Thursday, June 30, 2005
A More Profitable Harvest
By Bridget Finn, April 20, 2005
How do you make money by giving away free e-greeting cards? Easy: Sell flowers with them. That's what Jared Polis did in 1998 when he launched ProFlowers, an online flower business, alongside his popular website BlueMountainArts.com -- one of the 10 most visited sites during the late 1990s. Polis turned millions of free visitors into thousands of paying customers by offering his ready-made audience an easy (and cheap) way to send flowers with free e-cards. Since going public in December 2003 under the corporate name Provide Commerce (PRVD), ProFlowers has transformed itself into the third-largest flower retailer in the United States -- behind FTD and 1-800-Flowers.com. But size is only part of the story. The company is also incredibly efficient: With sales of $129 million in 2004 and net income of almost $20 million, ProFlowers enjoys a net margin of 15.2 percent -- more than twice those of its major competitors.
How does it do it? An ultralean distribution network moves flowers from growers' farms to consumers' front doors in less than half the time it takes traditional florists, at a fraction of the cost. Greater efficiency translates into better-quality flowers at lower prices -- and plenty of new opportunities. (The company has begun using the same model to sell meats, fruits, and other perishables through sister sites.) The world's fastest-growing retail florist, ProFlowers added 1 million new customers last year. Here's how the company grew a successful new business.
1 Plant the Seed
Looking for a way to piggyback a cash-generating business on top of his family's e-greeting card site, Polis realized that the $19 billion global flower industry was grossly inefficient. His solution? Develop a direct-sales network to ship flowers straight from growers to consumers. Polis hastily arranged a deal with a single rose supplier and set up a crude ordering system on Blue Mountain. As a test, he tried selling 500 dozen roses for Valentine's Day 1998 by posting a few banner ads on the site. The flowers quickly sold out, and the direct-sales distribution model worked flawlessly.
2 Prune the Middlemen
With the basic structure in place, the next step was to refine the distribution system. Retailers like 1-800-Flowers.com and FTD use local florists as the backbone of their distribution networks; flowers travel from the farm to a distributor and then to a wholesaler before finally reaching the flower shop. By the time they reach consumers, flowers can be eight to 12 days old. CEO Bill Strauss, a former operations executive at Intuit (INTU) who teamed with Polis to launch ProFlowers in 1998, developed a network-based system that transforms each domestic flower farm into a self-contained distribution facility. Growers handle everything from receiving real-time flower orders to adding personalized message cards.
3 Till the Landscape
Flowers grown outside the country arrive at a refrigerated distribution center run by ProFlowers in Miami, where employees monitor flower quality. From there, bouquets are shipped in refrigerated trucks to 12 regional distribution centers and then by FedEx (FDX) Ground or UPS (UPS) to customers -- a process that keeps shipping charges to a bare minimum. Thanks to such efficiencies, ProFlowers can charge 30 to 50 percent less for retail flowers than most of its competitors. Inexpensive roses have been one of ProFlowers's most effective sales tools; two dozen sell for as little as $30.
4 Conserve Resources
ProFlowers is obsessive about driving costs out of its operations. Outsourcing final delivery to FedEx and UPS is one shrewd technique; another is using a proprietary demand-management system that tracks sales in real time to all but eliminate spoiled inventory. Strategic partnerships with larger growers guarantee a reliable supply of flowers. With a staff of just 140 people, ProFlowers has achieved a whopping $920,000 in revenue per employee -- more than three times higher than 1-800-Flowers.com.
5 Smell the Success
ProFlowers customers receive e-mail messages informing them about the status of their orders during every step of the distribution process, and speedy delivery enables the company to guarantee that flowers will be delivered on time and last for a full week. Attention to service keeps customers coming back; last year more than 50 percent of revenue came from repeat clients.
How do you make money by giving away free e-greeting cards? Easy: Sell flowers with them. That's what Jared Polis did in 1998 when he launched ProFlowers, an online flower business, alongside his popular website BlueMountainArts.com -- one of the 10 most visited sites during the late 1990s. Polis turned millions of free visitors into thousands of paying customers by offering his ready-made audience an easy (and cheap) way to send flowers with free e-cards. Since going public in December 2003 under the corporate name Provide Commerce (PRVD), ProFlowers has transformed itself into the third-largest flower retailer in the United States -- behind FTD and 1-800-Flowers.com. But size is only part of the story. The company is also incredibly efficient: With sales of $129 million in 2004 and net income of almost $20 million, ProFlowers enjoys a net margin of 15.2 percent -- more than twice those of its major competitors.
How does it do it? An ultralean distribution network moves flowers from growers' farms to consumers' front doors in less than half the time it takes traditional florists, at a fraction of the cost. Greater efficiency translates into better-quality flowers at lower prices -- and plenty of new opportunities. (The company has begun using the same model to sell meats, fruits, and other perishables through sister sites.) The world's fastest-growing retail florist, ProFlowers added 1 million new customers last year. Here's how the company grew a successful new business.
1 Plant the Seed
Looking for a way to piggyback a cash-generating business on top of his family's e-greeting card site, Polis realized that the $19 billion global flower industry was grossly inefficient. His solution? Develop a direct-sales network to ship flowers straight from growers to consumers. Polis hastily arranged a deal with a single rose supplier and set up a crude ordering system on Blue Mountain. As a test, he tried selling 500 dozen roses for Valentine's Day 1998 by posting a few banner ads on the site. The flowers quickly sold out, and the direct-sales distribution model worked flawlessly.
2 Prune the Middlemen
With the basic structure in place, the next step was to refine the distribution system. Retailers like 1-800-Flowers.com and FTD use local florists as the backbone of their distribution networks; flowers travel from the farm to a distributor and then to a wholesaler before finally reaching the flower shop. By the time they reach consumers, flowers can be eight to 12 days old. CEO Bill Strauss, a former operations executive at Intuit (INTU) who teamed with Polis to launch ProFlowers in 1998, developed a network-based system that transforms each domestic flower farm into a self-contained distribution facility. Growers handle everything from receiving real-time flower orders to adding personalized message cards.
3 Till the Landscape
Flowers grown outside the country arrive at a refrigerated distribution center run by ProFlowers in Miami, where employees monitor flower quality. From there, bouquets are shipped in refrigerated trucks to 12 regional distribution centers and then by FedEx (FDX) Ground or UPS (UPS) to customers -- a process that keeps shipping charges to a bare minimum. Thanks to such efficiencies, ProFlowers can charge 30 to 50 percent less for retail flowers than most of its competitors. Inexpensive roses have been one of ProFlowers's most effective sales tools; two dozen sell for as little as $30.
4 Conserve Resources
ProFlowers is obsessive about driving costs out of its operations. Outsourcing final delivery to FedEx and UPS is one shrewd technique; another is using a proprietary demand-management system that tracks sales in real time to all but eliminate spoiled inventory. Strategic partnerships with larger growers guarantee a reliable supply of flowers. With a staff of just 140 people, ProFlowers has achieved a whopping $920,000 in revenue per employee -- more than three times higher than 1-800-Flowers.com.
5 Smell the Success
ProFlowers customers receive e-mail messages informing them about the status of their orders during every step of the distribution process, and speedy delivery enables the company to guarantee that flowers will be delivered on time and last for a full week. Attention to service keeps customers coming back; last year more than 50 percent of revenue came from repeat clients.
