Growing a Promising Sanitation Startup

Growing a Promising Sanitation Startup

Introduction

The case study reviews Sanergy’s approach to providing hygienic sanitation to slum residents in Nairobi. The rationale behind the project was that providing services that residents were demanding would increase the willingness of slum residents to pay for hygienic sanitation, thus creating a good return on investment. The company had already established the need for hygienic sanitation based on the high global mortality caused by poor sanitation. The idea was influenced by the need to convert waste into profit. Initially, the company’s co-founders had thought of converting waste to biogas, but they realized that the profit margin in selling biogas was low and that manufacturing biogas required a lot of waste. Therefore, they decided to embark on something that could create a faster return on investment. The team decided to start their operations in Nairobi as the initial market because it was an entrepreneurial hotspot for like-minded businesses, donors, impact investors, consultancies, and non-profits. The starting point was creating awareness of the need for hygienic sanitation. The company had to work with the local community to limit resistance. The project then gradually advanced in scope, thus attracting many stakeholders who contributed to its success. The company ventured into new areas, including animal feed and fertilizer manufacturing firms. This not only increased its profitability but also prompted the founder to begin thinking of new opportunities that could be leveraged to facilitate more growth, such as expanding into other countries with a high willingness to pay for its services and creating a new product line, or maintaining the current product line and improving it.

Main Findings

Sanergy identified a business opportunity in Kenya based on the findings that indicated that 8 million people were living in informal, densely populated settlements in Kenya by 2017. The settlements lacked hygienic sanitation, exposing residents to health problems (Auerbach, 2015). The government was spending $3 per person annually to sustain the sewage system, but the system only served a small part of the population (Waldman-Brown & Flatter, 2018). Sanergy also noted that residents who could not afford a sewage system had three waste disposal options. The first option was using free public toilets stationed on the outskirts of the slums. This option mainly disadvantaged women because they were exposed to assault and rape. The second option was using plastic bags as toilets and throwing the bags as far away as possible. The third option was paying to use private toilets that were mostly pit latrines (Walske & Tyson, 2016). Sanergy settled on altering the landscape of these options to improve sanitation.

Operating in Kenya required Sanergy to change its operating model. Initially, the company had planned to work with teenagers, but establishing the required form of collaboration with them was hard because they were not used to responsibility. The company’s marketing model was also ineffective because it mainly focused on the risk of poor health (Waldman-Brown & Flatter, 2018). Therefore, the company hired a local branding team that helped design the most appropriate brand name for the company’s toilets, communicating the benefits of sanitary toilets and their role in achieving a healthy lifestyle. The company also started by putting up the toilets far apart, but after operating for several years, it began bringing them closer and introducing toilet guarding and servicing to avoid closing them after dark. According to Waldman-Brown & Flatter (2018), the main business model change occurred in 2016 when the company started offering toilets for no upfront cost and raising the annual fee for waste removal by $30.Therefore, franchisees began paying for regular waste collection from the toilets instead of paying for the toilets.

Sanergy’s success was enhanced by upholding ethical business practices that included creating a working environment with zero tolerance for corruption. It also practiced Corporate Social Responsibility by continuously adding value by engaging the community to identify improvement areas. The company’s hybrid model also played a vital role in its success. The model included a non-profit and for-profit division. The company used the model to create participatory financing that enabled it to receive investments and donations (Waldman-Brown & Flatter, 2018). The for-profit division included collecting waste and processing it into insect-based animal feed and fertilizer that was sold to farmers. The no-profit division included raising funds from foundations that sought measurable social, health, and environmental impacts in the slum communities in Nairobi (Shields & Ruehle, 2016). The no-profit division was responsible for supporting franchise operators and building the sanitation network.

Sanergy’s Fresh Life brand provides a wide range of services, including collecting waste from all Fresh Life toilets. The company trained all waste collectors and gave them employee benefits such as personal protection equipment, health insurance, and vaccinations to keep them motivated and protect them from health issues. The other service was franchisees. The brand provided franchisees to interested operators (Auerbach, 2016). The operators were given a kit including a Fresh Life uniform, a bucket for hand washing, soap, and a sign upon installation of the Fresh Life toilet. The franchisees would be occasionally checked to ensure that the toilets were well maintained and had a ready supply of soap and water to protect the brand’s quality.

