Fear Of Franchising
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.
Ironically, if determination, hard work, and a good idea were the only prerequisites for success, Carol Brothers might well be ranked in the entrepreneur's pantheon today. She gave eight years to building a business, 20-hour days, six or seven days a week, without ever taking a salary. Her problems with managing a rapidly growing organization, controlling cash flow, and abiding by all manner of government regulation would sound familiar to anyone who has ever tried to start a company single-handedly. Who has never written a check on Friday, praying that a sale would come through over the weekend so it could be covered? Or tried to look at the bright side of a bad situation, and put on the best face for customers and the press? Who would not sympathize with the entrepreneur who sacrifices a marriage and a life savings to the all-consuming passion of starting a new business?
Brothers would not have sold a single franchise if her initial idea of an upscale, standardized national cleaning company hadn't been sound. The most recent Franchise Opportunity Handbook, published by the U.S. Department of Commerce, lists 14 similar businesses operating today -- from Classy Maids U.S.A. to Maid for a Day -- with an estimated 952 franchise outlets and almost $50 million in sales. Pop-Ins, it's no surprise, is not a popular topic among her onetime competitors -- "growth without substance," one calls it, "a blight on the industry." But the criticism comes with 20/20 hindsight: growth without capital, after all, is the promise of franchising. And until the bankruptcy, Pop-Ins had been considered one of the industry's brightest lights, poised at the edge of a major national success.
Even today, more than a year after the bankruptcy, an extraordinary degree of passion surrounds the Pop-Ins story. Former employees worry that they might face prosecution themselves or lose professional licenses; a few, fearing retribution, agreed to speak with INC. only in hotel lobbies or darkened fast-food parking lots. Franchisees -- some angry, others fearful, still others just plain embarrassed -- remain obsessed by the charismatic saleswoman who tapped into their dreams and briefly dominated their lives.
Ultimately, it was the strongest of those franchisees -- along with employees -- who brought Carol Brothers down. It was their lawsuits that drove her company into bankruptcy. And it was their complaints that finally caught the attention of an investigator in the office of the Palm Beach prosecutor.
PORTRAITS OF THE CEO AS A YOUNG WOMAN
COLUMBIA, OHIO, IS AN UNLIKELY PLACE TO BASE a national franchise chain. The local market still sells Moon Pies, and Red Man Tobacco is advertised on fading barn doors. Eighteen wheelers rumble off the interstates, but they pause only for gas or to visit the nearby truck-stop massage parlors. How do you raise money in a community with 10 churches and not a single locally owned bank? Or attract managers to a town where entertainment is the $5.95 all-you-can-eat barbecue-rib dinner with salad bar at the Holiday Inn up the road in Youngstown? How and what do you sell?
Carol Brothers sold magic, the dream of owning your own business, and when she could she sold it through the press. She would come to town -- any town -- like a whirlwind, peddling her story to every reporter she could find.
For radio, she was quick-witted and bouncy. On television she was a knockout, with a different angle for every reporter she met.
For the lifestyle pages, she would talk about why she started her business. She'd been a busy young professional, on the road so much that she'd had little time for housecleaning. When she'd tried to hire a maid, she'd discovered how hard it was to find good help. Wouldn't it be wonderful, she'd asked herself, if she could just call someone and get courteous, reliable service? When she'd realized that thousands of women felt the same way, she had started Pop-Ins -- not just a cleaning company, but "the maid service with class."
For the business pages, she would explain Pop-Ins' impressive growth. For two-income families a cleaning service was no longer a luxury -- it was a necessity, and the opportunity behind her success. Pop-Ins was riding America's transformation into a service economy, and each time Brothers sold another franchise she was helping another entrepreneur ride that wave with her, providing all the tools needed to run a successful business.
Brothers would wax evangelical on the blessings of franchising, and what reporter could doubt her? Her own career, after all, was eloquent testimony to the benefits of the system. Here was a female entrepreneur, glamorous and chic, running a fast-growth national enterprise, just in on the corporate plane. It was good copy -- so good, in fact, that no one ever bothered to check whether it was true.
Actually, the more Brothers told her story, the better it got. Many of her fictions were innocuous, like claiming her husband's plane as her own or fudging on her age by a year or two. She inflated the number of franchises she had sold, too, sometimes by adding imaginary new stores to her count, more often by counting the sale of a master territory, with 50 potential franchises within its boundaries, as if it instantly added 50 real-life businesses to the Pop-Ins system. Her personal resume improved as well. At first she said she'd graduated from Penn-Ohio College; later she would claim a marketing degree from Youngstown State University; eventually she added training from a Chicago School of Interior Design to her vita. Then there was modeling in New York City and eventually a business in interior design, "working out of Sutton Place and North Dallas."
But the education, the modeling career, and the design offices all existed only in fantasy. "I threw it around a lot," she admits. "It was impressive."
In truth, the rise of this chief executive officer had been a more impressive climb than that, a tribute to Brothers's grit. Women born in the hill country of Ohio, as she was, weren't expected to start their own businesses. Their lot was to marry early, breed, and keep house. Carol Brothers did all that before she was 30. Pop-Ins was her way out.
Except in daydreams, she had seen precious little glamour. Carol was the seventh child born to Howard and Iva Myers, the fifth to survive childhood. After World War II, her father worked at a local plant that manufactured metal kitchen cabinets. Her mother ran the family truck farm. For the children there was school, church three times a week, and afternoons weeding the strawberry fields.
Carol moved out of her parents' house at 15. At 16 she was married. By 19 she had three children. She worked as a waitress in Youngstown after the kids were out of diapers, then once they were all in school, enrolled in typing and shorthand courses at the local community college. But her dreams reached beyond secretarial work, beyond Columbiana, beyond the day-to-day realities of K mart specials and children's dental bills. As she neared 30, she took her first sales job and discovered what she thought was the way to make those dreams come true.
Selling mirrors and porcelain figurines for Mary Crowley of Dallas's Home Interiors & Gifts Inc. was much like selling powder and lipstick for Mary Kay Ash. Both companies took working-class housewives, like Brothers, and taught them that if they worked hard and stayed upbeat nothing could stop them. Brothers was a natural saleswoman, with enough charm to be welcomed as a decorator in any of Greater Youngstown's better homes. Within two years she had been promoted to a Home Interiors manager, and she discovered that she could inspire other women with her own enthusiasm.
While success fired Brothers's ambitions, Mary Crowley, the founder of Home Interiors, gave her inspiration. Crowley had also been a country girl, starting out of her garage in 1957 and building her direct-sales force to 30,000 by 1977. If Crowley could do it with mirrors and Debbi Fields could do it with cookies, why couldn't Brothers do it with maids?
Originally, Brothers called her company Merri Pop-ins, until the Disney people complained. In 1977, two days after Christmas, it became Pop-Ins Inc., with Carol Brothers the president, sole stockholder, and chairman of the board. Working from a rented three-room office in an office complex in Youngstown, she did everything including cleaning the houses, handling marketing, personnel, administration. Her emphasis was on developing practices and procedures that could sustain a much larger operation.
"Youngstown was a devastated market, with the mills closing," she remembers. "If we could survive there, I'd know we had a hot idea." Within a year, the Youngstown operation was making money, and she opened a second Pop-Ins in Canton, about 45 miles to the west.
