Building a bicycle industry: Affordable transportation offers increased income generation opportunities

Building a bicycle industry: Affordable transportation offers increased income generation opportunities

Mozambique
a
Organization type: 
for profit
Project Stage:
Start-Up
Budget: 
$250,000 - $500,000
Project Summary
Elevator Pitch

Concise Summary: Help us pitch this solution! Provide an explanation within 3-4 short sentences.

The average Mozambican earns <$2/day, rendering them unable to purchase simple daily needs. The majority of jobs consist of collecting or growing, and selling product daily in markets. As such, incomes are limited by strength (carry capacity), speed (product spoils) and health (long commutes in the hot sun). Over 60% of people are illiterate due to lack of schools, and thousands die from HIV and malaria each year from inability to reach clinics. These devastating statistics can be drastically changed with an efficient bicycle market. People will be able to reach new employment opportunities, or their current one without a tiresome commute. Mozambikes makes bicycles affordable to all people of Mozambique regardless of distance from an urban center.

About Project

Problem: What problem is this project trying to address?

Mozambique offers friendly and curious people, gorgeous coastlines and a unique European culture from its Portuguese influence. However, the poverty causes many hardships for its residents, most visibly long walks in the hot sun, often carrying heavy loads on their heads. In the country of 22.4 people, over 50% live on under $2 per day. The budget is generated 55% by foreign aid, and typical lending rates average 25%. However, the economy grew 6.5% in 2010, above the Southern African average of 5.3%, and foreign direct investment is booming with over 600 million in the first half of 2010 (400% over the previous year). The market is expected to grow at least as rapidly as GDP growth of the country, which is predicted at 7.5% for 2011. Mozambique has a stable democracy with a ruling party that has been in power since colonialism ended in 1975. Over a decade of civil war decimated the infrastructure of the country, but the last 15 years have seen a burst in rebuilding and enterprise. While many attempt t use their poverty to generate income (begging), the President has issued a statement that only work can lead to increased opportunities, and the skills of Mozambicans are expanding. A substantial part of the economy is still informal, as 81% of the labor force work in agriculture. There are over thousands of NGOs in Mozambique, but the world crisis and growing middle class are leading to the entry of more for-profit businesses. With unemployment at 21%, the local population welcomes the new businesses. Knowledge of the market is crucial to understand how people will use the bicycles, how to build our aftermarket network, as well as the value for local advertisers.

Solution: What is the proposed solution? Please be specific!

Mozambikes benefits from an innovative business model designed to unlock a new market segment for a product with developmental benefits. Mozambikes breaks from status quo in its development of a bicycle industry and application of advertising. Bikes today are brought in by Eastern traders who dump bicycles cheaply in price and quality. They do not provide customer service, nor do they create jobs or teach skills. They care not about cost to the consumer, but rather their margin and so they permit the retailers to inflate the prices widely. Mozambikes is a local business with Mozambican employees and a plan to develop a network of local, affiliated technicians. Mozambikes offers fixed, yet attractive margins for retailers to ensure the same market price regardless of distance from an urban hub. Our advertising solution is also unique in providing an effective channel to advertise to low income clients. Moving advertisements have proven to be a powerful form of advertising, as currently used by busses and taxis, but the lack of full supply chain bicycle producers has prevented any advertising on bicycles to date. Lastly, Mozambikes is innovative because it is a social venture. We have a triple bottom line mission, meaning that we seek to maximize economic, social and environmental impact equally with the premise that the business can grow best financially if all three are maximized. As an example, we are selling bicycles at a slimmer margin than competitors, and thus this will enable us to sell more product.
Impact: How does it Work

Example: Walk us through a specific example(s) of how this solution makes a difference; include its primary activities.

