The Folly of Buying a Franchise

Why bother to buy a franchise?

Why should someone pay for a company name and expertise when they can probably duplicate the same entity at no franchising cost?

There are some questions to ask yourself about the possibility and logic of a franchised business.

Whether it is easily duplicated or entered into by a competitor. Or: It does not have a highly recognized brand name or special management expertise to offer.

The royalty you pay on sales, that cover whatever management training and materials you may get, will probably represent about half your net earnings.(See Earl J Weinreb NewsHole® comments.)

The Tricky Franchise Route in Business

Why bother to sell a franchise? And why buy a franchise?

If you have a successful business, it’s easy to think it can be franchised. But why should someone pay for the company name and your expertise when they can probably duplicate the same entity at no additional franchising cost?

There are some questions you can ask yourself about the possibility and logic of franchising your business. You cannot successfully franchise your operation if:

It is easily duplicated or entered into by a competitor.

You don’t have a highly recognized brand name.

You don’t have special management expertise to offer.

It’s hard to service or manage operations from your site.

You must realize, too, that the usual upfront fees and the royalty you take on sales, that cover whatever management training and materials you may offer, will probably represent about half a franchisee’s net earnings. That fact is bound to eventually infuriate him, assuming he becomes successful. There is no telling what the fury may be if he fails after investing in your advice.

So he may eventually cheat you or form groups with any other franchisees you may have, to sue you over contract terms.

If you want to franchise your business, can you finance and constantly control the finances of your franchisees? That is most important, should you do decide to franchise. It is the most important binding link you can have to the prospective franchisee. (Earl J Weinreb NewsHole® comments.)

The Usual Government Fraud

We hear about business fraud but there are checks and balances by boards of directors and independent audits. When an event occurs, the publicity and media extravaganzas, along with government finger-pointing and publicity, tend to make up for smaller, relative numbers.

Government fraud is taken for granted but is far more prevalent where politicians and bureaucrats take it as a given because they are so “underpaid” on the job.

There is a formula for how government grants are used. There always is a euphemistic allowance made for “waste.”

And there is always an understatement of projected cost. It’s a rare government project that ever meets its original cost estimate.

There is usually some figure allotted to account for missing funds. Or at least a few percentage points devoted for investigation of fraud.

That is because of the psychological nature of government jobs. You don’t have the same checks and balances than in private industry, despite the public image the media provides.

Government projects are always ramped up. Very few are ever terminated. Sunshine laws are passed from time to time but appear ineffectual. Once on the books, laws and agencies they breed have a life of their own. (Earl J Weinreb NewsHole® comments.)

Form Your “Benefit Corporation” to Ward Off Hecklers?

Seven states have come up with or are ready to legislate the abiiity for companies to incorporate so-called “benefit corporations.”

These allow the governing board of directors to consider environmental and social goals while doing conventional business.

These objectives fly in the face of good business practice while being a good business citizen. After all, the primary function of any business is to make a profit by filling a consumer need, all the while providing jobs for workers at wages and benefits the company can afford, for its purpose and existence and its continued growth. It’s understood it will also be a good corporate citizen.

The “benefit corporation” hocus-pocus is to avoid hecklers and provide dubious public relations. (See the Earl J Weinreb NewsHole® comments.)

Uninformed Voters Hurt Themselves

Too many voters have no idea of the main issues that govern the way they vote.

The reason has to do with being lazy. They often make little effort to get down to the nitty-gritty of important issues.

And secondly, they depend too much on what they pick up from the inept and slanted media.

I can give many examples; my daily blogs and books, and website go into them. One example: The true unemployment rate of about 17% we never get. Much of the media repeats a fictitious number of about 8.5% that eliminates important statistics. (See the Earl J Weinreb NewsHole® comments.)

Venture Capital Success and Luck

There is a good reason why VC funding is so haphazard. The VC “experts” actually haven’t the foggiest idea of which entrepreneurs to select and fund. Those VCs who have made big money were often merely lucky; they also picked lots of losers.

The payoff for VCs is generally the ability to sell stock in the venture to others, even when there are no profits to be made.

Some deals have been referred to as legalized Ponzi schemes. (Earl J Weinreb NewsHole® comments.)

Venture Capital Success

Venture capital success s often a case of being lucky, or knowing the right people. However, you must have basic planning to get into the game. To ask for funds, a game plan or budgeting proposal is essential.

Incubators were a fad for a time, for very early stage venture funding. They proved a flop in the past. Incubators required lots of hand-holding for entrepreneurs. The problem was, too many students and teachers often had no ability at the required levels. The eventual dot com bubble showed how futile that effort was.

Angel capital is now used for early-stage startups, Classic venture capital is for the level after you generally have some vestige of business operations.

