The idea appeals to me partly because of my experiences with IDG and Intellecap. Firstly I realized that what we need in development and what everybody is looking for are two different things. This struck me again at a recent social enterprise event in London, where people urging those present to “listen deeply” were adamant about supporting entrepreneurship by bridging the “missing middle”. Though I don’t doubt the validity of the concept I’m unsure about its application and potential to help bring large number of people out of poverty. We look for striking examples of innovation (which we may well need in some cases – green energy for instance), but what we really need is marginal improvement on existing products and services (often simple process improvement). With these marginal innovations we could deliver the services that people already demand and obtain more efficiently and to a larger part of the population.
Secondly I realized that these entrepreneurs are hard to find. My job in India constituted of searching for and supporting them. Alas only few were of the kind where you’d have no doubt in applying the label to – obsessed, innovative, inspiring and successful at once. Real entrepreneurs, of the kind we look for, are in short a rare breed. Self-motivated and intelligent people with multiple commitments are however not. People like my mother seek self-employment and may not look to expand their business beyond a certain size. Others are more ambitious but are limited by their ability or inventiveness. All have local ties of some sort and know what the market needs. Franchisees are, in short, abundant.
The market in the US is a case in point. So plentiful are the franchisee offers that innovative matchmaking services have had to be created to make the choice easier. Be it services or manufacturing; everything is run through franchise operations – even chicken production for the most part I hear. For an outsider the depth of the industry is astonishing – the pizza industry in America alone is said to be worth $30bn.
The opportunity in places like India the opportunity is palatable, with several outfits taking advantage already. Naturally a big market with a surging middle class and a whole host of new, more sophisticated tastes means that providers have to roll out at speed, often necessitating franchising strategies. Moreover economies in places like India, and Nigeria for that matter, are often dominated by a few conglomerates, from Dangote to Reliance. Meanwhile, 98% of the businesses are sole proprietorships or the like, mostly operating as traders. They are run by quintessential franchisees with limited imagination, a feeling for local demands and shallow growth opportunities. The vast majority stay the size they are until it’s time to past them on to the children, who might grow the business slightly out of necessity.
What’s stopping us from grabbing this opportunity for the good? Several things, in my opinion. Firstly, despite the choice of franchisable enterprises there’s a dearth of truly integrated franchise packages at the small scale, which make it as easy as possible for the entrepreneur. This is especially true for socially conscious ideas; the franchise space is dominated by corporate like McDonalds. One of the reasons may be that the former have not found the right marketing mix to attract franchise operators. Another might be that at the BOP level the initial capital contribution expected of franchisees might prove prohibitive. If that is the case it is the originators of the franchise have to structure their offer differently, maybe in collaboration with microfinance institutions.
An example of franchising at the lower end of the economic spectrum recently caught my eye in India. Trendyworks launched a huge “Say No To Jobs!” publicity campaign in Hyderabad in promotion of their “Web Entrepreneur Program”, a Rs. 16,000 (roughly $350) 3-month course designed to help the student become a self-sufficient web-designer. The promotion was professionally staged, with billboard, radio, SMS, online features, advertising catchy slogans, taster courses and freebies. The latter included Trendyworks’ own proprietary web-design software used in the course, the continued use of which seemingly constituted the second phase of the franchise operation. The third phase seems to be continued deal flow following graduation from the program, naturally including royalty payments to Trendyworks. The effect could be described as the largest no-cost, quality assured outsourcing centre. It also diversifies the risk for the corporate parent, as cash flow occurs during every phase of the process. Without this program it may only be able to rely on sales of its software. Though it stretches the definition of franchising slightly, it shows how a combination of good packaging, professional processes and thoughtful business models can create new opportunities for profits and social improvement even at the lower end of the economic spectrum.
Applying such a model to easily transferable businesses and technologies such as biogas, affordable building, education, etc could bring huge scale to socially conscious ideas at low cost. The Access Healthcare Initiative, now part of the Centre for Emerging Markets Solutions at the Indian School of Business, is trying to do so by getting MBA students to document successful health delivery models and bringing them to other emerging markets (think pharmacy’s in Afghanisthan).
Venture Philanthropist organizations, from Aavishkaar to Acumen, have spent countless dollars hunting innovative local social enterprises the world over. What remains more often than not are huge databases of underutilized proprietary ideas (see the HoneyBee network). Although venture capital techniques have improved their performance, young enterprises inevitably face growing pains few are able to overcome. As a result, these kind of start-ups are rarely able to make good on their promise. It may be better to switch the focus of our initiatives to franchising the ideas we have identified rather than seeking and supporting new ones.
Do you have or know of a franchiseable socially conscious business model? What other barriers do you see? Is the search for truly entrepreneurial, innovative business models at the BOP really failing? Any comments welcome.