Franchising for good – how McDonald’s model might transform the social sector
The business model that has taken McDonald’s to nearly every high street in the world could be applied to scale the smallest social ventures across regions, countries and possibly internationally according to new research.
Social franchising and its possibilities for transforming the social sector is explored in two reports from Dan Berelowitz, Clore Social Fellow, Chief Executive and Co-Founder of the philanthropically-funded International Centre for Social Franchising (ICSF).
Berelowitz says: “In recent years I have found myself coming up against two issues that have drawn more and more of my attention. The first is scale. I see many successful, well-evaluated programmes that remain frustratingly small. These vary from youth empowerment programmes in the UK to vocational training programmes in Ghana. Many of these models are truly addressing a local need but help 100 people rather than the 100,000 or more they would need to reach to really address the scale of the issue.
“The second issue, one of the causes of the first, is reinvention of the wheel. Social entrepreneurs and even larger organisations start new projects to address social needs rather than properly researching what has gone before and learning from it. In most cases, I believe these are well meaning, busy people who just want action, but sometimes there is also a touch of ego and the thought that no one else can do it as well. This is compounded by the fact that funders like funding new ideas, which means that social organisations are obliged to innovate even when there are proven methods that work.”
These beliefs are the bedrock on which Berelowitz founded ICSF and reports were based. The latest, Innovation and the Power of Old Ideas: McDonald’s vs Foodbank that launched this month (November 7th), challenges conventional wisdom that innovation always drives results, and offers the sector new models of scaling up and making social organisations more effective and sustainable.
This research, undertaken as part of Berelowitz's Fellowship on the Clore Social Leadership Programme, unearths some surprising lessons the sector can learn from global giant McDonald’s.
It follows a first report Social Franchising: Innovation and the Power of New Ideas that explores how a wide range of proven social venture ideas could be replicated by franchising and defines the infrastructure and funding that would make it possible.
The latest research compares and contrasts The Trussell Trust Foodbank, a social franchise, with McDonald’s, a globally successful commercial quick service franchise, with the aim to encourage people in the social sector to learn from commercial franchising, and to help them to increase their impact significantly through adopting an appropriate replication strategy.
It also points to some shared learning that commercial businesses could use to increase their benefit for society, whilst at the same time building a stronger business. It finds that for both commercial and social organisations, choosing the right franchisee is absolutely critical, as is an inclusive, interactive network that enables franchisees to make their voice heard and foster innovation.
The key challenges they face demonstrate some very real differences. Most importantly, finding finance can be a challenge for both social and commercial franchises, with social franchises having a more complex range of opportunities to navigate and having to struggle harder to maintain the income level needed to run and support the franchise network centrally..
The report also lists key lessons that social franchises can take from commercial franchise practices and attitudes, as well as from other social franchises, including:
• Making sure that replicability is kept prominently in mind as the business model, systems and processes are developed
• Developing people.
• Testing for a clear, replicable business model before a franchise model is designed and put in place.
• Continuous learning, feedback and improvement to ensure that the offer to franchisees remains relevant and the franchisor keeps adding value to the franchisee.
Berelowitz says: “As a sector, social franchising is relatively under-developed, under-researched and under-resourced, and yet comparisons with the commercial sector point to what could be achieved if it can be helped to grow. A dedicated social investment fund and business support from organisations with expertise in social franchising could provide the catalyst the sector needs.”
The report explores the need for, and possible structure of, a social franchise investment intermediary that can test social ventures for franchising potential and then apply processes that will make them into ‘successful social purpose organisations that enables at least one independent franchisee to deliver their proven model under licence’ according to the report's strict definition of a social franchise organisation.
Berelowitz identifies a four-step process in taking a social venture from one-off to franchise-ready at an average cost of around £60,000. It starts with validating the model for social impact, then designing for scale, systemisation and finally piloting.
“The other purposes of the intermediary is to support networking and to build knowledge so that eventually organisations will be able to carry out 80% of the testing process for themselves using a tool kit,” explains Berelowitz.
Taking its wisdom from the success of commercial franchising and its evidence from the current body of social franchising that number 130 in the UK, including Foodbank, which is replicating at the rate of three a week and now total more than 2,000, and The Citizen’s Advice Bureau, the report identifies a number of franchising models: ‘The Traditional Model’ that is seen in the UK and Europe; 'commercial franchises' that also achieve social impact, and the ‘income generation model’ that sees commercial franchises used as fund-raising arms for social organisations.
The financial modelling of The Fund, carried out by Jeff Dober at FSE, shows that further work is needed to balance the portfolio of investments to secure a reasonable return for investors, or that grant funding totalling approximately 10% of the loan fund would be needed to support riskier investments and reduce the default and dropout rates. The proposed Fund would sit in a place between two different types of investor:
• Franchise units of commercial banks, and
• Specialist social investors.Next steps
As well as establishing a franchising body and a Fund, the initial report offers a number of recommendations including, bringing together key stakeholders, brokering relationships between commercial franchises and not-for-profits and further research and policy work.
With the support of Big Society Capital that published the initial report, a group of social franchising support organisations is being convened by the ICSF to discuss the formation of a consortium to further develop recommendations in this paper.
The British Franchising Association and ICSF are also convening a meeting of their members to discuss developing ‘socialisation’ of commercial franchisors.
Berelowitz is now looking for 10 replicable social ventures to take to pilot stage over the next four years. “The most suitable models are normally run on a shoe string and it is hard to find the real grassroots ideas,” he explains.
Although the ICSF uses a social enterprise model, philanthropic fuinding is needed to run it over the next three years. Berelowitz is confident investments will reap returns. “We have already won contracts with Oxfam partners and global healthcare company GlaxoSmithKline. We know the potential for franchising is amazing but we need philanthropists to kick start the concept that we believe could catalyse the social venture market. Too much time and money are currently wasted re-inventing the wheel. Too little investment in social purpose organisations is made to encourage financial sustainability and growth. Coordinated social investment into social franchising, backed by specialised expertise, could address both these issues; delivering social and financial returns, scalable social impact and ultimately changing many lives for the better.”
To download Innovation and the Power of Old Ideas: McDonald’s vs Foodbank go to http://www.the-icsf.org/innovation-and-the-power-of-old-ideas-mcdonalds-...
To download Social Franchising: Innovation and the Power of New Ideas go to http://www.the-icsf.org/new-icsf-research-for-big-society-capital
For more information about the Clore Social Leadership Programme visit http://www.cloresocialleadership.org.uk