Business Rx: How to expand but keep local flavor

June 1
The entrepreneurs

The first food-based endeavor Jason Lundberg and Nick Phelps teamed on was started the University of Denver Grilling Society as college housemates studying business and leadership. The club continues to flourish, even as Phelps and Lundberg have moved on.

After a short stint in a consulting job, Lundberg honed his entrepreneurial skills at a natural foods start-up. From there, he went on to be managing director of a venture-backed travel company. Now, he has rejoined forces with Phelps, who started From the Farmer, a District-based farm-to-consumer produce delivery service.

The pitch

Lundberg

“We look to make local food more accessible. We do that via delivery of a farm box directly to customers’ front doors. We have subscribers who sign up for weekly services with no commitment. You can start and stop at any time. We curate a box of six to 10 seasonal items from our local farm partners.

“You can think of us kind of like Birch Box for the local farmers market.

“We set out to create a Community Supported Agriculture [CSA] program, but I couldn’t commit to 26 weeks, and I didn’t like the uncertainty of the upfront costs, and the inconvenience of picking up the produce from a local community drop point. So we essentially created CSA 2.0 — we maintain a lot of the same tenets of working directly with local community farms and hope our customers get to know those farmers by name. We also added the convenience of what people want today: the ability to manage their own subscription online.

“Our boxes come in three sizes – half-bushel ($35), single bushel ($45), and double bushels ($55).

“Right now, we are concentrating on the D.C. region, including Maryland and Virginia. Our goal is to expand. At what point would it make sense to explore additional markets? We want to grow while maintaining our authentic local experience for customers. Is that possible and how do we achieve that?

The advice

Elana Fine, managing director, Dingman Center for Entrepreneurship at the Robert H. Smith School of Business

“A geographic expansion is a potential hurdle for you. Your profits are really based on the density of your subscriber drop-offs and the time between trips. Consider expanding into new markets by Zip code rather than by region. Your value proposition to your customers is your delivery of fresh, local food, but your investors will want to see that you can successfully and inexpensively route your goods with the highest possible margin. Your software back end is a big part of what you do that will enable you to create a profitable, scalable delivery business.

“For expansion, your first priority should be defining what you mean by ‘new markets.’ Think about the density you are seeking in large markets like D.C., and consider how you will repeat that in smaller suburbs or cities that perhaps don’t have farmers markets. As you explore other markets, it will be a challenge for you to be an outside player with an authentic ‘local’ brand promise with a connection to local farmers.

“When you are focusing on anything that is hyper local to a specific market, scaling is really expensive because every place you go is brand new. That will be a continued challenge. You have to know your first market really well and perfect your model before you can get into another market less expensively. One way to stay authentic in a new market is to partner with an existing local player and essentially white-label your back-end software.

“Look for advice from other companies in noncompetitive spaces who have taken a local business model to new markets. Ask them how they chose their market, how they got to know the local players, when they expanded, etc.

“Another option: You could be really successful just concentrating on this region. People really like truly local brands. As companies expand, their quality always dilutes. You just need to do a lot of customer discovery and figure out what people want. You definitely still have a lot of potential market share out there in this region.

“You also have to better pinpoint your market differentiator here. The people you are targeting are likely word-of-mouth people. Neighborhood virality would be huge for you, so consider ways to encourage that. Consider giving incentives for customers who refer their neighbors. Also think about other distribution channels, so it’s not just consumer-to-consumer referrals. Homeowners associations or even real estate agents could be great channels for your service. Test some of those channels out and see what works.”

The reaction

Lundberg

“We’ve been approached a few times to consider licensing our software, but we have so far been thinking about our software as the piece that makes the business more efficient after we are up and running. There are lot of competitors in our space that offer software solutions, but that can create challenges for farmers who don’t have time to manage a software solution. At some point, we could consider synergies with farmers markets or green markets. We could figure a franchise-like model for partners in other markets.

“We’ve talked about ways to get whole neighborhoods on board with our program. Any time we can, we try to include extra produce in a customer’s basket and a note to encourage them to share it with their neighbors. The majority of our growth has been through referrals. We have also thought about trying to partner with real estate agents to offer From the Farmer baskets to clients when they move into their new home to get new customers.”

