Franchises were often sold as the “safe option” for
Indeed, it might be a matter for debate whether running a
franchise is even entrepreneurship. Being self-employed but tied to a single
supplier is at best a “half way house” between formal employment and classic
The aristocrats of franchises, domestic dealerships for the
big US automobile manufacturers, used to be cited as examples of businesses
that were as “risk free” as it was possible for any business to be.
A dealership in the right location was practically a licence
to print money.
There is no greater proof of how the world has changed than
the fate of those dealerships in 2009. Thousands are being closed.
The survivors are being forced to sign restrictive
This may be short-sighted – since it is difficult to see how
the car-makers hope to sell more cars if they have fewer places selling them –
but “independent” dealers, like sub-contract suppliers, are cheaper to cut than
The irony is, of course, that these “independent” dealers
are wholly dependent on their monopoly suppliers.
Needless to say, these small businesses are not getting any
of the government money that is being pumped into the big manufacturers.
On the contrary, the government-sponsored Chapter 11
bankruptcies of Chrysler and GM are making it easier to close dealerships –
which might otherwise be costly to do under some state laws – and also allow
the giants to default on other business
The government and the big banks, whose debts are usually
secured, get priority of course.
There is a lesson here – apart from the obvious one that, as
ever, there is one law for the rich and another law for the relatively poor.
There is no “safe option” in business – and there is no such
thing as a “risk free” business, never has been, never will be.
Run a mile from anyone who tries to tell you otherwise.