The Challenges of Managing a Sustainable Social Cause Business
by Josephine Bow, Microenterprise Coordinator
My first overseas volunteer stint was at Warm Heart (WH) in late 2011. As a garment industry consultant and former trade journalist for the textile, apparel and retail industries, WH was interested in me for their weaving microenterprise. When I arrived, I discovered that we made gorgeous handcrafted silk scarves from the silkworm stage as well as other less labor-intensive items which, along with other locally made items, had been shipped back to the U.S. for sales.
I also discovered a seeming disregard for some of the rudimentary business principles which our consultancy writes books about and the absence of the necessary preproduction systems to ensure correct production and timely deliveries. Unsurprisingly, WH was only producing to stock and it was far too early to ask questions about direct costs (materials and labor) or indirect costs (overhead, salaries, transportation, etc). Thus began my introduction into the strange new world of microenterprise business within NGOs.
Since I was staying less than a month, I decided the best course of action was to observe as much as I could of the weaving operations and then to make a series of recommendations, mostly related to preproduction systems. A few months after my return, I received an email from Evelind saying that thanks to my help, WH had been able to take its first export order, produce to spec and deliver on-time. Nobody said anything about whether any profits had been made.
Six months later, I volunteered at a women’s weaving co-op in Guatemala where I found a similar set of realities. The 400-woman weaver association had existed for 25 years; it exports, operates a local retail store and gives weaving courses. But export sales and marketing are handled entirely by unpaid foreign volunteers; the operation isn’t self-sufficient and continues to survive as a charity in hard times.
After my month in Guatemala, I realized that I could continue to go to new places to volunteer but that my experience would begin to repeat itself. It would be far more productive to return to the same place and deepen my involvement staying two months instead of only one. In fact, although I'm only in Phrao two months every winter, I now work continuously for Warm Heart throughout the year from my home base in Spain.
In order to establish a new business paradigm under which to operate, I researched Fair Trade operations. I came to the conclusion that since most NGOs rely heavily on unpaid volunteers for their business activities, there needs to be an entirely new definition of core terms such as “profitability”. I decided that as long as an NGO’s business activity ensures that the first link of the supply chain is fairly paid according to local standards, it can use whatever other means – donations, unpaid volunteers, reduced margins further along the supply chain – to keep going. If it can keep going, it’s sustainable and “successful”.
Over the past six years, we’ve worked on improving every aspect of the activity. The first big breakthrough came in mid-2013 before my second stay at Warm Heart. I met Jia, our first volunteer from Mainland China, when editing her blog post on the WH volunteer blog on Tumblr (which is my other main responsibility at WH). Up until then, WH was selling at only a few stores in Chiang Mai which were too low market and where we had unfavorable consignment selling terms.
Jia spent two months tramping the crowded streets of Chiang Mai. I was able to give her guidance on the upmarket stores we needed to be selling at with higher wholesale prices and how to negotiate better terms. Thanks to her dedication, by the time I arrived in December, she had set up our first viable Chiang Mai retail network comprised of nearly a dozen accounts of which half are still active today. Jia’s story can be found here.
My second stay at Warm Heart was busy on all fronts. I reorganized our store room, putting order into all our inventory, creating standardized style names and production vocabulary. The textile industry is very specific – a word like “cotton” can mean raw cotton, cotton yarn, dyed or ready-for-dyeing, cotton fabric or cotton finished garments. Standardization is even more important when English is not everybody’s mother tongue.
On the production side, for our expensive eri silk scarves, I developed a new scarf called Prism which is now our bestseller. Because of its multicolored warp (vertical yarns), we are able to use up all the leftover yarn stocks and we can change the horizontal weft yarn whenever we want. We are no longer forced to produce 20pcs of the exact same colorway design. Each winter I also introduce a couple of new styles for our less expensive rayon and cotton scarves using commercially dyed yarn and I insist that we produce at least 3-4 colorways of each design. This enhances volume selling: stores will buy each colorway because it looks nice for selling. By the time I left in Jan 2014, we had plenty of scarves in stock for the following year and our collection continues to grow.
On the selling side, I set up cohesive price lists for our different selling channels: wholesale, consignment, private and eventually online sales. I visited all our new accounts to ensure they were suitable venues and terminated unsuitable accounts. I set up CRM (customer relations management) files for each account detailing the store’s management style, clientele, merchandising and price points, and our entire sales history. I created product style cards and other operational guideline documents.
Although I was able to track sales and inventory, I still had no idea about expenses. I still guessed that we were losing money on every item sold. My other main frustration was working with all the short-term volunteers who were improperly trained and who made us look unprofessional. We were unable to service our accounts regularly; if there was no volunteer available, the stores in Chiang Mai just didn't get visited.
