Social franchise uses the structure of a commercial franchise to achieve social goals. Is it for you? Under what circumstances would it be appropriate for a nonprofit to consider developing a social franchise strategy?

Given the documented success of the franchise model in the U.S. and in Europe (failure rates are significantly lower than start-ups), it is not surprising that many nonprofit organizations are taking a closer look at how they can identify a potential franchise to generate unrestricted revenues and create exposure in the communities they serve.

To illustrate the concept of social franchise, consider Platte River Industries in Denver, Colorado, a $5M nonprofit supporting individuals with disabilities. They purchased an existing Auntie Anne's pretzel shop at Denver International Airport. They have subsequently opened another location at the airport and three in local shopping malls. Over 50% of the employees at the franchise locations are clients of PRI and the revenues generated provide a significant portion of their annual operating budget.

There are numerous challenges that must be considered as the nonprofit and franchise sector converge, including:

• Cultural fit

• Mission alignment

• Capacity

• Financial commitment

• Access to capital.

Most nonprofit organizations know as little about franchising as franchise organizations know about the nonprofit sector, and this creates enormous opportunity for knowledge transfer and exchange. As this new frontier emerges, it will create new and thought provoking questions that must be addressed on an ongoing basis to pave a viable path for nonprofits towards sustainability via a social franchise.

Should you develop a social franchise strategy as part of your overall strategic planning?

Join the conversation with Certified Franchise Executive Benjamin C. Litalien, President & CEO of Social Franchise Ventures.

Skline - Jul 25, 2006 12:51 pm (#1 Total: 17)
Sean Kline


Benjamin,

Glad this topic has surfaced, as it is a fascinating one for all who are concerned about leveraging the dynamism of the market for social ends, at greater scale.

Of particular interest to me are those who are launching what I would refer to as 'greenfield' social franchises--new entities with a new brand. This poses special challenges, as the new franchise network doesn't have the critical benefit of a proven brand yet or a proven business model, even if the sponsoring organization (the for- or non-profit corporation launching the franchise) brings some specialized experience to the table. A variation is what I would call a 'brownfield' franchise, where a new brand is brought to a proven business model.

I see your pretzel example being the safest approach of buying into an existing proven brand and business model. The franchising example you highlight brings revenue to its non-profit sponsor and offers a livelihood opportunity to disabled people the organization seeks to help.

I’d be interested to hear from organizations engaged in franchising that is intended primarily to achieve social impact through the products and/or services its sells. In the international development realm, we have some examples in SHEF health shops in Keyna and CARE Shops in Ghana, among others.

Finally, I am wondering what you mean when you ask whether franchising is a "Cultural fit" for an organization. Is this question about whether it is a fit with the culture of a non-profit organization or whether franchising is culturally appropriate in a community that the organization works?

Cheers, Sean

Van Ajemian - Jul 25, 2006 1:45 pm (#2 Total: 17)

Benjamin and Sean,

How timely your posts!

There is a concept called "Community-Owned Franchises for Youth" ("COFFY").  The public goals are to enable youth to earn money for college as they learn self-reliance and implement best practices of social entrepreneurship by operating "turnkey", age-appropriate social ventures.  An adult with a micro-business or small business interested in franchising would fill a form which would go to a committee of representatives of youth organizations, this committee analyzing the suitability of businesses as youth franchises.  The drafted criteria for suitability would be (a)    age-appropriate, (b)   size-appropriate [micro-businesses], (c)    not impeded by the need for much startup capital, (d)   socially-responsible [value to the community], (e)    green [environmentally sensitive], (f)     relatively easy to start up, (g)    profitable, (h)    sustainable [not dependent on a fad or fading niche], (i)  a model of best practices.

COFFY might be timely because of the need to address global warming, more so in light of this, taken from UN WIRE, July 25, 2006:

"Polls reveal that most Americans now say they believe manmade global warming is real, but despite the situation's popularity in the media, they still are less concerned and active about it than non-Americans. 'Global warming hasn't forced [Americans] to get serious about conservation, but the energy crisis that our runaway consumption has helped to create just might,' says Washington Post writer Michael Grunwald."

1. Which youth organizations could help youth by offering them COFFY?

2. Youth organizations probably would need help in applying the critera and drawing up appropriate contracts.  Who might be able to help, first voluntarily and then as a paid consultant?

3. What would be the least expensive way to announce COFFY to a large number of micro- and small businesses?  Which organizations would be good partners in making announcements for COFFY?

