September 2015 Archives

I'm all for getting your company's name in front of as many people as possible - after all, isn't that part of the goal of engaging in social media? However, there's one thing I continue to see over and over that really bugs me.

Imagine you're out with a few friends, talking about a restaurant you recently visited. Out of nowhere, someone comes up to your group and says, "You're talking about ABC Restaurant? Let me tell you about my restaurant instead - it's great!" and continues to talk about their restaurant and why you should go there.

You'd be a little creeped out, right? It would feel like an invasion on your personal conversation, and an unwelcome intrusion.

This is how businesses need to see social media - intruding on one's conversation to pitch your own business is a no-no, and likely turns many people off.

I've seen this most times on Facebook - a good example is when I followed the conversation regarding a live chat with GoDaddy and the Honest Toddler. In the middle of the conversation, which revolved around the hilarity of the comment and speculation on what the representative was thinking, someone chimed in about how their business, a competitor to GoDaddy, was better and suggested that people who are customers of GoDaddy leave them and go to this company.

Another place I've seen this happen is on Facebook pages for news sites. The conversation could be surrounding a current news topic, and sure enough, there is always one or two that will try to pitch their business. In this case, it's mostly unrelated to the topic at hand.

Companies who do this may be trying to gain exposure; instead, they are sending the wrong message to people. This is something that I've seen all too often and for whatever reason, has become a pet peeve of mine.

If you want to get your company exposure in social media sites, join conversations that are relevant to your business, and don't "sell" your company. Post from your business page on Facebook, for example, so if people are interested in what you have to say, they can visit your page to learn more about your business.

If you want to get company exposure, use LinkedIn.

Join groups and offer relevant, insightful comments related to your industry so people can get to know the "person" behind the company.

way to do this is to monitor news articles and blogs in your industry and comment, using your real name and perhaps a link to your company website.

The two tactics mentioned above will go further in gaining exposure, credibility, and interest than intruding on other people's conversations.

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The best evidence that franchisors are really human beings is that they do the same things that any normal person does when confronted with a panic-inducing situation.

The first response -- which hopefully, but not always, occurs in private -- is just about always to observe the eleventh guard order, 'When in danger or in doubt, run in circles, scream and shout.' Control during those first moments of spontaneous potentiality is a priceless attribute. 'If you can keep your head when all about you are losing theirs' (Kipling) should be on a plaque somewhere conspicuous in the executive suite of your mind.

There are several almost universally practiced actions that are always mistakes and that should never happen.

There are mistakes because they tend to make the achievement of a positive result more difficult to attain.

There are mistakes because they are always obvious emotional statements to which little or no competent thought has been given.

There are always mistakes for the additional reason that they are either totally or in important part, quite untrue. They are untrue because of what is affirmatively stated that is false and because of what is omitted that is true but that may not make your company seem perfect.

There are mistakes because the ploy is so overused by so many people who are really scoundrels, that when you use the same approach, you may seem like a scoundrel also.

Do you want that? Of course not. Can you avoid that? Certainly. Here's how.

In that all companies are simply groups of quite fallible, normal, humans, mistakes happen. Some of the mistakes are of little consequence; some are rather huge; some are the product of over reaching and taking unfair advantage; some are stupid and some are intentional. The important fact is that mistakes, small and large, few and many, will occur.

Those who accuse your company, and sometimes you personally, of wrongdoing are sometimes wrong and sometimes right and sometimes somewhere in between, part right and part wrong. The accusations may be made in good faith, or in bad faith, or may be the product of misunderstanding. At the moment you first hear of an accusation of wrongdoing, you really are not certain of all the facts that may relate to it.

It is simply the worst possible moment to make any response about the merit or lack of merit of the accusations. But, at this precise moment, such statements are usually made.

What should be said in response to the first information that accusations have been made against you or your company is that you are just now hearing about it and have not had an opportunity to investigate the matter fully -- and that when you have made a diligent inquiry you may have a statement to make.

That is such a responsible thing to say that one wonders why people don't say that. Instead they say stupid things like 'That is totally false and we will be shown to have been correct.' -- or some such nonsense. Sometimes -- quite often -- the statement is even worse than that, for it may include a statement that the accusations are frivolously made. Even stupider!

