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WORTH and Social Franchising: Initial Research and Analysis

WORTH and Social Franchising: Initial Research and Analysis. Prepared by: Sushant Mukherjee Date: 10/13/2008. Executive Summary.

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WORTH and Social Franchising: Initial Research and Analysis

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  1. WORTH and Social Franchising: Initial Research and Analysis Prepared by: Sushant Mukherjee Date: 10/13/2008

  2. Executive Summary • Broad macro trends indicate growing importance and viability of micro-franchising as solution to poverty. However, social franchising (i.e. where franchisor is NGO/Soc Ent.) remains a niche in this area (Magleby book). • Within micro-franchising, relevant trends for WORTH include: • growing use of rural women micro-entrepreneurs as franchisees (UL, Pratham?, Grameen Phone) • Leveraging private sector expertise in setting up social franchises (HealthStore story) • Successful initial experiences with franchising in the non-formal/formal education sector and health sector, domains normally seen as not well-disposed to a franchise option (Pratham, Kumon, Aptech, HealthStore) • Spotlight on Training/Capacity-Building: this seems to be a common thread which we need to explore further for WORTH. Franchise’s success depends on rigorous training curriculum. (For brand consistency, and for high-quality service delivery; Success Story Example: Two Men and a Truck – commodity service – but with training and branding, can really differentiate. Ruf and Tuf. Make it simple. • Two Case Studies: Unilever Shakti Entrepreneurs. 1 more…Kumon, HealthStore, Aptech, Pratham remedial tutors. • Multi-level Marketing in Micro-Franchising. Rapid Scale-Up. • Diagram? Show how Model Could Look.

  3. Agenda • Context/Current Trends for Micro- Franchising as Tool to Fight Poverty • Key Focus Area: Perspectives on Training and Capacity Building • Private Sector Case Study: Unilever’s Shakti Entrepreneurs (India) • Service-Based Social Franchising Case Studies: • HealthStore (Kenya), Pratham (India) • Appendix: Useful Resources/ Contacts

  4. The franchising market is already substantial in the developed world, and rapidly growing in developing countries. • Franchising has a well-documented track record in developed world as the most effective network business model. • Business-in-a-box model reduces risk, removes ‘creative burden’ from new entrepreneurs. Consistent standard-setting makes replication relatively simple. • Franchises have one-quarter the failure rates of start-ups in U.S. • Franchising accounts for 10-25% of GDP among OECD member-nations. • In 2008, growth in U.S. franchising market was driven by service businesses. • Franchising has proven to be a stimulus for economic growth in the developing world: • In India, franchising growth has outpaced GDP growth by ratio of 3 to 1 in past decade. • In Mexico, GDP has grown in low single digits, while franchises have expanded 15-20%. • In Brazil, approximately 25% of Small and Medium Enterprises (SMEs) are franchises. “Franchising requires a cooperative win/win/win relationship between franchisor, franchisee, and customers. Franchises supplying a critical social good can even create a quadruple win.”- Kirk Magleby, Ascend Humanitarian Alliance, 2006.

  5. Micro-franchising is increasingly being recognized as powerful tool for engaging commercially with BoP sectors, fighting poverty • In developing economies, franchises create significantly more jobs than individually owned businesses. • Franchises provide valuable vocational training, mentoring opportunities directly relevant to franchisee’s business. • Franchising can create numerous local SMEs, a key component in overall economic development. • Franchisors can provide financing or act as guarantors for franchisees to secure much-needed credit. • The conventional definition of a micro-franchise is that start-up costs should not exceed 3 times country’s annual per capita GDP: i.e. starting a micro-franchise shouldn’t exceed $1,000 in the DRC, and $3,000 in Kenya. • Multi-nationals, domestic companies, social enterprises/NGOs, and indigenous franchisors all using micro-franchises to go down market, expand business in the BoP. “Franchising can do more to save the world than anything else invented by man.” - Scott Hillstrom, founder of HealthStore Foundation.

