Josh Allen is the founder of two-year old WO Design. Based in Bozeman, Montana, WO Design makes and sells pet toys through a network of speciality retailers and its own ecommerce website. Recently, Josh decided to raise the $7,500 he needs to pay for the design work on new WO products using the Kiva loan platform. Josh graciously agreed to let me ride along and tell his story as he goes through the application and fundraising process.
Over the next several weeks, I’m going to interview Josh as he reaches some key milestones. The goal of this live case study is to share his Kiva experience from his perspective as a borrower. Along the way, I’ll also be gleaning insights from the Kiva team.VISIT THE WO DESIGN WEBSITE
The Kiva Platform Facilitates Microloans
Kiva is a non-profit organization founded in 2005 based in San Francisco. It leverages technology to help underserved entrepreneurs across the globe access capital. Through its online platform and network of field partners, Kiva facilitates the origination and repayment of 0% term loans (for U.S. borrowers only). To-date, Kiva has distributed loans totaling just under $1 billion to 2.2 million borrowers located in 82 countries. Loan funds were sourced from 1.6 million individual lenders, who can lend as little as $25. All the money from lenders goes directly to borrowers.
Kiva funds its operations through donations, grants, and sponsorships. Due to its social underwriting model – in which borrowers and lenders connect at a personal level – the repayment rate on loans is an exceptional 87%. In short, Kiva is an effective fintech-powered social enterprise.INFORMATION FOR KIVA BORROWERS
WO Design is a Not-Just-for-Profit Company
A few years back, Josh spent time in Ethiopia as part of a church service mission. He was moved by the experience. When he got home, Josh committed himself to finding a way to help. That said, he wanted to find a way to complement – not merely supplement – the charitable work that was already being done in Ethiopia. After doing some research with his new NGO contacts on the ground in Addis Ababa, Josh learned that raising money for food remains a persistent challenge.
A few years earlier, Josh and his wife, Holly, had started a specialty pet supplies store. Josh knew for-profit business, and knew how much Americans love their pets. Inspired by the TOMS One for One® model, he set out to translate love for pets into meals for people in Ethiopia.
I know how to create a business. I know how to sell products. Why don’t I do what I know how to do?
Josh teamed with a charitable organization called Bring Love In (“BLI”) that works with widows and orphans in Ethiopia. (Admittedly, I initially failed to recognize that “WO” stands for widows and orphans.) Together, Josh and BLI formulated a “Two for One” model in which the purchase of a pet product would translate into enough money for two meals.
WO Design is a for-profit company, but its purpose is to maximize its social impact in collaboration with BLI and, eventually, other non-profit partners throughout the world. By this summer, customer purchases had already provided funding for a total of 10,000 meals. Josh is on his way, but he needs to grow the company – and find creative ways to finance the growth.
Square Peg. Round Hole.
A non-profit can seek grants and donations. A typical for-profit business can offer a return to attract investors. A not-just-for-profit company that seeks to maximize its charitable giving – and thus reduce the amount of distributable profit available to providers of capital – can find itself in something of a no-man’s-land.
In order to raise money to launch his first product – the WO|Bone – in the late summer of 2014, Josh turned to crowdfunding. He originally applied to Kickstarter, but was rejected. At the time, Kickstarter was concerned about people raising money around a “doing good” theme without being accountable for following through. (Since then, Kickstarter reorganized itself as a benefit corporation in order to help remove doubts about its own commitment to social good.) So, Josh ended up using RocketHub.
The WO|Bone is manufactured in the USA from recyclable, FDA-compliant, and BPA-free materials. It’s important to Josh that WO Design’s products are made in a manner and with components that are consistent with his stated social objectives. After all, the meaningfulness of helping feed widows and orphans is tarnished if the products endanger people or pets.
The crowdfunding campaigns were fun. They’re a lot of work. It’s a lot to manage. It takes quite a bit of effort to get the ball rolling. The amount of effort for the number of people we reached was a little bit exhausting for us.
Josh, in fact, successfully completed two crowdfunding campaigns on RocketHub. The second was in mid-2015 to help launch the WO|Disc. However, raising rewards-based money on a crowdfunding platform is really hard work. In effect, Josh was pre-selling product. Given a retail price for the WO|Bone and WO|Disc of $12 and $16, respectively, he had to engage a lot of people in order to raise an appreciable amount of money to finance product design and initial order quantities. This kind of crowdfunding process helped get WO Design started, but it’s exhausting.
Keeping Up the Momentum…Costs More Money
By the summer of 2016, Josh and his company had developed a couple of pet products, had launched an ecommerce site, and had cultivated wholesale relationships with a few dozen specialty retailers around the country. However, it’s tough for retailers to make a substantial commitment to just a couple of products – even if there are several different sizes and colors. So, Josh started working on ideas for new products.
His next pet toys will be a line of sewn products. That means additional design and prototyping fees.
The design and prototyping fees will probably land in the $6,000 to $8,000 range. I’ll be able to place an initial inventory order once I get those details figured out.
It’s brutally hard to bootstrap a manufacturing company. That’s particularly true when you are donating much of your operating margin. That leaves little cash to reinvest in new products and growth. That’s when Josh started thinking about applying for a Kiva loan.
Starting Down the Kiva Loan Path
Josh has been aware of Kiva for some time, but hadn’t realized that it was now facilitating loans up to $10,000 for U.S. based entrepreneurs. Recognizing that Kiva lenders can individually lend as little as $25, Josh nevertheless thinks it likely that lenders will, on average, lend more. If so, that could make the Kiva process somewhat less taxing than raising a comparable amount on other crowdfunding platforms.
I’ve known of Kiva for a while. I actually heard one of the co-founders, Jessica Jackley, speak at a conference.
Josh anticipates making a loan proposal for $7,500. That should be enough to complete the design process. At that point, he’s confident that he can get enough “soft circles” from his existing network of wholesale customers to support an initial inventory order, which he believes he can cover with the small amount of cash WO Design has been able to accumulate.
So far, Josh has found the Kiva application process straightforward and welcoming:
I like the way the site looks. It’s easy to understand and follow the instructions. As soon as I started the application, there were a number of informative, helpful tips offered to make my application a strong one.
He was also impressed by the Kiva staff’s follow-up:
On the day I started my application, I didn’t have time to complete it. Within one or two days, I received an email from Kiva saying, “Hey, I see that you started an application and didn’t finish it. How can we help?”
Nevertheless, Josh has some concerns:
My understanding is that the U.S. loan program is fairly new. I don’t know a lot about how it’s going to work to acquire people who are interested in our project. That’s not super clear to me at this point.
Even so, he’s optimistic:
I’m excited to see where it goes. For someone in my shoes, loan amounts around $5,000 could be very helpful.
It’s a mixed up world. Non-profits such as Kiva use sophisticated technology to facilitate peer-to-peer microloans on a global scale. For-profits are created to provide a sustainable source of charity to those who are among the most needy.
Josh is a white, male, American – not a profile that immediately strikes one as representing the financially excluded. Nevertheless, it’s not hard to make the case that a young, small, manufacturing company that gives away much of its operating profit is underserved by the capital markets.
WO Design is enjoying some early success, but it’s still very much a hand-to-mouth operation. Over the next few weeks, we’ll learn whether the Kiva community of lenders think Josh and WO Design are worthy of their support.READ PART 2 Published in