It is important that your company have a protocol that everyone is made very aware of requiring any contact concerning negative information be passed to a designated person without comment to the inquiring party. I ll pass this information along to the appropriate person -- that is the only response to be made. The answer to the question 'Who is the appropriate person?' is always 'No comment!' It is also important that everyone knows that public statements that are not specifically authorized are considered a firing offense. People find it hard to resist being 'interviewed'. They have to be frightened for their employment in order to shut them up. Do it.

Next, the company should call together the most involved person(s) and their legal counsel, gather all files that may relate to the dispute or complaint, promptly evaluate the information, including interviews of everyone who may have been involved, and make a decision about how to respond properly. A proper response may not be a total disclosure of the whole truth, but it will not include statements that are untrue in and of themselves. If you have to lie, you need to rethink! That is a bad mistake. No matter what your PR person or your lawyer or anyone else may say, you need to make only responsible statements that instill confidence in your obvious good faith. People expect you sometimes to be wrong. You don t have to say that you screwed up, but do not insist in this early phase upon your rectitude.

Now, if you are dealing in a forthright manner with the issues presented by the accusations, you will not go to the mat in a losing fight. You settle. You adjust. You correct the mistake as best you can. Losing a trial or arbitration does not enhance your stature. An appeal is most likely to result in affirmation of the trial result, so you would only be reinforcing a negative consequence by insisting that facts are found in your favor when the true facts are really not in your favor.

People incorrectly believe that lawyers, if they are good, can manufacture or change facts. That is practically never true. Sometimes that happens, but the odds are so heavily against it that only fools think they can pay a lawyer and get a result to which they are not entitled.

Sometimes your opponent is represented by a moron and you win by default -- but usually that is also not the case. You should assume in your internal deliberations that you will be dealing with competent opposition.

In fact you should hope you are dealing with competent opposition. A competent opponent will understand when a reasonable settlement is being offered. A moron may not. If you have not called your opponent a scoundrel and his lawyer a shyster who brings frivolous lawsuits, a reasonable settlement may be obtainable and serious mistakes corrected without excessive difficulty and expense. A reasonable result is the best result. Insisting upon total vindication is usually a very bad decision, as no one is perfect and in most instances your opponent may be at least partially justified in taking the position he took. Sometimes, even though you were right in what you did, some dolt in your company mishandled the people involved and a conflict resulted that should never have happened. Such ineptitude should be recognized for what it is and dealt with appropriately.

If he gets away with this everyone will do it is sometimes not a proper rationale for a decision to make a fight of it. Maybe, even if your contract says the opposite, someone could be deserving of an exemption if you screwed up. Owning up to a screw up and making amends to the injured people does not usually cause your whole system to fall apart.

Enforcement of covenants not to compete is the most frequent situation in which stupid decisions are made to fight when the real problem is that your company created the problem and should be dealing with it in a more appropriate manner. Handling such instances with grace instead of bombast will do you far more good than fighting. Your long-term credibility as a fair organization that handles its affairs in an equitable manner may be worth more to you than insisting upon your rights in an unworthy situation.

This approach to what not to do and to what you should do when bad things happen will be the best approach, no matter what the right and wrong of the situation turn out to be. You lose nothing by appearing to be an organization that refrains from making irresponsible statements and taking irresponsible positions. If you really are respectable, then you might as well appear to be respectable. And if you are not, well, let's not go there.

As always, you can call me, RIchard Solomon, at 281-584-0519.

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The job of a leader is to make good decisions, particularly when the economy is soft, as it is at the moment. In the franchise relationship the franchisor is the leader. While this tip is especially dedicated to senior franchisor executives, anyone facing an important decision will find it useful.

Not all decisions are equal. An important decision has three characteristics:

• It cannot be easily reversed.
• It will relate to boosting prosperity or keeping the business safe.
• It is likely to significantly impact on others.

Important decisions are usually also complex which is why the following process is so useful. These steps are backed by good psychological research. Practice them and you'll immediately be a better franchisor.

