Microfranchising

David Lehr
Acumen Fellow

Lisa Jones Christensen
Researcher and Instructor

 

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Nineteen year-old Stephen Mensah has a junior-high level of education but no major assets. He has lost any hope of attaining the additional education he has wanted for years. But all of that changed six months ago when Mensah became a Fan Milk microfranchisee. 
 
Fan Milk is Ghana’s leading producer and distributor of dairy products, and employs some 8,500 microfranchisees like Mensah. These vendors sell milk, ice cream, yogurt, and popsicles from atop their bicycle carts throughout Ghana.
 
Now, Mensah wakes up most days and heads to the White Park Fan Milk Depot in Accra, Ghana. He cleans his cart and stocks his cooler with the variety of products he thinks will sell best. 
 
Mensah heads into the sun and weaves through streets to deliver dairy products to Accra’s hungry residents. Within one minute of beginning his workday at 10 AM, Mensah’s first and second customers purchase ice cream and yogurt, respectively. By 3 PM he returns to the depot, returning any melted products and stocking up on more. The 19-year-old likes the job, and plans to use the money he earns for education. "I just need to earn enough money to continue my schooling," he says.
 

Microfranchising is built on the concept of franchising – the development of a turn-key business model, designed for replication, that is inherently less-risky than a standalone startup enterprise.  

 
It is a practice that some say dates back to early tax collection in Europe, or to rickshaw pullers in China, and it is increasingly being adapted to deliver products and services to the poor, while creating management opportunities and jobs for those at the BOP.

Despite its promise to serve those who need a business idea, and despite the 100-plus microfranchises around the world today, few have reached scale, and microfranchising has not begun growing at the exponential rate that many in the development and for-profit communities hoped for.

In this post, we ask for your insights on what it takes for microfranchising to scale and whether there is really a ‘there’ there!  In our opinion there are several barriers including:

  • Time to market/success.  The key to franchising is a successful and vetted model that can be easily operationalized and replicated.  It takes time and money to get it right or to discover whether the model will not actually work.
  • Lack of best practices.  We are working on creating and sharing a database, but beyond the seminal books, where can people go to share and learn?  
  • Supply chain challenges.  A core value of a franchise is its ability to address supply chain issues and continue to decrease prices and improve efficiencies as the network grows.  Microfranchises rarely have this type of buying power and often work in very infrastructure challenged environments. Can this be overcome?
  • Local talent availability.  Franchisees are what ultimately allow for success.  In many contexts, franchising is not understood and it can be difficult to find qualified (or trainable franchisees).
  • Financing Needs.  Both microfranchisor and microfranchisee need financing.  Since microfranchising models rarely fit within the practices of MFIs, microfranchisors often need to take on the financing piece along with the other challenges.
Certainly, this is a partial list that may explain why microfranchising is not growing as it might.  We have several questions:
  • What will it take to help microfranchising reach the level of success that microcredit now has? Is that a worthy goal?
  • Many organizations and individuals are doing (or testing) related work that is yet not known. Please point out business models in practice that may or may not be using the term “microfranchising.”
  •  Many microfranchises have a health or development element (though some just sell ice cream). Does microfranchising need to have a development or social aspect in order to provide value? Or is the creation of job opportunities enough?
Join David Lehr and Lisa Jones Christensen in the conversation.

 

  • Joao Carlos Leitao

    Testing microfranchising and culture change

    Hi there,

    Just to share our story:

    I was in Bristol, UK, when the diagnosis of our (western) predicament became clear. Searching for solutions, I started to read, reflect, and act, inspired by Permaculture and Transition concepts. In 2008, I met Mandy Dean in Quinta Cabeça do Mato, Portugal, in a Transition Talk.

    In January 2009, Vanessa and I created the Good Neighbours Project. We began with the Neighbour’s Things Shop, a space for exchanging second hand and produced locally goods. It`s a space that is helping our Transition Initiative in Pombal and could be very important to the implementation of a local currency.

    The Good Neighbours Project exists because we believe that contributing towards the creation and development of sustainable local communities is a positive and proactive way to address the challenges we face in the pursuit of happiness, the redefinition of the concept of wealth – its creation and fairer distribution, the promotion of less energy-consuming lifestyles, the preservation of the Planet and the duty to leave it for future generations.

