Q&A: WASH business: One company's journey to breakeven

MANILA — In India alone, the sanitation economy is estimated to be valued at $62 billion a year by 2021, according to the Toilet Board Coalition. Swachh Bharat, the government campaign to eliminate open defecation, which translates to Clean India, has opened up business opportunities for private organizations seeking to enter into the market. But this also means the products have to be suited to the local context, Erin McCusker, CSO and director of global partnerships and strategy at SATO — a brand under Japanese company Lixil, which specializes in water and housing products — told Devex. Research and the emergence of waste-to-value systems in recent years have turned the rhetoric on sanitation from being a problem to be solved to a business opportunity. More and more companies are adapting their toilets and approaches according to local contexts and user feedback, and turning waste collected into energy, compost, or even as animal feeds. To understand what it’s like to operate as a business in the sanitation sector, Devex will speak with three businesses trying to bring market-based solutions to the sanitation crisis in low-income countries. In this three-part series, these companies will share their solutions, future plans, and challenges to scale. “We are a social business, but we also are not yet at breakeven as an entire business unit.” --— Erin McCusker, CSO and director of global partnerships and strategy, SATO For part 1, in conversation with McCusker, Devex looks to SATO, which focuses on underserved households in low- and middle- income countries that lack access to basic sanitation facilities. Its main product is the SATO pan, a self-sealing toilet that keeps away flies and bad odor, and uses less water for flushing. This conversation below has been edited for length and clarity. Where are SATO products sold? It is available or has been sold to over 27 countries. And we expect that number to continue to grow. We are a social business, but we also are not yet at breakeven as an entire business unit. So we're trying to be really strategic about our footprint. But our goal is that SATO products are available to wherever there is demand. We're using a combination of strategically placed manufacturing facilities in India, our first manufacturing partner in Bangladesh, and then contract manufacturing partners or licensed manufacturing partners in Africa. What we are aiming to do is how do we leverage those existing partners for manufacturing to be able to export to wherever there might be demand or inquiries. And then as we better understand demand, we can make strategic investments to expand our manufacturing footprint. What are some of the challenges and limitations you face in bringing SATO products to more communities, more geographic locations? This is a question we often get. What we are trying to do right now is to be responsive to the demand. We are actively looking at expanding, building on our presence in South and Southeast Asia already, as well into Africa. And for Latin America, we're currently serving through sort of an export model. But for us, Latin America also has potential over time as we grow But we're looking for that demand. We're looking for strong partnerships. We really have to do this in partnership with manufacturers and distributors, and also with investment. We do have to stage our investments. We're growing as quickly as we can without sacrificing what we believe is required to really make a product like SATO successful. So it's growth, but we're trying not to grow too quickly that we're not able to deliver on the quality of the SATO products and making sure that they're really adapted to what the local communities need. How important is regulation in bringing the SATO pan to more locations? Maybe just to distinguish, there's sort of policy, which is around promotion of access. We've seen great increases in demand from government campaigns and national awareness campaigns on sanitation. I think the Swachh Bharat in India is a phenomenal example, but you're also starting to see movement in places like Tanzania. “What we've done with SATO ... is think about how do we reduce the odor, how to reduce the risk of insects, how do we make it easy to clean, easy to install.” --— These types of awareness-building activities, the support of the government, the support of local communities in trying to raise awareness, that plays a very big role because it enables us to then come in and help to offer solutions for actually achieving those objectives that are set out by these campaigns. There is also importing and exporting of these types of goods that would enable us to kind of move the products more freely. That's a barrier for any business trying to do trade. And so we really look to where is there starting to be the momentum at the country level or at a community level in raising awareness of the need for better sanitation solutions. And we try and come in and really add our support to that to hopefully accelerate some progress. And then we look for countries where we can operate as a business and we can really get the products out there and do so again, reliably and with high quality. How do you respond to the varying context per location? There are countries where having a toilet at home is taboo. There are places where access to water is difficult. There are places where open defecation is part of the social norm. There are several different ways that we adapt. The biggest focus of Swachh Bharat, for example, was how do we help households to understand some of the risks of open defecation. But more importantly, how do you provide them with a toilet that is seen as an attractive and viable alternative to going outside. I mean many of the reasons that people still use open or practice open defecation is because the smell of the toilet is so terrible. They're not maintained or it's hard to clean; a pit overflows. And so it's actually no longer safe. In some countries, you know, it may be that there's a risk of a child falling into the pit latrine for example. And so what we've done with SATO in these situations where you're really trying to draw people away from open defecation and create a positive user experience is think about how do we reduce the odor, how to reduce the risk of insects, how do we make it easy to clean, easy to install. And that was really what we did in India for example. They were promoting the twin pit pour-flush latrines. And so we designed an easy to switch junction box that's installed right with the toilet. It had a trap door that prevented insects from coming in. This was all about making that user experience positive, making it affordable and easy to install. So you had more people building toilets and then you had more people using them and keep using them. One other way that we've really looked at adaptation is [looking at people’s] preference for sitting versus squatting. And so we've adapted by not just offering a SATO pan but also a SATO stool, which not only enables those who are used to more pedestal style toilets, but also the elderly, the specially-abled, some children who may not be able to sort of squat. How do you make your business sustainable? Our current SATO products really are only successful because they're affordable to the household. We are not currently breakeven except in Bangladesh where we've been able to through scale. But to achieve that in other markets, what we're really looking at is scale, it’s the first thing. So how do we actually reach volumes which create economies of scale, but also create a revenue through the very small royalty that we receive from each sale in order to start to drive the business and then reinvest in the business. The second piece is we're really starting to look at how do we optimize our business through logistics, through identifying other partners. And then third, how do we diversify the range of products that we have? I think [by] looking at other products that we can bring into the market that benefit the households, then I think we're able to really start to think about alternative revenue sources for the business. Continue reading part 2 of the WASH business series: A mixed business model in waste-to-value.