Steven Strategies and One Tip

1. Don't assume a good decision will be good for everyone. Sometimes the best decision is the "least bad" decision because the options aren't great.
2. Gather all the facts. We all have a tendency to filter out information we don't find interesting, so be careful not to be selective in what you pay attention to. Keep asking "have we got all the facts?"
3. Get input from relevant people. These will be people who have a significant stake in the outcome or who have relevant expertise. If you form a task force of smart people, ensure some are also emotionally intelligent.
4. Minimise the impact of egos. Wise people change their minds in the face of new information. They appreciate that what is right is more important than who is right. For instance, one of our clients regularly reminds his team to hold strong positions loosely.
5. Identify all options. Put everything on the table, even options that are disturbing. Remember you don't need to act on these. But in naming them you open the door to honest, frank discussion.
6. Draw up criteria. Assess the options against these to see which get more ticks. For instance: What is the impact on franchisor profitability? What is the impact on franchisee profitability? Is it consistent with our brand and culture? How easy would it be to implement?
7. Pressure test preferred options. Play the devil's advocate. Actively look for gaps, weaknesses and risks. Explore how readily these can be fixed or minimised.

These habits will greatly improve the quality of your decisions and your ability to intuitively identify more subtle threats and opportunities.

A final tip. Someone once said to me, "Never make a decision when you're too - too mad, too sad, too glad, too anything!" I think this is great advice because a common source of poor decision making is impatience. Just like a good wine, important decisions are sometime best allowed to sit for a time.

Until next time ...

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Franchise Agreements may contain minimum royalty fee requirements and performance standards.

What is the difference between the two?

Can you be in default even if you pay the minimum royalty fee amount?

Listen to the video and learn the answers.

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Background

Billy Baxters is a coffee shop franchise system.

The case of Trans-It Freight Pty Ltd v Billy Baxters (Franchise) Pty Ltd [2012] VCA 71 involves the Billy Baxters' franchisor and its former Glenelg franchisee. The franchisee had terminated their franchise agreement after the business made losses and it was unable to pay the franchise fees. The franchisor sued the franchisee, seeking recovery of unpaid royalties and advertising fees under the franchise agreement.

In the first instance, the Supreme Court of Victoria found against the franchisee who had admitted that $250,000 worth of fees were unpaid. However, the franchisee had also issued a counter-claim, seeking compensation for its losses suggesting that the franchisor's representative had made misleading and deceptive statements before the franchisee signed up to the lease and franchise agreement.

The question to the Court was whether the statements of projected turnover and reasonableness of rent made by the franchisor's representative were misleading and deceptive under the Trade Practices Act 1974. The franchisee stated that the franchisor's representative had told it the anticipated turnover for the business was $1.3 million and that this would allow the franchisee to pay the rent and return a profit.

In finding against the franchisee, the Court found that the franchisor's representative had in fact provided a spread sheet template to the franchisees which allowed the franchisee to play around with figures for the business and determine viability themselves. The franchisee (who was an experienced franchisee itself) was also advised to enter its own information into the spread sheet and seek independent advice. The franchisee ignored this advice.

The Court found that the $1.3 million turnover claim was false. However, it was made on reasonable grounds so there had not been a breach by the franchisor.

The Appeal

On Appeal, a critical consideration for the Court was the set rent for the premises of $160,000 per annum which had been agreed between the franchisor and the landlord. The Court of Appeal found that the franchisor's representative would have told the franchisees that the ideal maximum rental was 15% of the turnover for the business.

The Court also found that the figure of $1.3 million was provided without reasonable grounds and that the turnover figure's only connection to the rent figure was that the business would need to make that amount of turnover as a minimum to make the rent affordable. The Court held that franchisor's representative had no foundation on which to base the representation that the franchisee could expect the turnover of the business would be $1.3 million and there was no evidence of any analysis that could back up that projection.

In a unanimous decision, the Court of Appeal agreed that the franchisor's representative's comments were not made on reasonable grounds and the decision of the Supreme Court was overturned with the franchisor ordered to pay the franchisees damages of $1.22 million.

Lessons for Franchisors

1. Franchisors should make sure that they closely monitor and oversee the actions of their representatives in dealing with prospective franchisees. It is important that representatives are educated on the kinds of statements that should not be made to prospective franchisees and to be clear at all times that franchisees should conduct their own due diligence and draw their own conclusion from their research. Any statements made about turnover and profitability when franchisees are considering the business are likely to become an issue if the business subsequently fails.
2. Franchisors should also review their documents and procedures surrounding site selection.
3. Prospective franchisees should also be required to seek independent legal and financial advice before proceeding to enter into a franchise agreement.
4. Prospective franchisees should also be encouraged to undertake their own demographic, analysis and feasibility studies for the site they are considering.
5. Careful attention should also be paid to the information provided in the disclosure document. However, the greatest risk lies in the statements made by representatives of a franchisor in their attempt to make the business seem more attractive to prospective franchisees. Discussions around figures and potential or expected income for a particular site need to be approached very carefully to ensure franchisees are not entering into franchise agreements on any false or misleading information.