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June 1
The entrepreneurs

The first food-based endeavor Jason Lundberg and Nick Phelps teamed on was started the University of Denver Grilling Society as college housemates studying business and leadership. The club continues to flourish, even as Phelps and Lundberg have moved on.

After a short stint in a consulting job, Lundberg honed his entrepreneurial skills at a natural foods start-up. From there, he went on to be managing director of a venture-backed travel company. Now, he has rejoined forces with Phelps, who started From the Farmer, a District-based farm-to-consumer produce delivery service.

The pitch

Lundberg

“We look to make local food more accessible. We do that via delivery of a farm box directly to customers’ front doors. We have subscribers who sign up for weekly services with no commitment. You can start and stop at any time. We curate a box of six to 10 seasonal items from our local farm partners.

“You can think of us kind of like Birch Box for the local farmers market.

“We set out to create a Community Supported Agriculture [CSA] program, but I couldn’t commit to 26 weeks, and I didn’t like the uncertainty of the upfront costs, and the inconvenience of picking up the produce from a local community drop point. So we essentially created CSA 2.0 — we maintain a lot of the same tenets of working directly with local community farms and hope our customers get to know those farmers by name. We also added the convenience of what people want today: the ability to manage their own subscription online.

“Our boxes come in three sizes – half-bushel ($35), single bushel ($45), and double bushels ($55).

“Right now, we are concentrating on the D.C. region, including Maryland and Virginia. Our goal is to expand. At what point would it make sense to explore additional markets? We want to grow while maintaining our authentic local experience for customers. Is that possible and how do we achieve that?

The advice

Elana Fine, managing director, Dingman Center for Entrepreneurship at the Robert H. Smith School of Business

“A geographic expansion is a potential hurdle for you. Your profits are really based on the density of your subscriber drop-offs and the time between trips. Consider expanding into new markets by Zip code rather than by region. Your value proposition to your customers is your delivery of fresh, local food, but your investors will want to see that you can successfully and inexpensively route your goods with the highest possible margin. Your software back end is a big part of what you do that will enable you to create a profitable, scalable delivery business.

“For expansion, your first priority should be defining what you mean by ‘new markets.’ Think about the density you are seeking in large markets like D.C., and consider how you will repeat that in smaller suburbs or cities that perhaps don’t have farmers markets. As you explore other markets, it will be a challenge for you to be an outside player with an authentic ‘local’ brand promise with a connection to local farmers.

“When you are focusing on anything that is hyper local to a specific market, scaling is really expensive because every place you go is brand new. That will be a continued challenge. You have to know your first market really well and perfect your model before you can get into another market less expensively. One way to stay authentic in a new market is to partner with an existing local player and essentially white-label your back-end software.

“Look for advice from other companies in noncompetitive spaces who have taken a local business model to new markets. Ask them how they chose their market, how they got to know the local players, when they expanded, etc.

“Another option: You could be really successful just concentrating on this region. People really like truly local brands. As companies expand, their quality always dilutes. You just need to do a lot of customer discovery and figure out what people want. You definitely still have a lot of potential market share out there in this region.

“You also have to better pinpoint your market differentiator here. The people you are targeting are likely word-of-mouth people. Neighborhood virality would be huge for you, so consider ways to encourage that. Consider giving incentives for customers who refer their neighbors. Also think about other distribution channels, so it’s not just consumer-to-consumer referrals. Homeowners associations or even real estate agents could be great channels for your service. Test some of those channels out and see what works.”

The reaction

Lundberg

“We’ve been approached a few times to consider licensing our software, but we have so far been thinking about our software as the piece that makes the business more efficient after we are up and running. There are lot of competitors in our space that offer software solutions, but that can create challenges for farmers who don’t have time to manage a software solution. At some point, we could consider synergies with farmers markets or green markets. We could figure a franchise-like model for partners in other markets.

“We’ve talked about ways to get whole neighborhoods on board with our program. Any time we can, we try to include extra produce in a customer’s basket and a note to encourage them to share it with their neighbors. The majority of our growth has been through referrals. We have also thought about trying to partner with real estate agents to offer From the Farmer baskets to clients when they move into their new home to get new customers.”

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