The well documented success of franchising is a strong attraction for would-be business owners. As the International Franchise Association touts, you are "in business for yourself but not by yourself".

And though not as publicized as the 'rags to riches' stories of many franchisees, there are real risks associated with choosing the franchise route. So, as the social benefit community begins to engage the franchise sector it is critical to go in with eyes wide open, realizing that a disciplined approach is vital to tapping into the value that seems so apparent.

Here are a few of the pros and cons that must be evaluated to determine if a social franchise strategy is right for your social benefit organization:

Pros

• Systems One of the key elements a franchise offers is access to proven systems, which can reduce the amount of trial and error usually associated with launching a new enterprise. Most franchise concepts provide their franchisees with a start-up/launch kit, operations manual and a marketing plan.

• Brand Depending on the type of franchise, the brand can play a significant role. The day the business opens the public is generally aware of the cost, product line and operations of the franchise which can result in a faster path to profitability. It is also important when considering an exit strategy as a recognized brand will garner more interest in a resale.

• Support The franchise will never be the ‘mission’ of the nonprofit, which means having good management and a supportive franchise company is essential. Many franchisors offer specific job descriptions for each position and have operational staff to assist with challenges along the way.

Cons

• Limited Market Research A common misunderstanding of would-be franchisees is that the franchisor knows the best site/location for the franchise. The reality is most franchise companies do little or no market research, but rely on the franchisee’s local knowledge. As some franchisees have found out, it is very difficult to overcome a ‘bad’ location.

• Limited Flexibility The strength of a franchise system is its consistency, which provides little room for any deviation. Failure to understand the parameters up front could create significant challenges later on.

• Long-term Commitment Most franchise agreements are 10 years in length with very limited opportunity for an early exit, which can be painful if the concept is losing money or otherwise is a drain on the organization.

Social benefit organizations considering a social franchise strategy need to have good business advisors supporting their interest to help them navigate these as well as many other key elements. If done properly, it can result in a very strong source of unrestricted income and better visibility within the community. There are thousands of franchise concepts to choose from, ranging from fast food to children’s educational programs. Ask questions below if you want me to help you address the following issues (and more): • How should a nonprofit determine if they are a candidate for launching a social franchise? • How can a leadership team engage the board in considering such a new, entrepreneurial concept? • How can a nonprofit evaluate the risks inherent in a social franchise and decide what level of risk is appropriate for the organization?

Auntie Anne's pretzel shop in Denver International Airport owned by Platte River Industries, a local social benefit organization.

Jeff.Mowatt - Jan 2, 2007 4:37 pm (#1 Total: 23)
P-CED


Hi Benjamin,

Just checking out your website and unless I've completely misunderstood this, you're talking about using the revenue stream from membership of a franchise network to fund social purpose. I'd go along with that, though my approach which is pretty small scale would be to link any kind of for profit activity, given it wasn't contradictory to my social purpose, as an enabling revenue stream. For example, currently, the maintenance revenue from a software product which is my intellectual property, funds human rights advocacy and promotion of social capitalism.

Now I can relate to franchising or distributorship in having attempted to expand into other revenue streams with little success. It became very clear to me that many franchise operations just wouldn't understand the motive. So, I can take it that those such as Ben and Jerry's do and are in some way in tune with the world of social purpose.

Maybe I should franchise, or create a distributor network for my own product? Then we might have a cumulative effect which is kind of where I jumped in, promoting the idea of social purpose business seeding new social purpose business.

Anyway, it seems to me that at least you've got some socially aware franchises on board and can probably sell the concept to others where I'd failed. So good on you.

Regards,

Jeff

Gayle Hallgren Rezac - Jan 2, 2007 6:17 pm (#2 Total: 23)
author WORK THE POND!


Can you better explain to me how--as an example--the Aunt Anne's pretzel shop functions as a local social benefit organization. Do the profits go to a social cause? If you have the capital to establish a franchise, could not that money be given to social cause without establishing a business and the risks involved in running a small business?

Appreciate your commments.

Gayle Hallgren Rezac WORK THE POND!

Patrick O'Heffernan - Jan 2, 2007 11:13 pm (#3 Total: 23)


Does the Pretzel chain use organic ingredients, support local growers, create jobs for the unemployed? It seems that there has to be a double, iof not triple bottom line to be a social enterprise

mfidelman - Jan 3, 2007 1:21 am (#4 Total: 23)
Center for Civic Networking


One example that comes to mind are the Ben and Jerry's ParternShops.

