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Executive Summary
There is an unmet current need in the fresh produce market. Society is obviously going
green as we are constantly innovating and thinking of new ways to produce environmentally
friendly consumer products. People all over are on a big craze to eat well and buy their produce
items fresh, without pesticides, locally grown, and with little gas/oil used for transport. Also,
modern farming techniques that we are used too are dying. According to Jim Thomas, in an
article he wrote for The Ecologist, called Up on the Farm, the “old-fashioned” horizontal farm is
no longer a viable business option. In the article Columbia University argues that because of our
shrinking options for viable land and mass amounts of urban sprawl our agriculture should
follow us to the cities. My proposed business idea concentrates on meeting all of these current
needs. We want to start and run a small scale urban farm; that may eventually be growth
sustainable.
Currently needs are trying to be met in different ways such as; roof top gardens, organic
grocery stores, community gardens, and possible plans for urban farms. Much of these
techniques however, do not yield enough food for mass amounts of people, are held to
seasonal factors, too expensive for consumers, or are not financially viable. Our plan is a
business that grows produce (fruits and vegetables) year round using hydroponics. The food is
100% pesticide free, one of the healthiest options available, not affected by outside forces
(grown in a controlled environment), and is slightly more affordable than the organic
alternative. There is a huge demand in the market for this kind of food. I will have a market
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niche with year round fresh produce, by targeting people who want to eat healthy and buy
products locally. By providing produce in the off season (winter), it will lessen the need to
import produce from warm climates.
We will receive orders from customers before every month. Then, promise a variable
amount of produce by harvest (not unlike the community Sponsored Agriculture Farm model). I
will then deliver produce four times a month, to help lighten transportation costs for
consumers. While doing so, they will be supplied with a box of fresh produce, once a week. I
will keep any produce left over, and sell them at places like co-ops and farmers markets. This
plan will be profitable while solving societal needs.
Code of Ethics
The Urban Farmer will conduct its business honestly and ethically. We will create a
reputation for honesty, fairness, respect, responsibility, integrity and sound business judgment.
The ethical performance of this organization is the sum of the ethics of the men and women
who comprise it. Thus, we all adhere to high standards of personal integrity.
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Table of Contents
Business Concept……………………………………………………………………………………………………………5
Industry Analysis…………………………………………………………………………………………………………….6
Primary Research………………………………………………………………………………………………..6
Potential Customers…………………………………………………………………………………………...8
Competitive Analysis…………………………………………………………………………………………..9
Product/Service Plan…………………………………………………………………………………………………….10
Marketing Plan……………………………………………………………………………………………………………..10
Marketing Mix Strategy…………………………………………………………………………………….11
Distribution…………………………………………………………………………………………………….. 12
Pricing………………………………………………………………………………………………………………12
Founding Team…………………………………………………………………………………………………………….13
The Founders……………………………………………………………………………………………………13
The Mentor Board…………………………………………………………………………………………….13
Organizational Plan…………………………………………………………………………………………………..….14
Financials…………………………………………………………………………………………………………………….14
Vital Start-up Expenses……………………………………………………………………………………..15
Other-Start-up Expenses…………………………………………………………………………………..15
Sales………………………………………………………………………………………………………………...15
Inventory Assumptions………………………………………………………………………………….….16
Production Expenses…………………………………………………………………………………………16
Break-even Analysis……………………………………………………………………………………………………..17
Sales Volume…………………………………………………………………………………………………….17
Profit…………………………………………………………………………………………………………………18
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Growth Plan…………………………………………………………………………………………………………………19
Contingency Plan………………………………………………………………………………………………………….20
Harvest Strategy…………………………………………………………………………………………………………..20
Goals and Timeline……………………………………………………………………………………………………….20
First Two Years………………………………………………………………………………………………….21
Year Three………………………………………………………………………………………………………..22
Appendix………………………………………………………………………………………………………………………23
Appendix includes;
- Bibliography
-Resume of Founder
- Pro Forma Financial Documents (including cash flow, income, and balance
sheets) for three years(attached to business plan).
- Pictures of Growth
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Business Concept
The goal is to produce fresh produce (mainly vegetables), that can be grown and
harvested indoors, without soil, pesticides, or natural light. The produce can be harvested and
sold year round. This is possible through the growing technique of hydroponics; plants are
grown under special grow lights, and roots are either suspended in solution/plant nutrients or
misted by the same solution. This technology allows plants to grow up to three times faster
than modern farming techniques allow and can grow all year because the indoor environment
can be controlled. This business would also include delivery service, to save customers on using
gas, and to provide a customer friendly service to gain local support. We will receive a set
amount of payment every month, and promise to deliver produce once a week. Any extra
produce would be sold at local farmers markets.
One of the benefits of this company is that the growing operations and selling and
delivery of the produce, as well as managing and operating at farmer’s markets, can be
accomplished by the owner of the company (with some help from their family).The growing
operations have to be monitored once a day and the deliveries will be scheduled by the owner.
The only wages are salaries that the owner pulls from the company twice a year (which is
shown in the financials). There is no obligation to pay family members that are willing to help
with business operations.
