July 2018

Soko Jewelry, Fast Fashion, and Building a Virtual Factory

“Fashion is about dreaming and making other people dream.”

“Soko saved my life.”

Ella Peinovich sat under a guava tree in her backyard in Nairobi, Kenya, looking out at the
skyscrapers just visible over her fence. Her husband and young son had picked most of the guavas,
but she still managed to find a ripe fruit which she munched on now, lost in thought. It was the
summer of 2017 and Peinovich, CEO and co-founder of the ethical manufacturing platform Soko,
was reflecting on how her company would position itself for future growth. Peinovich considered
the difference that her company had already made in the lives of jewelry artisans across Kenya as
she rubbed her fingers along her brass necklace.

Soko was a medium-sized fashion company (under US$10 million) producing brass, horn, and
bone jewelry for mid-tier customers worldwide. It had an average compound annual growth rate
(CAGR) of 92% between 2014 and 2017, 60 full-time employees, and 2,300 artisans throughout
Kenya who manufactured jewelry on a contract basis—and Soko’s revenue had been doubling
year-over-year since 2014. The firm was not yet profitable, but had very healthy margins on
jewelry production, and Peinovich’s team was confident that they would break even in the next
several years. Peinovich was especially proud of the fact that her artisans retained 20% of overall
revenue, as compared to the industry standard of only 5–10%—with the exception of highly trained
3D-printed jewelry technicians who capture around 40% of overall revenue as full-time factory
employees, but these technicians do not own their tools (see Figure 1 below).1 Soko’s artisans

1
Personal phone interviews with jewelry supply chain consultant, John Croston, and founder of Au Enterprises,
Linus Drogs, January 2018.
This case was prepared by Anna Waldman-Brown and Georgina Campbell Flatter.
This work is licensed under the Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 Unported License. To view
a copy of this license, visit http://creativecommons.org/licenses/by-nc-nd/3.0/ or send a letter to Creative Commons, 171 Second
Street, Suite 300, San Francisco, CA 94105, USA.
SOKO JEWELRY, FAST FASHION, AND BUILDING A VIRTUAL FACTORY
Anna Waldman-Brown and Georgina Campbell Flatter

captured roughly the same percentage of revenue per item of jewelry as fair trade artisans,2 though
they were able to sell more jewelry through Soko due to its seasonal fashion changes (see the
“Staying Competitive in a Crowded Market Segment” section below).

Figure 1: Approximate worker revenue as percentage of company revenue

Source: Case writers, using data from Ebeling, Croston, Drogs, and Soko (as cited in footnotes)

Many of Soko’s artisanal suppliers received roughly a 5x increase in annual income after becoming
contractors for Soko. “They’ve gone from a handful of products by the side of the road every day,”
said Peinovich, “to now hundreds of products in retail shops around the world.” Most importantly,
Peinovich explained how Soko was also contributing to social mobility:

We see a number of people moving out of the slums. They are paying their
dowries for the first time, paying the school fees for their boys and their girls,
and putting three meals on the table every day. This is a huge point of pride,
because we at Soko really believe that we are helping artisans to lift themselves
out of poverty.

Despite her success, however, Peinovich was dissatisfied with the state of her business that
summer. Results from an impact analysis last year indicated that Soko’s impact, indicated by
artisans’ overall share of Soko’s revenue, had decreased from 2014 to 2016 as increasing overhead
costs of sales, marketing, and other key business expenses cut into artisans’ revenue:

2
Ashlea Ebeling, “Ten Thousand Villages Grows With Fair Trade,” Forbes, August 20, 2009.

July 2018 2
 SOKO JEWELRY, FAST FASHION, AND BUILDING A VIRTUAL FACTORY
Anna Waldman-Brown and Georgina Campbell Flatter

Figure 2: Soko’s cost of goods as a % of revenue (Soko company data)

Source: Case writers with data from Soko

As an additional challenge to Soko’s intended impact, the majority of Soko-generated gains were
captured by the 20% of Soko artisans who worked full-time, while the rest of the firm’s artisans
worked part-time and 20–40% of artisans in any given quarter were inactive. Although these
artisans worked for other jewelry companies or practiced in other trades, nearly all had expressed
an interest in working full-time for Soko.

Could Soko provide all its artisans with a decent share of revenue, or would the firm have to shift
its business model in order to actually become profitable? From Peinovich’s point of view, a shift
away from supporting artisans would decrease Soko’s overall effectiveness as an ethical
producer—was this the only way for Soko to compete with modern technologies and assembly-
line factories?