Thanks.  Van  vanajemian@hotmail.com

arifainchtein - Jul 25, 2006 3:32 pm (#3 Total: 17)


Hello, My name is Ari Fainchtein and I am a Phd Student at Murdoch University's Institute Institute for Sustainability and Technology Policy in Western Australia. My Phd work is in what I call Open Source Franchising. A complete description of the project can be found in www.chilhuacle.com

I am planning to visit the US at the end of the year and would love to meet people who could be interested in this area of work.

My email is ari@chilhuacle.com

All feedback is welcome

andylieber - Jul 25, 2006 9:22 pm (#4 Total: 17)
Andy Lieberman, Ajb'atz' Enlace Quiché, Guatemala

Hi,

I'm also very glad to see this topic come up.  After going through the GSBI program at Santa Clara University, I recognize the power that franchise business models hold for replicating a business far and wide.  I believe that the same underlying business model that works for, say McDonalds, can also work for non-profit ventures like community telecenters, micro-banks, health stores, etc.

As I do ongoing strategic planning for a non-profit, Ajb'atz' Enlace Quiche in Guatemala, I have been thinking about the power of the franchise model:

1.  It provides the best guarantee of maintaining the same level of service in all the franchises.

2.  There is local ownership, which has numerous advantages in supporting local economies and being demand-driven by opening franchises where there is most demand. 

3.  There is a permanent, well-defined, win-win relationship between the franchiser and franchisee that allows for cost-effective ongoing innovation and development of new services and products.

4.  There is a well-structured communication network built up, that the franchiser can use to trasmit messages to a clearly-defined target population.

While this model help McDonalds (franchiser and franchisees) get rich selling people hamburgers and satisfies the junk food needs of people all over the world, there is actually a negative social impact because the product is unhealthy and environmentally damaging.

However, we are thinking that a franchise model could let us set up rural community telecenters all over Guatemala, with training and support that would guarantee better services than what local operators could provide on their own, which would bring them more customers, which would provide them with more income, which would let them pay our franchise fees, which would give us a revenue stream to develop new services & content for our franchisees, all of which would be a virtuous circle of development, leading to massive access to information technologies.  (Time will tell if we can actually pull this off...  Your encouragement is more than welcome!)

One hot topic of debate for us is who should the franchise owners be? 

Some people say they should be local community development groups (parents groups at a school, community development organization, microbank, growers assocation, small NGO, etc) They would then hire an administrator, who we would train to run the center.  The advantage is that this strengthens community organization, but the disadvantage is that organizations are very slow to make decisions, which can jeaprodize the viability of a business.

So, others say, we should look for an entrepreneur in each community that buys in to our social mission.  By providing a structured model, we could guarantee the social impact of the business, even while the entreprenuer makes a profit.  The advantage is streamlining our operations and reaching more end users more efficiently, but the disadvantage is missing an opportunity to build ties within a community.

I appreciate your thoughts on this.

Andy

Skline - Jul 25, 2006 10:30 pm (#5 Total: 17)
Sean Kline


Andy,

Thanks for the interesting note.

Freedom from Hunger is launching a social franchise in east India this fall under the brand ‘Reach’. During the design phase we had assistance from Accenture and debated a number of important assumptions. Among these, was the extent to which the business needed to deliver on a social mission versus being run by social actors. The consensus of our team is that, like anything, there are limits to the social character of an approach that depends on market demand for success. Thus, we’ve sought to recruit local entrepreneurs who support the social mission, but wish to start-up and manage their own business (profile attached here). This coming week we are finalizing the recruitment process for our first three franchise service centers, which offer training and technical assistance to the thousands of local organizations that form and support self-help groups (SHGs is another discussion altogether...).

Good luck!

Best, Sean

Attachments:

Example Franchise profile_India.pdf (59 KB)

pa tom - Jul 26, 2006 3:44 am (#6 Total: 17)


Dear sirs,

I am moved by the social franchise venture ,which is a way forward for social non profits to increase demand, which will go a lond way to improve the welbeing and safeguard the livelihood of marginalised producers in rural communities in developing countries.

