Compendium 2.4.3 Replication

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EQUAL COMPENDIUM ON INCLUSIVE ENTREPRENEURSHIP

2.4.3 Replication & franchising

Contents

The challenge

The aim of social franchising and other forms of business replication is to reduce the cost, time and risk involved in setting up an enterprise, by copying an existing model. A idea is something of a ‘holy grail’ in business development, as it promises vastly improved social returns for a given investment of development time, along with a reduction in the anguish and disappointment that are typically part of a business start-up. The scope of the research undertaken and the opportunities available may be gauged from an overview of some recent activity by various promoting bodies.

The UK has been a leading proponent of this approach. In 2004-2006 three substantial development projects took place. Firstly, the Beanstalk programme, operated by the Community Action Network (CAN) under EQUAL, helped five social firms to replicate themselves:

  • Law for All: a welfare rights advice centre that has branched from London to East Anglia
  • Big Issue: newspapers produced and sold by homeless people as an alternative to begging. The London edition, launched in 1991, has expanded to five editions across the UK
  • Timebank: promotes volunteering and has so far attracted 220,000 new volunteers
  • Mezzanine 2: shared workspace for charity start-ups, with three locations in London
  • TACT: independent living services for handicapped people

Secondly, Social Firms UK, the representative body for work integration social enterprises, piloted six business ideas suitable for social firms as part of its Flagship Firms project, supported by the British government’s Phoenix Fund:

  • Aquamacs: the rental and maintenance of fresh water, tropical and salt-water aquariums.
  • Soap-Co: manufacture and retail of hand-made soaps, shampoos, conditioners, lip balms, bath bombs, shower gels and creams.
  • Wholefood Planet: retail of healthy unprocessed food and environment-friendly non-food items (based on Daily Bread in Northampton, a very early social firm)
  • Pack-IT: packaging, order fulfilment, distribution and warehousing
  • Café Ciao: healthy eating coffee bar
  • Wood recycling: wood recycling

Thirdly, the Plunkett Foundation, the leading British and Irish think tank on agricultural co-operation, has developed five franchise models for rural businesses:

  • Farmers' Markets Operator
  • Wood for Heat and Power
  • Charcoal Products
  • Local Food for Food Service
  • Local Fruit and Vegetables

It has been disappointing that the ideas above have been slow to take off, with replications so far numbering in single figures. The challenge is to refine the methodology and clarify just what the realistic expectations from social franchising and replication can be.

How EQUAL has approached the issue – examples

Franchising training

Buying into an existing franchise is less risky than starting a standalone small business – in the UK nearly 90% of franchises are still trading after three years. This is one of the reasons the franchise sector is becoming increasingly important in most EU countries. To return to the UK, in 2004, there were 720 franchise networks employing around 330,000 people. Nearly all of these networks had vacancies and problems with finding suitable franchisees [NatWest/BFA Survey 2002].

However, there are still significant barriers to overcome. For example, only a third of franchisees are women and the cost of buying into a franchise is a major barrier to many potential franchisees.

This is why the CREATE project in the UK took the path of trying to equip entrepreneurs to take on existing franchises. It made information and support on creating a franchise available to groups who face discrimination in the labour market through direct advice, training workshops and a website The project also provided training and a series of web-based tools, such as a ‘franchise suitability matrix’, and developed nationally recognised standards for business advisers. Finally CREATE works directly with existing business owners and social enterprises that are considering using a ‘structured business format’ (SBF) as a way of growing their business. Interesting examples of social franchising are the Le Mat chain of hotels employing mentally ill people, CAP Märkte – a group of 40 medium-sized supermarkets employing people with disabilities, CASA – a group of companies providing home care services and Vägen ut! (Way Out) – seven co-operatives employing ex-addicts and prisoners.

Shared ownership

In the Basque Country, Spain, the ARIADNA EQUAL partnership explored methods for spreading the ideas of successful co-operatives without the use of formal franchises. Under its approach, an established and experienced co-operative takes out a share in a new start-up, together with the promoters of the new venture and the business support agency itself. After a period of advice and mentoring, the owner-workers of the start-up increase their share of the business, while the parent firm reduces its and the business support agency pulls out altogether. The advantage for the parent company is that it gains a stake in a new market for a lower cost while, at the same time, the new entrepreneurs are able to acquire the experience of the parent company with far less risk.

Creating the critical mass for growth

A group of EQUAL projects has developed techniques that can help social enterprises to break out of low-margin markets and consolidate themselves, through systematic initial R&D followed by social franchising. The aim of social franchising models is to reduce the risk attached to opening up a new business, and hence also reduce the cost of creating new jobs for disadvantaged people. They do this by conducting research to identify suitable business niches in which social enterprises can prosper. They then codify the know-how connected with starting up a business in such a niche; this is typically made available to intending social entrepreneurs. Some operators make this know-how available free of charge, while in other cases the transfer of the intellectual property is subject to the payment of a licence fee.

