Microfranchising – What is the key to success?

As I mentioned in my previous post, I am currently presenting some changes to Fundación Paraguaya to improve their reading glasses sales and to help them recruit more franchisees (despite their vast network of clients, the current number of franchisees is quite small). After interviewing successful vendors (like Elida Sosa) and their asesoras, speaking to VisionSpring representatives, and studying other successful microfranchises, I have come up with a number of proposals.

Vision entrepreneurs in South Africa use posters to draw attention to their promotions. This photo is credited to VisionSpring.

First, I am suggesting that the organization provide more marketing support to the franchisees and help them develop professional materials. Most of the successful vision entrepreneurs that my colleague, James, and I spoke to had business cards which they designed and printed themselves. Others had posters. The posters enabled them to advertise promotions and generate interest within their communities. In my opinion, marketing is key, especially when one is promoting a specialty product such as reading glasses.  Providing the vendors with business cards and nametags will enable them to present themselves as professionals, stay in touch with their clients, and compete in a very distinct market space.Second, I am suggesting a microconsignment model to recruit new vendors. Just like a consignment store, microconsignment shifts the risk away from the seller, enabling him or her to repay the cost of inventory after successful sales are made. With microloans, which have been used thus far by the Fundación to pay upfront for the cost of materials, the vision entrepreneurs assume all of the risk of the new venture. As Tina Rosenberg wrote in a New York Times article in 2011:

“Microcredit puts all the burdens on the borrowers.  Debt, of course — but also initiative.  Borrowers invent, plan and run their own businesses.  Some people will jump at this, but many who lack confidence and business know-how will be terrified….”

Community Enterprise Solutions, a non-profit run by co-founders Greg Van Kirk and George Glickley, is another proponent of microconsignment. The organization was founded with the intention of testing, developing, implementing and expanding what Kirk and Glickley refer to as the MicroConsignment Model (MCM). According to their website, which provides an in-depth look at the genesis, functioning, and advantages of this model, “The MCM delivers essential products and services at affordable prices to the rural poor in the developing world…Through the MCM individuals who lack opportunity and experience, primarily young women and homemakers, can start their own ventures through ‘sweat equity’ and earn profits within the first month.”

This flowchart is credited to Community Enterprise Solutions http://www.cesolutions.org/themicroconsignmentmodel.html.

Kirk and Glickley actually worked with VisionSpring in 2004 to implement a microconsignment system. According to their narrative, VisionSpring was trying to use microcredit to cover vendors’ start-up costs, but the model was not working. They concluded that a different approach was necessary, one that would address the time needed to train entrepreneurs, create awareness with regard to vision problems, and which would serve to mitigate vision entrepreneurs’ real and perceived financial risk. Kirk and Glickley proposed the MicroConsignment Model, and VisionSpring implemented it. As of August 2012, Fundación Paraguaya is the only partner that is continuing to use a microcredit system.

My third suggestion is to provide additional training and support to the vendedoras, who often have no experience in sales and could benefit from event planning techniques, basic book-keeping skills, and a well-thought-out sales pitch. Although the Fundación does provide an initial capacitación, other microfranchises (and other VisionSpring partners) generally offer a series of trainings as well as ongoing support for their franchisees. This serves to increase vendors’ confidence, helps them confront initial challenges, and teaches them effective selling methods.

Although VisionSpring’s other partners use asesoras to provide this additional training, Fundación Paraguaya’s assessors already have a lot on their plate. Each manages a large number of committees, and all are constantly traveling. It may be too much to add microfranchisee-support to their to-do list (i.e. helping to organize events, introducing microfranchisees to other communities, making sure that they have sufficient inventory and marketing material, etc.), but perhaps with the right incentive scheme, FP’s asesoras would make more of an effort to provide initial assistance as vendors adjust to a new enterprise.

Of course, in designing an incentive scheme, the Fundación would have to offer a bonus large enough to incentivize the asesoras but not so large as to impede the profitability of the microfranchise. Obviously, more research would be necessary to identify the right amount. Perhaps I can pass this off to another Ambassador…

A visit to Encarnación

To continue my interviews with successful vendedoras de lentes, or eye glasses vendors (if you do not know what I am talking about, please refer to my last post), I decided to take a night bus out to Fundación Paraguaya’s Encarnación office last week.

Encarnación, a city by the Argentinian border, is picturesque. Situated beside the river Paraná, it has many tree-lined streets and shops as well as a playita, or little man-made beach. There is even a small boardwalk along the river. Despite a sleepless bus ride – as luck would have it, I was seated behind a guy who snored without pause at a deafening volume, and the driver decided to blast the air conditioning for the entire trip - I felt strangely happy as I stepped into the terminal at 5:30AM. The air was fresher and the ambience calmer than it is in Asuncion. Plus, I had already spotted a woman selling hot drinks. Two cocidos (steaming mate mixed with milk and a dangerous amount of sugar) and two pastries later (I have to say, dulce de leche is starting to grow on me…), I was ready to begin my work at the office.

