Exponentially growing problems require exponentially growing solutions. The 2018 Human Development Index released by the United Nations revealed that while there have been steady improvements on the global scale, there remains a large gap in the quality of life in developing countries versus developed countries. Stage Six, a Franklin Advisory client, is revolutionizing the franchise model to help social businesses in emerging markets expand and provide solutions to their communities on an exponential scale.
The Current State of Social Business Franchising
“Franchising sometimes has a bad name in the commercial sector – it’s too much same-ness and it takes away from the creativity of the mom-and-pop shop. I feel like the criticism that franchising gets in the commercial sector doesn’t really apply to the social sector. The franchise model is perfectly suited to social businesses because I don’t want a lot of diversity in my healthcare, or my drinking water, or my sanitation. I want uniformity and consistency.”Julie McBride, Founder and CEO of Stage Six
Although social needs are increasing at an exponential rate, their solutions are not being deployed at an exponential rate. The issue is not that there is no solution, because many local business owners in emerging markets have developed a solution to their community’s problems. The issue is that although there is a need, a solution, and a model for scaling the solution, franchising has not been successfully applied to the social sector until now.
Franchising is a methodology, one of many potential methodologies, that can be used to expand any type of business. Widely used in over 200 industries in the commercial sector, the franchise model is adaptable and has proven to be successful at scaling businesses addressing a commercial need time and time again. There is no other business expansion model that is capable of exponential growth like the franchise model while also maintaining standards and achieving economies of scale.
The primary difference between social and commercial franchising lies in the amount of available resources.
One of the main benefits of franchising for a franchisor in the commercial sector is that they are able to use other people’s money to rapidly expand their business. The franchisees are responsible for raising the capital necessary to cover the start-up costs of the business; therefore, the capital-raising burden for expansion is not on the franchisors. Additionally, the franchisors do not bear a management burden, as each franchisee holds their own employees accountable.
Currently, in the social sector, franchisors are similarly relieved from the burden of managing the employees at each franchise location. However, because many of the potential franchisees in emerging markets don’t have access to affordable capital, it becomes more difficult for social business franchises to expand because franchisors often end up having to raise the capital themselves to lend to potential franchisees. This limits the rate at which social business franchises can grow.
Not only is there a strain on the ability of franchisors to expand their business, but it is also difficult for business owners to even begin the process of franchising on their own. Even if social business owners are aware of the franchising model, it is likely that they need help to correctly implement the model. However, business advisors who specialize in franchising and who can help develop the franchise business often cost more than the social business owners can afford. This leads business owners to attempt to implement the model on their own or invest in cheap solutions, which has caused many social business franchises to fail.
While there are impact investor funds available that could be used to mitigate this cost, impact investors are reluctant to invest in social business franchising because it hasn’t been used before. The risk of investing in a model that has not shown a successful track record has prevented the field of social business franchising from advancing before it has even gotten started.
How Stage Six Is Changing the Field of Social Business Franchising
Stage Six is closing the gaps in the field of social business franchising and removing barriers to growth by building the evidence base needed to bring more financing necessary to create high-performing social franchises.
Franchising is the only expansion model that makes it possible to scale businesses in a way that maintains consistency and standards and when it comes to social services, consistency and standards are crucial.
Through the application of the franchise model to the social sector, Stage Six increases the likelihood of success for people who want to own a business or who don’t have another option, as is often the case in emerging markets where jobs are not abundant, since the business model has already proven to be profitable.
Not only is the social need fulfilled, but an added economic benefit of the franchise model is that franchisors and eventually, the franchisees, become employers, creating more employment opportunities for local communities, which has far-reaching impacts on the quality of life of community members.
Stage Six overcomes the challenges involved with social business franchising throughout the entire process by educating and informing both social business owners and investors on what a good franchise looks like and identifying benchmarks of success. The company also connects social business owners with high quality social franchise advisors at a price that they can afford.
In addition, Stage Six is working to develop a financing vehicle for franchises by providing the franchisees access to affordable capital that they need to cover the start up costs. The company does this by helping to mitigate the risk to impact investors by setting an industry standard and defining to investors what a good franchise looks like.
By guaranteeing that every business in its portfolio meets a certain set of standards and working with them to support their growth, Stage Six reduces the risk involved with investing in a social business franchise, enabling exponential solutions to meet the exponential needs of emerging markets and developing communities.
Learn more about what Franklin Advisory does for Stage Six here.