Hospitality

The hospitality sector is one which is particularly suitable for social firms integrating people with mental illness, as the jobs it provides have suitable skill profiles and offer contact with customers, which has therapeutic advantages, as is shown by examples such as Six Mary’s Place in Edinburgh and U Pana Cogito in Kraków. The Albergo in Via dei Matti numero 0 project, based on the model of the Hotel Tritone, which has operated in Trieste, Italy, since 1991, developed an operational manual and set up a permanent international association, Le Mat, which is replicating the idea in several countries.

Social services

Social services are a promising area for social franchising, as, by the nature of public services, the problems, the institutional framework and the potential markets for social enterprises are similar in a large number of settings. CASA (Care & Share Associates) has used a franchise to spread an innovative employee-owned model of home care to four cities in northeast England, in a sustainable way. The core of the group is Sunderland Home Care Associates, which employs some 185 people, mostly women. It has been spread to four other towns in northern England, creating several hundred more jobs, and is still spreading. The enterprises are held together in a mutually supportive way through the ‘social franchise’ structure, in which the franchisees all hold shares in a common franchisor – CASA – and it holds shares in them.

What distinguishes these companies is that they are all employee-owned – the entire share capital is owned directly by, or in trust for, the people working in the company. Every year at the annual general meeting, the employees vote to distribute a batch of shares into their individual names, normally in proportion to salary but with a ceiling. This gives them a growing stake in the company’s success. After they have held their shares for five years, they can then sell them to other employees free of tax. This has two effects. First, it binds each worker closely to the company, as they appoint and can sack their managers, and are responsible for agreeing strategy and major decisions – the management style is very participative in any case – and secondly it acts as a valuable financial bonus in an industry that is in general not well paid. The loyalty this generates is reflected in the low staff turnover (some 3.5% a year) and in the concomitant high levels of continuity and customer satisfaction.

A second example in the social services field is Vägen ut! (Way out!), a successful franchise based on ‘halfway houses’, which since 2002 has established seven co-operatives employing over 30 recovering addicts and ex-prisoners, with a further 30 people in job training and residence. The model is being spread from Göteborg to Örebro and Sundsvall, with five other towns in the pipeline. Once it reaches 15 houses, the system will be self-sufficient.

Neighbourhood retailing

Retailing is another sector where skills profiles and customer contact make for good integration of people with disabilities. CAP Märkte is a group of 60 medium-sized supermarkets in Germany, originating in 1999 in the Stuttgart area. They are owned by a co-operative of sheltered workshops and collaborate commercially with a co-operative of grocery retailers.

The business idea is to take over premises left empty by the flight of the main supermarket chains to out-of-town sites, and open neighbourhood grocery shops that are accessible on foot and provide a friendly service. The shops have a sales area of 400-1,000 m², stock 7,000 lines, turn over between €750,000 and €2m a year, and employ between five and 20 people, two-thirds of whom are handicapped. They create a combination of benefits makes them sought-after by local authorities: they provide jobs for handicapped people, aiding their integration through direct contact with customers; bring about local regeneration (by providing accessible facilities for people without cars); and counter exclusion by offering services such as home delivery of meals or postal services.

In Greece, the Peiran project established a chain of seven shops in rural areas selling craft and traditional foodstuffs. They provide work for 17 young people and act as focal points for local development activities.

A sectoral strategy

An industry in which social firms have been particularly successful in opening up a new market was jump-started by the EU directive on recycling electrical and electronic waste (the ‘WEEE directive’) in 1995. Social firms acted proactively, made a pre-emptive strike, and, with EQUAL’s support, Europe now has 1,000 recycling centres, which employ 40,000 people, many of whom are disadvantaged. The centres provide training in new vocations as well as offering services to public and private customers. They rely on the creation of three-way partnerships: networks with public authorities create growth opportunities, manufacturers sign contracts to recycle their products, while liaison with local chambers of commerce avoids any accusations of unfair competition. A European network (RREUSE) carries out large-scale lobbying and a transnational trading umbrella, SerraNet EEIG, has been established under EQUAL to promote the social enterprise approach.

Recommendations for mainstreaming policies

The franchising method can work particularly well in cases where a particular public service is being reformed – for instance where home care, leisure services or out-of-hours services for general practitioners are being devolved to local social enterprises. In such cases, the legal, regulatory, financial and organisations and skills issues will in large part be the same, and so it can be effective to develop and promote a common model.

As cost-benefit analyses repeatedly show, an up-front investment in researching and codifying the business model can result in massive efficiency savings for the public service within a period of a few years.

Links to EQUAL case studies

Other useful links


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