For more information contact:

Ed Browne

Chris Verebes

Carla Sibbison

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There are countless grounds for termination of a franchise agreement. Failure to pay royalties is most assuredly grounds of termination of the franchise agreement. Abandonment of the franchise business is another sure bet for termination of the franchise agreement. Not operating franchise business in compliance with franchise standards, transferring franchise assets without franchisor approval, under reporting gross revenues; these are all common grounds for terminating the franchise agreement.

What about not having enough money in the bank? Well that is what happened in one case. The case is 7-Eleven, Inc.et. al. v. Brinderjit Dhaliwal. Brinderjit Dhaliwal ("Dhaliwal") is a 7-Eleven franchisee. He owned and operated a successful 7-Eleven franchise from 1997 to 2010, more than a dozen years. The lease on his location expires. He is forced to close the location.

7-Eleven gives him the option to take over a number of available locations free of an initial franchise fee or transfer fee. The locations available, which do not carry a waiver of the initial franchise fee, don't work for Dhaliwal. He ends up buying a location in Rocklin, California. The initial franchise fee is $219,000.

Dhaliwal thinks it is going to be a great location! But, it does not work out that way. Projected sales don't hit the mark. Under the 7-Eleven franchise agreement, Dhaliwal is required to maintain a net worth of $15,000. The profits are just not what were expected. The net worth of the franchise business repeatedly falls below the $15,000 threshold. 7-Elven sends Dhaliwal repeated default notices and ultimately terminates Dhaliwal's Rocklin, California, franchise.

Why would a franchisor put a net worth requirement on the franchisees?

And make it a terminable offense. I can think of several reasons:

1. The franchisor is worried about creditors taking over the franchise assets.

2. Insufficient cash flow may impede inventory levels, advertising expenditures, and staffing levels.

That is not what the franchisor goes with. Get this. The franchisor argues: it has good cause to terminate a franchise if they fail to maintain a net worth of less than $15,000.

This is a quote from the court's decision: The reason for the net worth requirement, as clarified at hearing, was to ensure that the franchisee was fully invested in the operation of the store."

Guess what? The court goes for it. The court grants a preliminary injunction in favor of 7-Eleven, ordering Dhaliwal to surrender the franchise premise and cease using the 7-Eleven name.

Lesson from the Court: Always have a reason. It does not have to be a good reason. It does have to be the best one, the logical one, but you must have one.

Grounds for termination of the franchise must be disclosed in the franchise disclosure document and agreement, and there may be 7, 8 or more. Read your contract - together with an experienced franchise attorney.

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Last night I reviewed a franchise agreement and found a surprising, and illegal, provision buried deep in the contract. If ever there was a compelling case for being careful when you are choosing legal counsel, I just found the provision that makes it.

But first, some background. My law practice involves representing both franchisors and prospective franchisees. For franchisors, I primarily draft franchise disclosure documents ("FDDs") and franchise agreements; I assist my clients in obtaining franchise state registrations; and I assist them with day-to-day issues that arise in running their businesses. For prospective franchisees, I will review their proposed franchise agreements and FDDs and help them understand what they will be committing to do if they decide to buy the franchise. If the franchise company is willing to negotiate, I help prospective franchisees through that process.

I find that reviewing other companies' FDDs and franchise agreements also helps me in my practice for franchisors; it's always instructive to see what other industry leaders are doing. I have noticed that, in a small minority of systems, some franchisors go well beyond what is legally permitted to be included in the franchise agreement and include provisions that unquestionably violate the FTC Franchise Rule (the "Franchise Rule") as well as various state franchise laws.

The Provision

If you're on either side of the franchise relationship, you should know if your contract has a provision like this one. Pull out your franchise agreement now. Go ahead, I'll wait.