Our organisation NDOP HANDICRAFT ASSOCIATION{NDOPCRAFT} is a non-profit alternative trade organisation engage in providing professional and non-exploitative marketing services between producer partners and formal market structures and the franchise venture will be a very enriches project for our organisation.

we look forward to joining you

Benjamin Litalien - Jul 26, 2006 4:14 am (#7 Total: 17)
President & CEO, Social Franchise Ventures, LLC

Sean,

Thanks for your response.  Regarding cultural fit, I am referring to the culture of the nonprofit leadership/organization and the franchise company.  I believe there must be a fit there for the relationship to be successful.  Franchise agreements are long-term commitments and unless there is a good cultural fit the full value of the relationship will not be acheived.  Imagine a nonprofit that advocates for women's rights being in a franchise system run by 'good ole boys'.  Most certainly, there would be a culture clash even if the underlying franchise business was an ideal fit for the organization.

Ben

Eve Sullivan - Jul 26, 2006 9:08 am (#8 Total: 17)


Benjamin and other discussion participants,

This is very interesting, as I believe our parent peer support program qualifies as a social franchise venture. I would like to establish contact with others who are work with or serve parents in any capacity. In the coming month or two we will publish our handbook Where the Heart Listens online via Creative Commons and hope this will prompt interested individuals and agencies to contact us about establishing PARENTS FORUM® chapters in their communities.

Our first joint venture will start this fall in Roxbury, Mass., with Parents' Management Inc. and we hope this will serve as a model for other partnerships.

Excellent topic! I look forward to reading further posts and to hearing from people who are interested.

Eve Sullivan esullivan@parentsforum.org

P.S. I do have a photo to send but cannot see how to attach it. Oh well.

Skline - Jul 26, 2006 10:06 am (#9 Total: 17)
Sean Kline


Ben (and others):

Can you offer any guidance on what has proven the most useful areas to focus any initial franchisee training? I am wondering about areas such as corporate structure of the franchisor, reporting requirements and performance expectations of franchisees, communication between franchisee and franchisor, ethics policies, check-lists of any sort, etc. Are there particular areas that most franchisors should ensure initial training or orientation for new franchise owners?

Also, how about financing? Can you say anything about how financing for any franchise purchase or franchise start-up costs have been or could be handled in a social franchises?

Thanks, Sean

Van Ajemian - Jul 26, 2006 10:07 am (#10 Total: 17)

Hello, all.

Would it be worth everyone coming up with a definition of best practices for franchises within the context of social entrepreneurship?  I think it important because, given human nature, we would have a number of definitions which might confuse funders, communities, and possible franchisees.  I have heard reference to "greenwashing", perhaps an example of a very undesirable definition.

Dr. Curt DeBerg's youth entrepreneurship program, www.csuchico.edu/sage, has a definition in its manual on best practices:

(a) self-sufficiency [avoid grant-dependence];

(b) inclusion [work with as many people in the community as possible, including ongoing feedback about customer service and the impact of the venture on the community],

(c) transparency [post all income and expenses on the Web for all to see;  post all minutes];

(d) the "90% quorum" rule [at least ninety percent of those working in the venture must vote, regardless of how they vote, before a new policy may be implemented];

(e) the "10% tithing" rule [at least ten percent of net income must go into the community for social services and other social ventures, these to be bound by these best practices].

Van Ajemian

Benjamin Litalien - Jul 26, 2006 2:37 pm (#11 Total: 17)
President & CEO, Social Franchise Ventures, LLC

Eve,

Thanks for your response.  I would like to clarify that the context for "Social Franchise" that I am espousing is strictly defined as a 'nonprofit owned franchise business', which is the essence of a definition provided by the University of California, Berkeley.  There are over 3,000 franchise companies in the marketplace today, representing over 75 sectors including retail, service and professional.  Our research indicates less than 100 nonprofit owned franchise businesses in the U.S. today, a number sure to increase as more exposure is developed surrounding the benefits that can be created. 

I realize that the words 'social' and 'franchise' have numerous meanings and connotations , both individually and when put together, yet I am hoping that it will become know specifically as nonprofit owned franchise businesses.  In contrast, I would submit that 'social franchising' is the rare practise of a nonprofit franchising a program and offering to either other nonprofits or the marketplace in general. 

As you can tell, we have lots of exciting work ahead as this emerging frontier continues to take shape! 

Ben

Benjamin Litalien - Jul 26, 2006 2:48 pm (#12 Total: 17)
President & CEO, Social Franchise Ventures, LLC

Sean,

Thanks for your continued input on this subject.  Regarding franchise information, our firm is the only one I am aware of that is specifically focused on helping nonprofit organizations identify, acquire and operate franchised businesses.  As such we spend a great deal of time educating them on the franchise community and all aspects of consideration such as legal structure, tax implications, hiring management, training and ongoing support.