Her personal life had also taken a turn for the better. After an 11-month courtship, Carol married husband number three, Don Brothers. Don was quite the catch in Columbiana. He had turned his father's paint company into Century Industries Corp., expanding into chemicals and car and truck leasing. Tall and rugged, draped in gold and diamonds, a regular at the local country club, he was the ideal consort for the woman Carol planned to become.
By the end of 1978 Brothers felt ready to franchise. Driving back and forth between her two stores was leaving her frazzled, and she was convinced that employees at both locations were stealing -- turning in the checks but pocketing the cash. Franchise owners, she reasoned, would be on the spot, able to watch managers more closely and with a vested interest in success. More important, franchising would be a way to bootstrap beyond the mom-and-pop plateau.
For start-up capital, Brothers counted on the little money that she had saved from her decorating career. Her husband, she figured, could provide an office, on good terms, in a building he controlled downtown. His leasing company could provide cars, his chemical firm a network for cleaning supplies. A local consultant helped her write the sales brochures; a local attorney drew up the standard franchise contracts. And in January 1979, Pop-Ins took off -- only to smack into reality.
Brothers had underestimated how expensive selling franchises could be -- particularly after passage of a new federal franchising rule in October 1979 that required franchisors to spell out in detail the terms of the offers, and to provide an audited financial statement and a record of any franchise disputes that had gone into litigation. Preparing such a disclosure would cost at least $100,000 -- an expense that she was able to cover only by digging deep into her savings and borrowing from her husband. But even once the paperwork was in hand and the first few franchises were sold, cash problems began to accelerate. Selling a Pop-Ins franchise, she discovered, was the easy part, especially with her modest $5,000 franchise fee. Much more difficult was getting the new business owners up and running quickly enough to begin paying the 5% to 8% royalties required under the franchise agreement.
As a result, Brothers soon found herself on a cash-flow treadmill. The only way she could keep the business afloat was to sell more and more franchises. But each franchise that was signed up caused an additional drain on Brothers's time and money. Don Boroian, the consultant who helped prepare brochures for Pop-Ins, estimates that Brothers "lost $15,000 every time she made a sale," given the expenses involved with a new franchise. "If it weren't for the income from new sales, her company would have collapsed."
Henry DiBlasio, Pop-Ins' first attorney, agrees. "She was too eager to expand, to hit it too big too quickly," he says. "She was always robbing Peter to pay Paul." DiBlasio quit just after the full-disclosure rule passed, when Brothers couldn't get an audited statement and stopped paying her bills on time. "She could talk anybody into anything," he recalls of his client, "but she very seldom would listen."
Brothers's new Pop-Ins franchisees also saw the results of an organization that was overtaxed. Credit card receipts sent to headquarters would be reimbursed by check, but the check would bounce. Opening announcements were not ready on time. Pop-Ins matchbooks were delivered with the wrong address and phone number printed on them. Franchisees would call headquarters for the solutions to the screwups, or for advice or support. But Brothers would be out, working the press, selling to survive.
"They'd call us every day, some of them, expecting us to solve their problems from Columbiana," Brothers explains of her dilemma. "It was harder work than they'd imagined. In their minds, we were supposed to be running their business for them."
By 1981, franchisee grumbling about broken promises had turned into the first two fraud cases brought against Pop-Ins. Brothers settled both, giving back franchise fees and paying legal costs.
"I was an emotional wreck," she remembers. "I'd never been sued, and it hurt." It was her lawyer, she says, who convinced her that it was better to settle and move on, to concentrate on improving the package rather than enduring the pain of a lawsuit.
"It was poor legal advice," Brothers says today. "I should have sued the pants off both of them. It would have shown we could take a hard line." Instead, the settlement left a blot on her disclosure document, and set a precedent for unhappy franchisees of the future to follow.
"What we had on our disclosure document was 'Sue her, she'll give you your money back," she says. "We created a monster."
"THE CADILLAC OF THE INDUSTRY"
THE MEN AND WOMEN WHO BOUGHT INTO CAROL Brothers's franchise dream were America's middle class -- a school psychologist with a craving for a career change, a Ramada Inns employee trapped in a rut, a retired hydraulic company owner looking for something for his wife. Janet Price, who invested $16,000 to start a Pop-Ins in Morgantown, W.Va., was a branch manager at a mortgage bank looking to be her own boss; when her mother sent her a sheaf of Brothers's newspaper clippings, she was sold. Jim Kane had been with a national food-service company until a change in top management; he heard Carol interviewed on the radio while he was driving down the Garden Grove Freeway, and was impressed enough to pay $77,000 for the Los Angeles County master franchise, the "cream of the crop." Lynn Karp heard Carol on a Cincinnati talk show. Karp, a professor's wife, was looking for a maid now that she'd gone back to school, but once she met Brothers she decided to gamble $13,500 on the Cincinnati franchise.
Most of Brothers's prospects were presold before they walked in her door, convinced that franchising was their risk-free ticket to business ownership. Many had already decided on a maid service, and picked Pop-Ins because of the story in Money magazine about David Brethen, a 25-year-old former factory foreman who earned $25,000 his first year with one Pop-Ins, and then decided to buy four more.
Meeting Brothers only fired their ambitions. She was the glamorous entrepreneur, they were her followers, and each of them, in some measure, would spread the Pop-Ins gospel and share in its glory. Brothers would run a film strip showing pictures of supposedly satisfied franchise owners out driving their new Eldorados, then talk about Ray Kroc's early franchisees -- men and women whose tiny investments were now worth millions. Today, she would say, the future is in service, and together they could help make Pop-Ins the McDonald's of tomorrow. "We're on a roll," Brothers would bubble. "We're going to make it happen."
With a Pop-Ins package, franchisees were promised everything they'd need to succeed. For just $1,500 or $5,000 or $8,500 -- whatever Brothers could negotiate -- they could buy a start-up kit, complete with training tapes, trash bags, blazers, and a sign, plus the proprietary Pop-Ins cleaning products, researched and tested. They'd learn speed cleaning -- based on Japanese-style time and motion theory -- developed by experts from Youngstown State. A representative from headquarters, perhaps Brothers herself, would grace their grand opening, welcoming the press and dignitaries. Headquarters would help them at every step, even sending an experienced hand to their offices to help during launch week. A deposit of only $2,000 would reserve them a territory; within the month they could be learning the Pop-Ins system at Pop-Ins U.
Prospects were given the required Federal Trade Commission disclosure document, with the agency's disclaimer, "We haven't checked it and don't know if it's correct," displayed prominently on the first page. Inside, financial statements prepared by certified public accountant James Hurt Jr. showed a healthy little company: $355,000 in franchise sales, with a pretax profit of $34,000. If anyone asked about the lawsuits, Brothers explained them away as unfortunate growing pains, early mistakes that had been corrected.
Many prospects had their lawyers involved before they bought, but few really wanted advice. "I don't want to know what you think of the business," Tom Bolles recalls telling his lawyer before buying the central Indiana master. "Just tell me whether the papers look OK." In Cincinnati, Lynn Karp's attorney walked out of their meeting, telling his client she'd be better off starting a maid service on her own. "But I found Carol's exuberance compelling," Karp remembers, "and I wanted the security of being in a franchise."