You have it now? Good. Here's the provision we're looking for:

Release of Prior Claims. By executing this Franchise Agreement, Franchisee, and each successor of Franchisee under this Franchise Agreement forever releases and discharges Franchisor and its Affiliates, Its designees, franchise sales brokers, if any, or other agents, and their respective officers, directors. representatives, employees and agents, from any and all claims of any kind, in law or In equity, which may exist as of the date of this Franchise Agreement relating to, in connection with, or arising under this Franchise Agreement or any other agreement between the parties, or relating In any other way to the conduct of Franchisor, its Affiliates, its designees, franchise sales brokers, if any, or other agents, and their respective officers, directors, representatives, employees and agents prior to the date of this Franchise Agreement, including any and all claims, whether presently known or unknown, suspected or unsuspected, arising under the franchise, business opportunity, securities, antitrust or other laws of the United States, any stale or locality.

In plain English: "you, the franchisee acknowledge that we, the franchisor, may have lied to you and might be lying to you right now. Our entire FDD might be one of the greatest works of fiction sinceMoby Dick. You agree, however, that you waive all your legal rights to take action against us based on those lies, even if you have invested hundreds of thousands of dollars of your hard-earned money in this phony business." Wow.

Do you have that one in your franchise agreement? You might have to do a bit of hunting for it. You would think something like that would be on the first page, bolded, in caps, with a box around it and perhaps accompanied by a self-lighting sparkler that draws your attention directly to the provision when you open the contract. But no, in the case of the contract in which I found this provision, it was buried on page 36 of a 39-page franchise agreement, with no particular emphasis placed upon it.

I will never include a provision like this in a franchise agreement I draft, nor will I ever recommend that a prospective franchise buyer sign a contract when it includes this provision. Why? It's not only unfair, but it's also illegal under the Franchise Rule and under various state franchise laws.

The Problem with Having the Provision

Now, I highly doubt that in most situations, the franchisor even knows this provision is in its franchise agreement. Most start-up franchise companies trust their franchise counsel to draft the agreement and don't necessarily carefully consider each provision in the contract. This sort of provision is typically created by counsel, who is seeking to protect his or her client. An admirable goal, to be sure.

The problem is that this provision is impossible to justify to a prospective franchisee that notices it and understands its implications. If you're a franchisor, imagine trying to explain that to a potential buyer: "we're not lying to you. But you have to agree as a condition of buying this franchise that we might be and that you won't ever do anything about it if we are.

A franchisor may be able to slip this one by a franchisee unnoticed, but a franchisee that notices and understands this provision is always going to have a problem with it. A franchisee that has experienced franchise legal counsel review the agreement for them will certainly flag the term and warn the franchisee against agreeing to it. That could cost you a sale.

To make matters worse for the franchisor, the types of franchisees that actually read the agreement before signing it and have legal counsel review it for them are exactly the type of franchisees the franchisor wants: franchisees that take their commitments seriously and are willing to put their time, effort, and money into understanding commitments before they make them.

Now, I have my doubts that this type of provision will be enforceable in any event because, as I said, including a provision like this one is an explicit violation of the Franchise Rule, which "prohibits franchise sellers from disclaiming or requiring a prospective franchisee to waive reliance on any representation made in the disclosure document or in its exhibits or amendments." This provision does exactly that - and, as a result, the franchisor that included it in its agreement is in violation of the Franchise Rule (and various state laws) just for having the term in the contract.

Violating the Franchise Rule and state franchise laws leaves the franchisor exposed to lawsuits by franchisees that may have a state law "unfair trade practices" cause of action against the franchisor because of it. When those legal claims exist, a franchisor could face claims for damages or rescission. Moreover, state franchise administrators could refuse to register the franchise offering with a provision like this one (if they notice it) or worse, later take administrative action against the franchisor based on its violation of franchise law.

The better practice for franchisors that want to protect themselves, but do so within the bounds of the law, is to use exculpatory provisions and "compliance questionnaires" as part of the agreement signing process. A well-drafted exculpatory provision will provide a measure of protection to franchisors for unauthorized statements made by a renegade sales person, but will not seek to disclaim statements made by the franchisor in its FDD (and therefore is permissible under the Franchise Rule and many state laws).

The Lesson for Franchisors and Franchisees

If you are a franchisor, inclusion of a provision like this in your franchise agreement should make you question your legal counsel. Ask yourself: are you willing to risk losing a potential sale to a qualified, savvy, and ideal franchisee because you have a provision in your franchise agreement that probably isn't enforceable anyway? Are franchisees that sign your contract without even reading or understanding it really the type of franchisees you want? And is "sneaking something past" your unwitting franchisees who don't review every term of your contract really the way you want to do business? As I explain above, there are better (and legally-enforceable) ways to protect yourself in your franchise agreement, anyway.