  6. Social Franchising led by social enterprises/NGOs a small niche within Micro-Franchising, but notable successes, esp. in product franchises ForesTrade Spices (Indonesia) Products Services HoneyCare Africa (Kenya) Drishtee ICET (India) HealthStore Foundation (Kenya) Grameen Eggs (B’desh) Visionspring Eyeglasses (Ghana, India, El Salvador) Grameen Phone (B’desh) KickStart Pumps (Kenya) PlayPumps (South Africa)

  7. Trend 1: In recent years, there has been growing use of networks of rural women as micro-entrepreneurs/franchisees in developing world • Among social enterprises/NGOs, Grameen at forefront of innovation in micro-franchising. Grameen Phone (through which Grameen ‘phone ladies’ are given loan to buy mobile phone and solar recharger and then sell air time to fellow villagers) has network of over 300,000 phone ladies over 70,000 villages, bringing home average annual salary of $750/year. • Hewlett Packard capitalized on huge untapped market by training and deploying over 100 women as village wedding photographers in rural south India. Women use HP photo printers to develop photos. • VisionSpring has trained over 350 vision entrepreneurs in India and El Salvador and partners with larger franchisee organizations in other countries to facilitate scale-up, penetration. • Hindustan Lever’s Shakti Entrepreneurs are individual women franchisees trained in marketing and book-keeping who sell HLL products at the BoP level throughout India. • Pratham is training and mobilizing unqualified female high school graduates as remedial tutors to bolster primary education in rural India.

  8. Trend 2: Leveraging private sector franchising to scale up social franchises - The Story of HealthStore Foundation • Founded in 1997, HealthStore operates over 65 CFW (Child and Family Wellness) Shops (pharmacies and clinics) throughout Kenya, and has recently expanded to Rwanda. • Founder Scott Hillstrom used lessons learned from private sector franchising (business ranging from fast food to real estate) to develop HealthStore’s micro-franchising model. • In 2004, Hillstrom reached out to leading franchise consultant Michael Seid at International Franchise Association convention. • “Let’s say we get 100 serious franchise professionals involved…they can make a serious difference.” – Scott Hillstrom. • “We don’t think of this as social franchising, but commercial business-format franchising applied to the human condition.” – Michael Seid. • Seid’s firm is providing operating manuals, training programs, field service manuals, and technical assistance on standard-setting. • Another key mentor and contributor is Mary Ellen Sheets, founder of American moving franchise Two Men and a Truck. Source: “Into Africa.” Franchise Times. May 2007. http://www.franchisetimes.com/content/story.php?article=00396

  9. Trend 3: Utilizing micro-franchising in tandem with microfinance as a coordinated strategy may create larger-scale impact than microfinance alone • Microfinance alone doesn’t solve many deep-rooted social problems. Access to credit is important, but often results in individuals starting small copycat enterprises with low returns, generating little additional employment. Bolivia is a classic example of country saturated by microcredit but with little to show for it in terms of real gains in employment, prosperity. • By using micro-franchising as an extension of microcredit, MFIs and Social Enterprises can create deeper , enduring impact with a scalable model. • Partnerships between micro-franchises and MFI networks like FINCA and/or organizations like Kiva can create greater coordination between micro-franchises and MFIs, and additional sources of financing. Individual Social Investors MFI Individual Micro-franchisees MFI Kiva/MFI Network MFI

  10. Breaking new ground: A Case Study of FINCA’s recent partnership with 3 microfranchise organizations in Kenya • In May 2006, FINCA realized that while its MFIs have helped improve living standards, “a majority of its clients’ businesses plateau in terms of growth after taking loans,” and no new jobs are created. • Clients are more likely to be able to afford to send their children to school but education young people are unable to translate their education into jobs due to widespread unemployment. • FINCA started partnerships in East Africa with 3 well-established micro-franchise organizations: HoneyCare Africa, MTN Grameen Village Phone and KickStart, offering franchised bee-keeping, mobile phone and oil seed press business opportunities, respectively. • FINCA clients would take individual or group loans to invest in franchising opportunity and receive training from micro-franchise organization. • As additional incentive, MFIs could receive a small portion of the margin for acting as distributor of products/services. • WORTH is both MFI (albeit savings-led) and micro-franchisor and is well-positioned to capitalize on synergies between two models.

