Franchisors need to view franchisees as business partners, and...

Franchisors need to view franchisees as business partners, and to maximize success franchisors should demand that franchisees have both business experience and a track record of success. Making such demands of your business partners limits your growth opportunities because good business partners are in short supply.

What happened instead is that RFG approached its activity in a lazy way. They viewed the franchisee a schmuck to be fleeced. They guaranteed a profit for themselves, and apparently, they may have actually become dependent on bad business people failing so they could repeat the entire defective cycle over and over.

The franchisees wanted to face these things with a franchisor who was like a parent, but instead, they got one that was like a vampire. What I think a lot of the failed franchisees may not understand is that no franchisor can actually protect them from competition, vicious pricing, expenses like a heated rental market, etc. Owning a business is not like receiving a welfare check. Business ownership is an all-consuming activity that drains all of your energy and *most* business models are actually a mean-spirited trick. They are a mean trick because the business model represents a game that can never be won, no matter how hard you work. Someone else is always willing to sell a product at below cost, thus guaranteeing that you can never win. The trick in business is not hard work. The trick is to construct a business model that no one else can easily compete against, thus preserving a margin for your business and giving you a base model around which your hard work will see compensation. Very few business people understand this, and very few of the ones who understand it are successful at actually doing it. Many of the franchisees who failed need to do some deep soul searching and ask themselves are they really ready to own their own business, and if the answer is yes the next one they start needs to attend to these issues.

I think RFG fully comprehends their mistake. The last report really shows they get it. They talk about a new focus on business quality and they are doing the painful things that must be done. Once RFG:

* recapitalizes
* hits bottom on EBITDA from all of the short-term EBITDA closure expenses
* stabilizes the organic results of the business
* starts to show some organic growth within a new framework of successful businesses

it may end up being a very good investment. I don't think that time is on the horizon yet.