From the January 2000 issue of Entrepreneur

Whenever I commit myself to researching on the Internet, there comes a bleary-eyed moment when, after spending a good portion of my youth watching my processor choke down animated banner ads, I think, "If this is surfing, then why am I numb from the waist down?"

Yes, I've spent days reviewing hundreds of Web sites dealing with franchising. My quest: to use the power of the Internet to access four-star franchising information. After all, we know that the Internet has forever changed franchising and will continue to do so into the next century. But can it change a potential franchisee's attempt to find, buy and operate the perfect franchise?

At first, I was amazingly unsatisfied with the results of my quest.

Like drinking water from a firehose, AOL users who search the Web using "franchise" as the search term will be deluged with 79,969 hits. If AltaVista is your search engine of choice, you can expect 734,100 hits. With this level of requisite screen time, the Net quickly turns into a morass of tedious mouse clicking.

So the reality is a bit daunting. But when you really think about it, the potential is overwhelming. After all, this is the morphing of two of the hottest, fastest-growing and most incredibly hyped concepts the business world has ever witnessed--namely, the Web and franchising. The problem is, due to the many franchise sales consultants scrambling to add clients to their home pages, the bulk of the information is so scattered and basic that I doubt many of you will tolerate the endless search. Although I've never counted, popular estimates show more than 5,000 franchisors hawking their wares, and you'd have to go to several Web directories to find just a portion of these.

I agree that expanded commerce is the best boon for entrepreneurs since the Klondike Gold Rush, but my research indicates you're going to need a digital torpedo (or a really good chair) to blast your way into some good data. Frankly, I still prefer using the printed directories, like this issue of Entrepreneur--they make it easier to compare opportunities, and books, by their nature, cause you to pause and reflect. However, I didn't want my lower back pain to be in vain, so I've highlighted some of the more helpful spots on a Web site I created in conjunction with this feature. Go to http://www.ecounsel.net to find some Web surfing highlights.


Todd D. Maddocks is a franchise attorney, Entrepreneur's "Franchise Focus" columnist, and founder and president of http://www.ecounsel.net, an Internet-based, digital nervous system for business attorneys. You can reach him at TMaddocks@ecounsel.net

Love Is Not The Answer

Much of the power of the Internet stems from our love of instant gratification. We demand fresh encounters, new adventures and the satisfaction of our quirkiest needs. We love to hunt the open range, and the Internet thrives on this human foible.

Unfortunately, that's exactly the wrong way to become involved in franchising. While surfing the Web, I came across Geoffrey Stebbins, founder of World Franchise Consultants (http://www.wfcnet.com), a franchisee consulting firm in Southfield, Michigan. "People often buy a franchise like they're buying a can of soup off the grocery shelf, and the Internet just perpetuates that mentality," says Stebbins. He believes the most common mistake franchise buyers make is to search for a franchise that caters to what they love (golf, for example), rather than what would further their business interests.

Let's also remember that the Internet is still predominately unregulated and really akin to the wild blue sea as it existed during the days of the swashbucklers. At least then, pirates had to be accomplished enough to acquire a boat; by contrast, those who set up shop on the Internet need only claim some digital turf and spend as little as the price of a decent meal to maintain an e-storefront. Accordingly, impostors, charlatans and the unlicensed freely roam your interconnected world.

Speaking of charlatans, I was cutting a big curl in the digital surf when I snagged the site of a franchise consulting firm I had never heard of, even though they're located in my home state of Texas. On its front page, the firm displayed logos of the concepts it had developed. To the unwary, the firm had numerous listings of what appeared to be successful franchises. I immediately recognized the name of a restaurant concept that had failed some years back. Yet the cute logo still blazes on the Internet as an example of that consultant's experience.

I don't want to make you afraid but cautious, rather, when you're buying a franchise (or any business) on the Internet. A Web site can be the product of an ingenuous graphic artist but have nothing at all to do with your eventual success in that business. In the worst case, buying a franchise on the Web would be merely a result of hitting the "I would like to speak with a consultant" button. But beware: Once you push that Web button, you send a signal to a highly trained sales professional whose MO is purely to sell franchises.

Can We Talk?

Once you get into a franchise system, the power of the Internet seems much more focused and advantageous to both franchisors and franchisees. The Internet is unrivaled when it comes to facilitating communications, a benefit that's already infiltrated the world of franchising.

