Franchise due diligence warning: even the brightest, shiniest apple in the franchise orchard could be hosting this year’s Wormfest.
Franchisers are notorious for playing fast and loose with both general franchise “statistics” and representations of the growth of their specific franchise systems. Franchise attorney and blogger Michael Webster has posted a biting and informative piece on The BizOp News ( Taylor Bond growing the Children’s Orchard Franchise? ) on the importance of checking hyped statements before taking a bite into a juicy-looking franchise opportunity.
As a quick example, Webster quotes a past interview with Children’s Orchard CEO Taylor Bond that appeared on franchise advertising portal Franchise Gator. Regarding the children’s goods consignment chain, the article states that “Under the leadership of new President and CEO Taylor Bond, who brings with him a strong background in franchising and resale, Children’s Orchard, with nearly 100 thriving locations in 23 states, is selling 5 million items to approximately 1 million customers each year.” The “interview” with Bond (which, for some reason, is titled “Recent Interview With Russell Frith”) states that “Bond is well on his way to achieving his goal of having 300 locations open by 2007.”
Nearly 100 thriving locations? Soon to triple in size? Sounds like a great system to join!
But it’s just like an attorney to kill the buzz by bringing up reality. Webster posts the required disclosure of unit numbers from the franchise disclosure document:
The disclosure document indicates that the “growth” of the Children’s Orchard franchise is what’s euphemistically known as “negative growth.” Instead of “nearly 100″ locations, as the hype interview states, the chain had 82 locations by the end of 2005, then fell from 82 locations in 2006 to 73 in 2007, a net loss of 9 locations. How gaining 0 units in 2005, adding 2 units in 2006, and closing 9 – or 11% – of total units in 2007 indicated that Bond was “well on his way” to achieving 300 units by 2007 is beyond my limited mathematical capabilities.
Then again, I never would have guessed “nearly 100 locations” actually meant 80 I mean 73 locations.
The franchise due diligence lesson for today, boys & girls? Compare the publicly hyped representations of the franchise company, past and present, to the cold, hard facts. The disparity between the two will tell you bushels about the company you’re dealing with.
And when “nearly 100 thriving locations” turns out to mean 73 locations and falling, you better scrutinize every representation the company makes. In cases like this, it might be hard to find a core of truth in the whole orchard.
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Photo: FranBest.com used by permission
Chart: public document, The Bizop News