    The Good Neighbours Project is ambitious in that there is the will for it to travel the world and consequently a need to spread the concept around different countries and regions. It is also ambitious because it comprises several models, ranging from the Neighbour’s Things Shop, the Neighbour’s Talk, the Exchange of Services Network and the Community Supported Agricultural System to the dream of eventually creating a Complimentary Monetary System to promote a fairer and more supportive economy.

    We began with the Neighbour’s Things Shop, a space for exchanging second hand goods, a space where each Neighbour shopkeeper becomes a transformer agent in a better world. A space where, in the strictest sense, the exchange of second hand goods is facilitated, where these goods acquire a new look, where they are reborn in the life of a new neighbour who preserves their usefulness and extends their worth and where those who supply the goods are united with those who choose and buy them. It is a space which promotes everything that is created, recycled, produced locally, inverting as a result, the dominant economy which saps the vitality of communities by accumulating and transferring wealth to the power centres that every day show us how unsustainable they and we are.

    Mission

     

    To help unleash the power of each local community enabling it to become sustainable and happy by facilitating the exchange of second hand goods and stimulating the production of goods and services locally.

    Also in January 2009, after my PDC, I started the "Transição e Permacultura Portugal" Social Network. The main goal is to support the beginning of the Transition Movement in Portugal.

    We also co-organized the first Transition Conference in Portugal and we are hosting the first Transition Training, also to help the beginning of Transition Initiatives all over Portugal, including Pombal.

    The Good Neighbour`s Project is using the term "microfranchising" and we are receiving a lot of requests from potential franchisees in Portugal and overseas.

    Would you like to use our incubation phase as a case study?

    All the best,

    Joao

    • Lisa Jones Christensen

      Testing microfranchising and culture change

      Joao-

      This is fascinating and represents just the kind of range we were wondering about when we considered "what kinds of initiatives fall under the big tent of "microfranchising"?" Of course, I would like to learn more. Your information also makes me think of a book that just came out and was distributed at SoCap this week- the book is called "the mesh" and it is by Lisa Gansky. From what I read, it touches on creating a kind of commerce based on access and not ownership…it is about sharing products rather than owning outright. Your work is a precursor to this kind of a society and her thoughts might interest you. Back to microfranchising, what kinds of issues have you found in regards to selecting partners to be your "franchisee"? I personally think that the human resource issue of what constitutes a qualified franchisee, and what will ensure her success, is sorely under-discussed. Would love to hear your thoughts…

      Lisa

  • Amy Sandoz

    Fan Milk

    I think you both wrote about Fan Milk in Ghana in a different publication, but it is a great opener to this discussion because it seems to be doing some things very well:

    Offers a place for agents/distributors to sleep

    Offers a built-in savings program (10% of proceeds) for agents/distributors

    Offers training in greeting customers and sales

    Opportunity to break-even on investment in the first month

    Regarding whether or not microfranchises need a health or development element I would argue depends on the market they are trying to enter. The most successful microfranchises will break down the barriers — whether those be housing, health, training, etc — for those interested in purchasing the franchise.

    What will it take to help microfranchising reach the level of success of microcredit? I understand that Grameen Bank was initially funded by several large aid institutions – perhaps microfranchising needs the same boost.

    • Lisa Jones Christensen

      Fan Milk

      Amy-

      Thanks for taking on all of the questions! And also for remembering our other work…regarding your comments on whether microfranchising "must" have a development angle or not in order to provide value, I wonder if you could clarify what you think it depends upon? How many barriers are already in place in a community? I am so glad you reiterated how much the role of a microfranchisor is to break down all kinds of barriers…but I wonder where the microfranchisor must draw boundaries? Does it depend on how much money and time they have? One thing David and I debated was whether breaking down just enough barriers to simply provide a job is enough to start a virtuous cycle of improvements? We originally believed that microfranchisors might be different from "normal" franchisors because microfranchisors have a social mission first (such as improving health or access). But the more we thought about it, the more we think that social purpose does not have to be the foremost message…and sometimes getting a microfranchise profitable faster might do more good…any thoughts?

      Thanks again for taking on the full range of questions!

      Lisa

    • dlehr

      Fan Milk

      Hi Amy,

      I want to echo Lisa’s comments and thank for your taking the time to weigh in. When I first started learning about microfranchising, the initial models that I saw were mostly focused on having a social impact and they were using a franchising model to scale and reach their target customers. One definition that I think is very useful appears in the Small Fortunes, Glossary, 2009. It suggest that a microfranchise is: “a small business that can easily be replicated by following proven mentoring, marketing, and operational concepts found in formal franchises. The overall objective is to promote economic development by creating replicable business models that can be managed easily by entrepreneurs at the base of the pyramid”.

