Academic journal article Entrepreneurship: Theory and Practice

Toward a Theory of Social Venture Franchising

Academic journal article Entrepreneurship: Theory and Practice

Toward a Theory of Social Venture Franchising

Article excerpt

This article examines the relevance of the two main theories used to understand business format franchising--resource scarcity theory and agency theory--for social venture franchising through an in-depth case study of one of the United Kingdom's first and most high-profile social franchises. We posit that both theories can be reframed to take account of the distinctive characteristics of social franchise systems. In developing our arguments, we present four findings that, taken together, move us closer toward a theory of social venture franchising.

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There are currently strong economic and political forces encouraging nonprofits to move away from philanthropy and government subsidy as sources of revenue, and instead to generate their income through trading as social enterprises (Emerson, 1999; Gronbjerg, 1998). As this commercial logic has become more deeply embedded, the issue of growth has become a key priority (Dees, Anderson, & Wei-skillern, 2004), and social enterprises have increasingly turned to franchising as a strategy for achieving economies of scale. Although there is now a substantive body of literature on business format franchising, little is known about the distinctive nature of social venture franchising. This is the issue that we address in this article.

Specifically, we examine the relevance of the two main theories used to understand business format franchising--resource scarcity theory and agency theory--for social venture franchising through a case study of one of the United Kingdom's first and most high-profile social venture franchises. This enterprise has attracted widespread support among politicians, policy makers, and social investors, but proved unsustainable as a franchise model. We posit that both theories can be reframed to take account of the distinctive characteristics of social franchise systems, and present four findings that move us closer toward a theory of social venture franchising.

Our first finding is that, as with business format franchising, access to resources including capital, managerial expertise, and local knowledge constitutes a key motivation for social venture franchising. Second, consistent with the strategic behavior of business format franchisors, social venture franchisors are not liable to reduce their proportion of franchised outlets over time. Third, the costs of selection are higher in social venture franchising than in business format franchising because (1) franchisees are organizations rather than individuals, and (2) franchisees are assessed on their ability to achieve social as well as commercial objectives. Finally, we argue that the dual goals inherent in social venture franchising make goal alignment more complex and resource intensive than in business format franchising, leading to higher agency costs.

The article is structured as follows. In the next section, we define business format franchising and describe the two main theories that have been used to conceptualize it. In the third section, we outline our conception of social entrepreneurship and social venture franchising. This leads into our research question, and a description of the data collection and analysis procedures. Following an account of the case study, we then consider the applicability of resource scarcity and agency theories to social venture franchising. Finally, we suggest directions for future research and consider the implications of our study for social entrepreneurs.

Business Format Franchising

Business format franchising consists of a contractual relationship between two independent firms in which a parent company (the franchisor), having developed a product or service, agrees to allow another firm (the franchisee) to sell that product or service in a specific way, in a particular location, and during a given period in return for a one-off initial fee and an annual sales-based payment (Curran & Stanworth, 1983). …

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