If you are a prospective franchise buyer, this situation highlights the importance of: (1) reading your franchise agreement, cover-to-cover; and (2) hiring legal counsel experienced in franchise law to review your contract before you sign it. Contrary to the opinion of some, franchise agreements aren't all boilerplate, and not all franchise contracts are created equally. Don't assume that your franchise agreement doesn't contain something objectionable just because other franchisees signed it.

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The Begging Franchise

I think of franchising as potentially useful for everything on earth that involves either commerce or religion. All religious organizations are constructed on the franchise model, with set operating rules and payments upstream by those downstream. Every religion also claims to be unique just as every franchise, good or bad, claims to have a unique selling proposition.

Like religions, commercial franchising requires its own flag. Flag saluters are called upon to subscribe to the "code" of the concept. They face condemnation should they defect. (There is a franchising hell, but for some it begins before you leave the system. Think of Quiznos and Cold Stone Creameries to mention a few.)

Here in Houston, I believe I have identified a new form of franchising directed to the homeless, destitute, drug enslaved, just out of jail/prison, or high school dropout. I noticed it slowly, over time. Its seasonality is not that of spring, summer, fall or winter, but rather day of the week and hours of the day. When traffic density is high, the franchisee at a traffic light controlled intersection has -for a moment- a captive audience of people in cars and trucks waiting for the light to change.

For that moment, the homeless, destitute, and dropouts are transformed into the begging or panhandling franchisees.

The Somali Pirates

Every Saturday afternoon around four o'clock, for instance, at the intersection of the Beltway and Highway 288, there is a small group (always the same folks) who I call "The Somali Pirates" who aggressively operate a panhandling enterprise targeting folks returning from the beach. This is a multi-lane divided highway intersection and they assign about twenty people -all very threatening- to go up and down the line at every red light accosting drivers and passengers with various messages about why they ought to "contribute" to the pirates. Sometimes they are selling some crap or other but usually they are just "begging".

The same market exists at every urban freeway exit onto a main street, because the traffic is heavier there and each change of traffic light provides a new dozen or so cars in more than one lane, stopped waiting for the next light change. To a similar degree the same venue opportunity is presented on any busy street at any traffic controlled intersection.

The franchisees, with custom but homemade looking signs, go up and down these lines of cars soliciting, sometimes with squeegees washing windshields whether or not solicited by the driver to do so and holding out a hand or bucket or basket into which the driver is asked/intimidated to make a cash deposit/contribution.

On more than one occasion, I have noticed that these small groups of beggar franchisees came together in a common vehicle and that they have several signs with different messages. A local marketing co-op, if you will.

These range from solicitations to finance school band or team trips, church projects like choir competitions in other cities, to claims that the beggar franchisee is homeless and jobless, a disabled military service veteran, just lost his family in some catastrophe, is hungry or needs money for medical attention of some sort.

There is an endless array of "Can you please help me" signage, sometimes revealed by some careless beggar franchisee who failed to remember to put the spare signs away out of sight of passing drivers.

Sometimes the "pitch" is flavored by its being done by a suggestively clad girl with the look of someone that your average man would feel like he might like to help/save/"adopt" (if you catch my meaning). These are more likely to be seen at male dense venues like athletic events just after the game is over and everyone is coming out of the parking lots, again traffic light controlled so as to provide that momentary refreshed inventory of about a dozen or so stopped cars. The signs say different things slanted to pathetic situations in which a young woman might find herself and be in need of a "hero" to help bail her out.

Cripples make excellent beggar franchisees, but they do have to be sufficiently mobile to enable them to get up and down each row of momentarily stopped cars with their signs claiming to be disabled veterans unable to find work and homeless as well as otherwise in need of assistance - the list of "reasons why you should help me" seems endless. Drivers face the dilemma of asking themselves whether this person really is a homeless disabled veteran to whom some help would be appropriate or just another bum with a sign.

The Real Jobs People Do

I live in a thriving big city where no matter what the labor statistics might say no one is really jobless. The grey market here provides more than enough work for those not on some corporate payroll. Lawns get tended. Curbs in front of homes get street numbers painted on them. Cars get detailed in vacant gas station or similar empty commercial locations. Vacated buildings get cleaned out for another tenant. Rent a cop security guards pretend to protect small businesses from anything that isn't dangerous in the first place. Chipped windshields get patched. Vehicles containing all sorts of contraband get driven from here to there. People who thought it wasn't cool to do homework and stay in high school stand in medians of busy streets holding signs proclaiming that you should patronize such and such store located in the strip center right there where the sign holder is standing.

