South African startup Word of Mouth has set up an end-to-end e-commerce platform to facilitate trade in and around township areas, and has delivered over 30,000 items in the last four years.
What became Word of Mouth was founded in 2018 to solve a problem for one of the founder Simon Barson’s friends and colleagues – how to procure local services, safely and effectively in informal areas.
To solve this problem, the startup built an on-demand e-commerce platform for service-based informal business owners to trade within their communities, and by 2019 the platform was growing at over 30 per cent month-on-month. However, in 2020, the world changed.
“South Africa went into lockdown, and the business owners’ livelihoods were decimated,” Barson said.
In response to this, Word of Mouth engaged its community to understand how the platform that was built could continue to serve them, and pivoted from a services-based model to a product-based one in November 2020, when the current value offering was launched.
“We unlock the potential of township areas by removing the barriers that unemployed youth face when setting up and running e-commerce stores locally,” Barson said.
“Through the platform, we provide partners with access to inventory without the need for upfront capital, local township delivery services so they can reach more customers, and training so they can grow with their businesses.”
The platform, currently focused on footwear and apparel, has supported over 500 unemployed youth to start and run profitable online businesses, and has delivered over 30,000 items in the last four years.
With approximately 25 per cent of South Africa’s urban population living in township areas, and 70 per cent of disposable income estimated to leave these areas, stimulating local trade through e-commerce represented a significant opportunity, Barson said.
“E-commerce was transforming middle-income and upper-income markets in South Africa, however, the lower LSM consumers were underserved. Word of Mouth identified an opportunity to address this challenge,” he said.
The platform has seen rapid growth since its pivot, doubling revenue year-on-year in both 2022 and 2023. It is funded by philanthropic social investors, including the Michael and Susan Dell Foundation, E Squared, the SAB Foundation, and the Oppenheimer Generations Foundation, which currently cover its losses.
“Word of Mouth’s aim in the medium term is to drive further growth to achieve sustainability and have the platform recover 100 per cent of the expenses, no longer requiring grant funding. Being an e-commerce marketplace, volume growth is the key driver to reducing unit costs in order to achieve this. Therefore, grant funders currently play a pivotal role in unlocking growth and supporting the journey to sustainability,” said Barson.
Expansion will also be key. Cape Town is Word of Mouth’s most mature market, with operations in 16 township areas, but the startup opened an office in Johannesburg in 2022 and currently operates within three township areas in Gauteng – Soweto, Tembisa and Alexandra.
“Over the next three years Word of Mouth plans to support over 1,000 entrepreneurs to start and run profitable online businesses, across four key markets in South Africa,” Barson said.
To enable this high growth strategy, Word of Mouth is planning to expand its geographical footprint within Gauteng in 2024 and then into new regions such as Durban and Port Elizabeth in 2025.
“A challenge has been the lack of understanding of the opportunity that exists within the informal economy, and the types and quantum’s of funding available for early stage social entrepreneurs. A challenge exacerbated by a capital intensive business model like Word of Mouth’s,” Barson said.
“In addition to this, building value in informal markets, where there is limited existing infrastructure and capacity, creates opportunity, but also complexity. Managing the complexities, and competing priorities, such as building a last mile logistics solution and an entrepreneur capacity building programme has been difficult for a small team.”
Those challenges are slowly being overcome, however, and Word of Mouth is ready to make an impact on an even larger scale in the coming years.
