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SMART ANSWERS
By Karen E. Klein
FEBRUARY 1, 2000


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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 optimists.

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 system.


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