Reducing business failure through micro franchising

The three key aspects of a business that can be franchised are:

• it can be easily branded
  
• it's replicable
  
• it can be systematised

Being easily branded takes a great deal of the sweat out of finding a market, which is a problem for any business but especially so for a micro enterprise, where resources are more than usually limited.

Being replicable, means that the franchisee benefits from the success of the original business without having to worry about product development and marketing from scratch, which reduces the risk of the business failing.

Being able to systematise the business, means that the micro entrepreneur can succeed by following proven processes, the lack of which is why so many of them fail.

Because the business opportunity comes ready packaged, we believe that franchising as a concept offers micro enterprises a very good chance of succeeding.

Karin Mathebula, CEO of Tutuwa Community Investment Fund, a micro finance initiative of the bank that provides unsecured loans to established informal businesses, agrees. "A micro franchise business comes with a built-in training process as well as know-how about the way the specific business should be run. It also comes with a process for filtering candidates so that the most appropriate and resilient people win and operate the business.

"All of which is good for micro financers like us, because it gives us the means to more accurately assess the likelihood of the franchisee putting the funds we lend to good use and being able repay loans."

Identifying potential businesses

However, there is a way to go yet before micro franchising becomes a viable way of bringing marginalised and underprivileged entrepreneurs into the mainstream economy. One of the biggest difficulties is identifying micro businesses that can be developed into such opportunities

The bank has just gone through that process, with the University of Cape Town, and was able to bring to the Micro Franchising Trade and Workshops event, held at the end of August, 14 business concepts from different provinces that we believed were viable.

Communities provide breeding ground

What that exercise taught us is that identifying franchisable concepts is not just a matter of finding entrepreneurs. To find the right kind of entrepreneurs and the right ideas, you have to have a conversation with communities. You have to get involved in asset based community development.

That is because micro franchises thrive better if they serve a particular need within their communities and if they understand the resources that are available to them in those communities. This means getting communities and the potential entrepreneurs in them to focus not on what they need but on what they already have that can be commercialised.

Once that is done, you need an independent ecosystem of support that can help convert the idea not only into a viable commercial operation but also turn it into a franchise.

Such a support structure would include but not be limited to finding funding. Someone must have those upfront discussions with communities. Enterprise development training has to be provided - before the business becomes viable and the whole branding, replication and systematisation process would have to take place.

What needs to happen first is the creation and formalisation of the support ecosystem, to ensure that micro franchisors and franchisees succeed from the outset and don't flounder in a sea of potential that they can't turn into practical reality on their own.