The next big breakthrough came in mid-2014 with Britta, our first volunteer designer/product developer. Working online in advance of her arrival at Phrao, Britta and I focused on developing her first collection of wrap bracelets. Because of her previous business background, Britta understood about margins and was able to source inexpensive but attractive materials for her production which our women could make successfully without too much training or additional equipment. Her designs were sophisticated and matched nicely with our scarves. The bracelets have been a huge hit and through the four collections, we’ve sold over a thousand bracelets and make real profits.
Britta’s input meant we could now define our design look and target market: trendy and elegant items appealing to an international clientele at medium-high price points. On her first trip to WH, she donated about 120 bracelets and took additional pieces home to Holland to sell at full retail price which then pays for her donation on her subsequent trip.
Because of Britta, we now have a volunteer designer/product developer program. The volunteer pays for the first production run of their collection so there is no risk to Warm Heart. In exchange, the volunteer really learns how to operate a fashion microbusiness in the developing world and is active from the first day after they land in Thailand. Stephanie, our most recent volunteer designer/product developer’s story can be read here.
Around the same time, Apple joined microenterprise. This was another huge development since it meant that when I returned in late 2014, I was now able to train someone permanent and no longer had to struggle with a revolving door of short-term volunteers. Working with Apple has its ups and downs. On the plus side, she’s great at supervising the makers and she visits the stores regularly throughout the year. Her English is minimal and our email correspondence is sometimes surreal, but we both send lots of photos back and forth to enhance communication. On the minus side, she lacks business savvy – maybe one is either born with this quality or not – and she still needs constant supervision. Still, all in all, we’re a great team and get a lot done each winter when I’m in Phrao.
On my third trip in 2014/2015, besides training Apple, I continued improving every aspect of our operations. In Nov 2014, we began online selling for the first time through Discovered. The story of our first product photo shoots with volunteer Jessica can be found here. Sales have been steady over the past two years but come primarily from Netherlands and the UK where the operation mostly promotes. In Jan 2015, I was finally able to write a final sales report for 2014 and outlined my goals for 2015. This included cautious launching of new products and product lines and continued improvement in all phases of operation.
2015 was our best year so far with sales up 122% over 2014. For the first time ever, I tracked both sales and expenditures throughout the year and was able to calculate margins and issue complete quarterly reports. Even with Apple’s hefty salary, we were sustainable on operational terms and even making “profits”. However, if we factor in what the volunteers spent on their trips and their production donations, things become more fuzzy. But by my original definition, we were definitely sustainable and had a seven-year track record with mostly improving annual results.
That gets me to the meat and the main reason for writing this article. What makes a social cause business sustainable? We are constantly contacted by different people who either run a social cause business or who want to launch one. Some of them we work with but I’m sad to report, the relation rarely lasts beyond the opening order. Too many people want to “help” but they lack real business experience and are unwilling to do what it takes to learn. They start with their own savings but soon realize that they can’t be in both places – the production location and the selling one – at the same time. The volume of sales doesn’t cover their travelling expenses so they put prices up even higher which further reduces sales. After a year or so, both their savings and their original enthusiasm has run out and they close shop, presumably wiser for the experience. The worst part is the unfulfilled expectations they leave with their makers who fortunately are generally more realistic and don’t count their chickens before they hatch.
Evelind regularly sends me leads from people who want to work with us. My first question is always, who are these people and do they know what they're doing? It’s pretty easy to weed out those that don’t. Good intentions aren’t enough to make you sustainable in fashion, the toughest business in the world. If you don’t have serious business experience and are underfinanced, please think twice. Instead of becoming yet another supplier in an already incredibly overcrowded sector, your money could be used far more wisely, for example, as a straight donation with conditions on what you want the money to be used for.
The fact that I can give advice doesn’t mean by any means that we’re out of the woods ourselves. Every year brings new challenges and sales so far for 2016, with tourism down 70-80% in Chiang Mai and a limited number of high-end stores, is looking so-so with substantial drops in every channel. This new website is our attempt to increase online sales where we have the greatest margins. Because we’re so small and can’t regularly introduce new products, we’re beefing up the content, the real back story behind our operations, hoping that people will be interested in reading about Fashion Accessories Microenterprise – and then buy a piece or two to support us and maybe pass along the link to the website.
As I near the end of my sixth trip to Warm Heart, we're still here but business is tough. I'm happy to report that despite the continuing tough trading conditions in Chiang Mai, our latest offerings were well received and our stores bought well. Our results on the online store on Discovered have dropped substantially, however. That's because their product assortment offered by a lengthening roster of artisans continues to grow whereas our store is starting to look repetitive to repeat customers. We've also been unable to draw as much traffic as we'd like to our own webstore here.
