Waterlife: ensuring services of safe and regular drinking water

A frugal entrepreneur pivots to Plan B.

Sudesh Menon is an engineering graduate from IIT Kharagpur. After graduating in 1991, he joined L&T, India’s premier engineering company. He worked on automation projects in large manufacturing plants. In 1995, he joined GE in India. His career progressed to South East Asia. He was the Country Head in Thailand, Malaysia and then Regional Head in Singapore of the Automation, Sensing and Security business. But he wanted to do something that would take him outside his career zone and in 2009, he set up Waterlife, in India.

Waterlife sets up decentralized community drinking water systems. Large-scale infrastructure for piped drinking water exists. But it is difficult to keep the tanks, pipes and pumps running. Maintenance is a critical issue. Sudesh describes how he travelled across the country and saw dead animals inside water tanks. From this experience emerged the idea of decentralized drinking water systems. These are smaller capacity systems adequate for a community’s needs. They purify the local ground water available. Users pay a fee of INR 7 (Euro 0.09) per 20 liters of water. The user fees are used by Waterlife to provide comprehensive Operation and Maintenance services for 10 years. Waterfile provides trained personnel, services the equipment and replaces parts & membranes. Waterlife is very serious about ensuring quality of water. The initial capital expenditure of setting up the plant is met by external sources.

Credit: Waterlife

Waterlife had a great start. The company started winning state government tenders: Pondicherry, Uttar Pradesh, Rajasthan. Average project size was INR 50 million (600k Euros). Financing rounds followed. Aavishkaar, invested in a seed round in 2009, followed by Matrix Partners India in 2011. Loans came in from NABARD and SIDBI.

Recognition poured in. In 2012, the company was one of the winners of the G20 Challenge on Inclusive Business Innovation. In 2013, Waterlife received a grant of USD 100,000 from the India Development Marketplace (DM) funded by the World Bank Group (WBG). In 2015, Waterlife was showcased by WBG at the Science and Technology Innovation Expo at the India-Africa Forum Summit. In 2017, Jim Yong Kim, president of the World Bank called out Waterlife as one of the entrepreneurs who can end poverty.

Entrepreneurial journeys never do run smooth, however. It was possible to win and execute state government orders but receivables soon began to balloon. It was hard for a startup to work through the processes and collect final payments. All of a sudden, the company went into a cash crunch The company ran into loan servicing difficulties with NABARD. Investors and lenders started to panic. The company management was now busy fighting fires.

To its credit, Waterlife management stuck together, regrouped and turned around. The company switched to corporate social responsibility (CSR) departments as the target market. Within the CSR market there are two segments. There are those who fund the capital cost of community drinking water systems near their areas of operations. Examples include oil and gas companies and companies with industrial factories. The other segment are service providers who do not have rural operations. They need to meet the regulatory requirements of CSR spends (in India all companies have a certain size have to spend 2% of their average net profit on CSR). Examples include large banks, hospital chains. To make this transition, Waterlife completely revamped their sales & marketing team. The team now includes people who have had previous experience in market research and consumer goods. It has taken the company more than three years to make this transition. In 2013, government sales accounted for 100% of the turnover. By 2016, sales to CSR departments had reached about 60% of turnover.

An encouraging sign is repeat sales from the same customer. Sudesh talks about a customer who started with an order of setting up of drinking water systems in four villages. They then followed it up with an order for 10 villages and is now planning to make an order for 30 villages. The company is keeping away from government business where the tender sizes are becoming larger. A tender in a Southern Indian state was for implementation of drinking water systems for 7000 villages. The state government tender based market has several local — to a state — players. Waterlife would rather focus on implementing its own plan.

Waterlife presents several lessons in innovation. The initial plans of most startups fail. What is important is to pivot to Plan B (or even to Plan C and D) systematically. John Mullins & Randy Komisar describe this process in their book, Getting to Plan B. They give the example of Patagonia. It was the largest company in United States in outdoor gear and growing rapidly when it faced bankruptcy in 1991. Yvon Chouinard, the founder, reckoned that the bankruptcy was a reminder that they were growth for growth’s sake was not sustainable. He used this failure as an opportunity to take the company back to his own environmental roots. The company found out that customers would pay more for environmentally friendly products. It decided to only sell organic cotton fabrics. It reduced waste by doing away with plastic packaging and encouraged customers to send back their used polyester clothes. All these actions helped improve gross margin.

Pivoting from Plan A to Plan B requires working through the five key elements of a business model. The five key elements are: the revenue model, the gross margin model, the operating margin model, the working capital model and the investment model. Emerging economy startups working in energy and water often get excited by the prospects of large government orders. These large orders, however, often put incredible pressure on working capital requirements.

The other lesson from Waterlife is that this is what Jaideep Prabhu, would call Frugal innovation: doing more with less. It does not require the heavy investments of traditional infrastructure projects. The water kiosks are relatively inexpensive and quick to set up. This makes the innovation “to include the margin.” The customers pay user fees: this allows market driven operations and maintenance services. Indeed, Waterlife incorporates several measures to lower the costs of operation. It develops the purification solution after testing the water. This means that the company deploys Reverse Osmosis (RO) only when required. This allows it to avoid unnecessary electricity charges. RO consumes electricity as the water must be passed under pressure through membranes. Waterlife uses only energy efficient pumps. It has several hundred installations that run on solar. This further reduce electricity costs. The company puts in several measures to conserve water. The company uses membranes that reduce reject water. Unwanted discharge of waste water is avoided; facilities include rainwater harvesting.

This is important. Environment friendly measures does increase the capital cost. The increase can be borne by donors and investors for whom the benefits should be important. The important thing is that it reduces the operational costs. At the margin, the decrease in operational costs is enough to bring basic services to un-served populations.

The series of blogs is based on my experiences in working on the KfW SIDBI Innovation Finance Programme between 2013 to 2015. It was one of the most satisfying periods of my professional life and I worked with a wonderful team of Dr. Jürgen Bischoff, Harsh Kaul, Rakesh Rewari, Rukmini Parthasarathy and Maike Lerch of KfW. The blog series is my way of appreciating them and all the inspiring people I met. Waterlife has since prepaid its loan to SIDBI.