SCALING SANERGY: GROWING A PROMISING SANITATION STARTUP 10
Running head: GROWING A PROMISING SANITATION STARTUP 1
Case Study: Scaling Sanergy: Growing a Promising Sanitation Startup
Katrina Brewer
Oakwood University
September 12, 2021
Introduction
Sanergy is a company that offers waste management and sanitation solutions for informal settlements in cities. It aims to address systemic gaps such as waste emptying, treatment, transport, containment, and reuse. David Auerbach, Linda Stradley, and Anni Vallabhaneni formed the company in 2010 after meeting and realized they were interested in systems thinking and change. After participating in various competitions, the company collected up to 350000 dollars in grants that enabled the team to travel to Nairobi, Kenya, and implement their project.
However, as the company operates in Nairobi, it faces several dilemmas that may influence its future. First, the Kenyan government does not allocate funds for significant sanitation projects like the sewage pipeline, unlike Ghana and Zambia. As a result, the company cannot shift to government funding as their essential revenue source is from grants. Therefore, Sanergy faces the dilemma of international expansion to countries that are willing to allocate funds to sanitation projects or concentrate on saturating the market in Nairobi. Additionally, some of the slum residents already have pit latrines, and it is difficult for them to see the significance of Fresh Life toilets (FTLs). Another dilemma that the company faces is developing new products or maintaining existing ones, especially when the company’s scientists are excited about developing new technologies that would turn into market pilots (exploration or focus). This paper focuses on identifying key issues that Sanergy faces and proposes solutions to these issues while recommending strategies to accomplish them.
Background
While teaching English in Hunan Province in China, David Auerbach became aware that many people lack proper sanitation and access to toilets and wondered if the issue was solvable. In 2009 while on a hiking trip, Auerbach bonded with his classmates Anni Vallabhaneni and Linda Stradley. The three individuals interested in systems change and thinking realized that the sanitation issue needs innovative solutions. There was little development in sewage systems, even in developed cities. Cities used water to flash waste from households and buildings into colossal storage tanks where treatment was unsuccessful in decontaminating the waste effectively. Therefore, they settled on sewage treatment and collection in evolving countries to be lucrative if they used a system-level method. Additionally, administrations in new market were likely unable to pay for outdated sewage structure, so they had to develop a firm that would increase value to the waste to reduce the cost of treatment and collection.
The team agreed to focus on biogas digestion after brainstorming different systems for sewage conversion in Development Ventures. Initially, the decision seemed promising because development experts and funders were explicitly excited about generating energy. Therefore, Auerbach and his team combined the words sanitation and energy to acquire the company name. However, by the time the semester ended, they realized that biogas digestion would not make much revenue since they had to have a significant amount of waste at the start. They, therefore, decided to opt for something that would yield profits faster. Sanergy applied and competed for grants. By the time its founders were graduating, it had accumulated up to 350000 dollars allowing them to travel to Nairobi and implement its business strategy.
By 2018, the company had over 1800 toilets and served sixty thousand people daily across eleven informal settlements. Sanergy had franchised its restrooms to more than a thousand operators who made a profit of over a thousand dollars annually. It also had 220 full-time workers. However, a significant number of residents already had latrines, and it is unlikely that they would switch to Fresh Life Toilets (FLTs) without seeing their importance. Another dilemma the company faced was that the Kenyan government did not have significant sewer projects in the pipeline. Usually, sanitation in major cities is funded through government and not grants and not for profits (Wildman & Flatter, 2018). Despite the company’s reliance on grants for research and development, it aimed at shifting to acquiring funds from the government. As a result, the management is in a dilemma of saturating the Nairobi market or expanding to countries willing to allocate funds for such projects. Also, the company faced a dilemma between focus and exploration. The company was stranded between developing new products or maintaining its existing ones, especially when its scientists were excited about developing new technologies that would turn into market pilots.
Evaluation of the Case
Sanergy Hybrid Model
According to Morais (2019), circular business models enable firms to generate revenue streams and reduce costs. Based on this principle, Sanergy consists of dual self-regulating entities: one for nonprofit and a profit. The hybrid business model allowed the company to promote participatory financing for it to receive investment and donations. Also, having distinct dual units from the start made the company’s legal arrangement direct, as transitioning from a profit to a nonprofit or vice versa is challenging (Waldman & Flatter, 2018). The for-profit unit concentrated on developed market opportunities where it collected and processed waste and sold it to farmers. On the other hand, the nonprofit collected funds from family organizations that sought quantitative environmental, social, and health impacts in Nairobi’s slums.
