In a period where resources for social needs are becoming scarcer, nonprofit organizations are exploring new avenues to generate the resources necessary to sustain and grow their organizations. One of these options is social enterprise œ the use of profitable business ventures as a means to generate unrestricted income.
In many cases, the challenge of creating a successful business from the ground up is larger than many nonprofits are prepared to undertake. Business success largely depends on identifying a viable opportunity, creating a profitable business model, and consistently mastering operational systems and processes. Nonprofit organizations often struggle to identify and exploit such opportunities for financial gain. Although nonprofits may have a clear understanding of the needs in a given community and be able to raise the necessary capital to start a business, they are frequently unable to address the service delivery, marketing, and accountability challenges that all small businesses face.
Franchising can represent an effective approach to mastering the complexities of a small business. Franchise products and services frequently have been painstakingly developed and improved by the franchisor, and in most cases, they have succeeded in the marketplace. In addition, these businesses usually have developed an operating system that is clearly defined, carefully researched, and universally applicable. More importantly, franchisors often provide training and management assistance to their franchisees to help address common business problems that all small businesses encounter. As a result, franchising offers entrepreneurs tools that increase their likelihood of success.
For these reasons, franchising merits closer consideration for the nonprofit sector. It not only promises to help address the question of how to provide innovative nonprofits with the structure and support necessary to convert their interest in social enterprise into profitable businesses, but it also provides a road map for implementing these ventures. By offering established products, structures, and support systems, franchising allows nonprofits to focus their resources on managing a business rather than creating one from the ground up.
Similarly, the nonprofit sector represents an intriguing opportunity for franchise companies looking for qualified franchisees to expand their systems. Charitable organizations are an untapped market that can offer unique benefits to an innovative franchisor. With over 1.2 million nonprofit organizations1 in the United States, the potential pool for franchisee candidates within this sector remains quite large.
Unfortunately, little is known about nonprofit-owned franchises. While the Ben & Jerry‘s PartnerShop Program has received significant media attention, there are few resources available on how to expand such a practice. As a result, Community Wealth Ventures (CWV) and the IFA Educational Foundation (IFAEF) have partnered to conduct an in-depth study into nonprofit owned franchises to explore the use of franchising as a tool for both the nonprofit and franchising sectors. The goal of this project is to answer three principle questions:
- 1) What value do nonprofits and franchisors represent to each other?
2) What are the lessons learned and challenges faced by existing nonprofit-owned franchises?
3) Is there a strategic business case for expanding nonprofit-owned franchises?
To find answers to these questions, CWV and the IFAEF spoke with the executive directors (or their representatives) of 18 nonprofit organizations that currently operate franchise businesses and the CEOs (or their representatives) at 11 franchise companies with existing nonprofit franchisees. Identifying these organizations was challenging, both because the practice is not particularly widespread, and because few industry and nonprofit leaders are aware of the existence of nonprofit franchises. Nevertheless, these interviews form the basis for this report. While the sample is relatively small, webelieve it represents a significant portion of the nonprofits and franchisors that have entered into such partnerships.
It is essential to note that the purpose of this project is to develop viable business relationships for both the nonprofit and franchising sector. Franchise companies will not be interested in working with nonprofit organizations if they cannot demonstrate an ability to operate them successfully. Similarly, nonprofits will not be able to generate net revenues or provide job-training opportunities if they cannot operate their business to the franchisor‘s standards. This report seeks to understand the value proposition that each represents to the other, and by doing so, help to accelerate the practice.
Contents
1.0 Introduction
2.0 Overall Findings
3.0 The Nonprofit Business Case
- 3.1 The Need for New Sources of Revenue
3.2 The Emergence of Social Enterprise
3.3 The Challenge of Social Enterprise
3.4 The Franchisor Value to Nonprofits
4.0 The Franchisor Business Case
- 4.1 The Stages of Franchising
4.2 The Challenges of Working with Individual Franchisees
4.3 Nonprofit Value to Franchisors
5.0 Lessons Learned from Existing Nonprofit-Owned Franchises
- 5.1 Lessons from Nonprofit Practitioners
5.2 Lessons from Franchisor Practitioners
6.0 Recommendations for Expanding Nonprofit-Owned Franchisees
- 6.1 Recommendations for Nonprofits
6.2 Recommendations for Franchisors
Appendices
A. List of Nonprofits, Franchisors, and Franchise Experts Contacted
B. Overview of Existing Nonprofit-Owned Franchises
C. Case Example of a Successful Nonprofit-Owned Franchise:
Platte River Industries
D. Case Example of an Unsuccessful Nonprofit-Owned Franchise:
Boston Rescue Mission
E. Case Example of a Franchisor with Successful Nonprofit Franchises:
Ben & Jerry‘s
F. Target Criteria for Expanding Nonprofit-Owned Franchises
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Nonprofit-Owned Franchises: A Strategic Business Approach