Many prospects also called on a couple of Pop-Ins owners, "and everyone painted a rosy picture," remembers Janet Price. Later, when Price ran her own Pop-Ins and prospects would call her for an opinion, she'd understand why the reports were so good: every franchisee had a stake in Carol's selling yet another franchise. Besides, franchisees were loath to admit they'd made a bad investment, or that they weren't smart enough or determined enough to make a simple cleaning service succeed. They kept their disappointment to themselves.
Nearly everyone who bought a Pop-Ins franchise was disappointed, sooner or later. For some, disillusionment began with their first drive down Columbiana's four-block Main Street, where the grimy windows advertising appliance repair belied all dreams of glory. For others, it came during training: speed cleaning didn't seem like much more than common sense, cleaning from left to right and top to bottom. ("Actually, we weren't taught much about the actual cleaning," one franchisee remembers. "Instead, bookkeeping was stressed, making sure Pop-Ins got its piece of the action.")
Still more lost faith when they got out into the real world, and found themselves scrubbing toilet bowls, and losing money doing it. It was fine for headquarters to refer to a franchisee's employees as technicians and require that they dress in uniforms and work on commission, but actually finding people to do the work was harder than franchisees expected. Customers didn't exactly flock to Pop-Ins franchises, either, and the profit projections worked out at Pop-Ins U. proved wildly unrealistic.
Janet Price had been in the system less than two months, "cleaning my little heart out," when a telegram arrived from headquarters, congratulating her on having the highest-grossing Pop-Ins in the country. She decided then to throw in the towel. "That made me scared," she remembers. "Gross isn't net. I wasn't making a profit, and I realized I probably never would."
Price says she had felt queasy about Pop-Ins from the day she signed her contract, when headquarters had tried to pressure her to buy a second territory. Her start-up kit was useless: 10 gross of plastic trash bags, all too small to use, and a vacuum cleaner that spewed dust out the front. Missing were the lighted sign and the 10 accounting ledgers. The 800 sheets of letterhead, 300 envelopes, and 400 referral cards came without her address imprinted. As Price had been promised, Carol Brothers came to her official opening, but raised eyebrows by making a pass at the local radio personality.
Like most of the early franchisees, however, Price's most serious complaint had to do with the price and quality of the Pop-Ins supplies, none more so than Polly Pop-Ins' Carpet Cleaning Compound. Actually, Polly's brew was nothing more than a commercially available carpet cleaner that Price discovered was repackaged and marked up for Pop-Ins by Century, Don Brothers's company in Columbiana. When Price asked if she could buy the Host brand cleaner directly from the manufacturer and save some 113%, she was told she could -- but only if she went to the expense of having it tested and chemically analyzed to make sure it was up to Pop-Ins' standards.
For Price, that was enough. Her fellow franchisees might be cowed by Carol's charisma, Price decided, but she was tired of being made a fool of. "I thought they wanted me to succeed, but they wanted to bleed me dry," Price says. After several stormy sessions with Brothers, which included accusations of fraud and threats of slander suits, Price dropped out of Pop-Ins in April 1982 and put her franchise up for sale. There was no buyer.
Other franchisees were defecting as well -- some, like Price, merely discouraged, others bankrupt, like David Brethen, who went belly-up less than a year after his glowing portrait in Money magazine. The survivors did their best to hang on to their investment, but there were no more true believers. To most of them, the headquarters' staff seemed incompetent, negligent, or both, and their CEO's explanation for the relentless turnover -- one operations manager fired for taking kickbacks, the next fired for stealing -- did little to build confidence. The more courageous among them complained loudly and repeatedly, but always behind closed doors, so as not to discourage any new prospects who might be visiting.
Jim Kane, a California master, closed up shop in January 1983 and took an out-of-pocket loss of $368,000. "Pop-Ins had gone from incompetent to negligent to fraudulent," Kane says. "I was afraid that by associating with these people I'd end up in jail."
Kane had two concerns. As a master, he thought he might be responsible for the price and quality of products like Carpet Cleaning Compound. He was concerned, as well, about the case of James Wong, who had put down a $2,000 check to reserve a franchise when Brothers was in California in July 1982. The check had been cashed, but over the next six months Wong hadn't heard another word from Pop-Ins. Headquarters told Kane "not to worry."
Kane, however, was plenty worried. Brothers had promised him that she would open a regional office to help him develop his master franchise, and launch a massive media blitz. She even bought a condominium in nearby Cypress, Calif., so she'd be more available. But the regional office closed five months after it opened, and the media blitz fizzled. The condo stayed empty. Exasperated, Kane closed the business and filed suit against Pop-Ins in U.S. District Court in Cincinnati.
For Lynn Karp the final straw would come a month later, in February, at a meeting of franchisees at which Brothers announced that Amway Corp. would join Century on the list of approved product suppliers, making Pop-Ins a master distributor in the Amway system. It was a way they could all make money together, Brothers explained.
"I went berserk," Karp remembers. "I bought this franchise because you told us it was 'the Cadillac of the industry," she remembers shouting at Brothers. "I don't want the company I've built to be associated with something as tacky as Amway."
Running a Pop-Ins franchise had changed the professor's wife -- she was now a business owner challenged by selling and managing. Week after week she had topped the Pop-Ins sales list, not by strictly following company procedures but by adding her own innovations. Now she thought of the Cincinnati franchise as her creation -- and she was determined not to let it be diminished by any of Brothers's more desperate initiatives. The day after the announcement, she called her lawyer and told him to sue. Eight months later, Karp closed her Pop-Ins and reopened it under a new name, Mopettes.
The effect in Columbiana was disastrous. Karp had been Pop-Ins' biggest royalty producer, and Kane had represented her hope for future growth. Brothers's worst nightmare was coming true. But this time it wasn't just 2 franchisees suing, asking for their money back. By May 1983, there were 19 different franchisees, including her 12 biggest revenue earners, all of them accusing her of fraud.
LOOKING BACK AT THE FRANCHISE REVOLT, CAROL Brothers sees herself more sinned against than sinning. Like many start-up franchisors, she'd had too many fires to put out, and too much to learn. There was never the time or money to give her franchisees everything they thought they deserved. She's done her best, "but with franchisees, no matter what you do, it isn't right," she explains. Now, by scheming to avoid paying royalties, they were trying to destroy her company and walk away with her idea.
But Brothers also blamed herself for the lawsuits. She was convinced it all went back to the first time she'd been sued. She'd looked like a pushover then. This time she swore she would send a tougher message.
Jim Kane got his message driving to work, when he noticed a blue car in the rearview mirror, following him. Kane tried speeding up, slowing down, then changing freeways. But the driver, a large man with blond hair, stayed right on his tail. When Kane pulled into his office parking lot, the blue car was out of sight, but when he looked out the window from his office, he saw it again, cruising slowly up and down the street.
Kane recognized the car as belonging to Pop-Ins and reported the incident to a friend in a nearby police station. He also phoned the attorney in Ohio who was handling his suit against Pop-Ins, and the attorney brought it to the attention of the FBI. "I'm convinced we're dealing with evil and dangerous people," is how the attorney assessed the situation.
