Tandem

Tandem Franchising
South Africa Market overview

Young population 42.63% below the age of 20 18.83% between the ages of 20 and 29 Unemployment at 25.6% (March 2006) 13 years of democracy Social problems Poverty About 50% of population classified as poor, income level of R800 per month (US$ 115) Crime driven by poverty Unemployment
Economic outlook
Positive economic indicators GDP growth of 5% for past three years Growth in government and household consumption expected at 5%-6% Projected employment growth of 3%-3.5% (0.3 million additions annually to formal economy) Average wage growth 6%-7% Reserve Bank targets 3%-6% inflation, two interest rate increases this year (total of 1%)
Re-dressing imbalances of the past through BEE

Government has implemented Black Economic Empowerment (BEE) regulations Individuals who were disadvantaged in previous dispensation stand to benefit Preference and recognition to businesses that comply A social and economic imperative to uplift the broad population broad based empowerment Targets are set and government recognises that transformation is a process Driven by government and private sector
The state of entrepreneurship in South Africa

Global Entrepreneurship Monitor (GEM) results 2006: Only 5.29% of SA population involved in start-up and new entrepreneurial ventures Country average (42 countries) 9.43% Developing countries: 14.8% Weakest in new firm and established firm entrepreneurship, low economic contribution
Contributors to low entrepreneurial levels

GEM 2003 Low education levels Perceived lack of skills Only 35% of men under 45 believe they are capable of starting a business Lack of entrepreneurial role models Lower levels of exposure to entrepreneurs comparative to other developing countries GEM 2006 Increased participation of youth correlates with populations statistics 48% had negative perceptions of entrepreneurship
Mentoring small businesses

Lack of role models identified as a problem mentoring may be the answer The process of entrepreneurial learning Informal, on the job training Critical incidents learning by experience Must be practical, contextual and individualised Mentoring fits the requirements of this type of learning
Why mentoring can work in a franchising context

Adapt to changes in lifecycle of the business and franchisee lifecycle Avoid the learning trap objective view of mentor Inherent benefits of franchising Skills transfer through training programmes Ongoing support Additional support to previously disadvantaged individuals
Financing SMMEs
Lack of financing one of the biggest hindering factors in SMME development GEM 2006: Difficulty in accessing funding, although its available Lack of collateral a problem in financing previously disadvantaged individuals (PDI) Formalizing and recognising assets Assess franchise system as a whole (vs single individual only) in terms of investment risk Provision of guarantees
What is Tandem Franchising?

An empowerment and financing mechanism with a strong focus on mentoring Franchisee works in tandem with franchisor appointed mentor Franchisee starts with minority share and builds shareholding over time easier to access finance Mentor rewarded based on franchisee performance
Implementation of Tandem Franchising

Mentorship programme Franchisor or third party mentor Equity Franchisee purchases minority stake to be increased over time Financing Franchisor/bank/financial institution to finance the majority of the capital
Options for implementation

Option A Mentorship Franchisor
(experienced manager)
Option B
Franchisor
Option C
Existing,
Option D
3 party mentor programme (e.g. Government or NGO)
rd
programme appointed mentor appointed mentor experienced

(experienced manager) franchisee appointed as mentor
Equity
Franchisee purchases minority stake
(e.g. 10%) to be increased time over
(e.g. 10%) to be increased time Majority share held by financial institution until bought out by franchisee over
(e.g. 10%) to be increased time Majority share held by existing franchisee (mentor). Remains a joint venture with majority BEE shares over
(e.g. 10%) to be increased time Majority share held by financial institution until bought out over
Financing/ Joint Venture
Franchisor holds majority share until bought out. Balance of capital requirement financed by financial institution
Developing the mentoring programme

Profile of the mentor Experience, people skills Match with the franchisee Format of the programme Targets, goals, feedback to franchisor Daily operations Franchisee acts as assistant manager The transition Transition to full ownership and independence shareholders agreement Phased approach
Advantages
Franchisor
Equity participation and profit sharing in first year Contribution to BEE requirements Increased footprint in areas not serviced Successful franchisees = successful network
Franchisee
Entry into franchising through access to finance Skills transfer through ongoing mentoring Support additional to conventional ongoing support provided by franchisor Greater opportunity to succeed
Financial institution
Reduced risk due to extensive franchisor support Compliance to BEE codes: Empowerment financing

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Tandem Franchising

South Africa Market overview

Re-dressing imbalances of the past through BEE

The state of entrepreneurship in South Africa

Contributors to low entrepreneurial levels

Mentoring small businesses

Why mentoring can work in a franchising context

What is Tandem Franchising?

Implementation of Tandem Franchising

Options for implementation

programme appointed mentor appointed mentor experienced

Franchisee purchases minority stake

Franchisee purchases minority stake

Franchisee purchases minority stake

Franchisee purchases minority stake

(e.g. 10%) to be increased time over

Financing/ Joint Venture

Developing the mentoring programme

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