Getting VC funds is usually a sort of lottery, should you have no connections. Those who get funds generally have those, or have gotten funds for earlier ventures. (Earl J Weinreb NewsHole® comments.)

Rich and Poor Differences are Really Slighter Than You May Think

There is little difference between the way rich and middle class and even poor live despite huge disparity of earnings, The gap in earnings may be huge but when you look at their homes, vehicles and lifestyles, the differences are usually not as far apart as you may at first think.

There usually is so much you can spend each day at work or play for a full year, every year.

What drives folks to make as much as they do is psychology. The payoff they seek for achievement is ever higher. And also, the economic picture changes. TV revenue gives athletes more money. Big corporate deals give CEOs fortunes. (Earl J Weinreb NewsHole® comments.)

The More Important Unemployment Numbers

Forget the usual unemployment figures you get from the U.S. Dept. of Labor. There are more important statistics that the ones the media decides to put out each month.

Here are two: Labor Force Participation Rate and the Long-Term Unemployment figure.

They’re more important in many ways, both psychologically for the country as a whole, and in the households affected by the lack of jobs for those who want to work at a full-time, steady job.(See the (Earl J Weinreb NewsHole® comments.)

Real Discrimination in the Workplace?

Discrimination in the workplace cannot be determined by statistics. Yet it has become the absolute yardstick of determining bias. An error of government, and much of society, aided and abetted by the media.

Government ideas of disparate results in commerce is always said to be evidence of discrimination. Bureaucrats misconstrue what are supposed to be average results. But average numbers are no way of discovering discrimination. Too many factors affect such statistics, factors other that those that are created by discrimination. (Earl J Weinreb NewsHole® comments.)

Manufacture Productivity Costs Jobs

Manufacturing productivity has been increasing over the past half century in the U.S., especially in recent years, so much so that manufacturing total jobs numbers have been relatively flat.

That is good for the U.S. economy in relation to the rest of the world’s economic activity. After all, America is primarily an export nation that depends on free trade and must be competitive to survive.

But such productivity also makes it tougher to add to the employment roles unless the labor force can accommodate business’ expansion requirements.

That requires an educational system that helps students prepare to make a good living, not sit around for four years with social niceties. (See the Earl J Weinreb NewsHole® comments.)

Health Care Differences

In a U.N. World Health Organization WHO ranking of countries, the U.S. did poorly. The report has been used as an argument for a massive overhaul of the U.S. health insurance industry.

Look at the report closely at the terms used. The latter represents what has become a typical U.N. report; an anti-American bias whenever possible.

Read carefully and you note the study points up only the difference between universal coverage and actual care.

It’s easy to see the difference the terms signify. Look at health care in Canada, Great Britain and France with universal coverage. A law on the books or government promise to cover a citizen with health benefits does not mean everyone will get timely or sufficient personal attention.

The U. S. still has the best health care in the world, though it can be tweaked. (See the Earl J Weinreb NewsHole® comments.)

Corporate Directors Sit on a Powder Keg

Many corporations, even the smallest, are guilty of using friends, relations and acquaintances to fill open spots on their director boards. But ability is strongly needed.

The board of directors has the actual legal responsibility for the proper function of any corporate business. And each director has joint and several liability for any sins of omission or commission in his actions.

That means he can be sued individually for neglect of responsibility of the entire board, in the event of any board errors or conceived fraud by board members. Simply, the board member with the deepest pockets or most to lose may get the brunt of a lawsuit.

Most important, business experience ought to be the number one requirement for board membership. However, that too often gets short shrift. (See the Earl J Weinreb NewsHole® comments.)

Why Hide Public Employee Salaries and Benefits?

Government over-market wages and pensions to public employees, are bankrupting government budgets and taxpayers alike.

One solution: Publish wage and pension scales, along with fringe benefits of all government workers. List only job description for the public to see. Let voters see how private earnings and pensions compare to public earnings and benefits, that they, the tax-paying voters earn for comparable work.

If there is to be open government, why hide a major cost of government? Yet, this part of the budget is always hidden from voters. (See the Earl J Weinreb NewsHole® comments.)

Acidic Oceans or Not?

Acidic oceans are now a concern taking the place of global warming. Another over-blown idea for professional environmentalists to make a career of.

However, once independent study is made of normal seasonal and annual periodic Ph changes it becomes evident that ocean acidity or Ph remains relatively flat over time.

Unfortunately, the real scientific evidence is getting little publicity. (See the Earl J Weinreb NewsHole® comments.)

A Corporate State Definition

A major current-events lesson not being taught in our schools.

It has to do with the corporate state. A study of Benito Mussolini’s Italy is essential. Starting in the 1920s. Mussolini was a Socialist who advocated what we know as the corporate state.