And so it goes. We're constantly trying to find feasible new products to develop and always on the lookout for suitable new wholesale customers who are few and far between. Britta and I - who have only met once and work online the rest of the time - are planning to be here at the same time next year so that we can brainstorm together. There are just no shortcuts in the fashion business sector.
I also discovered a seeming disregard for some of the rudimentary business principles which our consultancy writes books about and the absence of the necessary preproduction systems to ensure correct production and timely deliveries. Unsurprisingly, WH was only producing to stock and it was far too early to ask questions about direct costs (materials and labor) or indirect costs (overhead, salaries, transportation, etc). Thus began my introduction into the strange new world of microenterprise business within NGOs.
Since I was staying less than a month, I decided the best course of action was to observe as much as I could of the weaving operations and then to make a series of recommendations, mostly related to preproduction systems. A few months after my return, I received an email from Evelind saying that thanks to my help, WH had been able to take its first export order, produce to spec and deliver on-time. Nobody said anything about whether any profits had been made.
Six months later, I volunteered at a women’s weaving co-op in Guatemala where I found a similar set of realities. The 400-woman weaver association had existed for 25 years; it exports, operates a local retail store and gives weaving courses. But export sales and marketing are handled entirely by unpaid foreign volunteers; the operation isn’t self-sufficient and continues to survive as a charity in hard times.
After my month in Guatemala, I realized that I could continue to go to new places to volunteer but that my experience would begin to repeat itself. It would be far more productive to return to the same place and deepen my involvement staying two months instead of only one. In fact, although I'm only in Phrao two months every winter, I now work continuously for Warm Heart throughout the year from my home base in Spain.
In order to establish a new business paradigm under which to operate, I researched Fair Trade operations. I came to the conclusion that since most NGOs rely heavily on unpaid volunteers for their business activities, there needs to be an entirely new definition of core terms such as “profitability”. I decided that as long as an NGO’s business activity ensures that the first link of the supply chain is fairly paid according to local standards, it can use whatever other means – donations, unpaid volunteers, reduced margins further along the supply chain – to keep going. If it can keep going, it’s sustainable and “successful”.
Over the past six years, we’ve worked on improving every aspect of the activity. The first big breakthrough came in mid-2013 before my second stay at Warm Heart. I met Jia, our first volunteer from Mainland China, when editing her blog post on the WH volunteer blog on Tumblr (which is my other main responsibility at WH). Up until then, WH was selling at only a few stores in Chiang Mai which were too low market and where we had unfavorable consignment selling terms.
Jia spent two months tramping the crowded streets of Chiang Mai. I was able to give her guidance on the upmarket stores we needed to be selling at with higher wholesale prices and how to negotiate better terms. Thanks to her dedication, by the time I arrived in December, she had set up our first viable Chiang Mai retail network comprised of nearly a dozen accounts of which half are still active today. Jia’s story can be found here.
My second stay at Warm Heart was busy on all fronts. I reorganized our store room, putting order into all our inventory, creating standardized style names and production vocabulary. The textile industry is very specific – a word like “cotton” can mean raw cotton, cotton yarn, dyed or ready-for-dyeing, cotton fabric or cotton finished garments. Standardization is even more important when English is not everybody’s mother tongue.
On the production side, for our expensive eri silk scarves, I developed a new scarf called Prism which is now our bestseller. Because of its multicolored warp (vertical yarns), we are able to use up all the leftover yarn stocks and we can change the horizontal weft yarn whenever we want. We are no longer forced to produce 20pcs of the exact same colorway design. Each winter I also introduce a couple of new styles for our less expensive rayon and cotton scarves using commercially dyed yarn and I insist that we produce at least 3-4 colorways of each design. This enhances volume selling: stores will buy each colorway because it looks nice for selling. By the time I left in Jan 2014, we had plenty of scarves in stock for the following year and our collection continues to grow.
On the selling side, I set up cohesive price lists for our different selling channels: wholesale, consignment, private and eventually online sales. I visited all our new accounts to ensure they were suitable venues and terminated unsuitable accounts. I set up CRM (customer relations management) files for each account detailing the store’s management style, clientele, merchandising and price points, and our entire sales history. I created product style cards and other operational guideline documents.
Although I was able to track sales and inventory, I still had no idea about expenses. I still guessed that we were losing money on every item sold. My other main frustration was working with all the short-term volunteers who were improperly trained and who made us look unprofessional. We were unable to service our accounts regularly; if there was no volunteer available, the stores in Chiang Mai just didn't get visited.
The next big breakthrough came in mid-2014 with Britta, our first volunteer designer/product developer. Working online in advance of her arrival at Phrao, Britta and I focused on developing her first collection of wrap bracelets. Because of her previous business background, Britta understood about margins and was able to source inexpensive but attractive materials for her production which our women could make successfully without too much training or additional equipment. Her designs were sophisticated and matched nicely with our scarves. The bracelets have been a huge hit and through the four collections, we’ve sold over a thousand bracelets and make real profits.
