Entrepreneurship is an evolving area of inquiry as it has become increasingly clear that growth and especially inclusive growth is highly dependent on a country having a robust entrepreneurial eco-system. While more traditional efforts have focused on individual entrepreneurs and their defined issues like access to finance and basic business skills, market systems projects have focused more on systemic biases and constraints that guide the evolution of an entrepreneurial eco-system.
Through projects like Feed the Future Rwanda Nguriza Nshore (Nguriza Nshore), the United States Agency for International Development (USAID) is starting to explore the connection between individual and systemic approaches to catalyzing more dynamic entrepreneurial firms, services and networks. More specifically, two important learning questions related to entrepreneurship and entrepreneurial eco-systems have emerged and will be explored through Nguriza Nshore’s learning agenda.
In a series of blog cases, Nguriza Nshore will explore the distinction between these differing types or drivers of entrepreneurship, including the implications for longer-term inclusive growth. In particular, through the blog series, Nguriza Nshore will build on the emerging understanding from systems thinking that not all entrepreneurs are the same, and that systemic biases and resulting conditions/forces have a substantial effect on which type of entrepreneurship is more common. In many developing country contexts, including Rwanda, formal jobs are limited which pushes many people to start businesses in order to generate cash for family needs. These “entrepreneurs by necessity” tend to focus more on capturing and removing cash from their business to cover family requirements. Their aim is not to grow their business, as much as ensure their family has an acceptable cash inflow. In more mature economies where employment is more accessible, entrepreneurs are driven more by the vision/mission of the entrepreneur to develop a product, grow a business, and/or both that deliver value to customers. For such entrepreneurs, capturing a margin and/or personal gain are often sacrificed for growth in the business. Nguriza Nshore has already observed a change in entrepreneurship in Rwanda and through the blogs, they will explore this distinction and implications on the activities systemic change goals.
Kigali-based Masaka Creamery was established in 2015 as a vehicle for launching a high-quality dairy creamery in Rwanda. The company produces yogurt, fermented milk (buttermilk), cream, cheese and butter for the domestic market. The female-run Masaka Creamery is an interesting case in that its initial value proposition was not one hundred percent defined by growth or commercial goals. It also had a goal of providing meaningful employment for deaf individuals as well as youth. Unlike other cases in the series, Masaka Creamery’s starting point integrated a clearer vision of the value it could provide as a business that went beyond its customers to include its staff and suppliers. As Nguriza Nshore is learning, even businesses that start with a relatively narrow commercial goal, such as generating a positive gross margin, will only grow over time if they take into consideration the value they deliver not only to customers, but also staff and suppliers. Businesses that act in extractive ways toward their staff and/or suppliers are unlikely to get good performance, but as the Masaka Creamery example shows, are also unlikely to weather stresses and shocks well.
Masaka Creamery established its brand as a reliable and quality assured supplier of various dairy products to other businesses such as restaurants and hotels. By targeting restaurants and hotels that catered to high-end consumers, Masaka Creamery could generate a healthy margin ensuring they could treat staff and suppliers in ways that demonstrated shared value, while also investing in the important and necessary quality assurance practice demanded by such a clientele. Interestingly, by focusing more on a business to business model, as opposed to a business to customer model, Masaka Creamery probably eased their start-up process as they had fewer and larger clients on which they could focus their customer service.
Masaka Creamery was growing nicely and attracting investment as it continued to strengthen its brand as a reliable and quality assured supplier of dairy products to its business customers. It is here where the story gets interesting. COVID-19 emerged quickly and had an outsized effect on the exact businesses that Masaka Creamery has targeted, especially restaurants and hotels, which emerged as their largest customer segment. Masaka Creamery could have hunkered down and tried to weather the shock, but they realized doing so would have serious repercussions on their staff and suppliers, so they adapted. Unlike other entrepreneurs who focused heavily on capturing and extracting margins from their business, Masaka Creamery invested in ensuring quality and performance as required by their business customers. This customer orientation that included investing in staff and suppliers, gave them a clear competitive advantage when forced to adapt as they had both an emerging brand based on customer value, an operating culture that was based on shared value (i.e., which also translates into shared risk), and a vision for the company that was defined by more than what they produced.
Masaka Creamery quickly realized that most of their business clients would have trouble maintaining their purchases requiring the firm to look for other channels. Interestingly, Masaka Creamery took the bold step of testing a direct to customer channel. Such a shift from a commercial channel with fewer and larger clients to an end-consumer channel with many more smaller clients can be very difficult for a business. Managing a large and growing customer base requires a fundamental shift in business operations, especially marketing and customer service. Masaka Creamery’s key advantage though seemed to be its customer orientation or its interest in delivering value to its customers.
Masaka Creamery went to work learning how to leverage social media, how to segment the market in ways that eased their transition to a direct to end-consumer channel. They brought on board marketing and branding skills that are essential for a direct to consumer channel, and they raised their game in terms of customer service. For example, they actively engage their customers, leaving thank you notes for customers and promoting their values as central to their business. The transition was not easy as they also had to develop capacity in managing multi-stop delivery routes, a substantial increase in the number of transactions, a large and growing customer base, and brand integrity (i.e., emergent customer complaints, operational hiccups that could affect customer value, unexpected company/product memes, etc..).
Masaka Creamery has emerged out of the transition in a way that has them on a stronger growth trajectory. They have a growing base of repeat customers, their revenue is even higher than before COVID-19, their brand value is increasing, and they are investing in ways that will increase their capacity to deliver value to their staff, suppliers and customers. The Masaka Creamery story is particularly important in demonstrating the value of entrepreneurs when they are motivated by the value they can create, as opposed to the margin they can capture. It is through Masaka Creamery’s commitment to value that they were able to adapt in ways that led to increased growth and increased employment.
This post was authored by the Nguriza Nshore team.