The U.S. government has now taken over General Motors, GMAC and Chrysler. It also controls banks to a greater extent than they have ever been, having dictated salaries, and thus hiring policy.

The government already controls the giant Fannie Mae and Freddie Mac, whose collapse really were one of the bases of our financial meltdown.

Then you have the takeover of AIG, a completely unnecessary step for several reasons I have discussed before.

Banking industry bailouts and resultant government influence are yet another example of the government’s meddling in the underpinnings of our economy.

The attempt to control the entire health care industry, over one sixth of the economy, is yet another flagrant example of a parallel picture of what happened at another, not so distant time. (See the Earl J Weinreb NewsHole® comments.)

Estimating Risk Odds

Risk numbers cover too many areas to be covered easily. I would suggest you go to an internet search engine just to get a hint of the vast range of risk possibilities in all your areas of interest.

List a subject in which you may be interested. Add the word or a phrase with the questioned risk.

Google the phrase health risk odds and you get over 7 million web pages to search. Google the phrase risk odds calculations and you get the same approximate number to browse.

Most people no idea of risk, as they apply to business, or finance, or health. The results of a search can be enlightening. (See the Earl J Weinreb NewsHole® comments.)

Teacher Union Influence

The powerful teachers’ unions have influence because they always have a good marketing ploy. Who wants to turn down funding for the kids?

A good portion of that cost goes for teachers. And those costs can be budget-busting. Yes, the public probably knows how much is spent per student. But how about salaries and pensions? And all for part-time, nine months of actual total work?

The same holds for other government employees. Especially the ones who retire well before age 65, and are double dippers on grandiose pensions. ( See the Earl J Weinreb NewsHole® comments.)

Government Unions

Unions control government.

Federal, state and local government unionization outlays for wages and pensions are about triple what they are for comparable private industry jobs.

With their political contributions and the ability to close down government operations, along with their control of budgets because of their size.

The problem will persist until politicians are no longer beholden to unions for funds and getting out the vote. (See the Earl J Weinreb NewsHole® comments.)

Tax Credits for Hiring?

Damaging to business is recurring taxes, not the need for credits. Research often has shown this but left-leaning politicos love to hand out tax credits under pressure, as they cannot abide permanent tax relief.

Experience shows that the idea of giving business tax credits for hiring does not generally work. Businesses would eventually hire anyway in most instances.

So politicians continually talk about temporary tax credits, to impress potential voters. Moreover, if the public is unfamiliar with business, politicians get away with it. (See the Earl J Weinreb NewsHole® comments.)

Lawyer Over-Supply

When you cannot cope with science or math, it’s far easier to become a lawyer. It helps explain why we have too little doctors, scientists and mathematicians. Therefore, we have too many lawyers graduating college.

You could become a lawyer years ago without going to college. You took the bar exam after clerking in a law office. (See the Earl J Weinreb NewsHole® comments.)

Public Employee Union Assistance

The two major public employee unions have influenced left politics on a national scale. A good portion of the Obama administration’s so-called stimulus went to states for budget gaps that had to be filled to safeguard those states’ unionized jobs.

That’s why the stimulus did not produce the jobs it supposedly was intended to do, but instead had another purpose.

That supposed government aid to the economy proved to be more a slush fund than a stimulus. (See the Earl J Weinreb NewsHole® comments.)

U.S. Manufacturing Weakness?

The talk of U.S. manufacturing decline is wrong but the media persists in its repetition. The Federal Reserve estimated that the value of U.S. manufacturing output was about $3.7 trillion in 2008.

Today's worker in manufacturing is productive, so much so that the value of his average output is three times higher than it was in 1980 and twice as high as it was in 1990. That means more can be produced with fewer workers. So there has been a drop in resulting in manufacturing jobs, a drop in about half from 1979.

Still, manufacturing productivity makes it a major factor and the U.S. is a major producer of essential services. (See the Earl J Weinreb NewsHole® comments.)

Business Productivity

Business productivity has become a matter of fashion and less what it’s intended to be. The idea is constantly marketed by consultants as business management break-through.

Well-known more recent attempts are referred to as Lean Manufacturing and Six Sigma systems. They are simply just old-fashioned quality control procedures.

But everyone is in production or process improvement or quality control, whatever label he puts on them. A good business manager inherently knows this without the labeling.

The trick is in implementation. Motivation is essential in sticking to such programs on an ongoing basis. Boredom always is the problem, so periodic appraisals are essential. Furthermore, management needs to employ in-house or outside experts to check on processes and results.

Forget the titles. (See the Earl J Weinreb NewsHole® comments.)

Lawyer Politicians

Too many of our law makers in Washington and state houses are lawyers.