  11. Private Sector Case Study: Hindustan Lever’s Project Shakti is mobilizing thousands of rural Indian women as micro-franchisees • Facing stagnant growth in 2005, Unilever’s Indian subsidiary launched a BoP strategy based on a direct distribution model of mobilizing and training a cadre of women to sell their products in rural India. • These Shakti Entrepreneurs were formed on the basis of long-established women’s self-help groups. • Shakti Entrepreneurs are trained in selling and accounting to enable them to operate as micro-entrepreneurs selling Lever products. • Women also trained as health and hygiene communicators/ educators to improve standard of living in their communities. • Direct distribution model in process of supplanting unwieldy network of small-scale distributors and small ‘mom and pop’ shops. “The English word ‘franchise’ comes from the old French word ‘franchir’ which meant to liberate or set free… This business model can help incite commercial revolutions around the globe.” – Kirk Magleby, Ascend Humanitarian Alliance

  12. VisionSpring’s Experience with Micro-Franchising illustrates challenge of building consumer awareness about need, and importance of branding to build credibility • VisionSpring’s eyeglass business faced three principal obstacles: 1) low availability of eyeglasses in its regions of interest; 2) lack of affordable eyeglasses when available; and 3) lack of awareness • Of these, building awareness proved most challenging, given that consumers had to purchase eyeglasses. • “We were shocked that something we considered a physiological need – one that we assumed to be self-evident – still required a lot of consumer education…Ultimately, we had to de-medicalize the product, pitch it as an economic development tool…i.e. ‘you can’t see, you can’t work.’” - Neil Blumenthal, ex-Program Director, Interview, Nov. 1, 2008 • Establishing a visible brand proved to be a turning-point. Vision Entrepreneurs equipped with lab coats, photo IDs, and backpacks, all visibly branded. • Used multiple media to help VE make sale. E.g. in India, drummers hired to play a rhythm and sing a jingle about eye care, in addition to posters, radio activities. Recommendation: WORTH should build a visible brand, and equip WEs with uniforms, materials that give them credibility and respect as salespeople.

  13. Key challenges faced by VisionSpring include attrition rates, evolving training needs, and cultural barriers to working with women franchisees, all relevant to proposed WORTH model • VisionSpring faced with high attrition rates (approx. 50% within a 6-month period) among VEs due to de-motivation, perception that salary wasn’t sufficient to meet needs. “We realized early that high attrition was a reality, and that we had to build a financially sustainable organization around that reality.” – Neil Blumenthal. • Training curriculum constantly evolving, including a Training of Trainers component for franchise partners, such as BRAC and Freedom from Hunger. In addition to training new VEs (due to high attrition), also providing refresher training. • Traditional forms of training, including lecture-style wedding hall sessions rejected. Rather, focus on small groups, emphasis on experiential training at village level. • Working with women as franchisees important, but brings fresh challenges, namely: • Franchisees required to travel long distances alone, considered culturally unacceptable in South Asia and parts of sub-Saharan Africa • As opposed to stay-at-home enterprises, franchisee model requires time spent away from home, very challenging for women that are primary caregivers in community. “Unless women can gain a full-time occupation out of this opportunity, it can be very difficult to obtain required commitment. If it’s a supplemental activity, they may do it for a while, on an ad hoc, erratic basis.” Agnes Dasewicz, Grassroots Business Fund, Interview, 10/31/08

  14. VisionSpring, Drishtee experiences emphasize need to evolve beyond “one-trick pony” to maintain growth via franchising • For organizations starting out with a single product offering, a large target territory is required. • Larger territories lead to higher transport costs, esp. in rural, remote areas that WORTH seeks to target, as well as a rapidly diminishing return on an entrepreneur’s personal networks as she moves further away from her locality. • “To get more out of a single geographic area, it is important to be seen as offering a range of offerings…This is esp. true of service providers, where margins are typically lower than for products, and require a more labor-intensive set-up.” – Ann Rogan, Drishtee. Interview, 11/20/08. • VisionSpring addressed this problem by expanding product portfolio to include sunglasses, eye drops, etc., while remaining true to their core business, i.e. providing high quality eye care. Recommendation: Duringpilot phase, WORTH team should carry out needs assessment to gather information about potential complementary offerings (services or products) that are core to WORTH mission, and would allow for a larger customer base and increase impact.

