Franchising has tremendous potential to scale commercially viable social enterprises to underserved communities around the globe. With the right amount of investment capital, franchise know-how, and time, a franchise can achieve exponential growth and yield a substantial pay off to the franchisor and its investors. Additionally, social enterprise franchises deliver social and economic impact to communities through the products and services they sell and the local jobs they create.
Before investing in franchising, social enterprise owners must understand the pros and cons of franchising versus other expansion models (e.g. company owned, licensing, joint ventures, acquisitions) and make an honest assessment of whether the model is right for them. This article outlines some key considerations.
Conditions Required for a Social Enterprise Franchise to Succeed
Social enterprise franchising will deliver results, just like commercial franchising delivers results, when certain conditions are in place. These are as follows[i]:
- The franchise concept is based on a successfully operating business
- There is sufficient consumer demand for the products and services being offered through the business to warrant expansion
- There is a sufficient supply of qualified potential franchisees
- Management is committed to investing in resources needed to operate the franchise
- The business to be franchised has been systemized
- The systems are transferrable to franchisees with a reasonable amount of effort and time
- The economics of the business (for both franchisee and franchisor) support expansion
When all of these conditions are in place, it is safe to conclude that the enterprise is franchisable. The next step would be to design the franchise business, which essentially is a second business that is responsible for expanding the enterprise. The new entity that executes expansion functions is referred to as the “Franchisor”.
Elements of Social Enterprise Franchise Design
Once the groundwork for success is laid by creating the conditions described in the previous section, the franchise can be designed. Following are some key elements of all good franchise design that should be addressed when designing or strengthening a social enterprise franchise system.
- Franchise brand promise that meets consumer needs
If the franchise offering is not valued by consumers then the franchise will fail. One of the most important roles of the franchisor is to develop and maintain a valuable brand. This is done through ongoing research and development.
- Uniform set of standards that franchisees must consistently meet in order to deliver on that promise
A strong brand promise will drive clients to franchisees. The brand will only succeed as long as customers receive services and products consistent with the promise. The franchisor’s primary concern is that customers receive a consistent standard of service throughout the franchise network that meets customer’s brand expectations. All other aspects of franchise operations are designed to support this primary purpose.
- Procedures for recruiting and selecting franchisees capable of meeting those standards
Highly capable and motivated franchisees will drive success. Franchisee selection should be regarded as entering into a long-term relationship. The likelihood of that relationship succeeding is higher when care is taken to profile and attract desirable candidates.
- Financing assistance to enable desirable candidates to become franchisees
Becoming a franchisee requires a financial investment. The amount of investment should be reasonable for the type of business and franchisees being targeted. When franchisors make it easier for potential franchisees to obtain start-up capital they remove a barrier to recruiting desirable candidates.
- Mechanisms to enable franchisees to meet those standards
The franchisor’s role is to support franchisees in meeting the franchise brand standards. Mechanisms used to support franchisees include standardized business systems and operations manuals, supply channels, training, marketing, and routine communications and site visits from franchise field staff. Franchisees expect this type of support from the franchisor. Without it they would not be able to run the franchise business successfully and both the franchisee and franchisor would fail.
- Incentives for complying with standards
Social franchising works when business incentives are aligned with social mission. From the outset, the franchise must be designed so that franchisees benefit financially when the social mission is achieved. If they do not, the cost of following the franchise rules will be higher than the cost of losing the rights to the franchise business.
- Mechanisms to monitor compliance with standards
Learning that standards are not being met through consumers is too late. The franchisor must have systems in place to monitor compliance with standards and proactively solve problems as they arise so that they do not become unmanageable.
- Mechanisms to enforce compliance with standards
If there is neither benefit to complying nor risk for not complying the franchisor will not have enough control over quality to deliver on the brand promise which will eventually lead to its demise. The franchisor must be willing and able to exercise authority over franchisees when they do not comply with standards. More importantly, the franchisor should strive to maintain its value to franchisees in order to minimize incidence of noncompliance.
In conclusion, the franchise model’s potential to transform millions of lives can finally be realized when social enterprise owners and their investors apply these fundamental principles to the development of their social enterprise franchises. Enterprise owners should seek guidance from experienced franchise professionals to help them through the process.
[i] Seid, Michael and Thomas, Dave; Franchising for Dummies, 2nd Edition, Wiley Publishing, Inc., 2010.
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