Business Ethics

Creating a Sustainable Business among South Africa's Poor 'One Bite at a Time'

In 2004, Alicia Polak founded The Khayelitsha Cookie Co., which now employs 11 women from the sprawling shantytown of Khayelitsha to bake high-end cookies and brownies that are distributed to top hotels, restaurants and coffeehouses throughout South Africa. The cookies come packed in plastic with a cartoon on the front showing a big, African 'mama' in traditional dress and the company slogan: "Creating opportunity one bite at a time."

For Polak, the entrepreneurial venture is about making money, but also much more. "My driving force in this company is that I want them out of those shacks," says Polak of the hundreds of thousands of people living in poverty in South African townships. "I want to help change their lives using this company as the vehicle."

Polak's firm has been receiving consulting help from Wharton professors since it started, but it is now formally part of Wharton's new Societal Wealth Generation program. The program explores ways to apply entrepreneurial business models to social problems such as healthcare, education and unemployment. Other initiatives include a healthcare program in Botswana, an animal feed project in Zambia and a potential peanut-processing business in Southern Africa.

Ian MacMillan, director of Wharton's Sol C. Snider Entrepreneurial Research Center, says the goal of the program is to move philanthropy away from dependence on charitable donations to projects that can sustain themselves financially over the long term. "What you set in motion is a virtuous cycle," he explains. "The more money you make, the more people are helped. The more people who are helped, the more money the entrepreneur makes."

While social entrepreneurship has been gaining interest in philanthropic circles in recent years, MacMillan envisions deeper changes through societal wealth generation in which commercial solutions are applied to broad-based problems. "Alicia Polak's idea was created in Africa and at the moment is quite small, but we could grow the idea and if it works it can be replicated in many other places," says MacMillan. "I don't think we should be involved in something that at a minimum can't benefit hundreds, if not thousands."

Indeed, Polak is now working on ways to scale up the company, possibly exporting the cookies to developed countries. She is also thinking of bringing the cookie concept to disadvantaged parts of the United States, such as New Orleans, Mississippi or Camden, N.J.

A New Home in a Poor Township

For now, Polak's virtuous cycle lies in Khayelitsha, which means 'new home' in the local Xhosa language. She points to a photo of the crowded jumble of shacks on laundry day. Tattered bed sheets flutter through the township, which is home to between 500,000 and 1 million. There are no public latrines in Khayelitsha.

Khayelitsha Cookies was founded in a community center with two ovens in 2004. The center had once been home to a training program endowed by Snowflake, a large South African baking company. The program flopped for many reasons, says Polak. First, Snowflake provided recipes written in English, but hardly any of the women in the township knew English, and many could hardly read. When Polak looked closer at the recipes, she noticed they called for sugar and butter. "That was a joke. There is no butter in this township. That would be such a luxury item."

Polak's cookies do have butter in them, but she has a car and suppliers who are able to bring butter to the company. "Snowflake had left the women to their own devices to source the butter, but they had no vehicles and could not go out of the township to get butter," says Polak.

Meanwhile, Polak's own career was in flux. As an investment banker specializing in IPOs for closed-end country funds at Merrill Lynch, she had traveled extensively to developing countries where she was moved by the poverty she saw. India, she recalls, was particularly harsh. "That kind of sat with me," she says.

Polak was determined to make a difference and eventually got a job distributing wind-up radios to poor villages throughout Africa. The wind-up radio was a simple product that could be a lifesaver in a disaster, like the floods that devastated Mozambique in 2000. On her travels she grew even more disenchanted with the non-governmental organizations (NGOs) that were distributing private aid to the needy. "I saw a lot of waste. The NGOs are also there to create jobs for expats who live very nicely." She remembers being particularly struck by one NGO's large fleet of Toyota land cruisers equipped with leather seats. "Couldn't they at least get the cloth seats?"?

Polak, who was then living in South Africa, still wanted to make a more meaningful contribution. One day she conceived of the cookie company, and in a matter of months she got it up and running on savings she had put aside during her banking career. Cookies made sense in the context of Khayelitsha. Baking is a skill that is transferable across cultures and languages.

While South Africa's population is 44 million, the nation's 4 million whites control most of the buying power. She knew they would not be inclined to buy premium cookies made by poor black women in a township. Developing a plan to sell to them would never pay off.

To find a market, she turned to the tourists in the downtown hotels, who receive a Khayelitsha brownie on their pillows at night, as well as local restaurants and coffee houses. The company has sold more than 171,000 packs of cookies, and Polak says she expects it to break even in the next few months. She has taken on some South African investment partners and hopes to make her employees part-owners in the business soon.

Read an expanded version of this article at http://knowledge.wharton.upenn.edu/article.cfm?articleid=1520