      More and more though, I question whether the explicit economic development impact is a “must have” to be considered a microfranchise. I am huge supporter of socially focused businesses, but I also recognize that almost any business that creates jobs has a development impact, and that the techniques of microfranchising are as applicable to for-profit, hybrid, and pure profit businesses regardless of their mission. How narrowly should we define microfranchising?

      David

  • Jon Bohmer

    mPesa

    I would think mPesa here in Kenya would qualify as a most successful microfranchinse. Started 4 years ago as the worlds first mobile payment system, it today has over 18.000 resellers and 18 million customers. It would also qualify as a social microfranchise, as the social benefit of the mPesa system has transformed the country and made life a LOT easier.

    • dlehr

      mPesa

      Hi Jon, I think the M-Pesa model is super interesting and there are a lot of lessons. It has scaled rapidly and owes at least part of its success to leveraging existing businesses and using them as a distribution channel for a new product. A large portion of M-Pesa agents are existing retailers with a substantial distribution network like petrol stations, distributors, supermarkets and registered SMEs as well as certain banks and micro-finance institutions.

      What this allowed was them to offer an additional product so that the initial agents already had an income source and an established clientele, and therefore these agents – with very little extra investment, and with no need to change jobs or take on much risk – were able to start providing M-Pesa services. My understanding is many of these businesses still do what they were doing before M-Pesa, while others are now almost only M-Pesa providers.

      Safaricom does follow a rigorous branding, training, and pricing process and in that way is very similar to a franchise.

      I think that the Grameen Phone is another interesting example in the telecom space and in many ways was one of the first and ‘purest’ microfranchising organizations.

      Best,

      David

  • Paul Rigterink

    Path of least resistance

    It is much easier to market to NGOs than to individuals in the developing world. An NGO can buy thousands of dollars worth of farm equipment, for example (such as micro irrigation kits, improved seeds, fertilizer, etc); in contrast setting up a supply chain to sell to individuals can be very difficult unless it is equipment that NGOs won’t buy (such as cosmetics). NGOs buying patterns potentially can distort the market and potentially can hurt the growth of micro franchises in key development areas.

    • Lisa Jones Christensen

      Path of least resistance

      You bring up a great point about the [potential] role of NGOs in the microfranchising movement. They can do so much to convene and membership is often a proxy for readiness to participate in some form of microfranchising. Certainly, their purchases can distort markets, but it is also possible that their convening power and (potential) efficiencies could be a boost to microfranchising rather than a source of distortion…it seems to depend on the relationship between the NGO and the microfranchise opportunity. I know Living Goods is going to stop having microfranchisees sell bednets because too many programs are distributing them for free- so your point about distortion is already affecting the microfranchise community.

      I think David will weigh in on his work with Mercy Corps and a very nascent microfranchise related to health products in Guatemala. My take on his experience is that the NGO faciltated relationships and incubated the microfranchise opportunity with the hopes to spin it off and let it stand on its own without negative *or* positive interference…the issue is that it is taking more time than one might have originally thought. You really are making me think about what incentives and disincentives are in place once you market to NGOs- do you have more thoughts? Your comments also remind me of work in micro health insurance, where partnering with microfinance institutions– even ones where managers see a direct benefit of health insurance– was not enough of a move to ensure successful sales of the insurance product. Essentially, just being a member of a particular NGO does not make one qualified to move some aspects of the mission forward nor does it qualify one to be a sales agent…the NGO can do a lot, but I am drawn back to think about the HR issues that should be so central to microfranchising. I know this last thread is not where you were headed, but again, your comments about NGOs are really making me think…what do you think about incentives and/or NGO partnerships and the HR blindspots?