Short form:

"PartnerShops are Ben & Jerry’s scoop shops that are independently owned and operated by community-based nonprofit organizations. Ben & Jerry’s waives the standard franchise fees and provides additional support to help nonprofits operate strong businesses.

PartnerShops offer job and entrepreneurial training to youth and young adults that may face barriers to employment. As PartnerShop operators, nonprofits retain their business proceeds to support their programs."

Details at http://www.benjerry.com/scoop_shops/partnershops/index.cfm

mfidelman - Jan 3, 2007 1:27 am (#5 Total: 23)
Center for Civic Networking


I was a lot more excited about this topic when I first saw the announcement, because I misread the intent.

It strikes me that what's a lot more interesting than a nonprofit owning a franchise, is franchising a local nonprofit model - i.e., taking a model that's working in one community and replicating it through a franchsing mechanism.

In a sense, this is what chapter based organizations do. Scouting comes to mind, so does little league.

I expect that the social sector can learn a lot from the franchising sector regarding ways to make it easier to replicate working models. For example, would a franchising model apply for propagating a working microfinance program?

NickTemple - Jan 3, 2007 2:27 am (#6 Total: 23)


I like your pros and cons here, and wouldn't disagree with any of them per se, but I think you have to go deeper into it. The School for Social Entrepreneurs has replicated as a social franchise, but the key to its success has been designing a flexible system, with core quality standards built in. It is this balance between flexibility and rigour/hard management which is the key (and provides the challenges).

Another key point is that the concept/product must be tried, tested and absolutely nailed down. And your legal agreements must be watertight, and enforceable. All of which costs money, and takes time; this often results in other organisations replicating via other means (central control, open source, etc) which can be done quicker.

There are also significant risks: some organisations are (only) fit to a particular community or locality; others are yet to establish (or prove) themselves or their business model; more still have failed due to overstretch in the course of scaling up, or drifted from their initial values and principles.

The big benefit though is that the product is embedded in communities with organisations with existing local networks and links (often crucial for social enterprises), and avoids the trampling feet of an unthinking organisation from the capital/big city (known as London-centricity in the UK). It also fosters genuine partnerships, rather than short-term arrangements brought together for a particular contract/tender/application.

See more on this on our blog.

Cheers (and happy new year).

Jeff.Mowatt - Jan 3, 2007 2:30 am (#7 Total: 23)
P-CED


MF, From what I've been reading recently about Matt Flannery and Kiva, he seems to be doing something of this nature in Eastern Europe. So, I'd say the answer to your question is yes.

With Kiva's lender infrasructure and recent surge in interest, it may be something that interests them too.

One of the things that interests me greatly at the moment is asset based funding. As an example, a nonprofit in Scotland partnerning with a nonprofit in Pakistan to fund a wind energy project which returns investment in either cash or share of electricity.

Laurinda - Jan 3, 2007 3:12 am (#8 Total: 23)

It is with great interest that I have read all comments, as we will be embarking on both a social and a for profit franchise model (again an hybrid) ...

I have researched the "world" for examples but to no avail! ...

Any suggestions?

Regards

laurinda

Jeff.Mowatt - Jan 3, 2007 3:24 am (#9 Total: 23)
P-CED


Laurinda, Can you elaborate. You want a profit making franchise which will operate inside Africa and return social benefit.

Where will it be located?

Regards,

Jeff

Laurinda - Jan 3, 2007 4:03 am (#10 Total: 23)

Hi Jeff

1. The franchise should be able to provide Multi-skilled and Multi-sector consulting services to paying customers (businesses) ... like any other business
2. A % of profits should go to the franchisee
3. A % of profits should be applied to social causes.
4. A % of profits to Empowerment Gateway (brand, support ... et ...al)

Location:

Head office: South Africa

Regional offices: (maybe master frachises ???) initially in the SADC region scalling up into all 48 african countries covering North Africa, East Africa, West Africa, Central Africa and SADC.

Regards

L

 

 

 

1.  

Jeff.Mowatt - Jan 3, 2007 5:52 am (#11 Total: 23)
P-CED


My business P-CED derives social purpose revenue from selling a facilities management software product to business and we have no African distributor. Here in the UK it is installed at the offices of several international corporations, government departments and quangos, hospitals and even a church community centre. We've partnered with for profit business on the basis of them getting 40% revenue share from sales and 50% support revenue. Any interest to your organisation? I can probably also point you at other tools which could expand your product portfolio.

mentor-one - Jan 3, 2007 8:44 am (#12 Total: 23)

As the founder / chairman of the Mass. state wide taskforce on self employment and home based employment for the Mass State Vocational Rehabilitation Council [SRC], I was approached by the SRC Chairman to develop a solution to a very pervasive problem in many rural areas of our state, reliable rural transportation for our disabled citizens.  As a disability consultant to small business and former franchise developer, I went about researching and developing a solution that would work well for all concerned.  My solution incorporates aspects of franchising with the needs of our disability community.  It offers brand identity, group buying and group core management support systems in a program without franchise fees or royalties. 

