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OCTOBER 2024
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Passing the Torch Love Is Blind and Other Obstacles to Succession
Specht has said. As CEO, she has led a rebranding and expansion of the company. I don’t recommend that parents make it easy for a child to assume leadership. People
I was working with a client once who told me proudly, “My son is going to take over the business after I retire.”
don’t appreciate things they’re given as much as things they have worked for. Most of the next-generation success stories I’ve heard involve successors laboring in the trenches for years, running a store, understanding the challenges of filling out a schedule, getting the store open on time, and ordering inventory. Then they might move over to development and get involved in acquiring and developing a site. By the time they reach the top, they know the business from the ground up. Other successful heirs leave the family fold to hone their skills elsewhere. Roger David started as a dishwasher at the restaurant company his father and uncles founded 56 years ago, GSR Brands. David worked in the company’s marketing department after college, then left to work for more than a decade in the technology industry and as a brand consultant. “That time away from the family business provided invaluable learning but also proved I could be successful in a leadership position,” David wrote in an article on Entrepreneur.com. When the position of president and CEO at GSR Brands opened up, “I knew I was ready,” David says. Even then, “it was only after my experience, business plan, and references were vetted … that my vision won the job — not my DNA,” he says. It can be tough for founders to be objective about their children’s talents, and they can’t control what adult children choose to do with them. If you have concerns about succession, there are people who can help. A family business consultant can unravel the agendas of everyone involved and help you get a grip on all parts of the process — the ones you can control, and the ones you can’t.
I was incredulous. “Do you have a son I haven’t met?” I wanted to ask. This father’s son so clearly lacked the necessary skills that to me, Dad’s plan proved the truth of the old saying: “Love is blind.” His skewed vision is an important reminder to business owners. Before you assume your child will run the business one day, take a step back and ask yourself: Are you accurately assessing your offspring’s capacity for the work you do? The path to family business succession is strewn with failures. About 70% of founder-run businesses fail or are sold, rather than continuing under the leadership of a second-generation family member. Poor communication and planning are a major cause. Some parents just naturally assume they know what’s best, reasoning, “If I just keep on this path of assuming my child will take over the business (for which they should be grateful and happy to run), they will eventually just do it and be glad.” They assume this despite the fact that the kid has told the parent over and over that they don’t want to do it. I have occasionally seen this approach work, but I don’t recommend it. I encourage business owners to talk to their kids about their wishes. Some parents think, “Well, he’s my kid. He knows what I’m thinking.” Actually, he doesn’t know. If you want your child to take over or are open to their doing so, let them know that. Ask yourself if your child has an enthusiastic and curious engagement with the business. Christine Specht says her parents never pressured her to take over Cousins Subs, the chain co-founded by her father. She returned to management there anyway after college because she thought she could have an impact. “I found my way to the CEO seat by exploring my passions and growing through various jobs” in management,
– Nate Riordan
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NFL’s Recent Antitrust Ruling What Led to the Historic Fine Over Sunday Ticket NFL Sunday Ticket, also known as Sunday Ticket, is a sports package allowing purchasers to view regular season NFL games not carried by local broadcasts in their area. Sunday Ticket has been around since 1994, with DirecTV offering it exclusively until 2022 when the NFL signed a seven-year, $14 billion deal with Google’s YouTube TV. However, the NFL’s exclusive deals for Sunday Ticket have come at a cost. After a trial in June that lasted just three weeks, a jury in Los Angeles awarded over $4.7 billion in damages to the plaintiffs in an antitrust class-action lawsuit against the NFL.
Bacon on Your Ice Cream and Other Drive-Thru Blunders AI Misfires
Would you like bacon on your ice cream? Or 100 Chicken McNuggets? How about eight servings of sweet tea with that?
Those order-taking misfires, captured on TikTok, are actual mistakes by automated drive-thru computers at McDonald’s. The fast-food giant recently ended its two-year partnership with IBM to test AI-powered drive-thrus at 100 locations after these and other mistakes by the bots went viral on social media. Fast food’s foray into AI-driven order-takers is still growing. Taco Bell is expanding voice AI technology from 100 test locations to hundreds more restaurants this year. The Yum! Brands unit cited improved order accuracy and “a consistent, friendly experience” for customers as reasons. Wendy’s recently told The New York Times that its AI program gets orders right without human assistance 86% of the time. Carl’s Jr., White Castle, and Taco John’s are also using the technology. And McDonald’s didn’t rule out finding a new partner and trying again. Fast-food drive-thrus are rugged terrain for AI. The McDonald’s test became a social-media target after embarrassing videos went viral. One shows two customers yelling “Stop! Stop!” as the bot uploads orders for 10 Chicken McNugget meals costing more than $300. Another drive-thru diner tried to remove a Coke from her order that had been requested by a customer in the next lane, only to see the order-taker replace it with eight sweet teas. Another video shows a frustrated man begging the bot not to add bacon to his ice cream. One challenge for the bots is that indecisive customers often change their orders midstream. Also, different people say the same order in many different ways. Other diners babble or play jokes on the bots. An AI server at KFC, Kacy, is shown by one TikToker fumbling an effort to change an order, then running for human help when asked, “What is your favorite Taylor Swift song?” In recognition that a little customer training might help, some order-taking kiosks are posting signs suggesting they speak clearly or choose from a list of suggested phrases.