      • Paul Rigterink

        Path of least resistance

        Lisa

        I am in the process of setting up several micro businesses in the Department of Cordoba, Colombia, SA with help from the University of Cordoba (see http://home.comcast.net/~prigter/site/ ). Because there are 500 NGOs in Colombia, I have to be sure that the NGOs don’t put me out of business (usually NGOs don’t come to the Department of Cordoba because it is too dangerous and everyday living conditions are too difficult. In addition, I have to control my costs so that the poor people can afford my product (In general NGOs don’t control their product costs very well because most of their money comes from donations so they sell the product at less than the true cost). If I set up a 9 hole golf course on a soccer field for a few hundred dollars, I don’t have to worry about NGO competition. On the other hand, if I set up a fruit tree seed and nursery stock business or a free range poultry supply business, I do have to worry about NGOs putting me out of business (in this case, I test the trees and poultry stock in country to be sure they grow properly and use the tested trees and poultry to produce the product; I will have a tested product and the NGOs will not). When "NGOs facilitate relationships" in Guatemala do they sell the product at less than the true cost including their management costs or are their cost reduced by donations to the NGO?

        • dlehr

          Path of least resistance

          Hi Paul,

          Hi Paul,

          Your point about NGOs is well taken and I have seen many examples where subsidies –whether from NGOs, governments, or multi-lateral agencies like the UN have crowded out business opportunity. I think that it is a very delicate balancing act, because in some situations, especially for example a post-disaster scenario, NGOs are bringing in goods and services with no market ties, but have the larger goal of saving lives and rebuilding. In other cases, particularly where security is an issue there may be no chance of a market forming, and therefore aid remains critical.

          I was at Mercy Corps for several years and they are one of the many good market-driven organizations – and there are many – that recognize these potential distortions and try to minimize them were possible. In Guatemala (with support by Mercy Corps and Linked Foundation), I have worked with a Mercy Corps team to build a commercially sustainable network of healthstores that sell basic medicines, soap, fortified cooking oil and milk powder, SIM cards, flashlights and batteries) in very rural, isolated communities where these products have never been sold locally and often require a long, expensive trip to town to purchase. The initial funds to assess the market, determine the opportunity, to test the business model, to develop the training and monitoring materials have all come from ‘charity’ and it is unlikely we will be able to earn back this initial investment. Our overall goal, which we are on the way to reaching, however, is a sustainable commercial organization that will carry on – possibly forever – when Mercy Corps leaves. Our prices are not subsidized and are similar to what the stores in town charge, although today, the training and management of the network is subsidized, again with the goal of ending the subsidy via earned income.

          We are still a ways off, but getting there. I will write more as time goes on!

          – david

          • Paul Rigterink

            Path of least resistance

            I hope the major advantage that the University of Cordoba students will have is that they will be trained on how to determine if a proposed micro franchise business will be successful. Should an NGO dumps micro irrigation equipment in their area, I hope they will ask where is the fertilizer and pesticides, where is the better seeds, which high value food commodity crops should they produce for the most money, where will they sell the crop and at what price, what is the expected profit margin, how much investment capital will they need, how will they transport the supplies and crops, what quality control procedures do they need to implement, what training will they need, how can they ensure the supply chain will be there in the future, etc. When these questions have been answered to their satisfaction, they will start the micro franchise. See the table in my "Poverty" paper at my website to see if Mercy Corps would meet my suggested requirements for starting successful micro franchise businesses.

          • dlehr

            Path of least resistance

            Hi Paul, Can you share a link to the "Poverty" paper so that others reading this can easily find it?

            Thanks, David

          • Paul Rigterink

            Path of least resistance

            My website is at http://home.comcast.net/~prigter/site/

            The Poverty Paper is at http://home.comcast.net/~prigter/Poverty.doc

  • Samantha Sprole

    Scaling Microfranchising: A Worthy Goal?

    I’m not yet sold on the idea that microfranchising should enjoy the same success as the microfinancing platform. Whereas microfinancing empowers individuals in need to identify and address personal and/or communal needs and to generate value on their own terms, microfranchising is a more monolithic platform. For efficiency-sake and quality assurance, the microfranchising model allows for much less flexibility.

    This is not to say that microfranchising is not valuable. On the contrary, microfranchising offers individuals and local economies a potential boost; especially in those markets where the economics is more of a closed loop rather than a conduit for funneling monies out of poor regions and into the coffers of remote franchises. I think Portugal’s Neighborhood development plans exemplify this standard nicely.

    • dlehr

      Scaling Microfranchising: A Worthy Goal?

      Hi Samantha, I like to think of microfinance and microfranchsing as two different tools, but both useful in economic development. In an ideal world their use will keep growing until "Billions are Served." While I don’t think that any business that is monolithic can survive the test of time, I do agree that a microfranchise is inherently less flexible than the type of business that an individual would set up on their own. I do believe that the best microfranchises are somewhat flexible and try to build on what they learn from the other members of the network.

