How the One Acre Fund became a $50M social enterprise

One Acre Fund, a nonprofit that supplies African smallholder farmers with the agricultural tools and knowledge they need to lift themselves out of hunger and poverty, has grown exponentially in less than 10 years — now serving 300,000 farm families from only 120 in 2006. Its operations are 74 percent financially sustainable, which means the organization relies much less on donor dollars and philanthropic contributions than it does on its own steady stream of income. One Acre Fund’s genesis is similar to those of many other social enterprises. In 2006, Andrew Youn — then an MBA student at Northwestern University’s Kellogg School of Management — founded the organization after visiting rural Kenya and seeing the glaring income gap between farmers who used productive farming techniques and those who did not. Youn then decided to team up with classmate Matthew Forti to devise a business plan that would make agriculture services and products available to the poorest subsistence farmers — without giving them as handouts. And as is the case with most startups, they tapped into their own personal and professional networks to generate the seed capital they needed to launch. Having started with just $77,000, One Acre Fund is projected to be a $58 million organization by the end of 2015. And while the organization is also backed by some donor funding, especially for its innovation and research work, its scalability and financial sustainability are largely attributed to its unique operating model, which runs more like a private sector company than a traditional nonprofit. One Acre Fund’s growth story can be traced to its highly standardized and structured model based on easily replicated units, which has helped the social business scale rapidly and expand impact. As market-based approaches to development gain traction, the One Acre Fund model holds several practical lessons for like minded organizations pursuing social impact, scale and financial sustainability. The case for earned revenue It might seem counterintuitive to operate a nonprofit that targets smallholder farmers — the largest group of poor people in the world — like a business. After all, how are these families, some of whom make less than $0.50 per person per day, expected to afford One Acre Fund’s products and services? Even if they receive the seed, fertilizer and other agricultural inputs on credit — which they do — what is the guarantee that they will be able to repay the loans? Minimizing the risk of default is a challenge many social enterprises working with microloans and microcredit face. One way One Acre Fund has tried to address this issue is by organizing customers into groups of four to 16, having the farmers act as co-guarantors collectively responsible for loan repayment. In the organization’s experience, group lending has also helped build cohesion, with other members tending to the field of a farmer who is sick or away, for instance. Perhaps one of the most interesting features of the One Acre Fund model is that its success lies in aligning its incentives with its clients’. While aligning objectives means working toward the same goals, aligning incentives means sharing and suffering the same consequences if these goals are not met. “I personally believe that [running One Acre Fund like a business] means we’re able to operate at a much higher level of sophistication and with much greater impact for the customers that we serve, smallholder farmers,” Stephanie Hanson, One Acre Fund’s senior vice president for policy and partnerships, told Devex. Under the current model, farmers pay for all products and services, including an interest rate on the loan and fees for training and the delivery of seed and fertilizer. Relying on earned revenue from customers increases the organization’s overall resource base, allowing it to more rapidly expand its operations and serve more farmers. Launched in Kenya in 2006, One Acre Fund has since established operating units on Tanzanian, Rwandan and Burundian soil as well. Having farmers pay also ensures that the organization does not undercut existing market actors and competitors — a problem often faced by nonprofits that offer handouts or services for free. “Overall, the access to products and services in rural areas is extremely low so we don’t want to put anyone else out of business,” said Hanson. “So we do price at market levels, but the reason farmers are able to afford seed and fertilizer or really any productive asset is because they’re receiving it on credit.” Support from farm to market With operations closely tied to client loan repayments, much is at stake — both for One Acre Fund and its customers — when farmers default due to bad harvests caused by failed training modules or ineffective use of the purchased inputs. To minimize the risks, One Acre Fund has employed a more proactive customer service approach. By becoming more responsive to the needs of customers, they serve a double purpose — ensuring that farmers do benefit from the supplies so they can repay their loans in full, funding the continuation and expansion of operations. Last year, the organization’s repayment rate in Kenya hit 100 percent. To achieve substantial impact on farmer earnings and lives, One Acre Fund follows a four-part program model designed to offer guidance and support to customers at each step of the farm-to-market process. The first phase involves providing the client base with access to credit for maize seeds and other crops, as well as fertilizer, in an amount corresponding to the size of the farmer’s land. The