The primary purpose of Sanergy’s business model was to allow the company to address its dual goals. What makes the Fresh Life model of the company’s nonprofit arm effective is it involves the local people. Local business people run most activities associated with Fresh for Life. The Borgen Project (2019) reports that more than ninety percent of its employees are Kenyan, where sixty percent live in informal settlements. The toilets have provided more than nine hundred jobs to Kenyans. As a result, FTLs provide toilets to promote sanitation and income for individuals operating them as there is a small fee compared to unhygienic alternative costs. Allowing the residents to manage the company’s activities has allowed many residents to embrace these developments, growing the company.
On the other hand, solely running the FLTs through franchisees has limited penetration and access to these toilets. For instance, some individuals cannot even afford the small fee the operators charge for use, and the company has not considered schools that suffer a lot from lack of toilets. During interviews with the residents, Herper et al. (2013) found that many of them have a financial choice between a particular basic need and sanitation. The residents do not have the knowledge that sanitation and malnutrition go along.
Company Layout and Employment
Sanergy opted to establish their headquarters offices to look like a hip or a startup. It had an open office and unstructured layout that facilitated collaboration between various teams and motivational messages on the wall. The company has also kept a backup generator to ensure enduring power and internet, particularly during Nairobi’s frequent outages. Waldman & Flatter (2018) report that this approach has made the company unique from other Nairobi offices with an individualistic and traditional layout with cubicles. This layout has been beneficial to the company as it helps reduce costs and increase productivity and retention. Shatry (n.d) reports that the open office layout promotes employee interaction and makes teamwork, solving problems, and clarification easy. However, since the two arms of the company work under the same roof and are on opposite sides, few workers create an overlap attempting to link the bridge. As practical as it sounds, it is easy for employees to lose concentration due to activities from the other team, especially when they are loud or moving around a lot.
Waldman & Flatter report that Sanergy employed executive couches to attract top talent. It also announced recruitment via word of mouth instead of asking for applications from the public. This approach is practical because it narrows down to local prospect recruits who understand the problems that lack of toilets cause and want to improve their living standards. On the other hand, word-of-mouth marketing limits recruits to those who know company employees because the information does not reach everyone simultaneously. Therefore, despite acquiring recruits, many people miss the opportunities making the marketing technique ineffective.
Stakeholders
Due to its dual nature, the company had stakeholders in the profit and nonprofit arms of the business. Fresh Life had different stakeholders, including local governments, international donor organizations, FTL users, and FLT franchises. New Life provided the toilets to operators upfront and recovered the production, maintenance, and collection fee of seventy dollars annually (Wildman & Flatter, 2018). The company provides the operators with a meaningful and profitable occupation. These operators include landlords for private property and community institutions such as clinics and churches. FTL users are stakeholders as they are customers to FTL operators and use the FTLs on pay-per-use grounds. The company found grant funding relevant since it was operating in a new market and Nairobi’s sewage systems challenges. Therefore it was necessary to have international organizations fund some projects, for instance, the Bill and Melinda Gates Foundation.
The Farm Star, a model for the business’s profit arm, had farmers with two to fifty acres of land as their stakeholders. Since the company uses fecal waste, it produces nutrient-rich organic fertilizer and has become its largest organic fertilizer producer. Despite the fertilizer being costlier than chemical fertilizer, the company’s marketing strategy of value proposition effectively convinced farmers to invest in the brand. The value proposition was that the fertilizers would give the farmers better soil in the long term and more harvest in the short term (Wildman & Flatter, 2018). However, what did not work was the long production time as the process needed large land and a significant amount of wastes. For a startup, acquiring land was hard because the land was expensive. The company had to partner with the local government to purchase a piece of land in the city outskirts to facilitate processing.
Proposed Solutions
Sanergy can continue saturating the market in Kenya as it eyes to partner with other governments. However, it is essential to note that their effectiveness will highly influence whether or not they expand to other countries. Esper et al. (2013) explain that Sanergy needs to explore the market to create more positive outcomes and reduce adverse effects. Opportunities to mitigate negative results entail address financial limitations for franchises as they pay the loan and monitor customers’ negative experiences to improve satisfaction and increase sales. These opportunities include exchanging best practices and knowledge among franchisees. Another opportunity is in the environment around sanitation establishments whereby Sanergy could motivate operators to maintain cleanliness in the community. Other opportunities include performance management, handwashing and hygiene, sanitation advocacy, and information sharing about financial and health benefits of better sanitation instead of open defecation.
