Bootstrapped Farmgirl Flowers Is Taking On The Flower Industry And A Host Of Venture-Backed Rivals
Christina Stembel, 39, grew up on an Indiana corn and soybean farm and didn’t go to college. Now she’s building Farmgirl Flowers in San Francisco, which will clock $15 million in revenue this year. When she launched the company in 2010, the $18 billion U.S. flower industry was dominated by four big players who offered huge selections, mostly made up of flowers shipped from overseas to small shops where about 40% of the inventory wound up in the trash because it spoiled before it could be sold. Stembel’s strategy: source flowers locally and slash waste by selling a very limited number of arrangements direct to consumers from her website. She wraps her bouquets in distinctive burlap donated by nearby coffee roasters. When she tried to raise money, she was dismissed by VCs, but she managed to bootstrap the business and now has investors approaching her. In this interview, which has been edited and condensed, she explains the impact legal marijuana is having on her business and why she thinks the company could ultimately produce $1 billion in revenue.
Susan Adams: Where did you get the idea for Farmgirl Flowers?
Christina Stembel: I was director of alumni relations at Stanford Law School and during the economic downturn in 2007 and 2008, we were doing a lot of events but the budgets were getting cut. We were spending between $100 and $200 on centerpiece flower arrangements. I started to research why the flowers cost so much, and I found that just four companies did three quarters of the flower business.
Adams: What made you think you could compete with them?
Stembel: I’d send flowers to my mom in Indiana and I was always left dissatisfied with the whole process, not just the product. I spent an hour online looking at options, to find the least ugly one. Then I’d spend $80 to $90 on that, and when she received it, it wouldn’t look anything like what I ordered. There’s even a hashtag, #flowerfail. My research also showed that younger consumers were purchasing fewer flowers.
Adams: Why would you enter a shrinking market?
Stembel: The most recent innovation was in the ’90s with ProFlowers, which started sourcing from South America instead of North America. They didn’t do anything to fix the problems I saw.
Adams: What role did waste play in your decision to start a flower company?
Stembel: Flower shops waste between 40% and 60% of their inventory. They have so many options and the owner doesn’t know what people are going to order so the flowers go bad. I came up with a model that I thought would solve all the problems. Instead of having 100 choices, we offer only a few curated options. You just get to pick the size you want. We have less than 1% waste.
Adams: How did you know your model would work as a business?
Stembel: I didn’t know, but I thought it was a great idea. I did one focus group before I quit my job. I gathered almost 50 people and showed them a bouquet I made versus three or four from the top four florists. Eighty-six percent of the people in the focus group chose my bouquet.
Adams: What are margins like?
Stembel: I think at scale, we can get them to 25%. We’re at a 2.9% net profit margin now but that’s because we’re investing all of our profit back into the company so we can grow. If we weren’t doing that we’d have a 10% to 12% net profit. 1800Flowers had a profit margin of 8% last year.
Adams: Was there anything else you considered before starting the business?
Stembel: It had to check four boxes for me. With no college degree and no network, I had to be able to bootstrap. I wanted the ability to scale big if I was going to work that hard at something. It needed to solve a real problem. And I wanted to do something good in the world, which for me was sourcing flowers locally.
Adams: Why did you care about local sourcing?
Stembel: In my research, I learned that 50% of U.S. flower farmers had gone out of business. Growing up in the agricultural industry, it was important to me to support local agriculture.
Adams: How did you fund your launch?
Stembel: I had $49,000 in my bank account. I thought it was a lot of money. It’s not. But I’d been at Stanford for seven-and-a-half years and I thought, if it’s not now, it’s never. I gave myself two years.
Adams: Where did you get your flowers?
Stembel: San Francisco has a great flower market where I could get great prices for flowers in small quantities directly from wholesalers and directly from farmers. But one of the early problems I ran into was that some farmers wouldn’t sell to me. They’d only sell to wholesalers.
Adams: Why wouldn’t farmers sell to you?
Stembel: Because their dad didn’t and their grandpa didn’t. A lot of them were like, this Internet thing, I don’t know if it’s going to be long term.
Adams: How did you market the business?
Stembel: I would take flower arrangements to coffee shops in San Francisco with little marketing cards on them. Then I’d go back to the shops and see how many cards had been taken to see if it was worth the $20 flower cost.
Adams: How was your first year?
Stembel: I did $56,000 in revenue. The second year was $276,000. The third year I started to be able to spend more money on marketing with Facebook and some with Yelp. That took us to $920,000 the third year.
Adams: How long did you work out of your apartment?
Stembel: In November 2012, my landlord found out I was running a business illegally and I had to move out. It was scary. That’s when I hired my first employee and we moved into a stall at the San Francisco flower mart.
Adams: You only hire full-time employees. Why do that when so many startups use contract workers?
Stembel: When I first started, I used an outsourced courier company for deliveries. I found they didn’t care about the product or the experience. Uber was just coming on the scene and there was a lot of discussion about independent contractors. I just didn’t feel good about it in my gut. The golden rule for me is that I want to create a company that I want to work at, that I would want to sell to, and that I would want to buy from. I wouldn’t want to work for a company that didn’t pay me well and give me benefits. We just started a 401(k) program this year. The next thing I want to provide is subsidized child care.
