Tuesday, September 22, 2009

3 Billion Served?

When I was a kid, the McDonald's signs kept me updated on how many billions had been served. The year I was born (1958), in it's 10th year of business, it hit 100 million. When I turned 5, McDonalds hit 1 billion. About the time I reached 6 feet, it reached 10 billion burgers. By 1984, when I graduated from law school, McD's reached 50 billion. A few years later it stopped counting.

What does this have to do with BOPreneurs? Well, this simple metric illustrates a great example of scaling up an international business. Jim Collin's writes about the flywheel effect of gradual, increasing momentum in a business. For McDonalds, part of this came from potent branding and marketing to a newly mobile population. But the other part came from a solid franchise model. This let them experience logarithmic growth without exploding, and allowed them to leverage other people's human and financial capital.

Yesterday, Jason Fairbourne of BYU's Economic Self Reliance Center, visited CSU to talk about his work in applying franchise principles to BOP markets. Fairbourne persuasively made the case that this is a promising approach for both large companies and growing ventures. Borrowing from his research on companies such as VisionSpring and Fan Milk, as well as his own work with a new start up in Ghana, Fairbourne proposes a straightforward framework for "micro-franchising."

1. Find a Successful BOP Business. He didn't say this was easy, and it takes getting out into the field. You won't find these at conferences or in a library. On the other hand, since many of the businesses in BOP are hawkers, you might be successful by looking at "businesses that aren't hawkers." Or not exactly hawkers. It takes a little observation to see that Fan Milk is not just hawkers selling yogurt or ice cream in Ghana, but a sophisticated, profitable organization with low turnover of its bicycle based franchisees. If you are a BOPreneur, microfranchising is not your strategy, but it is a tactic you can use once you have proven your business model.

2. Systematize it. What is the venture's business model? What are leverage points that come with growth? Look at issues of branding, supply chain logistics, territory, contracts and operations manual. The idea is to remove the "creative burden" required for a new entrepreneurial venture, and move to a system which a manger can operate. By doing this, the franchisor reduces risks and enhances income generation for the franchisee. Note that Fairbourne isn't advocating for the demise of entrepreneurship in the BOP. But he is suggesting that those BOPreneurs wishing to "scale up" would be better off to rely on training microenterprise managers, rather than hoping to find an army of micro-entrepreneurs (which he has found to be in short supply).

3. Replicate it. Once the supply chain has been figured out, the manuals written, the managers trained and the business proven regionally, it is easier to replicate the concept into other territories and markets. This is where McDonalds excelled. Not all McDonalds were the same, but they were very similiar around the world. Local modifications may be neccessary as a venture enters new markets, but they should be kept to a minimum to enhance rapid growth. CSU students quizzed Fairbourne on how to decide where to start, and he suggested they pick regions with more stable governments and growing economies.

Fairbourne emphasised two big advantages he sees for this approach. First, it reduces the risk of failure for the business operator. Done properly, incentives for success and penalties for failure are better shared under Fairbourne's approach. Secondly, it connects informal operators to formal supply chains. In doing so, it has macroeconomic effects as these businesses become formalized and grow (not surprisingly, Fairbourne has discussed his approach with Hernando DeSoto's ILD as a way to promote development).

If you are interested in finding out more about micro-franchising, take a look at Fairbourne's book, the Microfranchise Toolkit, and David Stoker's blog. And certainly attend the conference he is hosting in early November (as a special BOP bonus, I'll be there too).

I was impressed with Fairbourne's talk, and the potential microfranchising offers for certain types of consumer focused businesses in the BOP. There is a lot of cheap talk on scaling up BOP ventures, but precious few examples of BOPreneurs that can claim "millions served" (IDE, Aravind, Grameen). The world could use a few "billions served" social enterprises, and if history is a guide, franchising might be a good way to get there.


Joseph Cone Darnell said...

Paul, glad to see that this connection finally materialized...my alma matter and my (post?)-alma matter; makes me proud.

As far as the microfranchising model, I´m a believer! It really speaks to a fact that is often overlooked because the romantic veneer of micro-credit...most BOP micro-entrepreneurs, given the choice, would choose a more stable (not entrepreneurial) form of employment. Most of their micro-enterprises are carbon copies of something they´ve already seen having success in the market...so formalizing the processes, training the managers, and eliminating the risks is a next-step that just makes sense.

Kudos and Saludos!

Joost Bonsen said...

Great points, Paul. While we at MIT have urged our students to "solve problems faced by at least one billion people worldwide" in Development Ventures class since 2001, it's a tough challenge! If any of our nearly two dozen alumco's have touched over 10 million, I'd be pleasantly surprised.

Nevertheless, scalability and replication of good venture models are central elements of our D-Lab class.

Btw, check out the latest new Development Venture launch! EmpleoListo in Nicaragua -- http://empleolisto.com/ -- and here's story w/ video -- http://www.maximizingprogress.org/2009/09/empleolisto-bringing-you-assured-labor.html


PowerMundo said...

Paul hits the nail on the head:

1. "Pick a stable government and growing economy" (with a "moderate" GDP)

2. Focus on "branding, supply chain logistics, territory, contracts and operations manual".

3. Keep it very simple and focused to start. Just start with one simple franchise. Wal-mart started as a five and dime

4. Keep turning the flywheel.
'It is going to take at least five years'.

Anonymous said...

Great ideas and concepts, the challenge is how to disseminate this knowledge so that it can be read, reviewed and implemented from the bottom up, in the local BOP communities by local entrepreneurs, not in conference rooms or my laptop in surbaban Africa!