The best source for information on franchising is the International Franchise Association (www.franchise.org), which regularly holds and/or sponsors educational programs regarding virtually all aspects of franchising, and it would be an excellent place to begin.

Regarding financing, there are numerous established sources for financing that already exist in the franchise sector which can be an option for nonprofits seeking to buy a franchise(s).  That being said, they have some contraints that might not be too appealing to nonprofits such as personal guarantees and limited exist strategies.  Therefore, we have been working with the Calvert Foundation (www.calvertfoundation.org) and the Nonprofit Finance Fund (www.nonprofitfinancefund.org) to establish a Social Franchise Fund, earmarked specifically for nonprofits.  Hopefully, more to report on this at a later date.

Ben

Cindy Cooper - Jul 26, 2006 9:30 pm (#13 Total: 17)
Speak Shop

What a timely topic! Thanks, Ben and all.

Andy, I was particularly interested in your post! It's good to see you on Social Edge.

I am still thinking about how our organizations could work together, and it turns out we are contemplating similar franchising ideas for Speak Shop in Guatemala!

Maybe this would be an area for collaboration? We are very interested in the same things you outlined, as well as instituting technology that make telecenters viable language tutoring centers, creating more opportunities for Spanish instructors in Guatemala to deliver their services online to a world market.

As for your question in your post regarding who franchise owners should be, I personally lean toward the local entrepreneur. I think that even with the support of the franchisor, the individual entrepreneur will have a deeper sense of commitment to the project. His/her reputation will be on the line and his/her own resources will be tied into the venture. It leads to more efficiency, motivation. I like the idea of an entrepreneur with enlightened self-interest, yet it may not be necessary for the franchisee/entrepreneur to be a "social entrepreneur" since the franchisor can implement controls to ensure social mission objectives are being met by the franchisee.

Community collaborations in running a business face the danger of diffused accountability and a built-in safety net, in addition to the other downsides you outlined. The community ties can be built in other ways, for example offering social services to the facilities' users.

Cindy Cooper

cindy(at)speakshop.(com) - parentheses added to thwart spoofing

surya prakash.Vinjamuri - Jul 27, 2006 6:49 am (#14 Total: 17)
Life-Health Reinforcement Group

At the outset I like to say the gut feeling I have is that this will discussion will tie many loose ends and make non-profit sector presence felt more significantly as sector with a purpose.

I have lots to share, frankly I quickly browsed through the posts and I felt I should do little homework.

Quick thoughts:

1. Non-Profit sector didnt look for sustainibility,if what they are convinced they can do it, then it means they have succeeded or sustained.
2. In my experience we need to comeout with new ideas to deliver.
3. The time & money are two most important factors for any non-profit sector to achieve what it dreamed off.
4. Finally, I have this basic question - why non-profit sector should ever think of sustainibility.

These are some of my firm positions.

I will comeback,after doing my homework & I will share the initiatives & experiences I am going through.

For me each of the above expressions going to be learning experiences.

-surya prakash.

 

 

 

Benjamin Litalien - Jul 27, 2006 7:05 am (#15 Total: 17)
President & CEO, Social Franchise Ventures, LLC

Thanks Cindy and Surya for your contributions! 

Collaboration will be a key ingredient in the formation of a successful social franchise community, and will probably take many forms beyond just the nonprofit and the franchise company.  For example, we have been very successful finding franchise attornies willing to assist nonprofits in their legal work in obtaining a franchise, and doing it pro bono.

The concept of sustainability has been covered from virtually all angles, yet the fact still remains that nonprofits must take a more proactive approach to securing their financial future, especially if they truly believe the work they are doing is valuable and necessary.  The choices within control of the nonprofits are limited and as the social franchise arena continues to evolve I am convinced it will become a viable and potent option for many.

Ben

Dorette - Jul 27, 2006 12:01 pm (#16 Total: 17)
Development Consultant, Social Enterprise

Benjamin Litalien - Jul 31, 2006 5:10 am (#17 Total: 17)
President & CEO, Social Franchise Ventures, LLC

Thanks to everyone who participated in the discussion on this exciting and emerging topic.  I hope that there will be much more dialogue as we continue to pave this new path to better sustainability for many nonprofits.

Ben