Lynn Karp found the tires slashed on her company cars when she came to open Mopettes one July morning. Her office had been broken into, but nothing of value was stolen except for some files and customers' keys. A police investigation came up empty-handed. Three weeks later, however, a man called the office, announcing himself as "Mr. T." According to Karp, Mr. T said he had been hired by Carol to rough her up, but he was willing to switch allegiances, exchanging information for a fee. Mr. T proposed a meeting at a location of her choice, even recommending that she bring along a police officer if that would make her more comfortable. They agreed to meet at the Dayton (Ohio) Mall. A few days before the scheduled meeting, Karp says she got an envelope in the Mopettes morning mail with pictures of herself wearing different outfits over different days at different places -- a demonstration, she presumed, of how easy she was to follow.
Mr. T showed up at the mall in work clothes, a tall stocky blond with a beer gut and work boots. As Karp remembers it, he was filled with apologies. He'd never liked Carol, he explained, but he'd been forced into it for the money -- money he needed to pay for treatment of his daughter's spina bifida. The stolen files were in Carol's basement, he said. Then he disappeared, Karp's cash in hand.
As you might expect, Karp's is not the only version of these events. Brothers admits to engaging the services of Mr. T, but denies that she instructed him to use strong-arm tactics. "I hired him to follow Lynn Karp and see what she was up to," she explains. Whatever her intent, however, the effect was disastrous. She had succeeded in putting the fright into both Kane and Karp, making them only more determined than ever to face her down in court. Still worse, she had not really figured out what to do with Mr. T, who would soon appear at her doorstep again, in broad daylight, demanding more money for the services he had rendered.
His real name was Earl Hersman, an "A Team" fan and former Columbiana police officer who'd first showed up at the Pop-Ins office to install an air conditioner. Brothers makes no apologies for hiring Hersman, but says he went off on his own. "The guy is nuts," according to Brothers. "He came back to me and said, 'If you don't give me $10,000, I'm going to go to Lynn Karp and tell her you paid me to rob her."
Brothers said she was shocked by Hersman's approach, but she was determined not to bow to extortion. After checking her office to make sure that Hersman had not planted any stolen files, she says, she filed a formal complaint with the Columbiana police.
Columbiana police chief Mark Shaffer remembers the incident well -- "the alleged $10,000 extortion," he calls it, breaking out in a grin. Carol Brothers never filed a complaint, by his reckoning, and no formal action was ever taken. "I could not determine for sure who was telling the truth," says the chief. "I won't say she was attempting to cover any tracks, but it was certainly within her ability to do so."
For his part, Mr. T still feels he got the short end of the stick. "Carol's a real conniver," he muses, sitting glumly in his chilly living room, a baseball cap on his head, sipping Pepsi and watching game shows with his daughter. "She claimed franchisees were ripping her off, and she asked me to go check things out. She said she wanted them scared so they'd come around. She told me to threaten them."
The break-in, he claims, was Brothers's idea, "but that was over my head." He took no money from Karp -- "or maybe a couple hundred," now that you mention it. He says he never tried to extort money from Brothers, either.
"I told her, 'For the work I've done, what you've paid me has been peanuts.' I said, 'If you don't give me the money that's due me, I'll tell your husband.' Not that her husband would ever have believed me, he was so crazy over that woman."
Hersman still believes Brothers ripped him off. The sum total of what she paid him, he says, was a $700 check that she gave him before he left to shadow Jim Kane out in California. It was only after he had called home to Columbiana that he discovered the check had bounced.
CONNECTIONS IN HIGH PLACES
EVEN AS THE FRANCHISE REVOLT WAS THREATENING Pop-Ins from within during the spring of 1983, Carol Brothers's public star was rising. Although royalty payments had been cut in half, Brothers continued to hopscotch around the country in the private plane, staying at the best hotels, prospecting for fresh publicity and new franchisees. The very month Lynn Karp broke away, Brothers wrote an upbeat letter to her remaining franchisees announcing that Pop-Ins had been awarded Leader in the Industry honors at the International Franchise Association (IFA) convention. Even the U.S. Department of Commerce had taken an interest in the company's success, she gushed, having offered to help "take Pop-Ins quickly throughout many major foreign markets."
In fact, there was no award, nor any realistic prospect of overseas expansion. But Brothers had discovered networking, and it inspired her to raise her sights and stretch her dream. She now envisioned Pop-Ins as a model growth company, one with patient investors, respected lawyers and accountants, experienced managers, and knowledgeable directors. These were the people who could help her propel Pop-Ins to the magic 1,000-franchise mark, and give it the class she had always wanted it to have.
Nobody seemed more suited to networking than Carol Brothers, and no network seemed more eager to receive her than the franchise industry establishment at the IFA. Bouncy and flirtatious, always ready to have a drink or share a joke with president Bill Cherkasky, Brothers soon became one of the boys. Her fellow franchise CEOs understood her dream of building a national chain and sympathized with her frustrations with franchisees and their lawyers. They congratulated her on her concept, admired her determination, applauded her energy -- and when she asked for advice they offered to help. Consultant Don Boroian, active in IFA programs, agreed to work on a new Pop-Ins sales package. Attorney Lew Rudnick, special counsel to the IFA, agreed to handle the court battles against Karp and Kane.
But perhaps Brothers's strongest support came from Andrew Kostecka, for 22 years the franchise expert at the U.S. Department of Commerce. They were an odd couple, the self-effacing 60ish bureaucrat, tall and balding, and the henna-haired firecracker of a CEO, seen together at numerous IFA conventions and Pop-Ins franchising "seminars." Brothers dropped his name relentlessly. "It was always Andy this and Andy that," one franchisee recalls. "She led him around by the nose." The Pip-Ins name was featured regularly in news stories about franchising that quoted Kostecka.
"Carol got prominence from Andy Kostecka's promotion," attorney Rudnick says. "That wouldn't have been right, even if the business had been doing well. But given her financial difficulty, it was ludicrous."
If anything, Brothers's financial difficulties had become more pronounced: in addition to the expense of her travels and the continuing operations back in Columbiana, she now had her new consultant, new lawyer, and new PR men to pay. In the neverending search for capital, she had ruled out venture capitalists (she would not give up what they'd want) and bankers (they'd be less than impressed with her books). Instead, she turned to friends.
For the short term, there was Indiana master franchisee Tom Bolles, the most successful of her remaining franchisees, who had agreed to invest $25,000. For the long term, she pinned her hopes on Ed Crawford, a Cleveland business associate of her husband's who seemed intrigued by what she was doing. According to Brothers, in June 1983, Crawford put together a group of Cleveland businessmen and attorneys to invest $100,000, in exchange for 12% of the company's stock. Brothers had hoped for more, on significantly better terms, but at least it was a start.
Brothers had a new marketing strategy for Pop-Ins as well. She decided that she had chosen the wrong kind of franchisees in the past. There would be no more selling to working-class folks who needed to take home paychecks three months after they started. Now she'd move upscale, looking for prospects who expected a bigger payoff, but could afford to wait. And rather than individual franchisees, she'd concentrate on selling multiple territories and master franchises.
New connections and a new strategy soon paid off in qualified new leads. Ted and Stephanie Zajac, for example, were exactly the new sort of customer she'd targeted: a husband-and-wife M.B.A. team, she a supervising CPA at Peat, Marwick, Mitchell & Co., he a management consultant at Coopers & Lybrand. They met Brothers at an IFA convention and bought two Dallas territories. And there were Jim and Judy Kreitz, who bought an Illinois master on one of Brothers's visits to Chicago to see attorney Rudnick. Two Washington, D.C., attorneys bought the D.C. Pop-Ins master after a long conversation with Andrew Kostecka himself. "Kostecka thought Pop-Ins was a good business," one lawyer recalled. "He recommended it, specifically, by name." Over lunch, Kostecka even explained the Commerce Department's plans to take Pop-Ins to Japan, according to one of the lawyers.