      Where I differ though is in the value of that flexibility. The power of franchising from the fact that there is less that each franchisee has to figure out, since much (though certainly not all) of the business model, supply chain, pricing, branding, marketing, customer service, has already been figured out. For someone very entrepreneurial franchising is not a good fit. For someone who wants to be a business owner, but do it within a network of already working businesses, franchising is a great choice.

      Can you point us to a web site, or paper that further discusses Portugal’s Neighborhood plans? It would be great to learn more!

      Thanks,

      David

  • Grant Hunter

    Microfranchise Solutions, LLC and Taxi Excel–a report from the fair after 2 years in Peru

    Hi David, Lisa and the Social Edge Community-

    I am happy to see this discussion taking place and wanted to add my perspective after 2 years in Peru with the launch of our first microfranchise, Taxi Excel.

    I will respond to both the issues raised and specific questions asked below.

    • "Time to market/success. The key to franchising is a successful and vetted model that can be easily operationalized and replicated. It takes time and money to get it right or to discover whether the model will not actually work."

    This is absolutely true. I have been working in Lima, Peru with the launch of Microfranchise Solution’s first concept called Taxi Excel—a network of eco-friendlier natural gas (CNG) taxis for a little over 2 years. On a recent national televised interview I had in Peru with a show called "Mundo Empresarial", one of the first questions I got was about the value of the franchise model in importing proven concepts from other places.

    As I was quick to point out, any international franchise has to be “localized” taking into consideration the local culture and economic context. A mindful franchisor really has to learn the business from the inside out, as it manifests in the local market. That takes time and money…more of both than we accurately predicted ahead of time. We’ve got it right now, just need reasonable debt-financing to grow.

    • Lack of best practices. We are working on creating and sharing a database, but beyond the seminal books, where can people go to share and learn?

    As a nascent, emerging concept as it applies to economic development in the developing world, I agree microfranchising could benefit from better information-sharing. The problem is how much a for-profit microfranchisor wants to share with potential competitors, especially when “know-how” is a competitive advantage in a really difficult market. I’ve seen this push-pull at work in internal knowledge management systems deployed in large, Fortune 500 companies in the late 90’s. The belief in the value of “intellectual capital” created a frenzy of optimism and “if we build it, they will come” fallacies. If my knowledge creates my value in an organization, I risk hurting myself by sharing too much.

    • Supply chain challenges. A core value of a franchise is its ability to address supply chain issues and continue to decrease prices and improve efficiencies as the network grows. Microfranchises rarely have this type of buying power and often work in very infrastructure challenged environments. Can this be overcome?

    One way to get around this is to franchise a concept that has a large established base of independent entrepreneurs working in that industry. The existing taxi market in Lima, Peru has over 250,000 taxis, which provides an existing, informal market which we can tap for new franchisees. We can grow quickly by converting existing informal drivers to formal taxi drivers willing to follow our standards (passing a criminal and financial background check, wearing a uniform, cars follow a routine cleaning and maintenance schedule, etc.) in exchange for access to our expanding network of corporate clients. Once we get to a reasonable size, we can begin to influence supply chains more effectively.

    For business concepts without a large existing informal base of independent entrepreneurs to tap, I think working on an international scale can help demand sufficient respect from supply-chain providers interested in working in these countries.

    • Local talent availability. Franchisees are what ultimately allow for success. In many contexts, franchising is not understood and it can be difficult to find qualified (or trainable franchisees).

    This hasn’t been easy either. I think local Area Developers or Master Franchisors who have studied abroad, are a rich source of management talent. My Area Developer for MFS-Peru and General Manager of Taxi Excel got his MBA here in the States. They can span the cultural and national boundaries sometimes better than a foreigner.

    This transcends the problem of the “foreign brain drain” I have often hear about immigrant students who come to universities here in the States only to be shown the door after they graduate. Yes, they return home, but with a U.S.-based for-profit social business, the U.S. and the host country of the microfranchise benefit financially, as well as our target audience franchisees.

    Regarding franchisees, taxi drivers in our case, are not all good candidates for Taxi Excel. The cultural difference between an informal and formal taxi driver should not be glossed over. Many drivers prefer the informal, independence of working on their own.