  15. Using large NGOs as franchise partners advantageous for rapid scale-up, BUT also challenging in terms of accountability • Importance of leveraging existing networks, pre-formed groups for rapid scale-up. • VisionSpring has had success with NGO partners BRAC (Bangladesh), Freedom from Hunger (Ghana) in scaling franchises in those countries. • Impact assessment has been a critical piece of partnership agreement for VisionSpring, whereby franchisor and franchisee jointly conduct comprehensive, regular evaluation of impact achieved by eyeglass program; assessment used by NGOs to report to principal donors. HOWEVER… • NGOs can be “fundamentally unsuitable” as franchise partners because may not follow model faithfully (Hillstrom, Healthstore Foundation), leading to difficulties in revoking license. NGOs may be less committed to fee-for-service model, and endanger financial sustainability, replicability. Recommendation: WORTH should revisit its evaluation tools from perspective of a potential franchisor, and develop them so as to gain buy-in from, and demonstrate meaningful impact to, potential NGO franchisee.

  16. A multi-level marketing (MLM) approach may provide certain benefits but could create additional costs, complicating factors • Multi-level marketing approach has potential to promote more rapid scale-up, as individual WE’s personal networks start to diminish, as well as greater income-generating possibilities for the WE. • Vision Spring tried and then abandoned MLM approach in favor of hierarchical sales structure, because junior franchisees had trouble gaining access to key authority figures at village level, and as a result of monitoring/selection issues for new franchisees. • Training by central WORTH team becomes complicated under MLM approach. If training conducted by WEs, control is relinquished and program quality could suffer as network of WEs grows, becomes increasingly decentralized. Recommendation: Multi-level marketing may have a role to play in WORTH scale-up but it may not be advisable to introduce it until a later stage of franchise rollout. WORTH should consult with partners during pilot phase to determine whether or not to trial the model.

  17. Setting standards, documenting processes in franchisee manual key to success of any franchising approach • Prerequisite for successfully scaling up through franchising is a comprehensive manual documenting key processes, roles and responsibilities, as well as shared goals and outcomes. • Manual will need to be regularly revisited to provide local relevance, but essence of franchisor’s program must be captured. • Writing a manual will compel franchisor to simplify business, focus on its core aspects, rather than on nice-to-haves. • Franchise specialist (ideally, private sector) should have input into writing of manual, if not co-write document. Recommendations: • WORTH should consult franchise specialists and develop franchise manual that documents and standardizes training and selection of individual/partner franchisees, curriculum for beneficiaries, other key processes. • WORTH should simplify its own curriculum to make it more suitable for replication via franchising.

  18. Given that WORTH target customers may not be able to afford full fee, consider cross-subsidizing with customers who are able to pay • Under micro-franchising model, margins likely to be thin for WEs, franchisees. • Some social franchises have succeeded in scaling up a franchising model by cross-subsidizing service to poorer customers with higher fees to those willing to pay. • Aravind Eye Hospital in India has successfully scaled up provision of eye care using this model, operating seven hospitals and 16 Vision Centers, serving over 1.7 million patients annually. • Urban women looking for skills-building opportunities could benefit from WORTH financial literacy curriculum, and be willing to pay higher fee. Recommendations: • WORTH should explore possibility of establishing a physical training institute in an urban area attracting participants seeking financial skills who may be willing to pay a higher fee. • WORTH should consider establishing strategic partnerships with MFIs, whereby they could position WORTH as a training program from which MFIs could recruit talent.

  19. Appendix: Useful Links/Resources Micro-franchises as a Solution to World Poverty. Kirk Magleby, 2006. http://marriottschool.byu.edu/selfreliance/wiki/UserFiles/Kirk_Magleby.pdf Capitalism at the Crossroads. Stuart Hart, 2007. Micro-Finance and Micro-Franchising: A Feasibility Study. GWU Research Team for FINCA, 2006. http://marriottschool.byu.edu/selfreliance/wiki/UserFiles/FINCA.doc Drishtee: Rural Health Franchising. http://www.nextbillion.net/files/Village%20Health%20Franchising%20-%20Drishtee%20-%20Rogan.pdf “Into Africa.” Franchise Times. Nancy Weingartner, 2007. http://www.franchisetimes.com/content/story.php?article=00396 “A Look at High-Performing Franchises.” Wall Street Journal. 02/12/2008. http://online.wsj.com/article/SB120277576323060649.html?mod=Enterprise Applying Social Franchising Techniques to Youth Reproductive Health/HIV Services. Family Health International (FHI), 2003. http://www.fhi.org/NR/rdonlyres/eijal2kvvmtazwuqnkoqk4hbxmdazuanzwojv55tghflkma7sj2k2gusgfv6276emct5uxnwl6iamc/YI4.pdf

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