second phase focuses on delivering these packages to the farms just in time for the planting season. The third phase covers training on agricultural techniques in order to ensure that farmers use their inputs in the most effective ways. Finally, market facilitation services maximize profit by offering training on post-harvest handling and storage of crops, as well as market price fluctuation, so farmers can sell their surplus months later at better prices. “We only lend things that we know provide a very good return on investment, such that the farmer is able to receive such an income increase that they’re able to repay the cost of the product in addition to an interest rate on the loan,” said Hanson. A role for donors Despite its operating model being 74 percent financially sustainable and reliant on earned revenue, One Acre Fund still depends on donors to fund the remaining 26 percent. The organization also relies on grants and some debt financing for its working capital needs. In addition to supporting a portion of farm operations, grants and donations are also leveraged to fund One Acre Fund’s research and innovation program — the organization’s other central function. Hanson explained that One Acre Fund regards the freely available information and knowledge generated by its innovation initiatives as a public good, similar to the services provided by a government. Because of this, it would not be fair or appropriate to make the social enterprise’s poor customers foot the bill. “The other part of our business is figuring out how we can become better — either faster at scaling, generating more dollar impact per customer, or getting financial sustainability more quickly,” said Hanson. “Our hope is that that information will help other individuals and institutions in the agriculture sector improve their own operations to better serve smallholder farmers and generate social impact.” While some of One Acre Fund’s financial backers support both operation and innovation functions, there are also donors that have specific target areas. For instance, the Bill and Melinda Gates Foundation, one of One Acre Fund’s biggest donors, funds only the organization’s agriculture-focused innovation work as it is more aligned with its strategy and priorities. The Mastercard Foundation, on the other hand, backs the direct service model — helping expand One Acre Fund’s work in the poor countries where it operates, as well as into new countries. It also supports sector building around farm and agriculture finance in the microfinance sector. The U.S. Agency for International Development has also supported One Acre Fund, particularly through the American bilateral agency’s Feed the Future initiative. Lessons from the field According to Hanson, One Acre Fund’s unique operating model developed over time and from conversations with smallholder farmer customers in Kenya, home to the organization’s first and largest operation. Hanson advises that social enterprises working in the same sector or area establish their headquarters in the field to help them become more attuned to the needs of their customers as they refine and evolve their model. “We have a mission at One Acre Fund — farmers first,” Hanson said. “What that means is that we’re always trying to better understand our customer. It’s really important to be close to your customer and to know them as well as you can.” For social enterprises intent on achieving wide-scale impact, it would be smart to build for scale right from the start. “Even when you’re still quite small, create systems and structures that you know will be scalable and that you will be able to replicate over time,” she added. To expand its operations more quickly, One Acre Fund deploys standardized operating units that function in the exact same way in all its districts and countries of operation. Hanson explained that each structured unit is headed by a field director who oversees the work of several field managers. Each of the managers handles about five to eight field officers, each of whom work with around 150-200 farmer customers. “So when we’re expanding, we just create a new district operating unit,” she said. “We’re using all of the same backend processes, all of the same materials for training. Everything is standardized, so we don’t need to reinvent the wheel over and over and over.” The majority of One Acre Fund’s staff of about 4,000 are nationals of the countries of operation, and many of them come from rural communities where the organization works. Hiring locals — who have organic, contextual knowledge of the language, customs and problems of the people — does not only greatly help a social enterprise’s day-to-day operations, but it also has a huge positive impact in areas where jobs are hard to come by. Moreover, a culture of promoting from within provides promising staff with opportunities that they may have otherwise missed, having not had the same level of education as those in capital or more urban cities. “So many of our field officers started out as clients of One Acre Fund, and then they got hired as field officers,” said Hanson. “And many of them end up becoming field managers or field directors.” With revenue expected to hit $58.5 million by the end of this year, One Acre Fund anticipates reaching a million farmers by 2020 if it maintains its current pace. But despite the organization’s phenomenal growth, those within it believe that their work is far from over. “[One million farmers] is just a drop in the bucket of the total need,” Hanson said. To read additional content on innovation, go to Focus On: Innovation in partnership with Philips.