Mozambikes offers two low-cost solutions: bicycles and advertising. Our bicycles are higher quality than similar bicycles on the market, as they feature a reinforced and thicker tire, alloy frame (vs. steel), rear carrier, reflectors and a front light. The bicycles are branded with the colors and logos of prominent local advertisers for a flat fee, creating moving advertisements and earning a second revenue stream per bicycle. These ads enable the lower consumer price while offering an innovative solution to marketers who have difficulty reaching low income communities, as these consumers do not read newspapers, own televisions or drive along main highways. However, this market segment is still highly attractive to a variety of alimentation, construction and other industries, and thus targeted advertisers include Vodacom, CDM, Cadbury, Millenium BIM and Parmalat. While the main mission is to offer low cost bikes to consumers, we will also target businesses that would benefit from an internal fleet of customized bicycles. These businesses could use the bicycles for delivery of product, transport around large facilities or employee bonuses. Companies have also indicated a desire to give the bicycles to the communities in which they operate to better community relations.
Sustainability

Marketplace: Who else is addressing the problem outlined here? How does the proposed project differ from these approaches?

Mozambique offers friendly and curious people, gorgeous coastlines and a unique European culture from its Portuguese influence. However, the poverty causes many hardships for its residents, most visibly long walks in the hot sun, often carrying heavy loads on their heads. In the country of 22.4 people, over 50% live on under $2 per day. The budget is generated 55% by foreign aid, and typical lending rates average 25%. However, the economy grew 6.5% in 2010, above the Southern African average of 5.3%, and foreign direct investment is booming with over 600 million in the first half of 2010 (400% over the previous year). The market is expected to grow at least as rapidly as GDP growth of the country, which is predicted at 7.5% for 2011. Mozambique has a stable democracy with a ruling party that has been in power since colonialism ended in 1975. Over a decade of civil war decimated the infrastructure of the country, but the last 15 years have seen a burst in rebuilding and enterprise. While many attempt t use their poverty to generate income (begging), the President has issued a statement that only work can lead to increased opportunities, and the skills of Mozambicans are expanding. A substantial part of the economy is still informal, as 81% of the labor force work in agriculture. There are over thousands of NGOs in Mozambique, but the world crisis and growing middle class are leading to the entry of more for-profit businesses. With unemployment at 21%, the local population welcomes the new businesses. Knowledge of the market is crucial to understand how people will use the bicycles, how to build our aftermarket network, as well as the value for local advertisers.
About You
Organization:
Mozambikes
About You
First Name

Lauren

Last Name

Thomas

Twitter
About Your Organization
Organization Name

Mozambikes

Organization Country

, MP

Country where this project is creating social impact

, GZ

How long has your organization been operating?

Less than a year

Innovation
What stage is your project in?

Operating for less than a year

Share the story of the founder and what inspired the founder to start this project

Mozambikes started as an idea during a roadtrip across Mozambique in March of 2009, when Founders Lauren Thomas and Rui Mesquita encountered person after person walking with massive containers of water or bundles of firewood on their heads. Given the scarcity of public transportation in rural regions, these people have no transportation alternatives. Lower cost than other modes of personal transport, bicycles were an obvious solution, yet the Founders found few providers and none with prices affordable to people who truly need them. They began to discuss how they would design a bicycle business, and their excitement in planning brought them to execute.
The Founders had long contemplated how they could apply their business skills to alleviating the basic hardships in Mozambique, and their passion for cycling led to an immediate enthusiasm for the idea that developed into Mozambikes. Lastly, they were eager to build a for-profit social venture in Mozambique to set a precedent for business in the region. They firmly believe that business contributes more to the local economy than charity, as it does not require regular donations and contributes labor wages, skills training and tax revenues.