Sanergy’s Fresh Life’s main stakeholders in the non-profit division were the toilet users, franchisees, local governments, and international organizations. Franchisees included individuals interested in the pay-per-use commercial toilet business, churches, schools, clinics, and landlords. Although toilet users were reluctant to pay to use the Fresh Life toilets, they embraced the idea due to word-of-mouth marketing and their experience after using the toilets (Waldman-Brown & Flatter, 2018). The company relied on international organizations to fund its research and development. For example, the company was a beneficiary of the Bill and Melinda Gates Foundation. The company used the donations from the foundation to develop an insect-based animal feed. Although there were significant achievements in the company’s research and development, the company faced the challenge of finding the right balance between focus and exploration. The leading cause of the challenge was that the company did not want to spread itself too much by researching many possible products and had to avoid too much emphasis on research and development to the point of mission other opportunities (Waldman-Brown & Flatter, 2018). The main stakeholders in the for-profit division were livestock and crop farmers with a minimum of two and a maximum of fifty acres.

One of the main achievements in the for-profit division was between 2013 and 2014, when the company developed KuzaPro, a new product line that increased the company’s profitability. The company also maintained various pilot initiatives being researched and tested, including reexamining the initial idea of manufacturing biogas from sanitation waste. By 2018, the company had already met its goal of revolutionizing urban sanitation in the slums of Nairobi by setting up 1800 active toilets and serving more than 58,000 people daily across 11 informal settlements. The company has also created employment for more than 210 full-time employees and franchised more than 1000 Fresh Life toilet operators who made a profit of an average of $1000 annually (Waldman-Brown & Flatter, 2018). However, many slum residents were using pit toilets and were unlikely to embrace the Fresh Life toilets concept. Therefore, the company needed to start exploring various opportunities that could be leveraged to improve its growth. However, two dilemmas are required to be resolved. The first dilemma was whether the company would focus on market saturation in Nairobi or expand globally into a country with a high willingness to pay. The second dilemma was whether it was rational to start expanding the brand and its products or stick with what it had already established. The company CEO settled on pursuing more growth based on the assumption that people worldwide require fertilizers. Therefore, the company could focus on using collected waste to manufacture fertilizer and sell it to continue expanding its profitability. The CEO was confident about this decision because it had been successful. Therefore, future efforts should focus on using waste as raw materials for animal feeds, fertilizer, and other waste products used by farmers.

Conclusion

Sanergy’s decision to invest in Kenya was a great strategic decision because the company’s operations in the slums of Nairobi enabled it to realize new opportunities, such as converting waste to fertilizers and animal feed. The market also had limited competition, thus allowing the company to grow. The initiative was also supported by the community, the government, and international organizations because it improved hygiene in the slums and created employment for the company. Moving forward, the company should consider expanding into other countries with a high willingness to pay because it has already built a good brand image and reputation in offering affordable, hygienic sanitation. Therefore, attracting customers and gaining support from local and national governments in the country they expand into will be easier.

References

Auerbach, D. (2015). Re-thinking the toilet: Systems-based solutions for urban slum sanitation. Skoll World Forum on Social Entrepreneurship. https://archive.skoll.org/2015/04/14/re-thinking-the-toilet-systems-based-solutions-for-urban-slum-sanitation/

Auerbach, D. (2016). Sustainable sanitation provision in urban slums – The Sanergy case study. Broken Pumps and Promises, 211-216. https://doi.org/10.1007/978-3-319-28643-3_14

Shields, B., & Ruehle, E. (2016). The Sanitation Crisis and Social Media: Sanergy in Kenya. MIT Management Sloan School case study.

Waldman-Brown, A., & Flatter, G. C. (2018). Scaling Sanergy: Growing a Promising Sanitation Startup.

Walske, J. M., & Tyson, L. D. (2016). Sanergy: Tackling sanitation in Kenyan slums. https://doi.org/10.4135/9781526407627

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This week, we will analyze a case study by Anna Waldman-Brown and Georgina Campbell Flatter titled Scaling Sanergy: Growing a Promising Sanitation Startup.

SUMMARY

Sanergy was installing 100 new toilets per month in the slums of Nairobi, Kenya, but David Auerbach’s team still had a long way to go before reaching their targeted economies of scale (at which point they could provide sanitation services to all Nairobi slum residents at less than one-fifth the cost of a running-water sewer). Now that Sanergy’s for-profit arm was finally generating revenue, it was time to consider the next steps to grow the company. Economies of scale in collection and conversion processes would allow Sanergy to sell waste-converted products to farmers at greater volume and profit, but first, they had to install many more toilets, which in turn demanded additional funds.

Learning Objective

– To generate class discussion on the challenges entrepreneurs and startups face when scaling an early-stage success in an emerging market;
– Consider the costs and benefits of saturating the current market versus expanding to new markets and of researching and diversifying product lines vs. pushing proven product lines more widely.