It was a few days into a field trip in rural Yunnan before Carol Chyau and Marie So realized that what they were looking for was all around them: yaks, lots of them.

The pair had met at the Harvard John F. Kennedy School of Government in 2004, as classmates on a master’s degree program. Both were interested in social enterprise – addressing poverty by creating for-profit businesses that have a direct, social impact. Their backgrounds — So is from Hong Kong and Chyau from Taiwan — meant that they wanted to encourage philanthropy in China, a land full of entrepreneurs whom, they felt, had yet to channel their energies and money-making talents into good causes.

Hoping that by visiting China they might be struck with inspiration, the pair, at the time still students, visited Yunnan Province in January 2006 to tour local farms with the help of China Exploration Research Society (CERS), a Hong Kong-based non-profit organization that has been operating in western China for 20 years. CERS was already helping local farmers produce and sell yak cheese. It was precisely the sort of social enterprise model the two were keen to launch.

After returning to school, Chyau and So thought about how to turn yaks into a business model and came up with an answer: their thick, shaggy coats, which seemed ideally suited for clothing and accessories. They drew up a business plan and entered it into a Harvard competition, as well as an international contest in Amsterdam. Their plan won first prize in both, enabling them to set up a non-profit company, Ventures in Development, incorporated in Hong Kong with USD 40,000 in start-up capital, funded by the prize money, as well as private donations.

As an offshoot of Ventures in Development, they set up Shokay, a high-end, for-profit fashion and accessories brand. All of Shokay’s products are made using yak wool from Qinghai Province, which is then made into finished garments by a local knitting co-operative the pair have established on Chongming Island, just north of Shanghai.

YAK TO BASICS

It was tough at the beginning for Chyau and So, as neither had any real knowledge of either fibers or yaks. “Just what is this product, we were asking ourselves,” says Chyau. They had to take a crash course in both, with the help of China’s animal husbandry bureau and rigorous research. It was an uphill struggle: “We encountered more obstacles than we had ever imagined.”

Furthermore, yak fiber cannot be mass-produced, since it can only be harvested once a year: yaks must have their coats to survive the long, harsh winters in their native climates.

Then there was the equally challenging problem of persuading the fashion-buying public that yak wool was worthy of a luxury price-tag. “It’s difficult because people think of a yak, and they don’t think luxury yarn, which is what it is, whereas cashmere is instantly recognized as a luxury product,” says Chyau. Yak wool is more scarce than cashmere.

The business plan also underwent changes very quickly. When they did their original Shokay market-study, it was based on the luxury yarn market in the US, with distribution through virtual retail stores and annual trade shows. “There was no retail store in our original plan,” says Chyau. But eventually it became clear to Chyau and So that something more physically appealing needed to be done with the yarn to demonstrate its potential.

Now, a little more than two years later, Shokay sells its accessories, including hats, scarves and slippers; and its home range, such as throws and pillow covers, in a shop in Shanghai’s fashionable Taikang Road district, a pedestrian shopping area set inside shikumen housing in the heart of the French Concession. Prices range from RMB 300-800 (USD 44-117) for accessories and from RMB 800-4,600 (USD 117-673) for homewear.

A random visitor to the Shokay store is unlikely to grasp the high-contact interface that Shokay continues to have with the 2,500 herders in Qinghai whom they buy directly from. A single village can generate 10 tons of fiber in a given year. “We have a very long supply chain – very few companies work from raw material to final product,” Chyau explains.

What the random shopper might get a glimpse of are the personalized nametags on each of the pieces showing the name and signature of the knitter responsible for that item – the knitting co-operative now has 40 members. The Shokay team has grown as well, from two to 13 over the last two years.

BIG IN JAPAN

Chyau is unable to put her finger on a precise moment when Shokay gained traction. But there have been small, cumulative milestones along the way: the launch of the Shokay website in December 2006; the showing of their products at a tradeshow in July 2007; the forming of the hand-knitting co-op in September 2007; the opening of the Taikang Road store in May 2008 with the brand finally turning a profit that same month.

But the real breakthrough came last August, when Shokay broke into the Japanese market with the opening of its second branded store in Shibuya, a fashionable shopping district in downtown Tokyo. Since the store’s opening, Chyau and So have been unable to keep pace with demand. Japan is not the only foreign market that Shokay has entered. The brand sells its products and yarn at dozens of retailers across the US, as well as in Ireland, Switzerland and the UK. In China, as well as its Shanghai flagship store, Shokay also sells its products through retailers in Beijing and Hong Kong.

This year, a designer from New York’s Fashion Institute of Technology is overseeing Shokay’s knitwear range and experimenting with a bamboo/yak fiber mix. In the meantime, Chyau and So have taken it upon themselves to re-brand the rustic image of the yak. “We’re calling 2009 the ‘year of the yak,’” Chyau says. She hints that Shokay will also soon announce a partnership with an as-yet-undisclosed major fashion brand.

SQUARING PROFIT AND CHARITY

Now that Shokay has transformed itself into a successful business, how do its founders square the philosophy of for-profit Shokay with its non-profit parent company?

“We want the business to be profit-making, but not profit-maximizing,” says Chyau. The goal is to create a sustainable social enterprise, which means that financial viability is important. But with the social goal in mind, Chyau and So take a different approach to labor costs and market prices from most luxury brands.

“We train the farmers in Qinghai to generate better yak fiber so we can pay them more,” Chyau explains, adding that Shokay pays “upwards of 10 times the market price to herders if their fiber quality meets our requirements.” Eighty percent of profits are re- invested back into the communities the brand is designed to support – 40% to the herders and 40% to the knitters. The rest is pumped back into the business.

LUXURY WITH A HEART

Ultimately, Chyau understands that to create a successful social enterprise, it’s not enough simply to have a good cause. “If the merchandise does not appeal, than people won’t buy it,” she says.

But with youth, intelligence and the spirit of (social) enterprise behind them, Chyau and So just might achieve what they’ve set out to do, even if they have to spend a bulk of their time educating the public and the consumers that, “Yes, yak yarn is soft and luxurious, and as rare and plush as cashmere.”

As for their true non-profit parent company, Ventures in Development, it is also stepping up its activities: having hosted its first social enterprise forum in China last month. Venture’s mission to become a “social innovation factory,” where different ideas for social enterprise can incubate, seems to be well on its way.

For two young ladies who shunned the call of officialdom after graduating from the Kennedy School, Shokay seems to be the right model to balance their social conscience with their capitalist zeal.