The Trial The Mucky Duck sports bar in San Francisco initially filed the suit in 2015; an appeals court dismissed then reinstated the case in 2017 before it became a class-action lawsuit. The lawsuit now covers about 2.4 million residential subscribers and 48,000 business subscribers. The plaintiffs alleged that the NFL’s agreement with DirecTV, and now YouTube TV, violated antitrust laws. Not only did the NFL allegedly overcharge both residential and commercial subscribers, but it also removed competition. It forced fans to purchase access to all games rather than offering the ability to purchase only the games they were interested in. For instance, if you are a Philadelphia Eagles fan but live in Florida, your local on-air broadcasts are unlikely to show Eagles games. In that case, if you wanted to watch all the Eagles’ games, you’d have to shell out a good chunk of change to access those games. As of 2024, a subscription to NFL Sunday Ticket costs $449 per year. After five hours of deliberation, the jury agreed with the plaintiffs and awarded $4.7 billion in damages to the residential subscribers and $96 million to the business subscribers. Due to federal antitrust laws, those damages can be tripled. That means the NFL may be liable for up to $14.39 billion in damages. The NFL has appealed the decision, but if upheld, each NFL team could be forced to pay nearly $450 million in damages.
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“Your most unhappy customers are your greatest sources of
learning.” — Bill Gates
New Rules Small Businesses Must Disclose Ownership Data
Money launderers, drug traffickers, and other criminals often use shell companies to hide their activities. A federal law that takes effect this year, the Corporate Transparency Act, aims to give investigators more weapons to detect and punish these crimes. The measure requires businesses to report to the U.S. Department of the Treasury information about their “beneficial owners,” or individuals who own at least 25% of the company or otherwise have “substantial control.” Filings must include the names, birth dates, addresses, and photos of a government-issued identification, such as a driver’s license or passport, for each beneficial owner. The sweeping new law is expected to catch 32.6 million businesses in its net in its first year, plus another 5 million new companies in each ensuing year. The reports are due by Dec. 31, 2025. Not surprisingly, opponents are seeking to block the new mandate. Calling it “a smart law that violates the Constitution,” a federal district court judge in Alabama overturned the law last March, ruling that it exceeds Congress’s authority. However, the ruling only applies to the 65,000 members of the plaintiff organization, the National Small Business Association — or less than 1% of businesses covered. The Treasury Department is appealing the Alabama ruling and says it will enforce the law against other businesses.
terrorism, and various forms of corruption. Businesses are required to file reports if they are registered corporations or LLCs or if they are a foreign company licensed to do business in the United States. The law includes a long list of exemptions, however, including many businesses in industries that are already regulated, such as banks and credit unions. Also exempt are certain “large operating companies” based in a U.S. office with more than 20 full-time employees. More information about the law is available at fincen.gov/boi . If you have difficulty meeting the requirements or have questions about what to disclose, our firm will be happy to help.
Visit our blog for helpful franchise law insights and industry trends: WestCoastFranchiseLaw.com/insights
The rationale for the law is to prevent the use of layers of anonymous corporations for money laundering, drug trafficking,
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In This Issue 1
How to Decide Whether Your Child Can Lead the Business
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Not Lovin’ It: AI Drive-Thru Mishaps
This Issue: The NFL’s Massive Antitrust Fine
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Sweeping New Law Demands Small- Business Ownership Data Safeguard Restaurant Parking Lots Amid Rising Traffic
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Keep Customers Safe in Busy Parking Lot Traffic Slow Down!
While restaurant owners can’t control drivers’ behavior in their parking lots, they are legally obligated to warn customers of hazards and take steps to eliminate them. Many parking-lot accidents involving pedestrians are never reported, but property owners are being hit with more lawsuits over these incidents, according to Kevin Madison, a consultant and expert witness in lawsuits over parking-lot safety. Restaurant customers are considered “invitees” in many states and are afforded strong protections under premises liability laws. For example, a Philadelphia customer of a CVS drugstore won more than $300,000 in damages in 2015 after he caught his foot in a hole in a grassy strip of the store’s parking lot, fell, and injured his neck and shoulder.
Restaurant owners can reduce hazards by providing clear pavement striping, eliminating potholes and cracks, posting clear signs, and clearing debris, snow, and ice around entryways, on exterior walkways, and throughout the parking lot. Brightly painted crosswalks and bright lighting to help drivers see pedestrians are other protective measures. Speed is the main cause of injuries and accidents, and physical barriers are the most effective way to slow vehicles down, Madison says. Speed bumps are designed to slow traffic to 3 mph, about the same speed as pedestrians walk. Bollards around doorways, or commercial-grade steel pipes sunk deep into concrete, can protect patrons entering and exiting the restaurant from reckless drivers.
The action at many fast-food restaurants has shifted to the parking lot.
Drive-thru customers and third-party delivery drivers arriving and leaving in a rush have increased parking-lot traffic and congestion. U.S. restaurant sales through third-party deliveries rose almost 30% in 2023 from the previous year, according to Delaget, a restaurant data- analytics provider. Distracted driving is rising as well. Two- thirds of drivers admit to using their cellphones, and more than half say they text or use social media while driving through parking lots, according to a National Safety Council survey.
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