SunCulture Annual Letter 2018

Dear SunCulture Supporters,

One month ago, we closed a round of funding with EDF, one of the world’s largest electric utility companies and a global leader in low-carbon energy (press release). This exciting deal demonstrates that major power players view the off-grid sector as a future cornerstone of their business. In the African context, investing in off-grid means investing in farmers. For SunCulture, a Kenya-based technology company that sells agricultural products and services, this partnership marks a commitment to our customers - smallholder farmers.

Water, energy, and food are the essential resources that sustain life and drive global, regional, and national economies. Coined the Water-Energy-Food Nexus at the 2011 Bonn Conference, the intersection of these sectors has become a popular topic of conversation among government, policy makers, and investors alike. Working at this Nexus means addressing two very important global challenges: (1) how to increase the incomes of the largest group of people living in poverty (smallholder farmers), and (2) how to feed the world.

At SunCulture, we call the practice of working in this Nexus increasing productivity. Whether that’s making more money, saving time, or being able to do more work, everything we do is focused on increasing household productivity. Because we’re one of a handful of companies in the world with years of data and experience operating in this Productivity Nexus, we’re often asked to help people make sense of it all. I’ve decided to dedicate this year’s letter to sharing the principles that have helped us build a business around the Productivity Nexus.

First, in order to understand what the Productivity Nexus is and how it addresses these global challenges, it’s important to understand who it affects the most. I’m going to tell you about Anne, one of our off-grid customers who lives with her husband and two sons on a one-acre farm in Matanya, Kenya.

Anne is representative of the 570 million smallholder farming households around the world - her main sources of income are selling milk from the family’s one skinny cow and selling maize from their farm. Because milk is mostly water, cows producing milk need to drink constantly. So Anne manually hauls water up from what she calls a “shallow”, hand-dug well that reaches 25 meters (82 feet) deep. Every morning, she lowers a bucket down, fills it up, and uses a handmade pulley to lift twenty liters of water up to the surface. Twenty liters of water weighs 20 kilograms (44 pounds) - as heavy as one those big weight plates at the gym. Doing this work is difficult - I know because I tried it myself when I visited Anne’s farm.

The weight means that Anne can only pull the bucket up ten times per day. She uses four buckets for domestic chores (cooking, cleaning, bathing) and gives the remaining six buckets to her cow. Right now, her cow can only produce four litres of milk per day because six buckets of drinking water isn’t enough for full milk production. Anne is selling the milk for $0.30/liter, which comes to a total of only $438 per year. She makes an additional $200 per year selling her maize, which also requires water. But since Anne isn’t able to pull up enough water, she practices rain-fed agriculture, leaving her just one drought away from losing that source of income.

I visited Anne on the day she bought SunCulture’s flagship product, RainMaker - an affordable, internet-connected solar irrigation solution designed for smallholder farmers. RainMaker is a low-carbon alternative to motor-driven petrol pumps or manually operated pumps. It uses solar power to pump water from up to 100 meters (328 feet), and has a battery backup for cloudy days. The entire setup sells for $500, which Anne was able to afford thanks to our Pay-As-You-Grow consumer financing program, which allows farmers to pay for our solutions in instalments over time. As Anne turned the system on and water began shooting to the surface, I saw her face light up with excitement as her mind started racing with plans of how to make more money.

Anne said she plans to sell double the amount of milk because her cows were going to produce at least eight liters of milk per day (bringing in an additional $438/year). She will double her maize yields (an additional $200/year) and grow higher value crops (cabbages and kale) to sell at her local market (an additional $1500-$2500/year). And she will save more than 17 hours per week usually spent physically moving water.

With that additional income, Anne wants to expand her house so her relatives can visit without cramming into one room to sleep. I joked with Anne and told her that her muscles were going to get smaller now that she doesn't have to manually draw water. She laughed and said, “That’s OK because I’m going to be fat!”

This story is important because this is exactly how energy relates to water and agriculture. The largest client segment by livelihood of those living on less than $2 a day are people like Anne, who live in smallholder farming households. These 2.5 billion people need water to meet their domestic needs. They also need water to grow crops and care for livestock, so they can make a living and feed the world. Access to renewable energy helps smallholder farming households gain access to water to solve these pressing issues.

So, how does energy relate to water and agriculture? At SunCulture, this relationship means increasing rural household productivity.

Next, we ask ourselves, how can we help farmers continue to become more productive over time, rather than giving them just a one-off boost in income? What are the sequential product and service offerings that help smallholder farmers to continue to increase their productivity over time on the land that they have? How can we increase farming household productivity in the most affordable way with the least amount of behavior change? We call the framework that we use to answer these questions the Productivity Ladder.

The first step on the Productivity Ladder is moving water. By selling pumps that make it easier for smallholder farming households to access enough water to meet their household and agricultural needs, we help them use water productively for the first time with little behavior change required. A farmer typically spends more than 17 hours fetching water weekly: that’s a lot of time lost, and still doesn’t yield enough water to become productive. By eliminating the time that a farmer spends physically moving water while simultaneously allowing her to increase her income, we open the door to many more opportunities to move up the Productivity Ladder.

The second step on the Productivity Ladder is using this increased amount of water to further boost incomes. Our drip irrigation solution is ideal for this. Drip irrigation saves water, saves on labor cost, and increases crop yields even more which is important because without increased food production, farmers can’t continue to climb the Productivity Ladder.