A visit to Encarnacion.

My colleague, James, and I conducted interviews with two asesoras (loan officers) and three vision entrepreneurs.  Although each woman had her own business strategies, we could see commonalities in their use of marketing material and hosting of events, as well as capitalizing on their strong social networks.

Nilda, for instance, created her own business cards and brochures, which have enabled her to promote herself as a professional and advertise her products. She also organizes events in neighborhoods surrounding Encarnación. People bring their mothers, cousins, aunts, uncles, friends, etc., allowing Nilda to expand her client base and conduct a large number of vision exams at once.

Floridia, another vendor, also has business cards. She designed the cards to highlight both the name of Fundación Paraguaya and the name of VisionSpring, giving her greater legitimacy when trying to promote a quality product. According to Floridia, the weight of the Fundación Paraguaya brand, which is well-known, has helped her to overcome the strong competition in this market. Street vendors, who sell cheaper low-quality products in accessible locations, are tough competitors, but she has been able to use brand-recognition to differentiate her glasses and build client-trust.

Floridia

Out of all of the women we interviewed, Floridia was especially chatty and amiable, and it was obvious that she had a talent for networking. During our conversation, she kept mentioning the banker that she sold to, or the hairdresser, or the people at the municipality. She told us about her connections in Encarnación and the surrounding communities as well as in the capital city of Asunción. As I listened to her, I thought to myself that this type of confidence and social ability cannot be taught. It reaffirmed my opinion that women should be selected for this type of microfranchise based on demonstrated proactivity, leadership, and influence. Franchising is not for everyone….

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Our interviews with the asesoras were also insightful. When asked what they look for in a potential franchisee, one asserted that she elects women “who know people and who are active…those who talk during committee meetings and who have no problem selling things.” According to her, it has been difficult to recruit new vendors because “they are afraid of failure…and they need to change their mindset.”

Both asesoras agreed that the women could benefit from more training, especially sales training. According to the second officer, “the glasses are a difficult product to sell, and require a more specialized salesperson…[more training] would help the women to have more confidence in their business.”

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All in all, the trip to Encarnación was a success. We had the opportunity to learn from more loan officers and vendors, and many of their comments reinforced the suggestions that we plan to present to the Fundación. As I ruminated during the return bus ride (another six hours), I tried to determine the fundamental key to the women’s success. Was it their marketing materials? Social skills? Their self-trained sales ability? What can the Fundación focus on to improve sales in the most efficient way possible?

Coming into focus: A saleswoman’s success

Elida Sosa is a true business woman. A microentrepreneur who has been selling reading glasses through the Fundación, she has sold over 229 glasses in the past five months, accounting for 22% of the Fundación’s total sales throughout Paraguay.

Elida Sosa in the San Lorenzo office

“There are people who I know in the area. For example, right now I will bring everything that I am going to sell – the glasses, whatever I need… and I perform vision exams…exams to determine whether people need glasses for reading and working.”

As I mentioned in my last post, Fundación Paraguaya has been partnering with VisionSpring for the past four years to provide local vendors with reading glasses to sell to low-income communities. The community members benefit from the lower cost and direct access, and the vendors earn a sizeable profit on each sale (more than 50% or about $4.44 for each pair of glasses). Fundación Paraguaya offers training and support for the microentrepreneurs as well as loans for the purchase of inventory.

Although there are a number of successful vendors, no one has been as successful as Elida. In our interview, she explained with great business acumen her strategies and sales pitch.

Adventures in Microfranchising

During the remainder of my Accion Ambassadorship at Fundación Paraguaya, I will be focusing on their microfranchise initiative.  So, why not dedicate my next few posts on this theme – the advantages, the challenges, and the evolving popularity of this model.

So, what even is Microfranchising?

“Microfranchising is built on the concept of franchising – the development of a turn-key business model, designed for replication, that is inherently less-risky than a standalone start-up enterprise.”  The above statement, which I found in a discussion on socialedge.org, successfully summarizes the key elements of this bottom of the pyramid business concept (or the BOP, as it is known within the industry)

This image is credited to Jason Fairbourne, director of the MicroFranchise Development Initiative at Brigham Young University and one of the thought leaders in the microfranchise space.

In other words, microfranchises have an established business model that enables their franchisees to hit the ground running. In the typical microfranchise, microentrepreneurs receive intensive training, pre-conceived  operational guides, and marketing and promotional materials. They are often provided with credit and/or customized funding, ongoing business support, and an incentive scheme to meet sales targets, ensuring long-term sustainability.