Brothers's story had never sounded better. CPA James Hurt's most recent audited financials showed $754,000 in revenues on the income statement, with a healthy 10% net profit and a solid balance sheet. And while there was now a long section on the new FTC disclosure document about the Karp and Kane litigation, Brothers had a knack for turning skepticism into sympathy. "Carol talked about how bad these people had been, how they had tried to steal her business," Ted Zajac remembers. "'Poor Carol,' we thought, 'she really got screwed."
Just as the Pop-Ins selling machine was going into overdrive, however, her informal capital network started to unravel. Tom Bolles, the franchisee who had invested the $25,000, asked for his money back after Brothers deposited his check but refused to sign the necessary papers -- Brothers says the agreement would have tied her "to so many strings that Bolles would have owned the company." But with the $25,000 already spent, Brothers was now facing the prospect of another lawsuit and the loss of royalties from her largest-grossing franchise. In desperation, she turned to her Cleveland investors to help her out, but she couldn't strike a deal without giving up more equity. Then, suddenly, in October 1983, Crawford wrote that it would be "impractical to invest any further capital in Pop-Ins" under any conditions. He also withdrew from the board of directors, describing the company as "for all practical purposes, bankrupt."
Relations with Rudnick were also crumbling, even as his legal bill was soaring. Rudnick knew Brothers's finances were desperate: he advised that her only hope against Lynn Karp and Jim Kane was to negotiate a settlement that wouldn't leave her bankrupt. He tried to convince her to slow down, to rewrite her disclosure documents and contracts, to clean up her act, but she needed sales now more than ever. When members of the IFA came to Rudnick with complaints about Pop-Ins' business practices, he says he declined to discuss specifics about his client.
Brothers remembers it differently. "Rudnick was telling me to go on with sales, and to build the system," she complained. "Then, when I couldn't pay his bill, he went to a board meeting of the IFA and made the statement 'Pop-Ins is in serious financial trouble.' Talk about a breach of the client relationship!"
Brothers would soon change attorneys, but her contretemps with Rudnick seemed to have no impact inside the franchising industry. At its convention at the end of 1983, the IFA named her to its membership committee. And a few months later, Pop-Ins franchisees received a "news flash" that Brothers had addressed an audience of 8,000 minority women in Washington, D.C., on a platform shared by President Reagan, Geraldine Ferraro, the Rev. Jesse Jackson, and Andrew Kostecka. In fact, Ronald Reagan never addressed the crowd. Neither did Carol Brothers.
A NEW PRESIDENT
WHILE OTHERS WERE HOLDING UP POP-INS AS A national model, the new franchisees were struggling to hold on. Like those who preceded them, they complained about start-up packages delivered late or incomplete, inadequate training, and broken promises. Stephanie Zajac remembers Brothers's promises to her about the "publicity blitz" that would accompany her opening. As it turned out, there was a single radio show broadcast at four o'clock on a Sunday morning.
But while the problems were the same, the franchisees were not. These were not the business novices of earlier years. While most lost money and eventually went out of business, a few were able to establish successful businesses in spite of headquarters' efforts. They had put their own capital into the effort -- significant amounts in the case of master franchisees. Now they were determined to protect their investments and their success. After a tumultuous early spring meeting of the master franchisees and stockholders in Cleveland, Brothers was given an ultimatum: clean up her act, or face a second, terminal, franchisee revolt.
The solution worked out among Brothers, the franchisees, and the company's Cleveland stockholders was probably long overdue. Like many entrepreneurial ventures, Pop-Ins had become too big for its founder; to keep growing, the company needed more professional management. Brothers had never liked the administrative end of things. Couldn't she make a bigger contribution if she concentrated on what she did best -- selling and marketing -- and turn day-to-day operations over to somebody else? The stockholders agreed to invest another $250,000 in Pop-Ins in exchange for 30% of the equity and a promise from Brothers to step down as president.
To E. Anne Murphy, hired in May 1984, the presidency of Pop-Ins seemed a giant career step to take after five years in a franchised accounting service. It was the chance to take a hot company in a hot industry and really make it happen. Her friends at the IFA, she recalls, told her the company had "a few financial problems," but that Carol was "a real nice gal." Once she was assured by the investors of an infusion of new capital, she quit her job, put her Chicago condo up for sale, and moved to Columbiana.
Murphy's first day at work proved discouraging. The sight of Main Street was disheartening enough, but the scene when she stepped through headquarters' door was worse. There sat 13 new franchisees waiting for their first day of classes, scheduled to have been conducted by the training director who had quit the Friday before. "It should have given me a clue that Carol didn't walk out of her office and help me teach," Murphy admits in hindsight.
That afternoon, called into the CEO's office, Murphy found her boss in tears. "Crawford just called -- he's not giving us the money," Carol told her. There wasn't, she admitted, even enough cash to meet payroll. "To heck with Crawford," Murphy said bravely. She'd defer her own salary until the two of them could turn problems around.
It would be a long wait. By the end of the week, after combing through the books, Murphy says she found the company had $485,000 in overdue bills, including more than $100,000 owed to attorney Rudnick. Nor would there be any outside capital: having worked through the books in detail, the Cleveland investors themselves now were demanding 80% of the equity for their $250,000, an offer Brothers found unacceptable.
Murphy stayed -- she found her new boss's determination infectious, and she agreed with Brothers that Crawford's takeover attempt merely proved the strength of the Pop-Ins concept. Given Murphy's management skills and Brothers's sales brilliance, why couldn't they pull it off without his money?
Nancy Eversman, the Pop-Ins accounts payable manager, saw the new president's influence firsthand. They were still awash in bills from lawyers and suppliers, but Murphy called all their creditors, personally, buying time. Working together, the president and Eversman were able to squirrel away the money franchisees paid for start-up packages, so Brothers could not spend it for general operations. They were less successful in preventing raids on the advertising fund, which the franchise contract required be kept in escrow, or in convincing Brothers to pay the Ohio state sales tax, which she insisted was being paid through her husband's chemical firm.
Not that Brothers was taking money out of Pop-Ins for herself. "Carol took around $2,000 out of Pop-Ins the months I was there -- and $1,000 of that was for her daughter's wedding," Murphy remembers. "Carol knew how to spend money, but she didn't have it to spend. She was dirt poor -- she didn't even have her own car. She was living off her husband."
In the fall of 1984, however, with Murphy running operations in Columbiana and Brothers out on another successful selling spree, it looked as if the company might begin to fulfill its promise. Since the summer, 54 franchise units and four master territories had joined the system -- that despite the fact that the franchise fee had been raised to $12,500 and Murphy was screening prospects herself, "so I'd know they didn't have too rosy a picture of things." Murphy added additional approved suppliers to the system, removing a major bone of contention. She improved the training, teaching much of the course herself and hiring one of the successful franchisees to teach "speed cleaning." As more franchisees began to make money, cash flow improved, and the list of creditors began to shrink. Morale had never been higher.