Social Impact
Please describe how your project has been successful and how that success is measured

Of the many benefits of bicycles, we most strongly focus on economic development in low income regions of Mozambique. We intend to sell 165,000 bicycles in the first 5 years, reaching 10% of families below the poverty line in Mozambique. Our target impact is to increase the average income of these families by 5x. If Mozambikes increase income by 5x for even 1/4 of impoverished residents, we can enable GNI per capita to rise from $370 to over $555.
Overall national economic indicators will not serve as proper metrics for our specific outcomes or impacts. Rather, we intend to use Company specific metrics such as bicycles sold, families reached and towns reached. We also plan to follow up with customers to gauge specific uses for the bicycles and concrete increased income as a result of the bicycles. This information will be collected during Mozambike customer events, such as family-oriented “race days”. While there is not a unique causal relationship, we will also closely monitor national indicators to draw parallels with the institution of a bicycle industry.
The project is in the process of becoming successful, as we are receiving indications of interest from corporate clients. It is intriguing to hear the different ways that each business envisions including the bicycles to benefit their businesses. Our next stage of success will be realized when we sell our current shipment of 1,200 bicycles.

How many people have been impacted by your project?

How many people could be impacted by your project in the next three years?

More than 10,000

How will your project evolve over the next three years?

The Company estimates a potential market for 1.5 million additional bicycles in Mozambique. Sales in the first years is expected to increase by over 50% to reach 165,000 in five years, achievable with steady customer acquisition. The business will evolve geographically, as we will cover new markets as desired by the business clients that operate in those markets and the distributors that serve new markets.
Mozambikes will also engage in numerous social initiatives such as bicycle safety campaigns, bicycle trailers for trash collection, teaching people to use bicycles to increase daily incomes and developing the entrepreneur technician network. Technicians are important to the operations (aftermarket service) and the social mission (developing entrepreneurs) of the business.

Sustainability
What barriers might hinder the success of your project and how do you plan to overcome them?

• Advertiser buy-in: Without advertising fees we would be forced to raise market prices, limiting developmental reach and speed of inventory turnover. However, do date we have been receiving an overwhelming response from local businesses, as the value proposition for bike ads is strong. Mozambikes turn an effective advertising campaign into a unique CSR platform.
• Local talent: We require a local manager to oversee day-to-day production. This worker is crucial to operational efficiency, training, quality assurance, reducing theft and inventory management. We are finding numerous competent workers due to the growing middle class in Maputo.
• Currency risk: Chinese adjustments to the RMB affect our purchases, as suppliers do not set fixed price contracts and thus we expect unit costs to rise. Moreover, we earn revenues in MZN and risk pressure if the MZN declines vs. the USD. We mitigate risk by building cushion into our model via advertisements. Given high ad costs in Mozambique, we still have room to increase prices without reducing our competitive advantage.

Tell us about your partnerships

Mozambikes will partner with large nationwide distributors, which will receive a commission for regional warehousing and distribution to its network of retail locations. These partners are also expected to sell bicycles in some proprietary locations, increasing their overall returns by capturing the retail margins as well in those venues. Where our advertising clients have robust distribution methods, we seek to share in their distribution.
Advertising partnerships are being formed with businesses that target customers in low-income regions and yet have difficulty reaching them given the lack of traditional advertising channels into these markets, and include NGOs that use the bicycles to display a powerful message in these markets. Meetings with these advertisers have yielded overwhelmingly positive.
Mozambikes has formed a strong relationship with its preferred supplier, which has been flexible to the Company’s specific needs. Moreover, the supplier has been integral in our understanding of the vast spectrum of quality levels in bicycle components and our selection of higher quality components. The Company pays a set price that includes all pertinent components. Shipping and other import costs are then be borne by the Company.
Lastly, Mozambikes will partner with existing and aspiring local bicycle shops throughout the country to create a network of afilliated entrepreneur technicians. Mozambikes will provide them with training,signage and guidance on how to manage their business in exchange for a small discount to Mozambike owners.

