Last year, amid Kenya's arguably worst credit crunch, Dr Bernard Olayo fundraised Sh2.8 billion to push his enterprise to the next growth phase.
To many entrepreneurs who have in the last few years had to make hard decisions to first cost-cut, then ultimately shut down their struggling enterprises as lenders shun them, it is an enviable fete. But for Dr Olayo it is a culmination of a strategy he has refined for over a decade.
The money from this latest fundraising will be spent on setting up East Africa's biggest medical oxygen plant at the Tatu City Export Processing Zone, with the capacity to supply regional markets such as Uganda, Tanzania and the Democratic Republic of Congo.
“With our level of capitalisation, we will create the impact I want. Kenya is still a net importer of oxygen, hence the reason we are building a bigger plant at Tatu City,” says Dr Olayo.
Creating an impact is a big deal to the Harvard University-educated entrepreneur and significantly influenced his choice of a business model.
After his post-graduate studies at Harvard School of Public Health, he secured a job at Columbia University under the Millennium Villages Project, a partnership between the institution and the United Nations Development Programme which aims to end extreme poverty in 14 sub-Saharan African countries.
The experience, he says, opened his eyes to the health sector challenges that bedevil the region. He decided to return to Kenya and work out a way of making a more targeted impact.
“The whole world was focused on HIV and malaria which were not the leading killers in our hospitals particularly for women and children. I opted to found the Centre for Public Health Development, an institution focused on addressing the neglected issues in hospitals,” says the founder of Hewatele, a local producer and distributor of medical oxygen.
One of the public health issues that kept gnawing at him went back to his experience working in grossly underserved medical facilities in a remote region where he was posted after graduating from medical school.
“Procedures like surgery need oxygen which was 10 times pricier than the global prices and with only one supplier, we always ran out of supply due to non-payment, leaving patients at risk,” he points out.
“So I thought of doing something,” he adds.
The initial approach
It was clear to Dr Olayo that he had to get into the business of producing medical oxygen. That way, he reasoned, he could play a part in ensuring a reliable and affordable supply of the life-saving product.
With only one manufacturer back then struggling to serve the vast market, the business proposition was also clear.
He approached donors with a funding proposal. They were impressed and funded the set-up of 12 small oxygen plants. After two years, however, none of them worked. The technology was not right and maintenance became costly, handing Dr Olayo his first hard-learned business lesson.
He says he realised that some problems couldn’t be solved through donations but through social enterprises.
Hewatele oxygen Executive Chairman Bernard Olayo during the interview at his office in Nairobi on February 10, 2025.
Photo credit: Lucy Wanjiru | Nation Media Group
Getting it right
He went back to the donors for more money to set up a bigger plant to produce oxygen for sale to public hospitals at a subsidised rate. This marked the birth of Hewatele in 2014 which has since increased its plant count to five.
The social entrepreneur says that doing business with the government bothered him and still does due to poor and irregular payments but he is focused on ensuring sustainable business and impact through saving lives.
“We can make much more money by selling oxygen to bigger private hospitals but that will not save many lives. You begin to save lives by supplying public hospitals where the majority poor go,” he reiterates.
He says it is that social enterprise approach, and a track record of delivering and sustaining projects that provide an essential product which the market is ready to pay for, that has made donors more willing to open their purse.
During the early stages of the startup's growth phase, Dr Olayo says commercial loans which are faster to process were an available option but they were ill-suited for Hewatele's business.
“There’s lots of local capital but for a business like ours, can we afford debt priced at more than 10 percent interest? The answer is no. Social impact type of businesses need affordable and patient capital with a two or three-year moratorium and another 10 years to repay. Unfortunately, you cannot get that locally,” explains Dr Olayo.
He is, however quick to point out that initially, being a Kenyan organisation fundraising from the global North, it was more difficult to secure the funds for their social enterprise compared to other typical businesses.
“Some investors will pump money because of their relationships with the founder. Some might succeed but because they were not ready for that kind of capital, they go down quickly,” he says explaining the donors' hesitancy.
To set up a modern oxygen plant that can serve one county and last 15 years, Dr Olayo says an investor needs about Sh100 million for the plant house and distribution truck.
He says that to manage costs, and improve efficiency and revenue during the early stages, Hewatele partnered with other organisations who committed to invest at least 10 percent in each plant.
“The machines have too many moving parts so maintenance cost is huge. There are so many compressors and filters, so you need around Sh6 million annually for maintenance,” he explains.
He adds that with the three local suppliers not able to meet local market demand, the challenge lies in lowering the price of oxygen from the current Sh250 per litre.
With the upcoming Tatu City plant, Hewatele aims to reduce the price to Sh160 with the 20-tonne per day production capacity.
Managing cash flow and growth
With erratic payment from public health facilities which constitutes a large portion of their customer base, Dr Olayo says they ensure a steady cash flow by channelling the rest of the business (30 percent) to private hospitals and complimenting it with the sale of other rare gases paid for in cash.
“The other challenge is on the demand side especially rural hospitals where health workers don’t know how to operate oxygen plants. Training them is expensive and you can’t factor it in the price of oxygen. To sell the product, you need a well-trained and competent worker,” he notes.
Founder lessons
As an entrepreneur, to grow and move to the next level, Dr Olayo says the founder needs to step back, which is not easy for most, but it is important to know when to step back and allow professionals with business backgrounds to step in.
“You get it started but to grow into a fully commercial entity, you need proper operations personnel and that has enabled us to receive massive investments because it gives investors comfort that the company will be run properly,” he advises.
Is healthcare profitable?
Dr Olayo says that any investor who ventures into the healthcare space hoping to make huge profits is bound to be disappointed because “the numbers don’t make sense.”
“Hospitals don’t make money because inputs in facilities like ICU are too much that they end up losing money,” he says, adding that they only make money in pharmacies, and outpatient clinics, which have few inputs.
Contrary to perceptions that companies like Hewatele made a fortune during the Covid-19 pandemic, Dr Olayo says they faced challenges because there were many donations of similar technology which meant that hospitals were getting oxygen for free.
“Part of our market was wiped off, though it was temporary as most of them could not maintain the oxygen plants,” he says.
The pandemic however taught him an invaluable business lesson; things can easily change in very unexpected ways, a business can easily shut down and looking at the history of public health, it is a question of when, not if when the next pandemic will happen so one must prepare for it.
“Matters like USAid funding suspension affect our partner hospitals as they will probably have less money to buy oxygen,” adds Dr Olayo.
He admits that despite his success as a social entrepreneur, he expected Hewatele to grow as a small boutique business where they make money and invest in growth but the decision to move it to 10 times bigger using other people’s funding meant him ceding significant shareholding which was tough.
“As an entrepreneur, you have those business dynamics when you have other people’s money coming in,” he concludes.
