Bright Future for Distributed Manufacturing: An Interview with Ella Peinovich
Legatum Center entrepreneurs tend to treat societal impact and profitability as complementary rather than competing goals. Indeed, innovative business models that revolve around the creation of shared value are often the most sustainable, especially in emerging markets. Imagine a business that doesn’t just meet customer demands but resolves a societal challenge, or one that improves the local business ecosystem for all (even competitors), or one that doesn’t just create jobs but creates optimal jobs that harness employees’ potential while providing fair compensation and a safe, healthy work environment. Such a business, benefitting so many, would be more resilient in the face of disruption precisely because it has become so integral to society.
MIT Architecture alum Ella Peinovich (M.Arch 2012) believes that, compared to the traditional migrant-based factory in emerging markets, distributed manufacturing models are better suited to sustained impact and profitability. As a student, Peinovich won a Legatum Center Voyager Grant to travel to Kenya to conduct primary market research for a creative manufacturing venture. Soon after, she cofounded Soko, a women’s accessories brand that developed a “virtual factory” to coordinate a network of 2,500 independent artisans across the city of Nairobi through a mobile-to-web-based supply chain. This ethical fast fashion brand has become so popular that Soko jewelry has been donned by Nicole Kidman and Michelle Obama.
In 2018, Peinovich stepped down as CEO to cofound a new company, Powered by People (PBP), a B2B model which will provide aggregating businesses, like Soko, with a set of digital and financial tools to facilitate distributed production of goods ranging from personal and home accessories, to personal essentials, to boutique agribusiness products. PBP is currently piloting its offering with creative manufacturing groups in India, Guatemala, and Ethiopia comprising over 3,000 artisans and producers.
For most people, Covid-19 has made the notion of remote and distributed work less of an abstraction, if not the new default setting, but Peinovich has long held that the advantages of distributed manufacturing extend far beyond social distancing. In that sense, the pandemic represents an unprecedented opportunity to shift toward manufacturing models that are more sustainable. Peinovich sat down with the us to discuss her new venture, PBP, and her vision for using distributed manufacturing to bring ethically produced handmade goods into the international market.
How did your time at MIT and Soko lead you to this latest venture?
It was my architecture and systems design background that really lent itself to entrepreneurship and thinking through system-level challenges. My thesis research was around localized, distributed manufacturing and looking at sustainable methodologies for remote work. In other words, how do we produce enough value to be a profitable business but also create value for the individuals involved in the production?
I learned a lot from my eight years with Soko. By the time I stepped down as CEO, we had built a successful enterprise resource planning (ERP) system, developed a network of about 2,500 producers, and generated four million USD in sales into some of the largest international retailers. However, I also saw that, while we were still able to grow our sales and revenue year over year, our impact was starting to stagnate. We launched Soko with the belief that our impact would always grow with our sales, but we found that as we began to benefit from the pricing afforded by the brand’s popularity, our unit volume languished. Moreover, the seasonality of demand was leaving the capacity of our producer network sorely underutilized.
So, I branched off from Soko to work out a new solution which could enable a system level shift. I partnered with Hedvig Alexander, who was stepping away from her business, Far & Wide Collective, at around the same time. Our partnership had the advantage of combining my experience in a vertically oriented business with her network of 5,000 ethical producer groups around the world. We kept thinking about this notion of boutique manufacturing and manufacturing as a service, and we decided what the sector really needed to succeed was better access to markets, and we weren’t going to accomplish that through a single brand. We would do it by offering financing solutions and digital tools that lowered the barrier to entry into those markets.
Can you tell us more about the barriers these producers face?
The handmade sector is approximately 300 million creative manufacturers globally with a trillion dollars in revenue, yet 99% of that is self-financed, and while technology adoption in emerging markets has increased significantly there remain very few technical solutions serving SMBs in this sector. We’re presently conducting a survey of such businesses, mostly in Africa, with help from several partners and support from the Mastercard Foundation. Our preliminary results show that 67% of businesses in the handmade sector claim their largest challenges are access to finance and access to markets, and while 99% have access to the internet, only 28% use any form of digital business service like cloud accounting.
We also found that 72% of businesses in this sector are female-run, and 62% of the artisans employed are youth.
Can you describe the PBP business model?
Businesses working with distributed, small-batch artisans or suppliers can achieve factory-level efficiency by leveraging our cloud software and the flexibility of our mobile tools. Our production management solution provides automation in capacity planning and pricing, while producers from a personal mobile phone can manage orders and inventory, input their progress, and track and receive payments. This tool allows us to bring so much more facility—and visibility—into remote and home-based production, thus ensuring these creative manufacturers can plug into an international market and compete with mainstream offerings on quality, price, volumes, timelines, and supply chain compliance.
Consumers also increasingly want handmade products that are ethically made, and so they are demanding more information on how those products are produced from start to finish. We offer a Trace Tool which uses immutable ledger technology to track the complete supply chain, enabling companies to make better decisions about production and confidently tell an authentic product story to their customers.
We also offer accessible financing to producers, which we accomplish through a transactional contract. Because we have such visibility into the production cycle and manage the transaction, we can provide certain guarantees. We flip the equation of traditional working capital financing: Rather than looking at the producer’s credit worthiness, we look at the buyer’s ability to pay and the producer’s ability to produce based on our rating system. This way, PBP can offer a one and a half to three percent interest rate, month over month on quick-turn transactions, compared to 24-48 annualized percent interest from local lenders.
Has PBP officially launched?
Right now, we are piloting all of this in Guatemala, India, and Ethiopia, where producer groups are making accessories like baskets and pillow covers, scarves and bags, and personal care products like shea butters and coconut oils, and selling into some of the largest retailers like IKEA, HomeGoods, and The Citizenry.
We are mainly helping artisan brands fulfill their existing orders for the time being, but once we achieve scale with our technical tools and financing, we will also be launching an online marketplace to help buyers to discover new producers and vice versa.
Has Covid-19 disrupted things for PBP?
We were in the middle of fundraising when the pandemic hit, and as you can imagine investment has largely stagnated since then. Another potential challenge is buyer liquidity, or the reliability of the buyer to be able to pay on a reasonable timeline, so we are starting to look at finding some first-loss philanthropic guarantors that can help support our more mainstream financial partners.
More than anything though, I would say Covid-19 has merely accelerated our path towards the future of manufacturing. Migration-based factory work is too sensitive to various disruptions to be sustainable over the long term. There will be future pandemics, for instance, but we also have social unrest, political unrest, environmental insecurity, and food insecurity, all of it driving many individuals out of urban environments. Meanwhile, a networked, hub-and-spoke model for goods production can provide employment for nomadic communities and rural-based workers without the costs and risks associated with convening them all under one roof.
Remote work is here to stay, and at PBP we hope to usher in the tools for the creative manufacturing sector to ensure digital inclusion is afforded everywhere.
Interview & Article by Jim Cooney