    Most drivers are renters, earning only enough to eat for today, and are not building equity in their own asset. We appeal to those drivers who really want to join the formal economy, improve their lot in life and who are willing to take on training (i.e. customer service, routine car maintenance, ergonomics, basic English, etc.) and follow our higher standards, in exchange for the chance to access higher-margin corporate clients (which they couldn’t secure on their own) and the chance to own their own new vehicle with reasonable debt-financing. (Kind of a form of a forced savings account).

      Financing Needs. Both microfranchisor and microfranchisee need financing. Since microfranchising models rarely fit within the practices of MFIs, microfranchisors often need to take on the financing piece along with the other challenges.

    That has been our biggest challenge. Finding reasonable debt-financing for hard-working taxi drivers has been nearly impossible, save for the handful of individual social investors I have identified who believe in this model. We fit in that frustrating “missing middle” between what an MFI would fund and what a commercial bank will touch in terms of the risk and populations served.(New taxi=$15K)

    Keeping the cost of investment capital low is key to promoting maximum economic development. Start-up capital is just the beginning, but one that is far too expensive for the working poor to invest in businesses profitable enough to give them a path to the middle class. By avoiding usurious interest rates charged by MFI’s, microfranchisors earn money on the success of the business (as a royalty % on the business generated) and NOT by simply moving money around. I think MFI’s who launched microfranchises or partnered directly with microfranchise organizations could diversify their revenue streams and provide larger loans with larger impact than they are currently doing today. John Hatch at FINCA called microfranchises “Microfinance 2.0” and I think there is great opportunity there.

    Certainly, this is a partial list that may explain why microfranchising is not growing as it might. We have several questions:

    • What will it take to help microfranchising reach the level of success that microcredit now has? Is that a worthy goal?

    The push-back I have received from MFI’s and funds-of-funds who provide capital to social enterprise and social entrepreneurs is that they don’t have the staff on the ground in the developing world to perform adequate due diligence on specific SME’s requiring funding. They also feel like it is much simpler and a better diversification of their funds to provide small loans to thousands of independent entrepreneurs (average loan size in Peru is $600, according to COPEME). That may be true, but I question the overall social impact of a loan that size. I don’t think anyone is sending their kids to college on businesses started for $600.

    Microfranchisors can greatly reduce the administrative cost of providing funding adequate to lift hard-working entrepreneurs not only out of poverty but onto the lower rungs of the middle class. All the while, helping to mitigate the risk of extending those loans, by focusing on increasing the capacity of franchisees to repay. Funding microfranchise organizations like ours could help grow to the scale of MFI’s with potentially even greater social and financial impact.

    • Many organizations and individuals are doing (or testing) related work that is yet not known. Please point out business models in practice that may or may not be using the term “microfranchising.”

    We have embraced the model whole-heartedly. See our work at http://www.taxiexcel.com and http://www.microfranchisesolutions.com.

    • Many microfranchises have a health or development element (though some just sell ice cream). Does microfranchising need to have a development or social aspect in order to provide value? Or is the creation of job opportunities enough?

    I think in order for microfranchises to play fastball in local economies in which they operate, they need to be profitable. Job opportunities based on subsidized activities are not sustainable. I think the biggest social impact potential of microfranchises is their inherent ability to push local-ownership of profitable businesses down to the working poor. Most of the wealth produced through a franchise stays rooted in the local economy which promotes the multiplier effect.( I often contrast that with say a developed world apparel manufacturer who offshores production of a particular garment to a developing world manufacturer where the work is done, and repatriates 90% + of the profit. It is reversed in a microfranchise.)Furthermore, we are particularly excited about Taxi Excel as a triple bottom line business–eco-friendly, socially-responsible and profitable for all stakeholders.

    For those with the patience, stamina and interest to read this far, we are soliciting additional social investment to meet growing corporate demand for our services. Debt-financing, secured against an insured asset (the taxi) which we manage 24/7/365, paying attractive commercial interest rates monthly, while lifting a man and his family out of poverty for good! Drop me a line if you’d like to learn more.

    • dlehr

      Microfranchise Solutions, LLC and Taxi Excel–a report from the fair after 2 years in Peru

      Hi Grant,

      Congratulations on your work with Taxi Excel and a special thanks to you for sharing in detail despite the risks of educating the competition! Your points are really valid and echo much of my experience.