If anyone is interested in solving rural transportation issues by employing disabled entrepreneurs to service local markets feel free to contact me at mentor-one@usa.net.  This means of creating entrepreneurial synergies through the use of "the best parts of" franchising and divesting "the problem areas" can be replicated easily within the social entrepreneuring paradigm by engaging a bit of out of the box thinking.

Owen Doonan, Member, Mass State Rehabilitation Council, Chairman, Taskforce on home based & self employment for People with Disabilities

 

Benjamin Litalien - Jan 3, 2007 11:00 am (#13 Total: 23)
President & CEO, Social Franchise Ventures, LLC

Thanks to everyone for the excellent responses, comments and questions!  I appreciate the interest in this emerging field and look forward to responding. 

First of all, the Auntie Anne's franchise in the picture is one of 5 owned by Platte River Industries in the Denver marketplace.  They purchased the initial site from an existing franchisee using an SBA loan, then from the profits have been able to expand over the last several years to multiple sites.  The Executive Director recently told me that 60 percent of the employees are his clients (mentally and/or physically challenged) so it not only generates significant unrestricted revenue for his organization, it is perfectly aligned with the mission.

To Gayle's question about use of capital, by investing capital in a franchise it can create a long-term, unrestricted revenue generation model that can be used to fund whatever is needed (social programming, operating expenses, etc).  Whereas many grants, gifts and other sources of income tend to be more restrictive and non-replenishable. 

Regarding Patrick's comments regarding the 'triple bottom line' to qualify as a social enterprise, I think that is the ideal, however, many nonprofits struggle to find the funding necessary to maintain their operations, let alone expand them.  Consequently, using the franchise model can give them the financial foundation necessary to find new, innovative ways to expand their mission.  As I mentioned above, with 60% of the employees being from Platte River Industries I would submit that it is serving society in a new and powerful way by creating meaningful employment.

Regarding Mfidelman's comments on Ben & Jerry's PartnerShops, they are the pioneers in social franchise, offering a unqiue program exclusively for qualifying nonprofit organizations.  I hope that more franchise companies will consider this as we gain more traction in the sector.  That being said, it is still vital to ensure that the B&J concept is right for the market and the location, and not to choose it just because they have a special program.  Many nonprofit organizations that have opened the B&J Partnershops have closed or are struggling due to poor location choices and non-receptive markets.

Nick, the program you referenced looks to be on the right track in educating would-be social entreprenuers with the details necessary, but not conducive to this blog.  Suffice it to say we are just scratching the surface!

Finally, Owen issues a challenging and thought-provoking offer!  I wonder if anyone will respond?!

More to come!  Ben

 

 

mentor-one - Jan 3, 2007 12:43 pm (#14 Total: 23)

With experience in creating, starting, innovating, rescuing, restructuring, purchasing and selling over a hundred small to mid-market business for clients and my own account over a 40 year consulting and public service career, I have had many mountains to climb.  One such mountain has dealt with evaluating those so called bad locations and coming up with resolutions that work.  I have observed a goodly number of businesses in horrible locations that had customers lined up around the corner waiting to get in and I have seen case after case when first class mall locations have had businesses close due to a lack of revenue generated.  In Falmouth, MA there is a great little ice cream shop in a totally obscure location that makes and sells a great high quality product.  A little sub shop turned grill started in recently in Duxbury, MA also has a poor location with a solid following and has become profitable within 6 months of starting up.  The food is four star quality, the price is right and the value for money is self-evident. 

If I were called on to rescue a poor location, I would look at the area demographic, research what the community likes, hates, craves and tolerates.  Only then would I begin building a solution that addresses what they like and crave as well as eliminate everything that they hate and enhance that which they tolerate until it attained the love level!

The secret is to give customers exactly what they want, crave and love. If you can do that, location is secondary. Because people will flock to those places that make them smile, offer great value and make everyone feel wanted. 