Britta’s input meant we could now define our design look and target market: trendy and elegant items appealing to an international clientele at medium-high price points. On her first trip to WH, she donated about 120 bracelets and took additional pieces home to Holland to sell at full retail price which then pays for her donation on her subsequent trip.
Because of Britta, we now have a volunteer designer/product developer program. The volunteer pays for the first production run of their collection so there is no risk to Warm Heart. In exchange, the volunteer really learns how to operate a fashion microbusiness in the developing world and is active from the first day after they land in Thailand. Stephanie, our most recent volunteer designer/product developer’s story can be read here.
Around the same time, Apple joined microenterprise. This was another huge development since it meant that when I returned in late 2014, I was now able to train someone permanent and no longer had to struggle with a revolving door of short-term volunteers. Working with Apple has its ups and downs. On the plus side, she’s great at supervising the makers and she visits the stores regularly throughout the year. Her English is minimal and our email correspondence is sometimes surreal, but we both send lots of photos back and forth to enhance communication. On the minus side, she lacks business savvy – maybe one is either born with this quality or not – and she still needs constant supervision. Still, all in all, we’re a great team and get a lot done each winter when I’m in Phrao.
On my third trip in 2014/2015, besides training Apple, I continued improving every aspect of our operations. In Nov 2014, we began online selling for the first time through Discovered. The story of our first product photo shoots with volunteer Jessica can be found here. Sales have been steady over the past two years but come primarily from Netherlands and the UK where the operation mostly promotes. In Jan 2015, I was finally able to write a final sales report for 2014 and outlined my goals for 2015. This included cautious launching of new products and product lines and continued improvement in all phases of operation.
2015 was our best year so far with sales up 122% over 2014. For the first time ever, I tracked both sales and expenditures throughout the year and was able to calculate margins and issue complete quarterly reports. Even with Apple’s hefty salary, we were sustainable on operational terms and even making “profits”. However, if we factor in what the volunteers spent on their trips and their production donations, things become more fuzzy. But by my original definition, we were definitely sustainable and had a seven-year track record with mostly improving annual results.
That gets me to the meat and the main reason for writing this article. What makes a social cause business sustainable? We are constantly contacted by different people who either run a social cause business or who want to launch one. Some of them we work with but I’m sad to report, the relation rarely lasts beyond the opening order. Too many people want to “help” but they lack real business experience and are unwilling to do what it takes to learn. They start with their own savings but soon realize that they can’t be in both places – the production location and the selling one – at the same time. The volume of sales doesn’t cover their travelling expenses so they put prices up even higher which further reduces sales. After a year or so, both their savings and their original enthusiasm has run out and they close shop, presumably wiser for the experience. The worst part is the unfulfilled expectations they leave with their makers who fortunately are generally more realistic and don’t count their chickens before they hatch.
Evelind regularly sends me leads from people who want to work with us. My first question is always, who are these people and do they know what they're doing? It’s pretty easy to weed out those that don’t. Good intentions aren’t enough to make you sustainable in fashion, the toughest business in the world. If you don’t have serious business experience and are underfinanced, please think twice. Instead of becoming yet another supplier in an already incredibly overcrowded sector, your money could be used far more wisely, for example, as a straight donation with conditions on what you want the money to be used for.
The fact that I can give advice doesn’t mean by any means that we’re out of the woods ourselves. Every year brings new challenges and sales so far for 2016, with tourism down 70-80% in Chiang Mai and a limited number of high-end stores, is looking so-so with substantial drops in every channel. This new website is our attempt to increase online sales where we have the greatest margins. Because we’re so small and can’t regularly introduce new products, we’re beefing up the content, the real back story behind our operations, hoping that people will be interested in reading about Fashion Accessories Microenterprise – and then buy a piece or two to support us and maybe pass along the link to the website.
As I near the end of my sixth trip to Warm Heart, we're still here but business is tough. I'm happy to report that despite the continuing tough trading conditions in Chiang Mai, our latest offerings were well received and our stores bought well. Our results on the online store on Discovered have dropped substantially, however. That's because their product assortment offered by a lengthening roster of artisans continues to grow whereas our store is starting to look repetitive to repeat customers. We've also been unable to draw as much traffic as we'd like to our own webstore here.
And so it goes. We're constantly trying to find feasible new products to develop and always on the lookout for suitable new wholesale customers who are few and far between. Britta and I - who have only met once and work online the rest of the time - are planning to be here at the same time next year so that we can brainstorm together. There are just no shortcuts in the fashion business sector.