After establishing these first two steps of the Productivity Ladder, the next question to ask is how to get these farmers to continue increasing productivity. What products and services are next? Our business is built on answering these questions, and we’re guided by these three principles:

1. Relentless focus on relevance and quality before affordability
2. Customer-lead experimentation
3. Full-stack problems need full-stack solutions

The Principles of The Productivity Ladder

Principle 1: Relentless focus on relevance and quality before affordability

Most people knew us as a company that sold expensive products, which was true. When we started the business, the all-in cost of a one-acre solar-powered irrigation kit from us was about $5,000, which was half of what was available on the market for comparable products at the time. We decided to focus on relevance, quality, and then affordability, knowing that over time we would be able to develop a relevant and high-quality product at a lower price.

We call this The Iterative Design for Eventual Affordability (IDEA). It’s our product design philosophy for building high-quality products that become available to lower-income smallholder farmers over time. The driving principle is to start with an expensive product that works really well for a small subset of the total market and, over a few cycles of iteration, move it further downmarket while retaining the overall high-quality experience. Many companies attempt to develop low-cost products at the onset by sacrificing quality, and this has led to some fundamentally flawed products. It starts with identifying a market need, creating a product to meet this need, and then making design, manufacturing, and business model adjustments to offer a lower price point for a comparable experience.

We do this because what we have found is that price is not the first factor our customers assessed when deciding to buy from us. Performance is.

Here’s a real example. Most SunCulture customers get their water from an existing water source, such as a borehole or well. Research from the British Geological Survey and University College London shows that 660,000 cubic kilometers of groundwater lie beneath Africa, more than 100 times the continent’s surface water. In Kenya, 2.1 million households access water from wells and boreholes compared to 0.25 million using streams and rivers.

According to Kenya’s Ministry of Water and Irrigation, the majority of smallholder farmers in Kenya have a pumping head of 10-50 meters, and our research indicates that the average pumping head is 30 meters. This means that a pump needs to lift water 30 meters from the water source up to a field or tank. However, most available low-cost solar water pumps are limited to 10-15 meters of head. This means that these pumps are not useful to the majority of households whose water sources are deeper. We realized that while cost is important, performance is equally important, and hence designed a pump that can reach up to 100 meters of depth.

High-quality products make up only half of the puzzle. High-quality services are the other half. Everything that happens post-sale is just as important as the sale with agriculture products. Unlike with other household consumer goods, you can’t make up for down time in agriculture. When a water pump is broken for a few days, farmers run the risk of losing entire crops. Without exceptional installation, training, agronomy support, and after-sales support, crops and livestock die. Whether it’s our agronomy chat groups, custom seed variety recommendations, or maintenance of complicated installations in deep wells, the precision in which we execute on our post-sales support is a good indicator for how well we’re serving our customer needs. 

We’re obsessed with quality of products and services to deliver an unmatched customer experience. As I often say, “Don’t let price drive specifications, let specifications drive price.”

Principle 2: Customer-lead experimentation

I love this quote by Ed Catmul: "While experimentation is scary to many, I would argue that we should be far more terrified of the opposite approach. Being too risk averse causes many companies to stop innovating and to reject new ideas, which is the first step on the path to irrelevance.”

We wholeheartedly believe this. At SunCulture, we engage in this experimentation with the help of our customers. Everything that we do, from soliciting ideas, to research, to design, to prototyping, to piloting happens with our customers. The customer data input into our R&D framework helps us decide what to build next. The farm is our lab, and building products for our customers with our customers helps ensure that our products don’t end up collecting dust in the corner.

This practice goes deeper than just R&D - it’s driven through our culture. If we don’t know an answer to a question, we ask ourselves what different answers would mean for the customer and the customer journey.

Principle 3: Full-stack problems need full-stack solutions

Even by following the first two principles, we can’t create a meaningful business in the markets that we work in without solving challenges end-to-end. In resource-constrained markets that lack infrastructure, businesses need to provide full-stack solutions to full-stack problems. At SunCulture, we do all of our own technology R&D, consumer financing, sales, installation, and aftersales support. All of this work is done to give farmers like Anne the eyes-light-up moment where she realizes that she can finally become fat. Companies working in frontier markets must provide their customers with access to products, knowledge/services, and financing. Without any one of these, you’re not going to create a scalable solution. This is something that became apparent to us early on and it’s the foundation on which SunCulture was built.

Why Now

In Kenya, President Uhuru Kenyatta unveiled his “Big Four” plan for economic development. The plan has four key pillars - and one of them is food security. Last month, at the American Chamber of Commerce Economic Summit, I asked President Kenyatta what role he thinks renewable energy can play in ensuring food security for his nation.

He replied that Kenya’s biggest challenges in reaching these objectives of food security and sustainability lies in its ability, or inability, to generate power. “You can’t [ensure food security] without power,” he told me. “Kenya, as a country, has not been endowed with deep resources or wealth that lies under the ground....the only source of energy is the one which we were given...which is the sun, the wind, geothermal. And we are focused on that.”

With this statement, Kenya joins Uganda, India, Bangladesh and others who have added developing solar technologies for the agriculture sector to their national priorities. The World Bank has incorporated solar water pumps in their energy programs; the IFC has included productive use products to their current agenda; distributors of household consumer goods are discussing the productive use of energy.

Investment in the off-grid sector doubled annually from 2012-2016, with almost $1 billion invested into the sector since 2012. Agriculture and food technology investments reached $10.1 billion in 2017, which was 29% higher than 2016 and 3x higher than 2012.

These recent investments build upon the work that has already been done over the past two decades to shed light on the importance of the intersection of water, energy, and food in increasing productivity among the world’s most underserved people.

Thank you

As always, to our family, partners, friends, mentors, and advisors, thank you for unwavering support and for your diverse perspectives.

To the Dream Team at SunCulture, Charlie and I are grateful that we get to learn from you and serve you every day. We still have a lot of work to do to become the most trusted technology partner for smallholder farmers, and while we recognize this is not an easy challenge, we’re honored to be building towards this with you.

Samir Ibrahim

CEO

August 28, 2018