David Lehr dlehr@techsoupglobal.org
Agenda TechSoup Global Makaia
Colombia – Economic Context Job Creation
Microfinance Microfranchising Open Discussion 2
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Makaia is a non-profit that promotes institutional strengthening of civil society organizations, social enterprises, local governments, not-for-profit organizations and social responsibility initiatives.. Headquartered in Medellin, Founded in 2006.
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Colombia •
SOME TEXT
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Colombia – (Micro)franchising What is It? • No official definition • 4th largest market for number of franchisees in LA • *2/3 of entrepreneurs aware of franchising; • *53% not able to point to an example Franchise Environment • No Franchise specific law • No Specific support orgs to help / consultants • Franchising associated w/ fast food and retail chains • Informality = loss of tax revenue, inability to get credit, no access to support programs, challenges in relationships *Propais and GAF (Grupo Americano de Franquicias), 2011 survey of 2,000 entrepreneurs
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People grow out of poverty when they create small businesses that employ their neighbors. Nothing else lasts. Job Creation
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Microfinance Microfinance is the provision of financial services to lowincome people typically excluded from the formal financial system. (often women) • Microcredit - small amounts of short-term capital can help poor people engage in productive activities and grow out of poverty • Includes savings, insurance, non-business loans
Based on the premise that the poor are entrepreneurial; • Or, are they entrepreneurs by necessity? • Most businesses don’t create scaled employment • Clients must have the capacity to repay the loan
It is not a replacement for jobs that are not there, markets that are inaccessible, or education and skills that do not exist. 10
Entrepreneurs of Necessity or Opportunity? Kiva Snapshot: 287 Loans in Colombia: 57 Food 109 Retail $625 helps Angela buy clothes, perfumes, women’s accessories and home accessories in larger volume.
$1,450 helps Julieth to buy jeans and high quality shoes
$500 helps Consuelo buy beauty products and clothing to increase her inventory and improve her sales
$1,375 helps Angelica buy a supply of beauty products and clothing to increase her inventory 14
(Micro)Franchising
Replicating someone else’s business model poses fewer risks and often offers greater benefits than does creating a new business from scratch. 15
Early History of Franchising The Singer Sewing Machine Company 1851: Isaac Merritt Singer
McDonalds 1954: Ray Kroc
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What Is Franchising? Franchising is a way to go into business for yourself, but not by yourself
Source: IFA Educational Foundation
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Franchising: Main Formats
Franchising: Why Do It? For the Franchisor (license owner) • To Expand and Make Money • Without Raising Financing or Losing Control
For the Franchisee (licensee) • • • • •
Go into Business For Yourself, Not by Yourself With a Proven Business Model / Brand Without Having to Build it From Scratch With a Network And a “Partner” Interested in Your Success May not fit the Super Entrepreneurial 16
Microfranchising: Franchising But …… • The systematization and replication of an appropriately scaled turn-key business tailored to those with limited incomes • In a Very Challenging Environment ─ By those with Little Formal Education or Capital ─ Where Local Knowledge / Cultural Context Critical
• For-Profit or Non-Profit • Often a Social Benefit to the Community (and the Franchisee) ─ Bringing in New Services, and Products ─ Creating Local Jobs / Formal Sector Linkages ─ Exposure to New Ideas and Management 17
Microfranchising Examples
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VisionSpring: If I Can’t See, How Can I Work?
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Tiendas de la Salud Guatemala: Access to Health Products • Build on Existing Botequines, Healthcare System (Conversion Franchising) • Health and Revenue Products ─ Morbidity: Pneumonia, Diarrhea, Respiratory Infections, Parasites ─ Hygiene : Soap, Toothpaste ─ Nutrition: Fortified Milk Powder, Cook Oil ─ Revenue: SIM Cards, Vitamin B, Batteries
• Financial Sustainability • Exit Strategy via Pharma Supplier • Currently Replicating in Mexico
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Kebal – Healthy Food Carts Indonesia
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Masisa Mexico • Furniture and Design Company with 50 stores in Colombia • Measure Financial, Social, & Environmental Performance Opportunity to Expand Masisa Market Two Franchise Model – 90% of stores are franchises • Franchisee Master – storage, inventory management, delivery • Microfranchise: independent designers / carpenters design on the spot via mobile device – place order with franchisor • $2,120 Microfranchising Fee – 6 month payback • Microfranchisee carries no inventory
• Launched 6 months ago; today there are 26 stores 22
Microfranchising: State of Affairs • Early Days - Much to Learn • Path to Success is Long; 5-10 years to Prove & Customize a Concept and Biz Model Before Trying to Franchise it ─ Avis 2 years; Subway 9 years; McDonalds: 15 years
• Must be sufficient demand for the services / products • Simplicity of Business Model Meeting an Underserved Market Need is Key to Success. • Successful Franchises Start with a Profitable and Sustainable Business Model.
Franchising Requires, Rather than Generates, a Profitable Business Model 23
Microfranchising: State of Affairs (2) • High Start Up Costs - Need for Franchise Financing • Franchisees Need to Make $ Right Away and Need Financing ─ May Be Hard to Find
• A Mixed-Model - Both Company-owned and Franchised Units • Take Advantage of What Already Exists ─ Conversion of Existing Businesses ─ Skills / Distribution 24
Microfranchising: State of Affairs (3) • Ecosystem Matters – Capital, Legal and Regulatory Frameworks, Technical Assistance, Qualified Franchisees • Grant Capital May Distort Incentives ─ Today Scale, Profits Will Follow – NOT!! ─ Strong Focus on Social Impact, Not Financial Sustainability • Moving Forward ─ Engage the private sector to solve true business needs Remember the 3 S Simple, Standardized, Sustainable
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What Does This Mean for Colombia? • Streamline Business Registration Process • Develop a Legal Framework ─ Look to US, Brazil, Mexico
• Partner with Private Sector • Leverage Entrepreneurial Centers Develop Financing Mechanisms • Colloborate • Research and Promote 26
Open Discussion.
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