[비즈한국] Companies sometimes make decisions that are hard to explain with money alone. Understanding the laws or systems hidden within those decisions allows for a deeper insight into the inner workings. ‘Useful Business Tips (Al-Sseul-Bi-Beop)’ introduces clues to help understand business trends.
“You have no idea how terrifying business people can be.” This is what a senior attorney told me when I first started practicing law. When an entrepreneur eloquently explained a groundbreaking business model and I expressed my admiration, my senior colleague gave me that advice to help me come to my senses. Perhaps because of this, I tend to adopt a very conservative attitude when consulting with business people. Consequently, the person sitting right in front of me often feels disappointed, and I repeatedly feel a sense of regret while watching their expression.
Why do lawyers offer conservative opinions? There are several reasons. It could be due to a lack of understanding of the business model itself, or an intention to manage potential risks. Fundamentally, entrepreneurs try to break existing systems—which encompass laws and customs—to create new business models in order to pioneer new markets, while lawyers feel uncomfortable with the act of breaking those systems. Since validity must be judged on a case-by-case basis, it doesn't matter whose attitude is right or wrong. Such tendencies only appear on the surface because each person judges based on their own position.
I brought up these points at length because there are currently business models being actively developed that, even to me as someone who has handled many multi-level marketing and franchise business cases, are truly staggering. The ‘network effect’ refers to a phenomenon where the value of a product or service increases as the number of users grows. Social media platforms like Facebook and Instagram are prime examples.
Franchise headquarters that oversee franchise businesses also enjoy this effect. As the number of franchise locations increases, brand power grows, leading to better customer attraction, and logistics margins increase due to the higher volume of items supplied to the franchises. In the past, there was a coffee franchise that focused on recruiting franchisees by lowering the barrier to entry, aiming for this exact effect.
However, the food service industry and cafes, which are the main sectors for franchises, are the most competitive markets in Korea. The competition is so fierce that statistics suggest 50% of them close within two years. Also, as the term "self-employment" implies, providing a service worthy of the market requires constant and devoted management from the owner.
Looking around, people who pride themselves on being wealthy sometimes boast about "running several cafes on autopilot." If they are truly leaving operations entirely to employees, the cafes are likely being neglected and won't last long. In reality, it is common for owners to work diligently behind the scenes, analyzing profit and loss in Excel and giving constant instructions to employees via KakaoTalk or CCTV.
As this situation shows, if a franchise headquarters focuses only on recruiting franchisees, it will fail at service management and disappear from the market before long. The aforementioned coffee franchise was no exception.
What if we change our perspective and create a business model? Let’s consider this hypothesis: Oriental medicine doctors and lawyers have invested significant time and money to obtain their licenses. Therefore, it is difficult to imagine a doctor or lawyer delegating work to employees while neglecting management, and such practices would also violate the law.
So, let's create a brand and recruit doctors and lawyers to build a network law firm or a network clinic. The network headquarters overseeing this would mediate the search for real estate and interior construction to open hospitals and offices, and receive fees in the name of management consulting and brand usage rights.
How would they recruit these doctors and lawyers? They could target those who have just started out and feel they lack startup capital or operational know-how. According to media reports, there have been cases where they helped these professionals receive guarantees from the Korea Credit Guarantee Fund by temporarily depositing and withdrawing corporate funds to make it appear as though they had financial strength, thereby enabling them to take out loans.
In fact, a strange form of business that combined clinics and law firms in this manner has operated to great acclaim across the country. This became a hot topic in the respective communities of doctors and lawyers. However, after the aforementioned practice of temporarily depositing and withdrawing corporate funds to obtain credit guarantees became an issue, trials for charges including fraudulent lending are currently underway.
What if the issue of fraudulent lending were resolved in this business model? What if the franchise headquarters took out low-interest business loans (3.85~4.44% per year) from state-run banks? It is incomprehensible how this is possible or whether state-run banks fail to manage these loans, but let's set that aside for now.
The franchise headquarters lends that money to a lending agency on a long-term basis, and the lending agency, having secured funds this way, lends it to prospective franchisees as startup capital at high interest rates (mid-10% range per year). As you might guess, the lending agency and the franchise headquarters share the same shareholders. The franchise headquarters repeats this method by establishing separate subsidiary franchise headquarters for different sectors like pork cutlet, makguksu, Italian food, or buffets.
The domestic market is saturated. To get a foothold in the market, a special method is required, and these methods generally exist in a precarious area between illegality and avoidance. The case mentioned above implemented an imaginary business model, rapidly raised its profile, and achieved business success in a short period. In the current social climate, it might even pass without any major issues as long as the business is operated stably for a certain period.
However, having met many people involved in quasi-deposit, multi-level marketing, and lending businesses, I can make the following prediction: the "Ponzi" cycle has an end. That point arrives when the revenue gained from recruiting new members becomes greater than the revenue gained from operating the business, causing the business itself to lose its purpose. If the business is operated stably, these concerns might be merely misplaced, but the food service industry is subject to frequent trend changes, leading to frequent openings and closures.
Then, who is the most unfortunate person here? It is the doctors, lawyers, and franchisees who were mobilized for this bizarre business model. If they had sufficient assets and know-how, they would not need to board such a business model. Generally, these individuals are just starting out, young, and highly motivated. However, since they were involved in problematic activities during the process of participating in the business, or at least were likely aware of the flaws in the business model, it is difficult to view them as mere victims. Yet, they are often in an ambiguous state where it is hard to say they aren't victims either. It is a truly unfortunate situation.