As the field of social enterprise matures, so has interest in different ways to expand social enterprises beyond organic growth. One option for achieving scale faster than organic growth is by having others replicate the business model (sometimes referred to as “franchising”). In the context of social enterprise, “franchising” can mean two different things:
- Social enterprise as franchisee– turning an existing business franchise into a social enterprise by incorporating a social mission into one or more business franchise locations. There are examples of for-profit franchise chains offering to allow franchisees to operate as social enterprises. An example of this is the Ben and Jerry’s Partnershop program.
- Social enterprise as franchisor – replicating a successful social enterprise by packaging its model to be faithfully replicated and executed by others. This model is more often referred to as “replication” “scaling through affiliates” or “multi-site networked nonprofits.” An example of this is the Goodwill network of independent nonprofits, operating a similar model under the same name and adhering to standards set by a national organization.
There are many examples and resources addressing the former, particularly outside of the United States, some of which we list in the additional resources section at the end of this article. In this article, we will focus specifically on the latter: the packaging and replicating social enterprise via a franchise-like model. In doing so, we will focus on the following questions:
- Why pursue social enterprise replication? What are the necessary preconditions for successful replication, and tradeoffs of this approach vs other ways to scale?
- How might a social enterprise replicate itself? What steps should be taken, what questions should be asked, and what resources are available to assist a social enterprise through this process?
Disclaimer: The information presented in this section is intended only for general background use and is not to be taken as legal advice or relied upon as such. Each situation is different, and the reader should consult with a qualified attorney before undertaking any of the transactions described in this section.
Why pursue social enterprise replication?
Ted Levinson, Senior Director – Lending, RSF Social Finance
There are many reasons why a social enterprise may want to replicate itself through a franchise-type approach. What makes this particularly complex and unique from an employment social enterprise perspective is the fact that there are two intertwined elements of social enterprise replication – the “social” and the “enterprise” – and the social enterprise needs to be clear about which aspect(s) it wishes to replicate and why.
Social goals could include:
- Accelerate social impact. The social enterprise may wish to increase its social impact (however the social enterprise defines it – people employed, jobs created, etc) more quickly and broadly than it can through organic growth alone. In particular, the social enterprise may not have the desire nor ability to set up operations in new locations in order to do so.
- Build the field. The original social enterprise may wish to share its social support practices with others, e.g., through a “train the trainer” approach, to educate the field, inform best practice, and potentially even influence policies.
Business goals could include:
- Earn additional revenue. The social enterprise may wish to earn additional replication-related revenue, which could include fees for intellectual capital, brand licensing, or replication consulting and technical assistance.
- Increase brand awareness. Expanding the social enterprise’s footprint more broadly should lead to greater awareness of the social enterprise’s unique brand and value proposition, which could benefit the original social enterprise’s market demand for its products and services.
- Increase operational economies of scale. Depending on the relationship between and among the original social enterprise and its “replication partners,” there could be opportunities for economies of scale in areas such as group purchasing and logistics, administration, data tracking and performance management.
- Prove the business model. Learn whether the model is, in fact, replicable, and pressure-test in other markets with little to no risk to the social enterprise or parent organization.
It is possible for a social enterprise to check off multiple reasons above. However, it is important to prioritize, and be clear about its primary reasons for doing so, since the social enterprise’s goals and priorities will influence which replication approach is the best fit to achieve its goals.
Necessary preconditions and assumptions include:
- Track record of successfully achieving both business and social goals
- Positive brand and reputation in its current market (and ideally, beyond)
- Demand for social enterprise’s business goods and services in the new location(s)
- Demand for social enterprise’s social mission in the new location(s), i.e., does the social need exist there? Is that need not being adequately met through other means?
- Room for growth – lack of competition or similar models
How might a social enterprise replicate itself?
Consider that replicating a social enterprise means replicating both “Social” and “Enterprise” – and this may look different for each depending on the model.
- “Social” – everything about the social enterprise that leads to successful employment outcomes, including target population, selection and screening of employees, wraparound support services, employment-related training, placement and retention, job configuration, etc.
- “Enterprise” – everything about the social enterprise that leads to successful business outcomes, i.e., the social enterprise’s business plan and business model (products, services, target markets, brand, operations, etc)
What makes replicating a social enterprise more complex than replicating a social program or a regular enterprise is that conditions need to be right for successful replication of both. For example, for a crew-based landscaping business employing at-risk urban young adults in transitional jobs, there needs to be sufficient market demand for landscaping, a critical mass of young adults needing the service, an urban environment, sufficient next-stage jobs for the young adults post-transitional-employment, etc. It would be a mistake to focus on one at the expense of the other.
Suggested process to follow:
1. Define both business and program model elements of success, and rationale for replication. This includes:
- Business model: products/services provided, target market, operations and supply chain, marketing/branding, pricing, management structure, etc
- Program model: participants/employee eligibility, recruiting, flow, pre- and post-employment support, partnerships (in-house vs outsourced). intended outcomes
- Relationship between business model and program model
- Proof of success? (business and social results to date, and how they are as good or better than others)
- Demand for business/program model?
2. Write it down and package it. This includes:
- Business plan, program flow
- Curriculum, “how-to” step-by-step
- Handbooks and other tools
- Lessons learned
3. Decide the desired level of prescriptiveness, control, and accountability to program fidelity of “franchisee”, as well as the level of control and accountability to parent. For the business side this means prescriptiveness over the name, brand, business model, pricing, and other business related components. For the social side, this means prescriptiveness over the target population served, levels and types of supports offered, and other programmatic components.
4. Decide on franchisee offerings and pricing. What to give away vs. what to sell? Will you license the model? Will it be a one-time or ongoing license? In terms of knowledge dissemination, think about staffing for trainings, how you will package tools and handbooks, and how will you create and maintain a peer community of franchisees.
5. Find and engage the right partner(s). Define selection criteria for partner (“franchisee”) and how stringent to be. Decide how hands-on to be regarding partner selection, vetting and selecting partner(s). Finally, enter into agreement(s), both financial (through a contract) as well as deciding upon the social outcomes to track and achieve.
6. Assist with launch. Provide technical assistance regarding both social and business model (or hire someone to provide assistance) including hiring, training, etc. as needed.
7. Track and manage relationships and outcomes. What reporting will you require? Will you require an audit function to ensure fidelity to model? What will be the consequences of not meeting business and/or social outcomes?
We hope that this article has provided you with an overview of the concept of the packaging and replicating social enterprise via a franchise-like model. For further reading on this topic, we recommend:
- Harvard Business Review – Where Are the Ray Krocs of the Social Sector?
- Franchise Times – Common Good Mission: over money lies at heart of non-profit, hybrid franchises
- QSR Magazine – Nonprofit organizations can bring strong assets, management, and leadership to a franchising relationship
- Streams of Hope: Social Franchising: A New Path to Wealth for Nonprofits