Franchising is often regarded as one of the most successful business expansion mechanisms. The numbers speak for themselves: in South Africa, up to 90% of independent start-up businesses fail, compared to just 10% in franchising.
But franchising might be more than just a successful business model: it could be a successful development model, too. How so? Because if we take all the factors that make franchising a success and apply them to smaller businesses in developing markets – something called micro-franchising – we can help those lacking formal education and training thrive.
Setting realistic goals
The South African context, where my social enterprise operates, is unique in that for generations, many black South Africans were economically isolated, received very little education and grew up in single-parent households in serious poverty. As a result, they were rarely exposed to entrepreneurial role models.
Unfortunately, these issues are still being perpetuated in the new South Africa. Today, less than 50% of black South Africans finish school and more than 50% of fathers don't play an active parenting role in their children’s lives. Single mothers can’t find work in the formal job market, and as government grants are wholly inadequate, they are forced to turn to survivalist-type businesses to support their families. Many of these businesses use “copycat” models which fail or don’t generate a significant income.
South Africa's government thinks it has the answer to this. It's choosing to pour millions each year into creating entrepreneurs. But in doing so, it is completely out of touch with the real issues on the ground. The chances that someone who has had little in the way of educational opportunities and is perhaps under-developed emotionally might become a hugely successful entrepreneur are slim. Instead, we need to invest in more realistic strategies.
A model that works
A more sustainable solution is to use the proven concept of franchising to provide micro-business opportunities to the poor. This model doesn’t require them to be entrepreneurial. In fact, that's the strength of franchises: they have a proven business model and system. This offers franchisees a roadmap covering everything from access to supply chains, equipment and products, to routes to market, marketing and brand awareness, all of which have been pre-defined and refined by the franchisor.
The skills involved are the opposite of those found in entrepreneurs: rather than being good at inventing, they need to be good at copying. The franchise model provides the opportunity to learn the art of business by doing it in a very structured way. It also provides very strong support systems – operational, financial and emotional – to franchisees, which is important, as they might have low self-esteem, which means self-doubt creeps in quickly and regularly.
So what are the key principles for building a successful, sustainable micro-franchise business model?
1. Start with a socially minded entrepreneur
Entrepreneurs have unique ideas, and have researched, developed, tested and implemented new micro-franchise models. They are normally highly experienced in a particular industry. Micro-franchise business models should not be developed by development practitioners or the poor themselves. Development practitioners might have a good understanding of the market but they are unlikely to be entrepreneurs themselves. Partner with industry experts. Normal business principles need to be used in designing the business model for them to be sustainable.
2. Design for a market
Developing a micro-franchise is no different to developing any normal business model. If there is no market, there is no business. Many people have great ideas for solving world problems, but if customers can't pay for the goods or services, then you've not created a business: you've created another charity, which will forever depend on funding. Also, if you're not 100% familiar with the market you're designing for, don’t make assumptions about it. Get a very deep understanding of the market from the people who live and work there. Test, redevelop and retest before you go to market at scale.
3. Build a brand
Franchising is founded on the principle of building a common brand. If you are not building a brand, you are not building a franchise. Don’t underestimate how long and how much money it takes to do that. In the long run, the brand will be key to growing and replicating the micro-franchise at scale. Brand standards need to be clearly defined (the negotiables and non-negotiables), and the consequence of non-adherence must be clearly stated. To continue to provide the extensive support that micro-franchisees require and make the business sustainable for the franchisor, the franchise fees will be essential. If franchisees don’t value the brand, they will be reluctant to pay those fees and unlikely to adhere to brand standards.
4. Simplicity is key
Know and understand the capabilities of the prospective franchisees. They will most likely have limited education, no former business experience, limited resources and few role models. They will likely lack self-esteem, be scared of failure and give up easily. They will most certainly lack medium and long-term planning skills and might struggle with money management. The “business in a box” and recipe you develop must take this into account. The business model needs to be simple – it must have as few steps as possible and require low technical skills (operationally and financially).
5. Support, support, support
The most important element is to ensure you have the capacity and money to support the franchisee once they are operational. Don’t overload the franchisee with weeks and weeks of training upfront and expect them to then run with it. Support needs to be provided regularly (at least weekly, initially) and it must be done in three ways. The first is operational, which means ensuring processes are followed correctly and brand standards are maintained. The second is financial: franchisees will typically not know how to manage money, so they will need help. And finally, franchisees will need emotional support. They'll need all the tools necessary to build self-esteem and navigate the many challenges they will face in their personal and business lives.
Find out more about micro-franchising in this video:
The author is part of the 2016 class of Schwab Social Entrepreneurs.
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