Then, suddenly, Brothers stopped selling. By Thanksgiving, she had retreated to the privacy of her office, seemingly dispirited. "It got to the point where everybody said how wonderful Anne Murphy was, and she couldn't handle it," Murphy says. "Somebody else had made her successful, and she had to assert herself."
Murphy had a more serious concern than Brothers's ego, however. She had begun to worry about her legal liability for Pop-Ins' aggressive sales policy, as details of negotiations with specific franchisees filtered back to Columbiana. Brothers had sold a franchise territory that extended into Virginia, where Pop-Ins had not yet registered. There was a similar problem in California, where registration had been allowed to lapse in the wake of the Jim Kane fiasco. In Illinois, Murphy discovered, Brothers had taken money from new franchisees without waiting for the required "due diligence" period to pass.
Disillusioned, Murphy resigned after Christmas, tired of working for less than full pay for a CEO who she felt wouldn't tell her the truth. Her parting shot was a lawsuit, filed in the hope of recovering at least part of the $24,000 in salary she had never been paid.
For the staff and franchisees of Pop-Ins, Murphy's departure came as a shock. Bookkeeper Eversman recalls the steady stream of calls from franchisees, begging for the truth. Had Murphy been fired? Were they going bankrupt? Once again, some of the stronger franchisees considered breaking away and running their businesses independently, as Lynn Karp had done with Mopettes. Others, having spent two or three years making the Pop-Ins name known in their communities, vowed to hang on, convinced Brothers would have to sell the company soon.
But Brothers had no intention of selling. She'd come too far and fought too hard to give up, and she still believed she could turn things around. Murphy had been trying to steal her company, she decided, just like Bolles and Crawford had before her. She instructed the vice-president, Larry Callaway, to hire a Chicago private detective to keep a watch on Murphy.
"Carol got real strange after Anne left," remembers regional franchise coordinator Sherry Henderson. Henderson's assignment was to visit potential troublemakers among the franchisees, searching for violations of the franchise agreement that would allow Brothers to terminate their contracts before they, too, became a threat. "I was told to get them, any way I could," Henderson recalls, "or else I'd be out of a job."
The search came up empty-handed. Instead, what Henderson found were franchisees struggling to stay in business, most of them tired of the constant battles with the embattled entrepreneur in Columbiana, Ohio.
OF MEN AND MONEY
PUBLICLY, THE CORPORATE RELOCATION TO PALM Beach in May 1985 was painted as a major step forward, a "class move" for "The Maid Service with Class." Pop-Ins had outgrown its Columbiana roots, Brothers told the press. It would be easier to attract good employees in Palm Beach, franchise professionals who could make their "Polly Pop-Ins" logo as familiar as McDonald's golden arches.
In fact, Brothers says now, she left to escape problems with her husband. Carol estimates that Don Brothers had put some $300,000 into Pop-Ins, and after six years, he was coming to the end of his rope. Century Industries, the family chemical business, had loaned Pop-Ins more than $100,000, unsecured. In addition, he'd provided office space, set up a print shop, leased cars, and loaned his airplane. Contrary to the allegations made by franchisees, Don says he had never made money selling chemicals to franchisees -- there was never enough volume, and Carol had not always been careful about paying the bills. Don had tried to give her advice, to head off the disaster he saw coming. "But if you knew Carol Brothers," he said later in a court deposition, "you would know you don't tell her much." By the spring of 1985 advice had turned to demands -- Carol would have to start paying for the office space and cars, or lose both.
Carol didn't tell her husband she was leaving, exactly. One Saturday she just had the movers pull into their driveway, load her belongings in the van, and head south.
Former employees remember the move to Palm Beach as the most organized event in corporate history. In less than a day, they packed and shipped the entire business. The trucks left Columbiana 48 hours ahead of the posse -- auditors from the Ohio tax office, anxious to review the company's books and collect several years' worth of unpaid sales taxes.
Brothers was nervous for weeks after the move -- "I kept expecting my husband to show up with a shotgun," she remembers. But she was determined to make a fresh beginning in Palm Beach. She told her Cleveland stockholders at a meeting that May that the future looked bright. With moving costs counted in, the company had lost only $12,000 so far in 1985, she said, following a 1984 aftertax profit of $30,000. She predicted a 1985 profit as well -- on the strength of the relocation of the corporate headquarters to "a more prestigious address," and the anticipated sale of a $100,000 Cleveland master franchise.
The Cleveland master was never sold, but back in Palm Beach that summer, Brothers pulled out all the stops, charming the media across Florida with her story of 600 franchises in active development. Brothers was now offering a money-back guarantee to new franchisees on their Pop-Ins investment. And, of course, she appeared to have plenty of support from Andrew Kostecka, who in May had been elected, in absentia, to the company's reconstituted board of directors, and who flew down from Washington to speak at a Pop-Ins "seminar" held in Palm Beach's ritzy Royce Hotel.
Behind the luxury hotel suites and supportive friends, however, Pop-Ins was falling apart, as Tim Borden discovered when he took over as Pop-Ins' director of finance. Borden had gone up to Columbina to help with the move and had tried to put the corporate books in order. The farther he worked through the records, the more convinced he was that Brothers's audited balance sheet, the basis for her Palm Beach pitch, was phony.
"The records were a shambles," Borden says. "If you wanted to find what a franchise had paid, you had to dig, deposit by deposit, day by day. Records were kept, on paper, ut there were no summaries."
Unable to reconcile the bank statements, Borden turned to CPA James Hurt's 1984 audited statements. In the FTC disclosure document they looked fine, but he never could find any supporting details in the office. He found $37,000 in bills that had been unaccounted for, listed neither as having been paid nor logged among the accounts payable. As for receivables, Borden discovered that the $413,000 listed by Hurt included thousands of dollars from illegal or improper sales, or sales by master franchisees that Pop-Ins had no reason to anticipate -- including sales by the former California master, Jim Kane.
If anything, Borden concluded, the move to Palm Beach had made a bad situation worse. Without Don Brothers's offices, operational expenses were higher, and most of Pop-Ins' Florida suppliers now wanted cash on delivery. Brothers went on tapping the Pop-Ins central advertising fund, ostensibly kept in escrow, to pay daily operating expenses, but the cash crunch grew so severe that she had stopped paying FICA. Staff turnover was a plague: former Pop-Ins vice-president Larry Callaway counts 64 employees through the revolving door in a six-month period, including four lawyers, six accountants, three franchise coordinators, and six managers of franchise operations.
Borden says he started talking with his own lawyer about Brothers after "I was asked to prepare false financial statements for potential franchisees and investors." His own calculations would have added $78,000 to the payables shown on Hurt's 1984 audited statement, while writing off $300,000 in receivables -- leaving Pop-Ins with a negative net worth. But Brothers demanded that he put the numbers back the way they had been. "I told her it was illegal," Borden recalls, "but she said, 'It's not illegal until you're caught."
It wasn't until Nelson and Robin Frey, new franchisees from Pittsburgh, came to Palm Beach for their training at Pop-Ins U. that Borden finally decided to make his break with Brothers. Borden had seen lots of couples like the Freys: drawn in by all the hype and publicity, they'd invested in a franchise, only to show up at their training session angry, shouting red-faced about supplies and support that had been promised but not received. Brothers had taken a hard line with the Freys, haranguing them in front of her staff and threatening to take their franchise away from them on the spot. But Borden felt more than a little sympathy with the young working-class couple struggling to keep their new baby in Pampers. To pay for their Pop-Ins franchise, they'd put in their life savings, taken another mortgage on their house, and borrowed every penny they could. They deserved more from Pop-Ins than broken promises and verbal abuse.