The company’s unit growth had mostly leveled out, and the increase in revenue was partially due
to increased prices and better organization, rather than an increase in sales. Soko’s current demand
had not allowed them to substantially increase jewelry production, better utilize their current
artisans, or even bring new artisans into their network without diluting the overall amount of work.
If Soko’s innovative virtual factory model hoped to globally disrupt the fashion market—which,
after all, was the ultimate mission of Peinovich and her team—then the company would need a
new strategy to scale up production.

Peinovich furrowed her brow, wondering whether she had saturated her current market segment
of fashion-conscious millennials in Europe and North America. An even bigger challenge was that
40% of Soko’s sales took place in the last quarter of the year for the holiday season, and Soko’s
overall production capacity for the rest of the year was sorely underutilized, at around 35%. If
Soko’s suppliers had consistently spent half their capacity working for Soko throughout 2017, the
company could have increased its revenue by a factor of five.

So, Peinovich mused, what should be the next step for Soko? Should she continue to sell jewelry
to her current market segment of socially conscious consumers, or would it make more sense to
diversify her product offering and/or her customer base? Most importantly, how could Peinovich’s

July 2018 3
SOKO JEWELRY, FAST FASHION, AND BUILDING A VIRTUAL FACTORY
Anna Waldman-Brown and Georgina Campbell Flatter

team scale up without sacrificing their mission to provide both livelihoods for their artisanal
suppliers and elegant products for their customers?

Ella Peinovich’s Story

As far back as Ella Peinovich could remember, her primary passions in life had been art, creative
problem-solving, and social impact. An architect and designer by trade, Peinovich grew up in an
artists’ colony in Wisconsin. Engagement with her church brought her on several mission trips and
Habitat for Humanity excursions to work with under-resourced Native American communities and
rural towns in Montana, West Virginia, and Colorado. These trips focused on public service
projects such as helping the visually impaired and rehabilitating natural landscapes—which led to
the realization that she could harness the power of design to “organize creative thought” and
generate systemic, lasting impact for underprivileged communities.

“Art and math were my favorite subjects in school,” Peinovich recalled, so she found architecture
to be a natural fit. She graduated with a Bachelor in Architecture from the University of
Wisconsin–Milwaukee, then joined a corporate architecture firm as a designer. But Peinovich had
grown up with the idea that art and design could be powerful forces for change, and she grew
dissatisfied with corporate life after three years. She enrolled at MIT to pursue a Master of
Architecture. There, a digital fabrication course and a class on design thinking further motivated
Peinovich to apply her design expertise toward “disruptive scale and impact.” In her first year of
graduate studies, she also joined the urban sanitation startup Sanergy, which provided toilets to
slum communities in Nairobi, Kenya, then processed the resulting sewage into fertilizer products
for farmers to subsidize the costs of toilets and sewage collection. As Sanergy’s first architect,
Peinovich helped to design the actual toilet stalls.

Peinovich loved her first trip to Nairobi, which was also her first time visiting the African
continent. She also realized that even though designing toilets satisfied her love of impact, it would
never satisfy her love of art. Visiting craft markets around Nairobi, she was astounded by the brass
craftsmanship of local artisans. She started purchasing suitcases full of jewelry to sell in her
family’s art gallery back in Wisconsin, and was successful enough to cover her airfare and turn a
small profit.

Back at MIT, Peinovich was writing her master’s thesis on “Localized Design-Manufacture for
Developing Countries.” She investigated methodologies for fostering entrepreneurship among
informal artisans by introducing new technologies such as friction-fit molds, fiberglass forms, and
molding/casting technologies. The following year, she returned to Nairobi with Sanergy while
continuing to explore her interest in art and design. Peinovich was running a workshop on design
for development at the University of Nairobi—introducing 3D modeling and digital fabrication to
students—when she met Catherine Mahugu, a Kenyan software engineer. Peinovich and Mahugu
began discussing the idea of building a platform for Kenyan jewelry makers to sell their wares on
the international market. They developed a proof of concept for what Peinovich called an “Etsy
for Africa” mobile app, which quickly gained interest with the artisanal community.

During a later visit to Nairobi, Peinovich was invited to speak at New View, a high school program
implementing technology in slum communities. Her talk impressed Gwendolyn Floyd, an

July 2018 4