All this is cash fueled with no record keeping and no taxes or other ancillary payments or reports made.

The signs held by the drop outs adverting gold buyer and seller jewelry shops are the funniest. They proclaim that this particular shylock will pay you more for your gold than the filthy shylock just down the street, or that this schmuck will give you a big discount if you buy gold from him. The funniest is the one where you not only get discounted gold but also some free silver if you buy from the adverted establishment. Meanwhile the sign holding dummy is roasting his bloody ass off in the heat of the street, usually drinking some sugar drink and eating something sweet like a Twinkie, Ho Ho or Ding Dong.

There is also a major industry in petty crime just below the level at which enforcement resources might be brought into play. Petty crime in Texas is defined as crime of insufficient seriousness to make the evening local news.

Panhandling Franchises and its Enforcement -Buttercup

The panhandling business, however, in a city like Houston, is well organized, and each intersection where the prospects of favorable demographics, as I have explained, is a micro business locale. Each locale has value expressible as a function of the panhandling revenue obtainable.

This has occurred to the more entrepreneurial amongst the beggars. Why stand in the hot sun for hours when they can take control of worthwhile intersections through threat and force and "license" others to do the begging and pay them the vigorish/royalties attributable to that cash flow?

The most successful of the street intersection franchisors is a person who goes by the name of Buttercup.

I asked around about Buttercup and actually was able to arrange to meet and interview him at a local dive where he hangs out while he enjoyed eats and drinks on my tab, eating slowly but drinking more aggressively as we visited. Buttercup is an ex teamsters union organizer from Detroit with hands that have come into violent contact with many things and many people. He has the look of someone who has left more than several people dying from assault in some cold wet dark alley and his eyes are dead. His speech is slurred but understandable as he goes from communicative grunt to communicative grunt, the real meaning being conveyed by his face as well as by the inflection of each grunt and hand gestures.

He certainly carries weapons of various sorts, but a knife and a gun are the most obvious. He has no concealed carry permit, nor for that matter any license or permit of any kind.

The government may not even know he exists, although I suspect the police know about him and leave him alone for any of various reasons. One does not ask such a person where he lives or how his family might be, or any other personal question that a paranoiac might feel is intrusive.

Payment is by the day and in advance in cash. The price is whatever Buttercup says it is. I know that the price has not been worked out on any break even or other formula. You can decline but you can't argue, complain, whine or criticize.

You get the "right" to pan handle at that intersection on that day until midnight. You buy a full day. You can buy one corner or up to all four corners of the intersection. If someone else comes along and tries to pan handle in your intersection during your tenure, he or she will be instructed by you to leave on pain of serious injury or worse. Few fail to get the message as it is well known throughout the potential pan handler community how this business works and that if Buttercup needs to be summoned to deal with you your Medicaid coverage will probably not see you all the way through to useful recovery.

But, I suspect that Buttercup probably has another identity that is well financed by his franchise operations. He has money "out on the street" as Tony Soprano would say. The loan shark business fits right in with everything else about Buttercup. Between the franchise business and the loan sharking operations, I have a feeling that Buttercup is rather comfortable by just about any standard. However, when he is seen driving it is in a car that looks as though it probably would not make it to the next corner. God only knows how many aliases he has. I am rather certain that he is better off than most lawyers.

Where does Buttercup fit in the world of franchising? I strongly believe that his franchisees attain a higher return on invested capital than those of most franchise companies in America today. Their executives may dress and talk in a more sophisticated manner but the contracts they use are the high tone legal equivalent of the Buttercup approach to system governance.

In fact, Buttercup probably offers gentler terms because you don't have to wake up the next morning and go back to work as a Buttercup franchisee if you don't like it.

Before you look down your nose at Buttercup consider that he probably - at his level of micro franchising - does a lot better for his franchisees than most so called franchise companies in America today. Any Cold Stone Creamery or Quiznos franchisee would envy the ability to walk away free and clear after any day on which he decided that the investment was not paying off satisfactorily.

Looking to exit your system and their Buttercup, talk to with an experienced franchise attorney who can deal with Buttercup.

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