At three o'clock the next morning, Borden showed up at the couple's motel room to tell them the truth about Pop-Ins -- that none of the equipment and supplies they had paid for had ever been ordered, and that their money had gone to creditors for bills long since overdue. The next day, the couple was able to confront Brothers again and get the money back -- but only by threatening to denounce her and Pop-Ins from the podium at the upcoming IFA convention.
"Tim Borden is a conniving troublemaker," Brothers insists of the incident. "The Freys had him about ready to wet his pants. I never saw a grown man turn into such a wimp."
Borden or no Borden, by August Pop-Ins was adding $10,000 a month to a negative net worth of $250,000. But Brothers still was putting on a good face. "Congratulations," she wrote to Joel and Leonard Hoffer, welcoming the two brothers to the Pop-Ins family. "Please feel free to call on us at any time as you begin to build what I hope to be . . . OUR FIRST MILLION DOLLAR FRANCHISE!!"
Poor Messrs. Hoffer. They spent $50,000, then they called and called, but they never got the supplies they'd paid for, let alone the million-dollar business they'd dreamed of.
But behind the bravado, Brothers was desperate to keep the company afloat. She poured in all that remained of her personal assets, her $25,000 divorce settlement and $40,000 in accumulated retirement funds. Only her car was left, a gold Corvette, the crown jewel of the divorce settlement from Don, the last memento of their years together.
By the fall all she had left was her charm -- a considerable asset, as Dale Kloss found out. With plenty of money in his pocket from the sale of his successful mortuary business back in Cleveland, Kloss had bought 50% of a failing Florida Pop-Ins franchise. Before long, Kloss had turned the business around and sold it back to Brothers, who promptly fell behind in her payments. When he went to see Brothers about the money, a shouting match ensued that led to a date for drinks, then to a Saturday-night dinner. Somewhere in there Kloss lost interest in the overdue payment.
In his own small way, Kloss took the place of her ex-husband in Carol Brothers's business life. By his own account, he loaned her $12,000 to make payroll during the fall of 1985, all of which was repaid promptly. He leased cars to her franchisees. To help her pump up the numbers, he let her list him as the owner of 12 Florida franchises. He even lent her his credit card. "Little Boy," Brothers called him.
"She's a remarkable woman," marvels Kloss, now a professor of funeral services at The College of Boca Raton. "I lived with her and she worked me over, but it's hard to be mad at her. I'm short and fat and insecure, but I never felt insecure with Carol. She was never out for a free ride. I never had the impression I was used."
Brothers's dedication astonished him. Each night they'd go to bed together, he says. Then, when he was ready to go to sleep, she'd get up and go back to work, writing notes throughout the night, filling page after page of yellow legal pads. "She lived for the business," Kloss remembers. "She was like a gambler at the racetrack. In the back of her mind she always felt if she could just do this little bit more, she could pull it out."
IN THE END, CAROL BROTHERS COULDNHT PULL IT OUT. By the fall of 1985, Pop-Ins was drowning in a tide of legal bills that was sweeping her, inexorably, toward the bankruptcy court. Tom Bolles had sued over the $25,000 stock deal. A new franchisee was threatening to sue over the money-back guarantee. In Illinois, franchisees had stopped paying royalties and changed their name to "Maid My Day." The states of California, Illinois, and Virginia were investigating her operations.
But Carol Brothers had one last gamble to try before she went under, her most audacious yet. She decided to start a brand-new company -- Pop-Ins Maid Services Inc., she called it, to distinguish it from the original Pop-Ins Inc.
The idea was simplicity itself. By incorporating under another name, Brothers put the embarrassing details of her past out of the selling picture. The new company's FTC disclosure document showed the virgin financial statements of a start-up, not the old company's negative net worth. Better still, Brothers was able to sweep under the rug most of the long history of franchisee litigation. Ed Crawford agreed to sit on the new company's board of directors. According to Brothers, so did the Commerce Department's Andrew Kostecka, whose participation was kept secret, she says, for fear of running afoul of federal conflict-of-interest regulations.
But try as she might, Brothers could no longer escape the past. She'd hoped to run her new Pop-Ins through company-owned district offices around the country, staffed by veterans of such franchise luminaries as Mr. Build International and PepsiCo. But she could not put the team together. "No mangement, no money, and a bad reputation," one potential recruit said later. "Obviously just starting a new company to hide old problems," another agreed. Kostecka hung tough, according to employees who said he spoke to Brothers by phone almost every day. Crawford, however, pulled out, resigning from the board after just 10 days.
Inside the Pop-Ins office, operations dissolved into comic opera. Employees watched their embattled CEO swing from grim determination to giddy ebullience. Desperate to make the new company work, she was sleeping less and traveling more, using up her credit at a different travel agent every two weeks before moving on to another. One Pop-Ins accountant left, sent to a veterans' hospital for alcoholism and Vietnam flashbacks. His replacement, Dale Kloss's CPA, was facing a federal embezzlement rap. Employees heard endless promises of big changes and new plans, until they were dismissed en masse after a tearful phone call from Brothers in Atlanta.
The final blow came from Ted and Stephanie Zajac, the husband-and-wife M.B.A.s who had signed on so hopefully at an IFA convention a few years before. Brothers had flown to Dallas to explain the benefits of the new Pop-Ins to them in person, but the Zajacs weren't listening. Instead, Stephanie began her own investigation. She soon determined that the Carpet Cleaning Compound lost most of its potency when repackaged by Don Brothers's chemical company. She talked with Nacy Eversman, the former accounts payable manager from Columbiana, and Tim Borden, who had made copies of Pop-Ins' fraudulent records. And she checked on James Hurt, the CPA who had signed off on corporate audits from 1980 through 1984, only to find that he had failed to renew his license in 1982. Zajac tried calling the FTC and the IFA with what she had found, "but no one would ever talk to me about it," she claims. Finally she called an attorney -- the same attorney, appropriately enough, who had brought the fraud charges against Pop-Ins five years earlier.
When the Zajacs sued Pop-Ins in December 1985, joined by Brothers's seven strongest remaining franchisees, Pop-Ins was dead. Brothers had no royalties, no prospects, no cash flow, no staff, and no future; she could no longer escape her past. The list of plaintiffs arrayed against her read like the history of her journey from Columbiana to Palm Beach: Price and the Zajacx, Karp and Kane, ex-president Murphy, and almost every surviving franchisee and many that had gone out of business. Even Dale Kloss, her former lover, joined in, seeking restitution for a bounced check for $6,839.
On February 27, 1986, Brothers filed for Chapter 7 bankruptcy in U.S. Bankruptcy Court for the Southern District of Florida.
"It was the end of an eight-year dream, all my plans for a big exciting business," she recalled sadly. "You work hard for something, you strive all your life, then you watch it all go into the company, right down to the last thing. To have to sell your car to pay the bankruptcy attorney is devastating."
Brothers remained unrepentant after her fall. "If you want to say what I did wrong, it was make some poor choices in employees and franchisees," she said. "It could have worked, if I had had a good team behind me to help back me up and make things happen, so I wouldn't have to worry about an accounting problem here or an illegality there.
