Back in 2014, Nokwethu Khojane and Lauren Drake were two Cape Town students doing their MBAs at the UCT Graduate School of Business (GSB). They met during the course, decided to start a business together and founded Lakheni – a bulk-buying grocery-shopping service for parents and crèches in underprivileged areas - while studying for their degrees.
Within six months of officially being registered, Lakheni was awarded 3rd prize in the SAB Foundation Innovation Awards, consisting of a R400 000 cash prize and vital business services support. It also came third in the Global Social Venture Competition and received R1 million in funding from Alphacode and Bank of America Merril Lynch.
Very few start-ups in South Africa can claim this kind of early success. The country is well known for low entrepreneurial activity with the SABC reporting in May 2015 that 86% of small businesses fail in their first year. According to the latest Global Entrepreneurship Monitor (GEM) results, entrepreneurial activity in SA dropped from 10.6% in 2013 to 7% in 2014.
So how is Lakheni bucking this trend? To begin with - it is a great idea. Cash strapped parents in underprivileged areas are offered grocery items at a discounted rate and these are delivered to their local crèches. As Khojane and Drake are able to negotiate discounted prices for bulk buying, they are able to cut between 5 and 10% off the grocery bill of each household.
In addition, families save on travelling costs to hypermarkets each month.
But that’s not all. Crèches make a commission off each hamper sold to parents, generating funds for their schools. Khojane and Drake were surprised to hear that the biggest benefit for their customers was not the financial saving but the time saved no longer having to travel long distances and standing for four hours in a queue at Makro.
They noticed that households and crèches shop for the same items every month. But instead of buying individually as before, parents now go to their local crèche once a month and put in an order for a hamper containing maize meal, sugar etc., which are cheaper, because they are bought in bulk. A hamper goes for about R700 and the crèche makes R10 off each sale.
“These are not hand-outs; this is not charity,” says Drake. “This is a for-profit organisation with very real benefits as well as a share option in the business for crèches. The name, Lakheni, is a Nguni term that can loosely be translated into “let’s build.”
It may run like a well-oiled machine now, but it took the two entrepreneurs a while to come up with the right concept. Their initial thinking was around helping crèches to perform better and improving early childhood development in underprivileged areas. But once they started visiting pre-schools and talking to principals, they realised that many of these schools were actually working quite well. They saw that they would be able to make a bigger impact by finding indirect ways to support financially struggling parents as well as the crèches themselves.
With the help of Dr Warren Nilsson from the Social Innovation Lab at the Bertha Centre for Social Innovation and Entepreneurship, Khojane and Drake refined their business ideas. They both credit Dr Nilsson, who has spent years researching why some social ventures work and others fail, with guiding them in the right direction in terms of asking more questions and digging deeper to find the real social purpose for their business idea.
For a social innovation enterprise to succeed, says Dr Nilsson, it needs more than a good business plan. It also has to go beyond the philanthropic urge to help people. Instead of seeing themselves as a tool or an instrument of change, businesses need to see themselves as part of the world that needs to change, says Dr Nilsson.
This sounds simple, but in practice, this is where many social change start-ups fail. A perfect example is Philip Wilson, CEO of South American company, Ecofiltro. His social enterprise set out as a non-profit organisation – and failed. Despite noble intentions to provide the rural poor in Guatemala with clean water at no cost, people were not using the filter as intended and still drank contaminated water, falling ill.
In a University of Pennsylvania interview, Wilson said he then decided, “I’m not going to look at the rural poor as objects of pity. I’m going to look at them as potential clients, which changed the game completely.” He packaged the product in a more aesthetic container and did additional research on how much money households spent on buying bottled water for cooking and drinking, then worked out a price for each unit of Ecofiltro and came up with a new instalment payment programme that would allow him a small profit margin.
This time round, the product worked. Ecofiltro is now a profitable organisation, reaching hundreds of thousands of customers. Wilson says social entrepreneurs need to ask more questions, go into the field and exhaust every single angle of what they want to do. “Ask what their needs are. You’d be surprised that what you think their needs are may be different from what your perception was at the beginning. So ask.”
Khojane agrees. “What was critical for us was looking into a system, not to fix what we thought to be broken, but to find what is working and building on its strengths.” She says it was this idea of holding on lightly to things that meant new possibilities were able to present themselves.
Drake adds that they didn’t come to the crèches with concrete ideas about what to do, instead they listened to what parents and principals really needed. This is in line with Dr Nilsson’s thinking about social ventures. “Every moment of authentic interaction we have with another human being is a doorway,” he says. “We can begin to understand what it is we are trying to change and how we might change it not through abstract models, but through lived experiences.”
This then takes the entrepreneur to the next level, where a business becomes sustainable and viable in the long term, hopefully able to outlast its first year of operations. As Dr Nilsson says, “The biggest challenge the world is facing today is not how to create change but how to sustain it.”
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