      Our question on best practices and sharing has to do with the hope that Lisa and I, and lots of other people have – - if microfranchising really works, then lets accelerate its deployment as quickly as possible and not have to wait the 25 years that it took for microfinance to capture our attention. I agree that while a $600 loan can help an individual or a family get out of poverty, it is unlikely to have the scalable effect that a larger business can. Aneel Karnani wrote an interesting article about some of the limits of microfinance in the Summer 2007 issue of the Stanford Social Innovation Review.

      I hope your post helps attract potential investors. Let us know what happens!

      David

      • Grant Hunter

        Microfranchise Solutions, LLC and Taxi Excel–a report from the field after 2 years in Peru

        Thanks David. I don’t mean to sound uncharitable to my fellow colleagues trying to implement microfranchise projects. I appreciate knowledge-sharing and hope to find other like-minded folks like yourself out there doing this important work. We’re not a large community of practitioners and I welcome the outreach from fellow pioneering practitioners. After all, there is plenty of poverty to go around ;-) !

        Within a particular business concept–taxis, micro-pharmacies, language schools, etc.–one has to balance sharing one’s "secret sauce" with spreading successful ideas as wide and far as possible. One strength of the franchise model is in its rational expansion based on protected territories. The ongoing interdependence of franchisor and franchisee keeps the strength of the entire network as the highest priority, which discourages over-saturating a particular area in the interest of short-term spikes in growth. Furthermore, within a franchise system among franchisees, there can be freer knowledge-sharing since, with protected territories, a franchisee with a great idea strengthens the entire network by sharing, without potentially undermining their own personal success.

        Failure to respect a rational growth path can be problematic. I saw this vividly in a little town called Via El Salvador outside Lima. Where you find one successful leather worker artisan for example, you see an entire street filled with copycats. How they all can make a living is beyond me.

        Outside of my own particular work in Peru, I really believe that microfranchising can help mitigate risk for investors to fund higher investment, higher impact businesses that can generate commercial returns. In the face of the constant barrage of negative news on TV and the Internet, I am optimistic as I look forward to the continuing marriage of head and heart, money and meaning as we look to alleviate suffering for millions through enterprise solutions to poverty like microfranchising.

        Regards,

        Grant

        • dlehr

          Microfranchise Solutions, LLC and Taxi Excel–a report from the field after 2 years in Peru

          Hi Grant, Your comment about the interdependence between the franchisor and franchisee is spot on and brings up something we have not touched on in this discussion. Key to franchising success IS that mutual need, coupled with the fact that the benefit to both sides accrues only a little bit at a time – - since it takes time, the relationship must be mutually beneficial or neither party will get what they hoped.

          Microfranchising can also bring in new ideas. Your example of the artisans in the town of El Salvador is played out over an over throughout the developing world and points out one of the limitations of funding someone to copy an existing idea. I am guessing that unless someone external to El Salvador is driving the growth of the artisan leather market that each additional craftsperson is taking a slight piece of the pie away from all the previous vendors as opposed to increasing the pie.

          Furthermore, most small vendors operate outside the formal system and either don’t pay, or markedly underpay their taxes. Tax revenues are a precursor to a well functioning government, yet another reason why formal businesses like your microfranchise are needed.

          – david

          • Nate Heller

            Ayllu

            Hi all,

            I am COO of Ayllu (www.iumap.org), a social enterprise that tracks, surveys and interviews social enterprises around the world. We recently wrote an ebook on microfranchising recently published on Nextbillion (http://www.scribd.com/doc/37628659/Micro-Franchising-eBook) and a chapter for an upcoming book on the subject (Microfranchising- How Social Entrepreneurs are Building a New Road to Development, edited by Nick Sireau, to which we hear you also contributed, David).

            This has been a fascinating discussion so far and it is great to hear so many perspectives. A few thoughts on the questions:

            • What will it take to help microfranchising reach the level of success that microcredit now has? Is that a worthy goal?

            While microfranchising is a great tool and it is definitely a worthy goal to help it become as successful as microcredit, we are not sure that they should really be put into the same category. The two certainly have a lot in common if they are viewed strictly as different ways to help people at the BOP start businesses, (microcredit through lending them money, microfranchising by giving them a business model). However, microcredit, as Samantha Sorole mentioned earlier, has much more varied applications than just job creation. We believe microcredit (and the other elements of microfinance) should be viewed as a sector in itself, trying to fill the need for BOP financial services. Microfranchising, on the other hand, does not fill a specific need in itself (other than job creation), and is primarily a distribution tool to help enterprises, social and non, get their product out and fulfill other needs.

