchise.org that also offers helpful information, including a
home-study course, "Buying a Franchise: How to Make the Right Choice," says
Kezios. The course, which consists of a workbook and two audiocassettes and
sells for $49.95 plus $5 shipping and handling, includes a section on what
questions you should pose to current franchisees.
Seid and Wendy's founder Dave Thomas have written a book called Franchising
for Dummies," which IDG Books is scheduled to publish in March. The book,
Seid says, will explain how to purchase a franchise, how to determine what is
a good franchise, how to be a good franchisor, and how to build a franchise
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