Franchising For-Benefits: Emergence of the 'Fourth Sector'

How social entrepreneurs can increase social and financial bottom lines

Growing the Fourth Sector

A New Breed of Entrepreneurs

In recent years, a new sort of entrepreneur has emerged in both the domestic and global marketplace. These entrepreneurs are savvy, creative, socially conscious millennials graduating from business schools such as Harvard and Stanford that offer social enterprise tracks of study to their students. This new breed of entrepreneur wants three things:

  1. To achieve financial success;
  1. To run their businesses in a socially and environmentally responsible manner; and
  2. To make the primary purpose of their business about solving society’s social and environmental needs. This third objective may seem to be in conflict with the first. That’s what makes these entrepreneurs different.

While these entrepreneurs need and want to earn a decent living, their primary source of satisfaction comes from being able to solve challenges that organizations in other sectors (government, for-profit, and non-profit) have not been able to solve. For that reason, they are willing to earn a bit less than they might if they were to start a strictly commercial business if they feel that their business contributes to the improvement of society. They are also committed to integrating business methods and incentives with their social mission so that they are able to attract good talent and investment capital needed to operate and grow effectively.

These types of entrepreneurs are creating what is being referred to as a "fourth sector."

A New "Fourth Sector"

The fourth sector has emerged in recent years as a solution to the need for alternative ways to address the outstanding social and environmental problems that plague society today. Several initiatives are underway to strengthen and formalize the sector so that it can advance more rapidly.

These initiatives include mapping the sector, defining common language and metrics, creating a more supportive ecosystem (e.g., legal, political, and financial), creating formal networking and learning opportunities, and creating a community of technical assistance professionals.

A New Type of Technical Assistance Professional

Recent events (see “Mapping the Fourth Sector”, January 2015, and “Growing the Impact Economy,” June 2015) convening leaders across a wide range of sectors and industries (including government, for-profit, and non-profit agencies; academics, business people, lawyers, economists, investors, and philanthropists) have highlighted the need for technical advisory services targeted toward these new types of businesses so that they, like their for-profit and not-for-profit counterparts, can look to others to collate best practices and advise them accordingly. In this way, the industry will grow more rapidly and effectively.

MSA Worldwide’s participation in this summer’s “Growing the Impact Economy” summit enabled the firm to gain critical insights that will help them tailor their new social franchise service offering to this segment of the market. MSA Worldwide is already collaborating with several organizations to map the fourth sector, share resources, and provide technical assistance to for-benefit-businesses interested in expanding through a franchise business model.

MSA Worldwide will soon launch an addition to its website that aggregates and shares resources related to franchising for-benefit-businesses and facilitates connections between the many and varying players in the ecosystem. The firm is also helping to identify for-benefit businesses worth replicating and connect them with growth capital. For example, MSA staff attended India Demo Day in New York City to learn about promising new startups in the India market and to connect with Indian business leaders paving the path for new generations of Indian entrepreneurs. MSA Worldwide is also engaged with leaders of economic development initiatives in American cities to advise on the use of franchising to revitalize low-income communities.

What will soon emerge is a new type of social franchise that is more sustainable than the current NGO model.

This new model of social franchising will dramatically accelerate the growth of the fourth sector by facilitating the replication of proven for-benefit businesses. Further, the principles of micro franchising can also be applied to for-benefit businesses so that franchising opportunities are accessible to lower income population segments. In this way, franchising adds a fourth bottom-line return to stakeholders: economic development in emerging market communities, domestic and international.

Working Together to Realize the Potential of the Fourth Sector

While there are many promising indications that a fourth sector is emerging and that franchising of for-benefit businesses can contribute significantly to its growth, there remains much to do before the sector can realize its full potential. These include developing the following:

  • A supportive ecosystem (e.g., legal, political, financial)
  • A system to identify, track, and evaluate for-benefit businesses
  • A common set of terms, definitions, and metrics
  • Linkages between for-benefit businesses and qualified technical advisors
  • A forum for for-benefit businesses to showcase their work and connect with relevant colleagues, vendors, technical advisors, and potential franchise prospects
  • A forum for educating this sector about franchising, how it can be used to scale for-benefit businesses, and where they can obtain good advisory services

To learn more about how you can get involved, please contact Julie McBride, MSA Worldwide’s Senior Consultant for Social Franchising, at jmcbride@msaworldwide.com.