            All that said, in the private sector we think microfranchising has already achieved a high level of success, at least in the form of direct sales. There are many hugely successful direct sales companies around the world, from Avon Cosmetics (www.avon.com) and Natura Cosmetics in Brazil (www.natura.net), to health product companies like Tianshi (www.tianshiindia.co.in), Forever Living,(www.foreverliving.com) and Herbalife (www.herbalife.com), and we think the models have a lot in common with what we are calling microfranchising. What is newer is the use of microfranchising as a tool to deliver social products, and the targeting of lower income people as franchisees. We believe that one of the most important ways to help social microfranchising scale up is to share information about different models and challenges, as we are trying to do, and also for social microfranchisors to learn as much as possible from the successful private sector models. Part of the story of Living Goods (www.livinggoods.org), is how founder Chuck Slaughter became an ‘Avon Lady’ to understand how Living Goods could adapt that model. It would be very interesting to hear people’s perspectives on the similarities and differences between microfranchising and direct sales.

            • Many organizations and individuals are doing (or testing) related work that is yet not known. Please point out business models in practice that may or may not be using the term “microfranchising.”

            Ayllu’s recent microfranchising blog series on Next Billion, published in the e-book linked above, goes through the different models we have noticed microfranchising taking, some of which have been mentioned in previous posts. These are:

            - The ‘Business in a Bag’ model, in which franchisees are given a sales kit and a supply of inventory and are generally mobile. Versions of this model are used by VisionSpring (www.visionspring.org), Community Enterprise Solutions (www.cesolutions.org), and Living Goods, as well as Fan Milk and most of the private direct sales companies.

            - The Infrastructure model, in which the franchise is based around a specific piece of income-generating equipment either owned by the franchisor company or paid off longterm by the franchisee. Examples include Sarvajal (www.sarvajal.com), which has franchisees sell pure water produced by village based filtration machines, and Nuru Energy(www.nurulight.com) whose franchisees sell rechargeable lights and operate a pedal powered charger.

            - The Conversion model, which Grant Hunter discussed above, in which the franchisees are existing independent businesses which become franchises by adopting set standards and branding, and are often given access to an improved supply chain. Other than Taxi Excel, some examples are Drishtee (www.drishtee.org) and the now-defunct CareShops Ghana (http://bit.ly/8ZUN6y).

            - The Agent Network model, in which the franchisors have a business model based on a large number of agents. Examples are money transfer models like M-pesa (http://www.safaricom.co.ke/index.php?id=250), mentioned above, and Mobile Transactions (www.mtzl.net) whose clients want to be able to send money to many different locations, and information collection models like Esoko (www.esoko.com) which aggregate information from many points across a coverage area.

            - A model which has emerged for financing franchisees is microconsignment, or microsupply credit, used by Community Enterprise Solutions, VisionSpring, and Barefoot Power (www.barefootpower.com), in which franchisees are given credit in the form of inventory rather than cash.

            - Another common model is paraskilling (defined as such in the Monitor Group Report ‘Emerging Markets, Emerging Models’(http://bit.ly/c8hVax), in which franchisees are trained in a specific skillset normally only available from more expensive practitioners. An example is VisionSpring’s training of franchisees to screen customers for reading glasses.

            • Many microfranchises have a health or development element (though some just sell ice cream). Does microfranchising need to have a development or social aspect in order to provide value? Or is the creation of job opportunities enough?

            As mentioned before, we view microfranchising as primarily a distribution tool, and believe that the value of using this tool vs. others must be separated from the value of the product or service delivered. No matter what they sell, microfranchising models inherently deliver some social value in the sense that they create jobs (or offer additional income to existing businesses). The value of the product or service may be greater or less than that of the job opportunities, depending on the business. With Fan Milk, it is probably less, but for an organization like VisionSpring, the franchising model is used because it is the best way to get glasses to the people, and the job creation benefit is the icing on the cake. In fact, VisionSpring now sells most of its glasses through partnerships with other organizations, rather than through its own franchisees, and has recently scaled down its own selling channel, because, though it was creating jobs, this was a less cost-effective way to sell glasses. This is an example of the trade-off an organization can face between the social benefit of its product and the job creation benefit of its model.

            Really enjoying the discussion and hope to hear more from people.

            best

            Nate