Student Action Research Assistant Report
January 14, 2017
On Saturday, January 14th, UNH Engineering Student Abraham DeMaio set off to Lilongwe, Malawi, to visit Victor at Ziweto Agrovet Shops. During this visit, Abe got to learn a great deal about how this groundbreaking organization operates. Abe spent the week with Victor and his business partner, Byton, traveling up the countryside to visit the franchise, owners, lead farmers and customers who comprise the Ziweto network.
During his visit, Abe investigated progress on critical issues identified at the Social Sector Franchise Innovations Roundtable in September, as well as identify some additional issues for Ziweto.
Critical Issue #1: Unit sales and profitability
As discussed in the last blog, Victor is trying to identify ways to increase sales and profitability of current units, and attempting to diversify his offerings, to better meet the retail needs of the farming communities that Ziweto is serving. During Abe’s visit, he learned that Ziweto is enhancing their lead farmers’ capacity, by providing stock from the Ziweto Agrovet Shops on credit. This addresses the barrier of lacking upfront capital, and allows them to better reach their target market, by allowing the lead farmers to provide needed product regardless of their personal financial status. This is going well, but the team identified the need to digitalize their sales process — there is currently a lot of handwritten accounting measures, and the sales and credit-tracking process would certainly be streamlined and more accountable if they had access to computers or tablets for those purposes.
In terms of product diversification, negotiations with feed and seed distributers, Victor is still exploring expanding their offerings to include additional preventative measures, such as de-wormers and tick control. These new products would be distributed in the Ziweto shops with the hope they would attract more farmers and bring in more overall sales.
Another major challenge regarding Critical Issue #1 is the profitability of the units, at all levels of the organization. Some of the customers that Abe interviewed complained of Ziweto’s prices being too high, although many said that most of the product pricing was reasonable and all were impressed with the quality and the service. The Lead Farmers are having difficulty selling at enough of a markup to afford to procure their product outright. And the franchise owners aren’t reaching financial independence in the timeframe originally anticipated as traffic to the shops has been slow due to the rain season and inadequate advisement done so far.
When Ziweto sets up a new franchise, they anticipate to build capacity for the first 18 months of ownership. This set-up cost includes build-out, stock, and salary for the time of the original investment. However, this is a slow-growth market, and the current franchisees aren’t achieving the margins needed for profitability at this point. Victor and Byton are anticipating having to stretch the support extended to the franchisees from 18 months to three years. Hopefully, their plans to diversify to offer higher-margin products, as well as internalize their supply chain (read on for exciting updates!) will help to address this issue.
Critical Issue #2: Capital and expansion
On the last call between Victor and Lori, Ziweto had lots of exciting opportunities in the horizon, and Abe got us valuable updates on these plans to increase working capital.
Another initiative in need of update is Ziweto’s hope to secure a loan through VisionFund. While it seemed promising at the time, and offered opportunities for reaching his expansion plan goals, deeper investigation revealed a high and compounding interest rate that has made the opportunity much less attractive. Thus, Victor has decided to pursue other funding options.
Victor’s partner, Byton, had a great experience with Fledge LLC, a Seattle-based startup incubator. During the eight weeks of training he received, he developed a solid business plan and polished his pitch. As a result, Ziweto received a $20,000 cash investment on a 5-year repayment plan, in return for a 6% equity stake covering the period of the investment. Fledge also provides ongoing revision assistance for Ziweto’s financials and business plan, and monthly meetings to help with fundraising.
Abe was also able to get some updates on the Malawi Innovation Challenge Fund (MICF), which is currently reviewing responses to questions Victor submitted. The proposal is in a reserve status at this time and hopefully it will be considered for funding.
While this opportunity doesn’t impact the mission or business model of Ziweto Agrovet Shops, it would allow him to expand Ziweto Enterprise to create new functions — the current livestock health division, as well as a meat processing division and chicken vaccine production facilities. Aside from the cost savings inherent in internalizing its supply chain, Ziweto would also realize benefits from no longer being reliant on the government for vaccines. Currently the vaccines are produced by a Central laboratory owned by the Malawi government, and they have experienced inconsistent reliability and availability of product, so this would better serve their business needs and their customers.
While this prospect is exciting, it would still require Ziweto to furnish a great deal of capital. MICF funds 50% of the project from beginning to end, but retroactively; meaning that Ziweto would need to make the initial investment. The expansion would have to be executed in distinct phases to effectively “leapfrog” the funds.
When we last posted, Victor was exploring the purchase of Alfa Medics Malawi division. Ziweto purchased Alfa Medics rights to distribute Kepro products for $75,000 USD. Lori, Victor’s mentor, supported the move, and since the last blog entry the transfer is underway!
The purchase gives Victor all stock, shop, and distributer rights, servicing the entire northern region of the country and about 20% of the southern and central regions. Due to Alfa Medics established brand loyalty in Mzuzu, Victor intends to keep the name and branding the same, and just initiate control of operations. This acquisition has some major advantages: First, by assuming control of its supply chain, Ziweto Agrovet benefits from lower prices and therefore better profit margins and reduced prices to smallholder farmers. Second, Victor is keeping all staff from Alfa Medics, so there is no learning curve; and there is enough staff support and market demand to open additional south and center region distribution centers. Finally, Alfa Medics provides an immediate additional revenue stream. As it is running currently, this very established organization is bringing in about $10,000 per month of revenue, which will help with Ziweto Enterprise’s cash flow immensely.
This happening is opening up a great deal of possibilities for Ziweto, but with increased growth comes additional need for capital. So, while some of Victor’s funding questions are answered, many of the answers seem to lead to more questions. Objectively, however, it is a thrilling time for Ziweto and Victor’s business decisions seem to be leading Ziweto in exciting new directions! Victor has a goal to reach 21 Ziweto Agrovet Shops covering the rest of the country by end of 2018 and this plan requires investments of at least $275,000.
Critical Issue #3: Operating Procedures
One of Victor and Lori’s goals was to work on formalized, written operating procedures. While this hasn’t been fully realized, training meetings are still ongoing. There is a bit of a discussion between Victor and his partner, Byton, about whether the documentation will be in English versus local languages, but they agree on the need for a central document for both staff members and franchisees to increase mutual understanding. Initial drafting has already begun, with Lori’s samples as inspiration.
As mentioned earlier, digitalization of sales, inventory, and methods would help greatly to streamline and simplify their internal processes. Weighing this cost against their other expenses and ventures, however, may be difficult. Overall, as the new opportunities arise, it will be interesting to watch how Ziweto prioritizes and expands — the equilibrium between immediate profitability and margin-increasing, capital-heavy investments is a precarious one, but Ziweto is well positioned to continue working on their Critical Issues and develop as an impressive enterprise.