“Developing Business Format Micro-Franchising Models For Low Income Population” is a project implemented by PROPAIS with the aim to generate sustainable income for low-income populations in Colombia and help micro and small businesses to scale effectively through micro-franchising1 by developing a market place and addressing the gap surrounding the micro-franchise concept.
The initiative built upon the fact that while it is widely recognized that micro-franchising is one of the most effective mechanisms to start up, data also show that Colombia registers a scarce awareness on the opportunities this typology of business can offer. This is a very serious issue if we consider that 34% of the population is living below the national poverty line, that the unemployment rate is 10%, the youth unemployment rate reaches the 25% and that self-employment could be one of the few possibilities to deal with this situation.
The initiative was part of SCALA, a project carried out by IDB-IFM to “Foster Low-Income’s Populations Economic Empowerment Via Inclusive Distribution Networks”.
During the project implementation a diversity of activities were carried out – trainings, capacity buildings, certifications, establishment of a marketplace, creation of a body of knowledge on micro-franchising – guiding Propais towards the achievement of a series of goals such as: the creation of at least 100 micro-franchisees and the establishment of 20 public-private partnerships.
Propais – Corporation for Small and Medium Enterprises Development (INSME Member), Inter-American Development Bank, Colfranquicias, Postobón, Corporación Mundial de la Mujer, Fundación Coomerva, Microempresas de Colombia, Fedecaribe.
20 November 2014 – 19 May 2019
The initiative is funded by the Inter-American Development Bank – Multilateral Investment Fund.
The project addressed:
Target group 1
- Entrepreneurs – in order to generate sustainable incomes through the acquisition of a micro-franchise
- Businesses – in particular SMEs willing to scale-up their business model through a micro-franchising format.
Target group 2
- Countries interested in adopting the model as a generator of business and employment.
The initiative aimed at:
- contributing to the generation of sustainable incomes for disadvantaged and low-income populations in Colombia;
- supporting micro and small businesses to acquire a better understanding of the concept of micro-franchise in order to take out the most from it.
- Transferring the micro franchising model to other countries as it could generate formal, sustainable and stable jobs.
The project was implemented by carrying out a diversity of activities:
1. Promotion of the awareness around the concept of micro-franchising, in particular this activity foresaw the organization of events to disseminate information and good practices related to micro-franchising. The dissemination events’ aim was to provide participants with a better understanding of: i) the processes and procedures needed to franchise a business; ii) the fundamental skills to be a successful micro-franchising entrepreneur; iii) what franchising entails for both franchisors and micro-franchisees.
2. Capacity buildings for both franchisors and micro-franchisees by offering trainings (focused on management, market analysis, processes and procedures in setting up or buying a franchise, resource planning, innovation, etc.), certifications to assure quality and reduce information asymmetry, and business mentorship – delivered by mentors selected among successful franchisors – addressing micro-franchises that could need assistance once the business is under operation.
3. Development of a transparent marketplace bringing potential franchisors and micro-franchisees together through a virtual platform and a physical hub aiming at facilitating the identification of opportunities. In addition, the online portal has also been designed to i) act as a repository including information on market analysis, franchising processes and procedures, advises on legal, accounting financing, tax; ii) offer a diagnostic test whose results are compared to other micro-franchises and propose possible actions to improve sustainability. In addition, business roundtables organized as meet-ups have been offered and also acceleration activities to help franchisors in defining their roadmap including a checklist of needed skills. Moreover, activities to facilitate access to finance – such as campaigns to reach potential financial partners or development of new financial products – have been implemented.
4. Development of knowledge products that can fill the existing gap through: a) the identification of good practices and benchmarks of micro-franchising across the world as well as in Colombia. This will enable the analysis of current and future trends in business including benchmarking on efficiency, innovation and scaling, and local context of commercialization; b) development of methodologies to serve as an integrated home grown micro-franchising methodology (in particular for business format micro-franchising).
As of December 2018 the project achieved impressive results:
55 SMEs have been accelerated (according to the project the goal to be achieved was 20); 16 over 4 Regions have been reached; 71 new franchisees have been established (the result to be achieved was the establishment of 100 new franchisees). In addition entrepreneurs have been provided with 1564 capacity buildings and 68 public private partnerships have been established.
The impact that this initiative is generating in the country is evidenced by the permanence in the market of micro-franchises already acquired, which have managed to remain in force in their entirety, achieving the break-even point during the first month of existence in most of the cases. This shows that micro-franchising is a successful business model as it enables micro enterprises to grow and also offers the opportunity to become an entrepreneurs by investing a small amount.
The following challenges have been met during the implementation of the project:
- Lack of a coherent legal framework. The project has been working with several partners to build a strong franchise ecosystem in order to set the stage for a micro-franchise law within the country, for example benchmarking documents, business cases, public policies recommendations, among others.
- The knowledge gap on the micro-franchising business format. This challenge has been mitigated through the organization of seminars and events to inform and diffuse both the model and good practices related to it.
- Lack of reference points in similar projects because it is an innovative initiative, based on previous not so successful ones that has led the entrepreneurs towards other types of enterprises growth such as the inclusion in chains of distributions, which in the beginning generated distrust in the entrepreneurs. This issue was effectively solved as the project has the institutional support of two well-known and recognized entities such as the IADB and PROPAIS, and also due to the strong information delivered on the benchmark documents, business cases, etc., and also the first successful cases of small enterprises having had their technical assistance and their commercialization as microfranchises.
- A further challenge is related to the end of the project. It is indeed proven by studies on franchising models that the franchises that do not receive support in the first year have a failure rate of 25% and this percentage grows up to the 40% during the fourth year. It is thus crucial to guarantee a continuity to the assistance provided and this would require an investment of US$ 415,000.00. Propais is now working to identify the best solution to ensure the support measures’ continuity. Two options are on the table: the first one would be to continue the project under the aegis of the IDB, but this would require a long negotiation process that would be extremely time-consuming; the second idea is to transfer Propais’ knowledge and competencies to project’s partners in order guarantee a constant support. Two are the concerns related to this second option: 1. The priorities and interests of each partner could prevail on the scope of the project 2. A change in the leadership could prevent a proper coordination that could jeopardize the initiative’s results.
The project highlighted the importance of involving both private and public organizations to ensure the successful implementation of initiatives like this. Furthermore, it results evident how crucial is to have well trained franchisors and micro-franchisees in order to establish successful skills. The consultancy provided by Propaís is essential to ensure the acceleration of micro-franchising and enhance their competitiveness. Finally, the implementation of the project demonstrates that highly motivated and results-oriented teams are the key for successful businesses.
Sustainability is crucial to protect micro-franchising against being considered a subsistence tool. Therefore the project seeks to support the systematization of information, methodologies, and best practices, as well as the creation of a community, in which not only micro-franchisors and micro franchisees, but also other business actors, government, NGOs, universities, financial institutions, investors, consultants, and other supporting institutions are encouraged to interact.
The project is conceived as sustainable because Propaís transfers capacities and methodologies to regional institutions in charge of business development, in addition to generating public policy documents that can be integrated into the development plans of the different countries in which it is implemented.
Its potential replicability is given considering that it is a program that generates business opportunities for microenterprises already consolidated in the market from the link of entrepreneurs with the illusion of creating a company and not just looking for a job. This is a need of developing countries, where microenterprises make up most of the entrepreneurial mass.
1 – Microfranchising is a business model that applies elements and concepts of traditional franchising to small businesses in the developing world. It refers to the systemization and replication of micro-enterprises. Microfranchising is broadly defined as small businesses that can easily be replicated by following proven marketing and operational concepts. More at https://findwords.info/term/microfranchising