What If Your Best Franchisee Can't Afford Your Franchise?

By Sean Goldsmith

Jibu raises an uncomfortable question: how many great franchisees are excluded simply because they lack the capital?

Jibu has built a network of local water businesses across Africa while confronting a problem much of franchising prefers not to talk about: having enough money to buy a franchise and being good enough to run one are two very different things.

There is something slightly odd about the way we recruit franchisees. A franchisor can spend months talking about attitude, local knowledge, leadership and the ability to follow a system, but sooner or later the conversation arrives at the bank account.

That is understandable. Opening a franchise costs money, somebody has to provide it and franchisors have learnt the hard way what happens when an owner starts a business without enough working capital. The uncomfortable consequence is that franchising can end up screening people for wealth before it gets the chance to properly screen them for ability.

Jibu makes that problem particularly interesting because it operates in markets where plenty of capable entrepreneurs will never arrive with the sort of personal capital expected by a conventional franchise system.

The business was founded in Rwanda and has expanded its water model across several African countries. Its franchisees operate local businesses that purify drinking water close to the communities where it is sold. Jibu has also worked with outside finance to fund the equipment and assets required by franchisees, reducing one of the biggest barriers between a promising local entrepreneur and ownership.

That makes Jibu much more interesting than another feel-good story about clean water in Africa. It raises a question that applies to franchising everywhere: how many potentially excellent operators never make it into the recruitment process because they don't already have enough money?

The finished article should then get into the difficult side of that argument, because I don't want us pretending cheaper access to franchising automatically makes a better franchise system. Under-capitalisation kills businesses. Financing equipment doesn't remove working-capital requirements, poor management or the need for franchisees to have something genuinely at risk.

That gives Sean room to challenge both sides.

The conventional franchise industry has good reasons for demanding capital. Jibu gives us reason to ask whether there are smarter ways of providing it.

I’d also make the water itself commercially important rather than turning it into background for an entrepreneurship story. Jibu's franchisees aren't selling an occasional treat. They are selling something households repeatedly need, which means the local economics depend on volume, distribution, affordability and trust. A customer needs to believe the water is safe, while the franchisee needs to sell it at a price the community can afford and still leave enough margin to operate the business.

That leads us into a stronger second argument: perhaps some of the most interesting franchise opportunities in Africa won't look much like the franchises imported into Africa.

Restaurants, gyms and retail brands will continue to grow across the continent, but Jibu shows franchising being used for something much more basic: organising thousands of repeat transactions around an essential local service while putting ownership in the hands of entrepreneurs who live in those markets.

For Sean, I'd finish somewhere around this thought:

Franchising has always claimed that one of its strengths is giving ordinary people a route into business ownership. That claim becomes harder to defend if the price of admission means the opportunity is largely restricted to people who were already wealthy enough to buy themselves a business.

Jibu doesn't prove that every franchise should start financing its franchisees, and doing so badly could create considerably more problems than it solves. What it does show is that capital and capability do not always arrive in the same person. If franchisors can find sensible ways to bridge that gap without creating badly funded businesses, the pool of people capable of becoming franchise owners could look very different.

What We Can Learn From This

Franchisors should be careful about confusing a candidate's available capital with their ability to operate a successful business, while still maintaining sensible requirements for working capital and financial resilience. Jibu's approach is interesting because financing can help separate the cost of essential equipment from the question of who is best placed to build the local operation. African franchisors in particular should examine whether conventional franchise investment structures make sense in the markets where they want to grow. Done properly, alternative financing could open territories to capable operators who would otherwise never make it through the first conversation.

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