"I feel like I have been the victim of an awful lot of disloyal, conniving people. When I would tell someone that I was having problems with employees stealing files, they said I was paranoid. When I told them my franchisees are breaking away, they told me I was paranoid. But employees did steal files; that's an absolutely illegal act. And franchisees did break away, to avoid paying me royalties. They stole the system, and now they are turning the knife, getting the last laugh.
"There're a lot of them out there making a lot of money now, and they are making that money because they are following the system. If it was a bad system, they wouldn't still be making money in it."
Brothers finds their modest success bitter gall. They're out driving Eldorados, just as she promised them, and she had to sell her Corvette.
FOR THE FRANCHISEES, HARDENED BY THEIR YEARS of disappointment, news of Pop-Ins' bankruptcy came as a welcome relief. Free to find their own suppliers and set their own policies, with no royalty payments to make, many started to thrive. The Zajacs, Tom Bolles, the Kreitzes -- all have successful maid service businesses today, with the growth and return they'd hoped for when they first bought into Carol Brothers's franchise dream. Lynn Karp, the first franchisee to break away, now has 250 employees and two stores, and thanks to her success with Mopettes has become a familiar name in the local papers. Another former franchisee, Donna Arp, was doing so well with her two Texas Pop-Ins that she herself is now franchising under the Pop-Ins name, which she acquired legally earlier this year.
Most noticeable by their silence are the two outfilts that lay claim to protecting the public against business fraud and protecting the franchise industry from its unethical practitioners. During the months before the bankruptcy, a number of franchisees claim to have bombarded the Federal Trade Commission and the International Franchise Association with detailed complaints about Carol Brothers and Pop-Ins. Nothing was ever done.
The FTC, for its part, accepts no blame for fraudulent franchising activities. "We cannot protect people from franchisors we have not taken action on," explained FTC spokesperson Susan Ticknor in a stunning display of circular logic. She refused to comment on Pop-Ins, even to confirm or deny whether the agency had even received a complaint.
At the Washington, D.C., headquarters of the IFA, officials were also careful to distance themselves from any responsibility. IFA director of communications Geraldine Strozier insisted that membership in the IFA means consumers "can assume that the company has been scrutinized, and that it conforms to our code of ethics and is a company of substance." Pop-Ins' IFA membership, Strozier added, terminated in March, but only because of nonpayment of dues.
Strozier conceded that the IFA got four complaints about Pop-Ins, starting about six months before its membership ended. All complaints were forwarded to the ethical standards committee, she says, and the association wrote Brothers a letter. The IFA declined to make the letter available.
Andrew Kostecka, "Mr. Franchising" at the Department of Commerce, accepts no responsibility for Pop-Ins, either. "The girl did a good job," he maintains. "We aren't even talking large sums of money."
Kostecka insists he "never" recommends of endorses specific companies. "If people ask me specific questions I never answer," he explains. Of Brothers's financial status, he says he had no idea: "I don't ask any personal questions about any companies." He claims he was never elected or nominated to any board of directors of Pop-Ins, nor offered to serve in such a capacity.
"I'm a friend of everyone," Kostecka continues. "I speak to over 50 franchise organizations a year. We're not a regulatory agency -- we're promotional. We're trying to encourage people to go into business for themselves. If people misinterpret my general speech, I can't be responsible. I'm trying to help people all over the country, and I've done a very good job. I save people from getting ripped off, and I want to continue doing so."
In the case of Pop-Ins, however, it is clear that at least some people were ripped off -- that, anyway, was the conclusion of Tim Valentine of the Palm Beach prosecutor's office. Still, he decided there was nothing he could really do about it. His investigations had failed to turn up sufficient evidence of fraudulent -- and thus criminal -- intent.
In the end, Valentine settled for writing Brothers a letter of warning, accusing her of "gross mismanagement of an enterprise skirting in the grey area between criminal fraud and a business going sour," and promising to keep his eyes on her. But rather than sending her file to storage after he closed the case, Valentine kept it by his desk. "I knew she'd be back here somewhere down the road," he said.
Carol Brothers didn't disappoint him. With Pop-Ins in bankruptcy, she took her concept to Sid Carr, a Philadelphia businessman and a Palm Beach regular, and convinced him to back a new maid service -- a company she called Snooty's Inc. They planned to open offices around Florida, then find investors to buy Carr out. No franchising, though -- she'd convinced him that was too risky.
But that June, after almost 10 years in the media glare, Brothers received her first bad press about Pop-Ins. "Maid Service's Legal Troubles Soil Dreams of Investors" read the headline in The Palm Beach Post, describing a swath of broken dreams that Brothers had left in her wake: one franchisee driven to thoughts of suicide, another broken in spirit by the fall from an upper-middle-class semiretirement to penury.
Brothers was outraged, particularly by comments attributed to Palm Beach prosecutor Valentine. "I felt it was out of line for a member of a governmental agency to say, 'Brothers could charm the pants off an alligator," she fumed. "I felt that was in very poor taste."
But Brothers's file in Valentine's office continued to grow. There was a complaint from the U.S. Postal Service about a bounced check from Snooty's. Then, early in 1987, came the complaints from Snooty's employees about bounced checks and nonpayment of wages.
"I knew she wasn't a good manager when I hired her," Carr admitted. "But I had made the assumption she could handle it. I talked with Andy Kostecka, who had followed her progress. Andy called her 'a talented gal."
Brothers wasn't so thrilled with Snooty's, either. Late in February of this year, she moved the offices to Worth Avenue, the Rodeo Drive of Florida's gold coast. But it wasn't her boulevard of dreams: she was one of two women in a single room, a second-floor walk-up office, "working in this little maid company, doing nothing." It was a long way from TV appearances, a private plane, and the 1,000-franchise dream.
There was very little glamour in Carol Brothers's life when we met her late this winter -- very little, that is, except the gold Corvette, which had been leased back for her by Sid Carr. She was living just a few blocks from the beach in a two-bedroom apartment, but the ceiling plaster was cracking and the furnishings had a distinctly transient feel. The place could also have used a cleaning, she admitted, but said she couldn't afford a maid -- not on what she took home from Snooty's. The door and windows to the apartment were all kept tightly locked, protection, she said, against the threats she claims to have received from her former franchisees. One even hired some local muscle to show up at her door, she said, posing as a private eye.
"Despite all of this I'm going to come out on top," she insisted at the end of a long interview, the first she has given since the bankruptcy filing. "I'm a survivor."
On February 28, 1987, Snooty's abruptly went out of business, "due to circumstances beyond our control," the telephone answering machine repeated. The demise left at least one investor, the wheelchair-bound owner of a local restaurant, out $5,000 -- more material for Valentine's file.
A few days later, however, Brothers was again starting out fresh, this time at a booth at a franchise fair in West Palm Beach. The sky was overcast, and the air was humid enough to wilt her electric blue dress. For a moment it was like old times. There she stood, green eyes flashing, handing out copies of magazines extolling the joys of franchising, once again pitching the dream.
She'd put Pop-Ins in her past. Now she was selling franchises for Decorating Den Systems, a Maryland-based chain. She didn't call herself Carol Brothers anymore, either. Her new business card read, "Carol Simms, Marketing Executive" . . .
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