Leaving anything is difficult as there are many memories and relationships that have been made along the way. Stepping away from Uganda is no different but what helps the most is the road that lies ahead. Coming to 31 Bits was still the right decision even though is has been a very difficult time for a number of reasons. With that said I also think it is the right time for me to leave.
Having both a background in business and international development is a rare combination. Development is dominated by government and nonprofits where business is usually an afterthought. It should come as no surprise that social businesses focus far more on the social side than they do on the business side. The obvious problem is that if you don’t get the business aspect correct, the social impact of the organization doesn’t matter all that much. More importantly though is why do we always view business and social impact as if they are competing concepts?
From even my time in graduate school that seems so long ago I was dreaming of a business concept that the success of the business is dependent on the impact. Where you can’t achieve one without the other. Social businesses shouldn’t be about combining charity with a product but about finding creative and cost effective solutions that give consumers what they want. The fact that social businesses like Bits aren’t blowing up isn’t about exposure but about not giving consumers what they want. I have heard from many people that they love the product and mission but they jewelry is too expensive. Sseko, based in Kampala, was on Shark Tank this past season and the sharks were stunned that their basic flip-flops cost $65.
The business is further hurt by difficult to understand marketing messages. You may disagree with Toms’ One for One model but we all know what the model is. A recent article featuring Bits stated that Bits is “an initiative which gives them [women] a stable income”. That is true but Bits is about so much more yet the rest isn’t easily captured in a simple statement leaving Bits undifferentiated and minimizes the perception of the value of the model. Lastly, from an academic standpoint, social businesses aren’t really pushing new ideas and learning lessons that have already been taught in development. (See my previous post for clues as to why)
In my role at Bits, my focus has been devoted towards finding ideas that increase impact without increasing expense. For instance, micro loans are very beneficial for the poor not just in business but helping cash flow problems. Studies in India (Portfolios of the Poor) revealed that 50% of loans aren’t used for business but still have significant social utility. Shifting from charity to investment isn’t a reduction in impact by any means. In fact one could argue investment would create greater impact as it creates objective ways to judge and measure it while not having any of the problems that charity creates through dependency. With charity, money is expensed and gone. In contrast, investment has unlimited potential that can be measured and judged objectively. When you invest in someone, you believe in them. What is the implicit message we are telling the poor by only giving them things? I believe in the poor and I think you do too.
These ideas have been festering since graduate school but they really have come alive in my time in Uganda. But I don’t want the social aspect to be ancillary. The most aggressive companies to date seem to be only reserving 10% of proceeds to social aims. Others do 10% of profit or a portion of the proceeds or have some program that is vague about how money is allocated. All these companies do is skim from the top and pass the cost on to you, the consumer. It is slapping charity on top of business which isn’t creative nor all that effective.
What I am proposing to do is devoting 100% of profit towards putting the money back into the community where the products are made from. Only when those investments produce a return would I see any of that money. We call this concept Second Profit where all the profit from the product sold is put back into small businesses where the product was produced and only when those businesses are successful would it return to shareholders. What is really important is that as a consumer, you would know that every dollar of your purchase is used to either put the product in your hand or goes directly into businesses that desperately need capital, creating jobs and opportunity for the poorest of the poor. In the West 13% of the population is self-employed but in the developing world it is 49%! Small businesses don’t just need capital, they need a partner!
Youth unemployment in Uganda is 64% yet the people have never been more educated and healthier than they are now. Isn’t the point of education to get a good job? We have been operating under the assumption that the job exists but at 64% unemployment, despite increasing educational attainment, no one can say that assumption is true. A focus on wealth creation is the key for each individual to reach their true potential. Under my model, if the businesses don’t succeed, you stop believing in me and my products and I don’t get paid. Isn’t that the way it should be?
A great product is essential for any business yet this is where some social businesses far short. They have an inflated value of their impact and focus their attention on getting the message out rather than having products that can compete on their own. When my search started for a product I told my partners that if we have to ask consumers to pay more for a product because it is from Africa then I am out. I want a product that people are shocked from Africa. Just because we have a model that we believe can transform lives doesn’t mean we can sell sub-par products. I want the impact simply to be the bonus to the consumer even though it is central to the business.
The decision to focus on leather can down to a few key factors. 1) Leather is cool 2) There is significant value added in leather goods which is great for the people who make it 3) Leather is very versatile and the leather goods market is huge 4) East Africa is abundant in resources for the primary inputs in leather production.
After lots of networking and a promising but ultimately unsuccessful trip to Nairobi we finally found a contact that met our needs and our ambitions. Roy is an Indian-born Ugandan who has a very raw operation but with incredible potential. Not only can he get past the major hurdles in leather manufacturing but he was actually granted land by the President of Uganda because of environmentally friendly operation he is constructing.
About 90% of all leather in the world is made through an incredibly chemical intensive (chrome tanning) process. On average it takes 1 pound of chemicals to produce 1 pound of leather. This is why almost all tanneries in the world are in developing countries where environmental regulations don’t exist and contaminated water can be dumped rather than treated. This process can be devastating to communities which rely on the fishing grounds and rivers for their way of life. Always assume the leather you are have or see in stores is made through this chemical process.
Our leather will not be made in this way. The tannery with our contact uses a vegetable tanning process that uses all organic compounds to tan the leather. This is a much more skill intensive process which makes it so rare in Africa. To my knowledge it is the only exclusive vegetable tannery in all of Africa. Not only will our products fuel further investment in Africa but also in an environmentally sustainable way that very few can offer. Google vegetable tanned leather and you will find very few options and what options you do find will be very expensive. While leather bags are always expensive we are looking at leather sandals from Mombasa, Kenya and made by the same contact which would be affordable to all. Already I can guarantee that our sandals will be the cheapest veg tanned sandals on the market but have to grind it out to make sure I can make the same guarantee with the quality as well.
Starting any new business is a massive undertaking and the actual path will have many twists and turns but we all want products we truly believe in. The more people trying to address that market need the better the poor will ultimately be. Whether success or failure follows, when we look at situations like the state of the global poor, the more ideas the better because the only thing we cannot accept is the status quo.