Adams: Was there a point when you felt you needed to raise money?
Stembel: In 2014, we had a lot of similar-looking companies popping up. There were tech guys who saw what we were doing. They were wrapping burlap bags around their flowers and delivering by bike couriers and their designs looked like ours. Even the copy on their websites looked like ours. All of them had a minimum of $9 million in venture capital. Cash flow has been a challenge for us. I honestly thought I was going to be the Friendster to their Facebook. I thought we’d be out of business in 12 months. But I was unsuccessful at raising money.
Adams: Why do you think you couldn’t raise money?
Stembel: I was asked many questions I didn’t think were appropriate. Like my age in almost every pitch. When I told them my age, they’d say, you’re older than I thought. I was told by a couple of female VCs that I should take my husband with me to pitches because it would give me more clout to have a man with me. I know there was implicit bias. Also, they weren’t the target customers. Eighty percent of people who buy flowers are women and I was pitching to a bunch of 50-something guys. And I made it very clear that all my employees were full time with benefits, I was a purpose-driven company, and that was non-negotiable.
Adams: How did funders react to your terms?
Stembel: Not well. I talked to one investor in Indiana on the phone who supposedly had a social bent. He told me that when I decided to run my company in a professional way, to give him a call, but before that he didn’t have anything to say to me. I said, why isn’t this professional? We won’t constantly be losing people and rehiring and our employees will be dedicated to us.
Adams: How long before you gave up on fundraising?
Stembel: Seven or eight months. I was spending 50% of my time on it and realized I had less than a 2% chance. Now that we’re at almost $15 million in revenue, people are coming to us. If we find the right partner who agrees with all the things we’re doing and wants to help us grow, we may bring in capital.
Adams: How much would you like to raise?
Stembel: We’ve been working on a $10 million round and they’ve been coming in at $15 million because they want more of the company. We’re trying for a $39 million to $40 million valuation.
Adams: Why do you think your competitors were able to raise money?
Stembel: For a few reasons. They were all men, and had larger founder teams than I have, and many of them have tech pedigrees. A few were communicating that they were logistics companies that just happened to be using flowers as their “test,” and on-demand delivery was a big focus among the investment community back then. So their messaging about what they were building was very different from ours. Their margins probably looked better than ours given that we make all the bouquets in-house with team members who are full-time employees with benefits.
Adams: How do you feel about the competition now?
Stembel: I was so worried a couple of years ago, I was making some decisions out of fear. Now the way I figure it is if we have the best product out there and the best customer experience, I think we’ll be OK.
Adams: Why have you stopped sourcing all your flowers locally, when you made such a big deal out of that in the beginning?
Stembel: It’s the thing that’s caused me the most angst and stomach issues. I knew when marijuana was legalized we’d have a big problem because flower farmers can lease out their greenhouse space for $1.50 to $2 a square foot for cannabis growing whereas it’s five cents a square foot for flowers. In five years, I think as many as 90% of our suppliers won’t be growing flowers for us. Also, when we order domestically, we often receive 26% of the flowers we’ve confirmed. The growers blame the weather. Now we source from farms in Latin America where they treat their employees as well or better than our U.S. farms. In Quito, Ecuador, one of the farms where we get our roses is building a school for the children of the women who work there. Our international growers deliver 99% of what we order.
Adams: Do flowers from overseas cost less than domestic flowers?
Stembel: Because of shipping, they cost about the same as if we sourced them here.
Adams: How did your customers react to you canceling one of your prime selling points?
Stembel: In January 2017, I sent a letter to our mailing list and I put it out on social media. I just explained the why and kept to the high road. I didn’t say that the flower business is an old boy’s network and some domestic suppliers were selling to my male counterparts and not to me. Then I held my breath. I was so blessed and grateful that we didn’t get a single negative response.
Adams: When did you expand deliveries beyond San Francisco, and why?
Stembel: In May 2015, but the shipping cost is high. We charge $25 but we subsidize $7.40 per package. In the first year, we couldn’t afford to ship more than 200 long-distance orders a day. So I’d have to cut off orders. When we started long-distance shipments, we didn’t even announce it and we sold out in 14 minutes.
Adams: Why subsidize shipping when you could just charge the full amount to your customers?
Stembel: Nobody is going to pay $40 for shipping. I did some focus groups and really $18 is what we need to charge for shipping. When we do, our sales will probably increase by 20%. We want to open a distribution center in the East.
Adams: What’s been your most effective marketing strategy now that you’ve expanded?
Stembel: Digital. Mostly Facebook and Instagram.
Adams: How big do you want to be?
Stembel: I think we can get to $1 billion in revenue.
Adams: That’s a lot of revenue. How would you defend that number to a VC?
Stembel: With a financial model that shows how we get there.
Original post from Forbes
Publication date: Dec-03-2017