If anyone is interested in solving systemic problems blocking profitability in local markets feel free to contact me at mentor-one@usa.net.  Rarely do franchise operations attain this level of customer satisfaction.  That is why, although the IFA cites low levels of failure in comparison to independent operators, they obscure the fact that certain locations and franchisors have a revolving door of franchisee failure and resale. The answer is not easy to initiate, with bottom line hungry franchisors as it requires initiating the policy of giving customers exactly what they want, crave and love and that can impact a franchisors bottom line adversely in the short term. The long term result, rarely considered is a world class business with staying power. 

  Owen Doonan, Member, Mass State Rehabilitation Council, Chairman, Taskforce on home based & self employment for People with Disabilities

Benjamin Litalien - Jan 3, 2007 4:05 pm (#15 Total: 23)
President & CEO, Social Franchise Ventures, LLC


Owen,

Thanks for your insights on 'a good site' and the proper ingredients. It is not always obvious what makes a site 'good', but the ingredients are always the same: demand, timing and consistently quality service! I've negotiated hundreds of leases in malls, strip centers and for stand-alone sites and many times the economics for the concept can be won or lost based on the outcome of those negotiations. I've had franchisees so enamored with a site that they paid too much and were unable to get a good return on their investment. The emotion has to be tempered with good market research and good lease negotiations, especially a clear exit strategy. I always say, "If you get a great location and do everthing else wrong you'll probably still be successful; if you get a bad location and do everything else right it will still probably fail."

COSAD - Jan 16, 2007 11:19 pm (#16 Total: 23)
A Minnesota based nonprofit organization devoted to enterprise development in Tanzania

Hello Mr.Benjamin Litalien. Happy New Year!

I read your article with Great interest! Thanks for sharing your expertise and Wisdom.  I am a native of Tanzania currently based in Minnesota, USA. In 2001 I cofounded a nonprofit, COSAD, Inc. whose mission is to empower individuals by providing support and innovative solutions through community projects development(www.cosad.org)

As a practical interpretation of COSADs mission, this year, among other things, we are embarking on a Community Reinvestment Fund Program(CRFP) which provide micro loans for local enterprise projects in Bukoba, Tanzania. Could you please be kind to suggest to me any 'social franchisors' or 'social venture capitalists that can partner with COSAD to provide these initial funding? We working with small entrepreneurs with viable and "bankable" projects, but because of luck of access to capital they have their dreams and hope shattered! And COSAD strives to inspire them again. Any help out there? Can also contact me at: smart@cosad.org or tel: +612 227 0065

Jeff.Mowatt - Jan 16, 2007 11:37 pm (#17 Total: 23)
P-CED


Cosad, Something which I can refer you to is the development of the <Ned> philanthropic franchise.

http://www.omidyar.net/group/ned/

Following progress of this collaborative development, though not directly involved in it, I can tell you there are plans to set up in several developing countries and link up with KIVA to offer microloans.

Hope you don't mind if I copy your message and post it on their discussion at http://www.omidyar.net/group/ned/news/23/

Jeff

COSAD - Jan 16, 2007 11:51 pm (#18 Total: 23)
A Minnesota based nonprofit organization devoted to enterprise development in Tanzania

Jeff,

Awesome! Thank you for your very prompt response and willingness to connect/suggest some lead. Yes, please please feel free  to share the idea accross your people of good will.

 

Please tell me more about KIVU. Did you say they are setting up Micro banking scheme in Africa?/ "developing countries?

Keep in touch please, Thanks

Smart,

Minneapolis, Minnesota

 

Jeff.Mowatt - Jan 17, 2007 12:04 am (#19 Total: 23)
P-CED


Smart, Kiva.org seems to be off air at present but here's a description

http://www.nextbillion.net/activitycapsule/1547

Essentially P2P microfinance which is taking off in a big way.

Pitch in with the collaborative discussion I mentioned earlier and Chris Cook (I hope) will tell you how a nonprofit in the UK co-invests with a nonprofit in Pakistan to produce electricity.

Jeff

COSAD - Jan 17, 2007 12:22 am (#20 Total: 23)
A Minnesota based nonprofit organization devoted to enterprise development in Tanzania

Thanks Jeff!

Please keep me posted. I am very appreciative for sharing these wonderful esources.

 

.../smart

Jeff.Mowatt - Jan 17, 2007 12:35 am (#21 Total: 23)
P-CED


No, nothing to do with me. I'll communicate privately to avoid cluttering this thread, Jeff

joeherren@realtyamerica.org - Jan 22, 2007 1:52 pm (#22 Total: 23)


I notice some of these franchises are financed by SBA. So, they must be for profit enterprises. SBA will not lend to nonprofits.

Does anyone know of any actual nonprofits franchising their nonprofit enterprises?