Fear Of Franchising
How Carol Brothers seduced the press, the industry, and scores of franchisees with the false promise of 'the next McDonald's'
AFTER 13 YEARS AS A FINANCIAL INVESTIgator, Tim Valentine thought he'd seen every type that Palm Beach had to offer. But Carol Brothers surprised him. He had never expected her to testify voluntarily, but she had pranced right into his office as if she owned the place. No lawyer, either, even though she was facing prosecution. Was she just confident, he wondered, or stone broke?
The drab and dusty office of the Palm Beach state's attorney is a long way from the Palm Beach of fantasy, fast cars, and fat profits -- the Palm Beach to which Carol Brothers had always aspired. She had made quite a splash when she'd hit town in May 1985, a cover-girl model of the savvy and successful entrepreneur, with 50 franchised Pop-Ins up and running and another 600 in development. Pop-Ins had been celebrated in the press as "the Cadillac" of the industry, "the McDonald's" of maid services. Brothers herself had been profiled in USA Today, Money, and hundreds of regional media outlets. Her reputation seemed impeccable: she served on the membership committee of the International Franchise Association, and at her Palm Beach kickoff that summer, the federal government's top franchising official was on hand as guest of honor.
"Palm Beach Surrenders to Carol Brothers," gushed the headline in Florida Woman magazine that fall, reporting on the "super lucrative franchises" of "this dynamic business woman." That winter, Florida Woman featured Pop-Ins as "the fastest growing franchise chain in America today."
By February 1986, the "fastest growing" chain was broke, a Chapter 7 bankruptcy, leaving $82,711 in unpaid back taxes, $12,411 in back wages, $744,860 in unpaid bills, and scores of franchisees across the country out thousands and thousands of dollars. At least 10 lawsuits were pending against Brothers or Pop-Ins, filed by virtually all of her surviving franchisees, an investor, even an old boyfriend.
Sitting across the cluttered desk from her, investigator Valentine had to admit Brothers was still a looker, with a Dolly Parton shape that her elegant suit could not disguise. But he had expected someone with more flash -- more gold jewelry and less presence. He'd heard the complaints from employees and franchisees, and the rumors of phony audits and office break-ins, of slashed tires and shadowy hit men. He'd expected her to be shrewd and conniving. Instead, he found her enthusiastically upbeat and innocent.
To hear Brothers tell the Pop-Ins story, she had been just a country girl from Columbiana County, Ohio, trusting and naive, who had started this little business out of her house. On the strength of a good idea and relentless hard work, it had grown into a national franchise. But along the way she had been swamped by success and put off course by bad advice. Certainly she couldn't be blamed for that?
Valentine, however, became increasingly frustrated as he proceeded through his questions. Her recall of facts was sketchy -- Brothers couldn't even say just how many franchises she'd sold over the years. Her grasp of business practice was equally tenuous.
"When a John Smith would buy a franchise for $25,000, that $25,000 was not put in escrow specifically for his equipment and supplies?" he asked. "That $25,000 was just doled out to handle any problem the company had?"
"It was general operating money."
"Was that disclosed to the person buying the franchise?"
"I didn't think that was necessary. As a matter of fact, I'm sure it wasn't necessary," she insisted. "There's nothing illegal or wrong with that. We had done it in the past."
"Do you know what a Ponzi scheme is?" he asked. But of course she didn't.
The more Valentine listened, the more Brothers's story sounded like some implausible entrepreneurial Perils of Pauline. She'd meant to pay her sales tax, but the money had gotten mixed up in her ex-husband's company. She'd never signed a bad check, not knowingly, but her accountant was a Vietnam veteran who suffered from disabling flashbacks. The only time her cheerfulness flagged during the 45-minute interrogation was when she spoke of her gold Corvette, sold to pay the bankruptcy attorney.
"It was the only thing I owned," she explained, her voice quavering. "It just kills me . . ."
"Crocodile tears," Valentine thought, watching the brunette's green eyes mist over. "She could charm the pants off an alligator."
But charm alone does not explain the extraordinary rise and fall of Carol Brothers. The Pop-Ins saga is a tale of America's current franchise boom, and the dream of wealth and independence that fuels it. It was that dream that brought Brothers and her franchisees together.
There is nothing unusual about a franchise going bust -- a record 78 failed last year, leaving 5,667 franchise units stranded. Like Pop-Ins, most of the failures sold services rather than products. And like Pop-Ins, most foundered on the twin rocks of inadequate capital and inexperienced management.
What makes the Pop-Ins story unique is that Brothers was able to keep her business alive for eight years, through three waves of franchise litigation and a dizzying succession of bookkeepers, accountants, and lawyers. Undercapitalized from the start, her cash crisis got worse every time she sold a new franchise -- and thus the more desperate she was to sell another and another. Promises and publicity soared even as performance declined.
