Salem Kassahun owns Salem's Ethiopia, a craft boutique in Addis Ababa, Ethiopia. Her business was built to showcase the work of indigenous craftspeople and acts as both a tourist destination and producer of authentic local goods.
However, demand for her line of baskets started to outstrip the capacity of her business model, which focused on the production of goods within her store environment.
Mrs. Kassahun was faced with a challenge: Should she ramp up production through a factory-based operation, or stay small and build on her current business model?
This was the problem she brought to UBC's Sauder School of Business's Arc Initiative, a program I run for the school which brings together our students with African entrepreneurs to help enhance their businesses.
Salem's Ethiopia is a crafts boutique and social enterprise. From her oasis-like compound in the heart of the bustling capital, co-owner and designer Mrs. Kassahun commissions artists from co-ops across the country to handcraft gifts and home accessories such as jewellery, textiles, baskets, pottery and handmade paper.
Salem's Ethiopia is a fair trade operation, making a profit while enriching the lives of its workers. The average annual income in Ethiopia is the equivalent of $170. The average income of a Salem employee comfortably outstrips this with the top basket-maker earning $1,100 CAD and the top textile-weaver earning as much as $2,100 in 2011.
"Salem's Ethiopia started as a hobby over 10 years ago when I was making jewellery from my home and people were coming to buy it. As interest built, the business evolved and I started a store in 2006," said Mrs. Kassahun.
Customers, often tourists from around the world, browse while weavers make scarves and tablecloths on manually powered looms and women weave traditional baskets from palm leaves coiled around grass, all while enjoying complimentary Ethiopian coffee.
Baskets are Mrs. Kassahun's core product, but weaving them is a time-consuming process. It takes one woman one to two days to make a small basket, while a larger, more intricate or custom basket may take up to 20 days to complete. Salem's Ethiopia once had a four-month long back order of more than 50 baskets, dating back to March 2012.
"Our baskets, with their intricate designs, were gaining popularity but we were not able to make enough to meet the demand," said Mrs. Kassahun. "The backlog presented additional challenges as I sought to expand into the export market in the U.S and Canada. With a trade fair scheduled for August in Germany, I needed to address my supply constraint."
Mrs. Kassahun could scale her business and rent factory space to produce more baskets, but this would add significant long-term fixed costs and she would then need the guarantee of much larger orders to make this viable.
She needed a strategy that would increase supply, but didn't know if shifting to a factory operation to increase output was the right move.
In 2011, Salem participated in a business skills training program organized by the Arc Initiative in Addis. Faculty, students and alumni from the Sauder School of Business delivered a one-week interactive course with the focus on strategy, finance and marketing. Sauder students interned with the company to complete an extensive market research study to identify the chief aspect of the company customers valued – the holistic and authentic shopping experience.
At this point Mrs. Kassahun knew the factory was out of the question, but she still needed to find a way to expand.
This June, Mrs. Kassahun worked with Arc Initiative student intern, Taylor Hahn from Sauder, to craft a strategy to scale the business using the existing model. She took on an additional 15 marginalized women and supported them financially through two weeks of training, with the long-term goal of increasing capacity.
The backlog in supply has already been reduced by half and in one more month all the back orders are forecast to be fulfilled.
To accommodate the extra basket-makers, Mrs. Kassahun has expanded her Addis boutique. Upon the Arc Initiative's advice, she reinvested some profit back into her business by adding another room for some of the new women to work on her compound.
For the next phase of her expansion plan, she is applying for an EU aid grant to train more marginalized indigenous women across Ethiopia in the art of basket making. She will then commission these remote workers to craft baskets for Salem's Ethiopia, thus meeting her increasing demand for more products, without compromising her social enterprise or boutique shopping experience.
Special to The Globe and Mail
Jeff Kroeker is a lecturer in the accounting division at the Sauder School of Business at the University of British Columbia.
This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Your Business website.
Join The Globe's Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues: http://linkd.in/jWWdzT
Our free weekly small-business newsletter is now available. Every Friday a team of editors selects the top picks from our blog posts, features, multimedia and columnists, and delivers them to your inbox. If you have registered for The Globe's website, you cansign up here. Click on the Small Business Briefing checkbox and hit 'save changes.' If you need to register for the site,click here.