Explain your selections

To date, the financing for Mozambikes has been entirely funded by the Founders. However, the affiliated non-profit (which purchases at cost from Mozambikes) has already collected donations for over 40 bicycles from friends and family, as well as some other customers that have supported the business via the online retail platform.
Our immediate goal for fundraising is to acquire grant capital from local Embassy small business grant programs (French, German) and social business plan competitions (Cartier, Changemakers). We are currently under consideration for a number of such programs and/or competitions, including a Mozambican government subsidy to assist with early stage costs of micro-enterprises.
A key source of funding that we are also pursuing is working capital, from our business clients. We require 50% of advertising fees upfront to 1) eliminate the risk that a customer does not pay once we have customized the bikes and 2) provide us with working capital.

How do you plan to strengthen your project in the next three years?

As the business increases its sales, it will strengthen through i) increased cash flow to reinvest in the mission, ii) a base of collateral to potentially reduce the lending rates available to the Company and iii) earning a brand name through which we can achieve new clients.
• Cash Flow - The Founders are passionate about the development of Mozambique, and thus profits generated by the Company can be reinvested for a variety of social initiatives or to expand into more rural regions. Cash flow further strengthens our business by reducing the need for bank debt.
• Reduced Lending Rates - Over the next three years, we will be required to seek a working capital facility to fund our large inventory purchases, which will continue to increase in volume as our sales grow year over year. As a result, we hope to find a social lender that will provide a subsidized rate to and flexible repayment terms. The collateral that we will generate over the next few years will enable better borrowing terms locally.
• Brand Name - Advertising channels often have to be tested before they become highly popular. Companies see their competitors’ brands cycling around the country and want to leverage the same channel. We are starting with a core base of strong clients, and intend to solicit many more over the next few years as we prove our model.

Challenges
Which barriers to employment does your innovation address?
Please select up to three in order of relevancy to your project.

PRIMARY

SECONDARY

Lack of skills/training

TERTIARY

Underemployment

Please describe how your innovation specifically tackles the barriers listed above.

There is a dislocation in the consumer markets (inefficient market) in Mozambique, whereby supply and demand are irrelevant to prices. Products are dumped in cheaply in price (and quality), and are still too costly for the people. Mozambikes unlocks a new segment with our market-appropriate price. Additionally, the business will create 30 internal jobs and a network of hundreds “entrepreneurs” or technicians. All will receive bicycle training and technicians will also receive guidance to help their business. Further, our bicycles enable rural residents to reach further employment opportunities or to arrive at current positions without hard commutes. Urban residents can avoid the dangerous and congested mini-bus transport system.

Are you trying to scale your organization or initiative?
If yes, please check up to three potential pathways in order of relevancy to you.

PRIMARY

SECONDARY

Other (please specify below)

TERTIARY

Grown geographic reach: Multi-country

Please describe which of your growth activities are current or planned for the immediate future.

Our current growth plan is to expand within Mozambique. Sales start in Maputo and fan out as we identify retailers in further markets. Our goal is to reach low income consumers that have been subjected to unfair price demands. However, the Mozambikes model is scalable and after we prove success in Mozambique, we will expand throughout the region, specifically into Tanzania, Zambia and Angola.
The key method to grow our business is to penetrate the corporate markets and to demonstrate the value of Mozambike advertisements to businesses. The economic power of corporations within the country is vast, and significant funds are allocated to advertising. Mozambikes allows an effective advertising plan to become a unique CSR policy, which are becoming more prevalent in the local market.

Do you collaborate with any of the following: (Check all that apply)

NGOs/Nonprofits, For profit companies.

If yes, how have these collaborations helped your innovation to succeed?

Mozambikes are able to sell bicycles to local consumers at affordable prices by earning a second revenue stream for the advertising on the bicycles. These fees are paid by for profit companies and NGOs/nonprofits to enhance their own mission. For profit companies use the bicycle advertisements as effective, low cost advertising and a unique CSR policy. Advertisers have trouble targeting low income markets from the lack of advertising channels into these markets. Mozambikes will be used by rural consumers, and thus could ride around rural towns for years. Moreover, branded items have been proven to incur consumer loyalty. NGOs generally purchase the final bicycles as well, giving them to the workers in their field offices or simply distributing them through the country.