In recognition of the hidden dangers lurking, Noel Coward in 1935 wrote a very popular song “Don’t Put Your Daughter On The Stage, Mrs Worthington”. If writing today, he might reasonably have entitled it “Don’t Let Your Daughter Buy A Franchise, Mrs Worthington.”

The core concept of franchising is brilliant: you have a great product/service, but limited cash and management time.

So how best to grow? Organic expansion is slow, and borrowing to grow is both expensive and risky. Also, time may be against you: good ideas attract copycats (Dixieland Fried Chicken anyone?).

Franchising addresses these issues. You grow fast using other people’s money, with little risk (to you anyway) whilst benefiting from shared profit.

You hopefully co-opt erstwhile competitors: as U.S. President Lyndon B. Johnson said of notorious FBI Director J. Edgar Hoover, “It’s probably better to have him inside the tent pissing out, than outside the tent pissing in.”

So, as a lawyer handling franchise matters, why do I allude in the title to a sinister evolution?

Historically, the best franchise operations (e.g. McDonald’s) had franchisor and franchisee working reasonably harmoniously to create an ongoing business dedicated to generating long-term income. There was a business model (e.g. making burgers) and the franchise was simply a way to grow it.

Today however, I see many operations where the franchise itself is the business model, and the concept (e.g. making burgers) is a secondary thing.

It’s sinister because many would-be franchisees think they are “partnering” with the franchisor, when in fact they are the customer (a fact rarely, if ever, revealed) - and that changes everything.

Don’t get me wrong, this bait-and-switch model can still work for both sides, but in my experience the worst of them echo the scheme immortalised in 1920’s Boston (no, not the Lincolnshire one) by Mr Charles Ponzi.

People want to buy into a franchise for many different reasons. For some, they lack confidence to go it alone; others have a desire to hedge their bets by replicating an already proven business model.

To paraphrase Joseph Heller from Catch-22, “Some franchisees are born cautious, some franchisees achieve caution, and some franchisees have caution thrust upon them: with some franchisees it seems to be all three.”

With this new style of franchise, the franchisor seeks to make their profit from the franchisees in a variety of ways:

Buy in fees. There has always been an upfront “joining fee” but this used to primarily reflect the cost of setting up and acted as a show of commitment. Profit came from long term sales. But when the goal is pure profit asap, such fees tend to rise significantly.

Death by a thousand cuts. Like Ryanair’s charging separately for things that used to be included in the main price (allocated seats, luggage, etc.) so franchisees find themselves not only paying over a share of any profit made, but separately for management advice, staff training, supplies/consumables, dedicated email/phone, signage, etc.).

Cost-cutting. If profit is derived from signing up franchisees, then inevitably the focus of the franchisor will be on finding the next investor, not servicing existing investors.

I increasingly find that service/support offered is by way of generic manuals and rulebooks - anything other than face-to-face time with the expert franchisors.

Smaller territories. It used to be common to see franchise areas described in terms of whole towns or segments of counties. Now it’s often down to postcodes. This is inevitable if the goal is to sell as many franchises as possible.

Little security of tenure. If the goal is to sell franchises and to profit from the buy in fees, then it makes sense to maximise and repeat those fees where possible. If franchisee #1 has over five years built a successful business, then the franchisor will probably make more money selling it on to franchisee #2 than getting a renewal fee from franchisee #1. Or they may just want to take the business for themselves.

Either way, they need to be able to get franchisee #1 out cheaply, quickly and painlessly, and at a time of their choosing. The contracts I see increasingly reflect this.

It seems that the message for such franchisees is that they should be successful enough to be granted a term renewal, but not so successful that they become coveted.

Ruthless exit strategies. Traditional franchise operations were designed to grow a long-term business. The modern evolution usually has as its end goal building a network as fast as possible and then selling it.

Since the franchisor will get more money the more outlets they own (or the buyer can take inhouse easily) this is another incentive to ignore longer term network investment and to remove any vestige of security of tenure.

So, there you have it. By all means do become a franchisee, but please make sure that you are a true co-partner, not just a mark.