Indeed, some of the larger franchise systems are taking full advantage of the extranet capabilities of the Internet. An extranet can be loosely described as protected information that can be accessed through the Internet by those who hold the proper password. For example, the franchisor Mail Boxes Etc. regularly communicates with its franchisees via the Internet, and franchisees can even access operations manuals by using their password. In the future, when the necessary bandwidth is available, it's certainly possible that franchisees will watch training videos and franchisor presentations on the Internet. I've worked with a budding franchisor who intends to place digital cameras in stores to assist franchisees in making crucial decisions when bidding on used merchandise. Big Brother paranoia aside, these types of applications may turn out to be the best utilization of the Internet for franchising.

Speaking of Big Brother, one piece of information that a franchisor must now disclose in its UFOC is whether it has the unfettered right to access a franchisee's computer system. The idea of permitting the franchisor free rein over your hard drive could be a little disconcerting; however, the benefits are tangible. Now, by using Internet or modem access, franchisors can automatically download point-of-sale information, customer databases and completed financial reports. This not only permits the franchisor to perform its job of supporting the franchised business, but it also means less work for the franchisee. According to Lee J. Plave, a franchise specialist and partner with Rudnick, Wolfe, Epstien & Zeidman in Washington, DC, "Franchisor field reps can use data instead of wasting time deriving it, which permits human interaction at a higher level." On the other hand, some franchisors keep a digital key to the operation of your software and can remotely lock you out of proprietary software. So now the digital hammer can be flung from afar.

But the Internet doesn't just give strength to the franchisors. Not surprisingly, the Internet has greatly improved communications between franchisees, providing them with a low-cost way to coalesce and the unprecedented power to help each other.

One of the best features of a franchise system is the ability to rely on your fellow franchisees to provide insight into your daily dilemmas. E-mail within an extranet provides a low-cost way to transmit ideas and discussions. In one situation I know of, the franchisees in a system began a grassroots effort to force systemwide changes upon a franchisor. As the e-mail messages began to flow, franchisees reiterated their concerns for the others to see. Eventually, the franchisees began to learn that most of them agreed something had to be done, and the group of comments was eventually forwarded to the franchisor.

Under The Laws Of The State Of . . .

Regulation is another hot topic that both franchising and the Internet wrestle with. The FTC, which regulates franchising on a national basis, is now engaged in rulemaking regarding how the UFOC could be properly transmitted to prospective franchisees via the Internet. Currently, some insiders are concerned about proving when the document was delivered and received via the Internet, as well as determining whether a printed copy is necessary. If these rules of engagement can be more clearly defined, it's easy to envision a day when serious franchise candidates could review an offering by conducting searches that highlight every place in the document where keywords such as "penalty," "noncompetition" and "termination" appear.

There is a section of the FTC Web site that plays like a grainy, black-and-white B movie (http://www.ftc.gov/bcp/franchise/xscripts.htm). This buried link to transcripts from FTC Public Workshop Conferences shows the purported dark side of certain franchise experiences. While you should go there to examine some of the issues facing disgruntled franchisees, please remember that the testimony there was not given under oath, the franchisor was not necessarily present and there was no cross examination. However, it sure is nice to have the information available.

Some states are also beginning to regulate the Internet with respect to franchising--they're requiring franchisor disclaimers that state the Web site is not an offer of a franchise. While consistent with the regulation of other forms of franchise advertising, this is essentially a Band-Aid to tide regulators over until they're forced to face the larger issues that loom ahead.

Happily Ever After

For all their qualities, good and bad, the Internet and franchising seem destined to become even more intertwined in the future. In fact, the popularity of the Internet has spawned a franchise industry all its own--a plethora of companies are selling e-commerce-inspired franchises such as Web site design, e-mail services, videoconferencing and virtual secretarial support.

And what of the majority of franchises that, by nature, really have nothing to do with technology? It's true the explosion of e-commerce has taken many by surprise--particularly those franchise chains that were in existence before the Internet was an everyday reality. As a result, many, if not most, of the franchise agreements of established chains make no mention whatsoever of how the Internet distribution pipeline is to be allocated. According to Susan P. Kezios, president of the American Franchisee Association, this issue has been increasingly troublesome for franchisees. (Consider how you'd feel if you were a franchisee selling software from a retail store and your franchisor started selling the same goods online.) Says Plave, "If I were a prospective franchisee, I would look at how technology will impact the franchised business in the next five years."

While franchising and the Internet still need to work through many issues relating to their marriage, many have high hopes for the union. In the future, franchise seminars will be held in virtual classrooms and prospective franchisees will conduct three-dimensional tours of the units for sale. Customers will print your virtual coupons. Regulators will regulate, and Web surfing will be refined. But when somebody figures out how to e-mail me a hot pizza, that's the franchise I want.

Contact Sources

American Franchisee Association, (312) 431-1132, http://www.franchisee.org

Rudnick, Wolfe, Epstien & Ziedman, (202) 712-7249