The assumption that microfranchises, as opposed to general microenterprises, are inherently less-risky stems from the replication of a successful business model. As a franchise, the product design has already been fine -tuned, the operating procedures adjusted to maximize efficiency, and supplier relationships established using the bargaining power of the larger-scale franchise. Additionally, as the microfranchise expands, microentrepreneurs benefit from growing brand awareness, product innovation, and increasing scale.*

Fundación Paraguaya and VisionSpring

Fundación Paraguaya’s first microfranchise experiment was the kit de lentes (or glasses kit). In 2007, the Fundación began a partnership with VisionSpring (http://www.visionspring.org), a non-profit social enterprise focused on distributing reading glasses to low-income communities. Following VisionSpring’s model, the Fundación has provided local vendors (mostly members of the women’s committees) with “a business in a box,” each containing 12 pairs of glasses of varying magnification, as well as cases, strings, booklets, and a briefcase. The vendors must raise enough capital (or take out a loan) to purchase the kit, which costs about 200,000 Gs, or about $44. They are then trained to perform vision tests and instructed in sales strategies.

The women earn about 20,000 Gs, or about $4.44 per sale.

One of the kits from Vision Spring.

Other microfranchises that the Fundación is currently trying to jump-start include jewelry-making kits, clothing kits,  anti-dengue kits (these contain a variety of mosquito repellents), as well as alimentos (food), such as bread filled with cheese, barbecued meat, empanadas, and others. Last Friday, I accompanied two other interns to Encarnación to see how they were conducting their market surveys. In the next few weeks, I will be designing my own survey and exploring new strategies to increase the sales of current “kits.

Why Franchise?

Ultimately, Fundación Paraguaya aims to use microfranchising to both diversify and amplify the earnings of its clients, providing them with an opportunity to stabilize their income and better provide for themselves and their families. Furthermore, microfranchising presents an efficient distribution method for needed goods (such as reading glasses and mosquito repellent), selling at affordable prices to those without access.

Microfranchising, however, also has specific challenges. It is essential to maintain low costs and low risk (since the potential franchisees have little extra income to invest) as well as cater to BOP consumers, who are extremely price sensitive.

A potential ice cream microfranchise considered by the Fundación, for example, was just too pricy. It seemed like a great idea to me – the climate in Paraguay is usually very hot, there is a cultural love for ice cream, and the foundation was planning to partner with a well-known brand. However, after exploring the actual costs, it became apparent that the high overhead and steep price structure would hinder the business’s success.

I am now investigating other opportunities, including a retail business for local artisans, and looking into strategies to improve the sales of reading glasses. Stay tuned!

And let me know what you think!  In your opinion, is microfranchising an effective way to create sustainable and scalable opportunities for microentrepreneurs?

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* The information on microfranchising in this blog post was sourced from the book: Microfranchising: How Social Entrepreneurs are Building a New Road to Development, edited by Nicolas Sireau. I highly recommend it!

Student Loans and the Right to Education

Gladys sits near the window in the small Itá office, earnestly discussing the loan that she received to finish the certification program that allows her to teach nursing. She is 28 years old and dressed inconspicuously in sweatpants and a ponytail. Despite her casual appearance, her voice carries a tone of imposing strength and authority.

Gladys speaking about her experience with Vittana’s student loan program.

“Education is the foundation of humanity,” she says. “Without education, there is no future. How will you help your country, your community, your family if you don’t have an education?”

For Gladys, there was no alternative to pay for her certification. “I could not ask my parents for support, and I did not have the economic capacity. To finish and receive my degree, a loan was the only way.” So, Gladys took out a loan from Vittana, a partner of Fundacion Paraguaya.

Vittana uses a peer-to-peer system to raise capital for small student loans. The organization specializes in providing loans for students who would otherwise be unable to afford higher education. So far, Vittana has provided more than $1,800,000 in loans to over 2900 students in Paraguay, Peru, Nicaragua, Mongolia, Vietnam, and other countries.

Bienvenido a Asunción!

My first blog post in Asuncion, Paraguay — I can’t believe that I have already been here a week.

Already, much has been accomplished:

• I became familiar with many of the colectivos, Asuncion’s colorful buses which meander in and out of the city in a slightly jolting fashion. They cost the equivalent of about 50 cents per ride…not bad. Additionally, you can buy pretty much whatever you might need from the vendedores de colectivo, who will sell you anything from nail clippers to socks and underwear to fresh chipas. Very convenient.

One of the colectivos on Avenida República Argentina.

• I stopped staring whenever I saw people lugging around huge thermoses, usually covered in embroidered leather. These are essential for the constant consumption of tereré. (Tereré is an infusion of yerba mate. Paraguayans carry thermoses filled with water and consume the actual tereré out of a guampa – a specific type of cup – using a metal bombilla, or straw.
• I started thinking in guaranis, which, at the current conversion rate, are about 4550 PYG to the dollar. It is not hard to be a millionaire in Paraguay!