I believe excessive lawyers in government have become a major problem. We need representatives who actually represent the people. They ought to come from different job experiences. Furthermore, politicking should not be a permanent career.

I also strongly feel that we need small business men and women in Congress and in state houses. It would change the legislative outlook about taxes, business and everyday problems of the middle class as well as poor. (See the Earl J Weinreb NewsHole® comments.)

Public Employee Unions

There is a serious problem whenever government workers are unionized. This started on the federal level and required no Congressional approval; it has now grown in all layers of government.

A JFK executive order 10988 in 1962 started what has grown into a politically-influenced monster, taking over state and city governments.

Unionization controls whatever it touches. Unions influence state and big-city government bureaucracies and, therefore, too many state and local political machines.

Public employees are being unionized at a rapid pace when private employment is only about 7% unionized.

Union wages run much higher than comparable wage scales. About one third, and more beyond private earnings. Pension funds and terms usually far surpass that of private industry. In some instances, five or more times. In general, total government unionized pay packages are about triple those of comparable private industry jobs. All of which have been budget-busting, and almost impossible to control.

And the taxpayers making lesser pay are paying the bills. (See the Earl J Weinreb NewsHole® comments.)

Corporate Takeover Government Aid

In many instances, corporate proxies may make it easier for hostile takeovers to be made. It is not always true that making it easier to foster corporate takeovers is in the best interests of all stockholders.

The objectives of many of the takeover artists are often solely for quick, short-term profits. That may not be the long term interest of the corporation or most of its shareholders.

Yet, much of the recent legislative pressure in Washington from the administration has been to accomplish this purpose.

This does little for corporate democracy. It helps reimburse party loyalists and unions and their lobbyist funding. ( See the Earl J Weinreb NewsHole® comments.)

The Made in China Bugaboo, Part 2

The Chinese sell us mainly furniture and household equipment. Also durables. clothing and shoes. In the clothing and shoes category. A bit more than a third of U.S. consumer purchases in 2010 had a "Made in China" label.

But China sells us what is described as "local content." Hale and Hobijn mention sneakers. Most of that price goes for transportation in the U.S., expenses for the store where they are sold, marketing costs, profits for shareholders of the U.S. retailer, and, the salaries, wages and benefits paid to the U.S. workers responsible for getting sneakers to consumers.

About 89% of what U.S. consumers spend is on items made in the country, the bulk in the form of domestic services. These include housing, transportation, medical care, and so on. That accounts for up to about two-thirds of spending. On average, of every dollar the U.S. consumers spend on a Chinese-made product, about 55¢ pays for services in the US. (See the Earl J Weinreb NewsHole® comments.)

The Made in China Bugaboo

Galina Hale and Bart Hobijn, two economists at the Federal Reserve Bank of San Francisco, have written the report "The U.S. Content of 'Made in China.'"

What do Americans spend on Chinese products that we complain is so enormous it ruins our economy?

It is the fraction of U.S. consumer spending for goods made in China. Hale’s and Hobijn’s data sources are from the U.S. Census Bureau, the Bureau of Labor Statistics and the Commerce Department's Bureau of Economic Analysis.

Total imports were about 16 percent of U.S. GDP in 2010 but only 2.5% came from China. Chinese items accounted only for 2.7% of U.S. personal consumption. That represented about one-quarter of the 11.5% from foreign sources. (See the Earl J Weinreb NewsHole® comments.)

The Federal Reserve’s Conflicting Interests

Despite the logic for the Fed’s independence, Congress always has wanted to impose influence. It has to an extent. Since 1978 the Fed has had to enforce the Full Employment and Balanced Growth Act, known as Humphrey-Hawkins. That conflicts with the Fed’s stated currency/inflation activity.

As a result, he Fed has a conflict of interest in its very mandate. The new financial Dodd-Frank regulation law has tilted the effect of the Fed in many ways, giving the executive branch of government much more influence on the Fed.

The Humphrey-Hawkins Full Employment Act enforcement creates an inflating bias; certainly not one of dollar stability. So there is always a conflict of interest.

The Fed handles monetary policy. The president, through the Treasury Department, is in control of fiscal policy. It’s difficult for the Fed to control outlandish spending by the government. (See the Earl J Weinreb NewsHole® comments.)

A President’s Moods and Sentiments

I have in the past discussed how moods are relatively long-lasting emotions; sentiments are shorter-term. They can affect how stock market cycles react and can precipitate booms and busts in industry.

Therefore, our chief cheerleader is naturally the president. In the midst of a deep recession, he should never make it a practice to single out an industry, whether industrial, communications, banking, insurance or lender of any type, as a scapegoat, when he wants the economy to recover and produce jobs. (See the Earl J Weinreb NewsHole® comments.)