EARNING | JUN 25, 2022

Faith Driven Franchising – Turbo-Charging Entrepreneurship & Impact in Emerging Markets

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Reuben Coulter

If you go for a walk in the bustling cities of Jakarta, Mumbai, or Nairobi, much of it will feel quite foreign to the average American, but then you will encounter the familiar sight and smells of McDonalds or Starbucks.

If you step inside, there are some interesting local adaptations, such as McDonald’s completely vegetarian menu in India. Franchise businesses around the world have seen steady growth in the past few decades, particularly in Brazil, China, and Mexico, as emerging economies have grown rapidly and their citizens have acquired taste for these ‘aspirational foods.’ Many developed markets are reaching brand saturation with high competition and limited room for growth. Over 60% of the International Franchise Association members (US-based franchisors) currently franchise or operate in international locations, and 16 percent generate between 25-30 percent of revenue from international activities.

At Faith Driven Entrepreneur, we have been reflecting on how we might see greater social and spiritual impact through entrepreneurship and how Faith Driven Investors can support and finance this. Every day, we meet incredible entrepreneurs who have beaten the odds and, through hard work and ingenuity, have built vibrant businesses. But sadly, we also meet entrepreneurs who are struggling. They may have a great concept and some traction, but they are unable to scale and don’t achieve their potential.

The reasons for this include:

  • Most enterprises are opportunistic and not strategic.

  • Many founders lack core business skills or experience.

  • In many cases, they are isolated, without support structures or a strong team.

  • They lack proper operating systems and corporate governance.

  • They can’t access sufficient growth capital.

Franchising offers a powerful model to address these challenges and to achieve scale and impact through replication. In the US, the success rate of franchises is significantly higher, and that is reflected in the lower cost of capital and in the willingness of banks to lend to them. Franchising offers several advantages over traditional business growth models, all of which serve to reduce risk and increase the likelihood of success:

  • It provides a proven business model.

  • There is an established operating model with defined systems and processes.

  • It offers a trusted, credible brand. This is really important in countries with low safety and quality standards.

  • The franchisor provides for the franchisees with additional support services, such as training, quality control, advertising, and marketing.

  • The franchisee generally contributes capital, entrepreneurial skills, operational oversight, and local market knowledge. They have ‘skin in the game.'

Done well, franchising should be a win/win, as both franchisor and franchisee have a vested interest in the business succeeding.

From a Christian perspective, franchising is also a powerful way of transmitting a values-based culture and being a witness for the Gospel, often in countries which are closed. While missionaries might be blacklisted, doors are flung open to welcome in foreign brands. Franchises can offer more than hamburgers and fries—delivering incredible social impact such as standardized medical care, potable water, education, and clean energy at the base of the pyramid. Some incredible examples that we’ve encountered recently include:

  • A KFC franchise in Spain is owned by a Christian brother who operates 9 outlets with 180 employees and expects to double in the next 12 months. In his leadership training for his employees, he is able share his faith motivation and lead them in integrating values in their lives. He works closely with a local church and is able to support their ministry with profits from the franchise.

  • A chain of fitness gyms operating in countries which are often hostile to Christianity is one of the largest disciple-making movements in the world. They have tens of thousands of members who would rarely, if ever, attend a church or encounter the Gospel. These members come to their gym weekly and develop deep relationships with the local owner who has an opportunity to disciple them and connect them with a local church.

  • Jibu, a water purification company in East Africa, provides water filtration technology to franchisees. Clean water is a massive need—in Uganda, 51% of the population lack access to clean water, while 786mm people worldwide face this challenge. Jibu has grown rapidly to 137 franchises in 7 countries.

  • And, of course, closer to home, well-known US franchises such as Chick-Fil-A, Auntie Anne’s, and Popeyes have created cultures which love their employees, who in turn love their customers—providing a powerful platform for leadership development and Christian witness.

These examples above also illustrate two different types of approaches to franchising:

  • Outside In Approach – There are proven established businesses (usually from developed markets) that have proven and predictable operating systems (e.g., KFC)

  • Inside Out Approach – Opportunities that originate in local markets (e.g., Jibu)

So, if franchising has such potential, why don’t we see more of it? The reality is that, for both approaches, the barriers and costs to entry remain significant.

For an international franchisor, it is challenging to enter a new market, particularly one which is significantly different from his/her home market. In particular, establishing market demand, adapting the business and operating model to local tastes or customs, and finding the right owners with aligned vision and values can be extremely difficult.

For the local franchisor who has a vision to scale, the expertise to do this is scarce, and the growth capital is practically non-existent.

The Franchise Studio model

To solve these challenges, we are developing a Franchise Studio model. This combines the talent selection and development model of an accelerator, the strategic advice and investment of a VC fund, and the hands-on operational support to develop the franchise model and scale it. The founding teams do not need to have their “world changing idea” in place. They are just highly motivated, capable individuals who are motivated by their faith and looking for an exemplary opportunity to create a flourishing business which can grow for greater social and redemptive impact. The Studio assesses, mentors, and disciples these potential founders to determine the best “franchise fit,” often working closely with other Christian accelerators who have a pool of alumni.

The Studio can then match the founding teams with either an Outside In or Inside Out opportunity.

  1. In the Outside In approach, the Studio can take on master franchise rights for the market and can develop, grow, and support a franchise model on behalf of the franchisor. It can also act as a franchisor agent—matching the opportunity with a founding team and collecting a finder’s fee for a founder referral to the franchisor. The Studio would also participate with the franchisor in co-funding the franchise opportunity. The Franchisor is assured of a local partner with aligned values, strong ability to execute, and a pipeline of talent to expand the business as it scales.
  2. In the Inside Out approach, the Studio identifies and invests in businesses in the local market which have gained some traction and works with the founding team to develop a franchise business model.

The value addition that a Franchise Studio offers includes:

  • Screening and selecting values aligned, high-capacity teams

  • Assisting in product validation

  • Providing seed investment to quality teams with validated products

  • Contributing expertise and mentorship

  • Developing roadmap and operational systems for scale

  • Providing centralized administrative functions for cost effectiveness

  • Delivering advice and support from franchise experts in the Faith Driven movement

  • Providing Kingdom impact and transformative input and guidance to investees

Over the next 12 months, we will be testing and validating the Franchise Studio model in East Africa. If faith driven franchising matures to even a fraction of the size that commercial franchising has reached, it will have achieved sufficient scale to impact millions of people in emerging and frontier markets—providing them with an opportunity to become followers of Christ, to access essential goods or services, and to experience life to the full.

Acknowledgments

Special thanks to the Faith Driven franchise working group for their contributions and leadership on this journey—especially Henry Kaestner, Tony White, and Ray Barreth.

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