As mentioned earlier, some residents already have pit latrines and might not be interested in FTLs. Therefore, Sanergy needs to develop an FTL collection process compatible with existing pit latrines. Instead of choosing between exploration and focus, the company should attempt to balance the two based on the customers’ preferences. For instance, the company should develop features in the FLTs to accommodate expectant mothers, people with disabilities, children, and the elderly. Additionally, the company should expand its market to create more revenue in efforts towards sustainability while it improves sanitation in the city. Some of the gaps the business could attempt and fill include target signs to direct prospective customers to the FTLs to attract more customers, create a value proposition to draw, and create more activities at the site (Esper et al., 2013). Also, facilitation of penetration and awareness in clinics and schools to increase public awareness about sanitation and health.
Recommendation
For the company to productively share information about the importance of sanitation and health, it should look for openings to partner with workplaces, women organizations, clinics, and schools to alert the relationship between better hygiene and lasting positive effects on finances and health. According to Esper et al. (2013), partnering with schools will allow children to acquire information on water, hygiene, and health and spread the message to people at home. Additionally, partnering with women’s groups is crucial because women are the primary decision, especially where their children go. Also, Sanergy should inspire the operators to share concerns they experience in daily tasks in their semiannual and other meetings, allowing them to transfer knowledge and share lessons, best practices, and challenging situations. Sanergy should develop an incentive system like prizes for cleanest FLTs and highest sales to improve customer experiences and promote a healthy competitive environment to improve performance management.
Esper et al. (2013) propose that franchisees consider fitting customer complaints boxes to monitor and correct negative consumer experiences. This way, the company can also assist them in handling concerns about FTL materials and design that franchisees cannot control. Furthermore, Sanergy should explore collaborations with nongovernmental organizations, microfinance institutions, and the administration to lessen the effects that operators go through as they pay loans they acquired to buy FTL. Esper et al. (2013) explain that the loan repayment period is usually an average of five months. However, most franchisees are already entrepreneurs who take on more financial risks, thus becoming economically vulnerable when the five months are over.
Over the years, there has been movement in Kenya that has forced the government to increase awareness of sanitation and allocate resources. More understanding of the health and financial impacts of improved and unimproved sanitation, and Kenyans now understand that sanitation is a fundamental human right (Esper et al., 2013). Therefore, Sanergy should collaborate with the government on advertising programs to increase community awareness of sanitation and health issues. Additionally, to create a value proposition, the company should encourage franchise owners to establish kiosks to increase activity at the site. The company should also modify its designs of FLT models to suit all customers, such as children and adults.
Conclusion
Over the years, social entrepreneurship has significantly evolved where society expects for-profit companies to be socially conscious and encourages nonprofits to be more innovative. It is clear from the case above that nonprofits embrace entrepreneurial approaches and innovations to increase their impacts and attain financial sustainability. Sanergy’s founders have experienced many challenges in their attempts to scale and have learned lessons from them. There are several decisions the company made at its most vulnerable stage that have contributed to its success. The insights that arose from the case study include developing a brand and gaining the media’s attention, securing the company’s key social, financial and human capital, and developing the correct business model and value chain for impact delivery. Sanergy’s case shows how essential it is to give all elements of the company equal attention.
References
Esper, H., London, T., & Kanchwala, Y. (2013). Improved sanitation and its impact on children: an exploration of sanergy. Impact Case Study No. 2. Ann Arbor: The William Davidson Institute. Copyright, 3-3.
Morais, C. (2019, November 18). Sanergy: Using mobile to unlock circular economy approaches to sanitation in Nairobi. Mobile for Development. Retrieved September 8, 2021, from https://www.gsma.com/mobilefordevelopment/blog/sanergy-using-mobile-to-unlock-circular-economy-approaches-to-sanitation-in-nairobi/
The Borgen Project. (2019, December 29). Fresh life toilets: Toilets for Kenya. Retrieved September 8, 2021, from https://borgenproject.org/fresh-life-toilets-toilets-for-kenya/
Shatry, M. (n.d.). My experience at Sanergy – Mohamed Shatry (YC ’22). Yale Macmillan Center. Retrieved September 8, 2021, from https://se-hopkins.yale.edu/my-experience-sanergy-mohamed-shatry-yc-22
Waldman-Brown, A., & Flatter, G. C. (2018). Scaling Sanergy: Growing a Promising Sanitation Startup.