Micro-franchising as a first step to successful small business ownership
In General, franchises, as one of the business models, play an integral role in supporting the local economy through job creation and the payment of taxes. For example, there is a wide variety of franchised businesses with over 300 different categories of products and services offered in the USA. One in seven American businesses is a franchise and there are currently close to 3,400 franchise brands in the United States (2020 year data).
Franchising is a business relationship between two entities wherein one party allows another to sell its products and use intellectual property, such as brand name. For example, several fast-food chains like Domino’s Pizza and McDonald’s operate in Georgia through franchising.
Micro-franchising has its roots in traditional franchising, which is the practice of copying a successful business and replicating it at another location by following a consistent set of well-defined processes and procedures. Micro-franchising is a way of downscaling the concept of traditional franchising, in which a parent organization (micro-franchisor), manages and supports a network of franchisees operating a common business model that has already proven to be successful. The franchisee has accountability to the franchisor and in return, the franchisor provides the opportunity for full ownership and provides training and other embedded support services that can enhance business operations. They are called “micro” because replicating them requires relatively little capital. Though very different from franchising in its size and scale, micro-franchising can be as powerful an economic accelerator in the developing world as franchising currently is in the developed world.
Unlike traditional models, micro-franchising operates on a much smaller scale. The very low-cost base of micro-entrepreneurs allows them to operate profitably in markets in which larger companies cannot survive. Micro-franchise fees are lower than traditional franchise’s and often fees and loan payments for capital expenditures are spread out over time. Start-up costs vary and depend on local economic conditions.
Micro-franchising frequently involves the pursuit of social objectives, such as providing jobs or services with social benefits, in addition to profit. Micro-franchisors may be social enterprises seeking for social impact as well as financial sustainability or profits, or Private Companies seeking to engage in social development as part of a Corporate Social Responsibility (CSR) program. Micro-franchisees will typically be entrepreneurs who need continuous guidance and support as well as facilitated access to capital.
Micro-franchising uses two types of business models (Upstream and Downstream), often more focused on aggregation, in comparison with traditional franchising. Majorly, it concentrates on particularly one component of the value chain. In general, that function can be located anywhere in the value chain from the beginning stages of raw material collection and production (“upstream”) to the customer-facing functions at the end in sales or after-sales services (“downstream”).
An example of upstream micro-franchising is a dairy producer company that was challenged by its suppliers with low production cattle breeds. The company developed the micro-franchising network with local farmers and provided them with essential medicines, machinery, and training to support in increasing production of cattle breeds. Afterward, the local farmers provided the dairy producer company with the increased amount of milk. A clear example of downstream micro-franchising was implemented in Jordan. The beauty and care company enabled women and men in Jordan to master beauty and care services in their academy. The company helped its graduates to open their own beauty salons and maintained these areas with sophisticated equipment. Instead, the beauty salons opened by the graduates used the franchisee’s beauty and self-care products.
Micro-franchising is especially impactful in developing countries, where micro and small entrepreneurs do not have the skills or resources to start their business from scratch. Provided and well-established roadmap of covering everything from access to supply chains, equipment, and products, to routes to market, marketing, and brand awareness, by the franchisor makes it possible to start own business. Micro-franchising is a valuable way for alleviating poverty in a country, especially in a developing one. Moreover, it creates additional job opportunities for lower-middle-income society class people and offers them to find in themselves the courage and characteristics of entrepreneurs.