Our business model is not unlike Community Sponsored Agriculture Farms (CSA Farms).
These farms charge for produce, before the growing season (usually months at a time). Their
price usually averages between $90 and $100. They then promise two boxes of vegetables a
month, during the growing season. Customers usually come to the farm to receive their
produce, or go to a “drop point”, that serves as a produce pick up spot for multiple customers.
We will differentiate ourselves charging monthly subscriptions of our produce delivery service,
so customers don’t have to pay so much money up-front before the season. We will also deliver
our produce to our customer’s homes, which is not done by any CSA farm or produce
manufacturer. This will allow us to have a customer friendly service which other businesses are
currently not providing. Our produce will be delivered four times a month, for a cheaper price
than the CSA alternatives ($85/month). This will bring additional value to our customers that no
other CSA farm or produce company is trying to accomplish. Most of all, our product brings
more value to the market because we can produce vegetables all year. As of now, there are no
other producers (in our geographical market) that can/will do this. The Willy Street Co-op has to
get their produce from California when it is not in season, claims Brendon Smith (Brendon is the
Communications Director for the Willy Street Co-op). Many of the customers that shop there,
pride themselves on buying local foods. However, in the Midwest there is nowhere to receive
local produce in the winter. Our growing systems can sustain plant growth in every season,
which will increase our product on the perceived value chain and solve consumer needs
Strong societal trends, like eating well and living healthy, are starting to push the fresh
produce market. People want their food fresh, local, and pesticide free. According to Enis
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Mathews, in an article he wrote for the Supermarket News in 2007, consumers are becoming
aware of the benefits from foods such as; vegetables, fruits, and whole grains; they can actually
help prevent some diseases and ultimately result in longer life. Customers would include
anyone that wants to live a healthy lifestyle, are concerned/proactive about the environment,
and have a stable income. Though our produce does not cost as much as organic produce, it will
still be relatively more expensive than average produce, which does not carry any of the
benefits hydroponic growth offers. Customers will buy this product because it will give them a
convenient way to receive produce and easy access to the foods they want. It will also offer the
benefit of a healthy lifestyle, as well as a sense of saving the world by contributing to locally
grown/delivered produce which helps eliminate CO2 emissions in the atmosphere. These
emissions are a direct result from transportation and delivery from non-local markets.
The healthy food market is in its growth stage; therefore, potential for growth with this
company is tremendous. Our growth strategy would include growing produce in to wholesale
quantities. Our target market would change to restaurants and grocery stores (mainly co-ops).
We would need to establish a line of credit, or apply for an additional bank loan to support our
growth. This loan would be used for a new building, for larger growing operations. It would also
be utilized to reform the companies, logistics, paid personnel, and growing operations. If we
decided to go this way the owner would have to be one-hundred percent involved and would
not be able to keep their day job. Growth could also go a different direction and would include
growing more produce to withstand a larger amount of customers that we previously had. It
would still include all of the things mentioned above. We would not consider these options
until our company is financially stable, and we think growth is sustainable.
Industry Analysis
Primary Research
The fresh produce market is filled with institutions that sell produce that claim to be
organic or pesticide free. The market is growing and consumers can buy these products at many
places such as: farmers markets, community co-ops, average grocery stores, community and
family farms, and even corporate giants like Wal-mart and Kwik Trip. According to Brendon
Smith, the Director of Communication for the Willy Street Co-op in Madison, organic food sales
have been growing at about 20% or more in recent years, due to higher demand for healthy
foods. Positive studies that come out and say how good organic food is for consumers affect his
sales positively. According to A. Wieland, who wrote an article for BizNews Milwaukee called
Did You Know, a company in Palmyra Wisconsin recently released a book about sustainable
organic farming. “The company said it had $100 million of revenue in 2009 and that its revenue
grew by 35 percent from 2006 to 2009”. According to Amanda Jahnke Sauer, head of market
and community relations at the Whole Foods Market in Madison, their business is growing so
much that is seems like their “customers are multiplying”, especially in the past 5 years or so.
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The reason they are doing so well is because they exclusively offer high quality, all natural,
pesticide free, products. She also stated that there is a trend for organic and all natural foods.
According to Rebecca Lamson, who is the product manager at Nature’s Bakery in Madison, they
are also seeing healthy returns. Even though they do not have accreditation for organic foods,
the community knows that they use organic dough and local products. . The few interviews
we’ve conducted with local market experts, point to a high amount of growth in this industry.
There are also a small but growing number of farms across the country trying to grow
produce in new ways such as; aquaponics (fish fed system), hydroponics (water and lights), all
worm systems and any way to grow food organically. Many of these institutions are showing
signs of good returns and positive business. Ledgeview Farms is located in Johnsburg Wisconsin,
they started a hydroponic tomato farm in March 2009 and by September 2010 it already
started to break even. Their customers consist of local restaurants, schools, and farmers
markets; they only produce seasonally (in a greenhouse) and still show signs of profitability.
According to K. Pratt, who wrote an article for the southeast farmers press in 2009, hydroponics
are really making a lot of headway and very efficient ways to use facilities all year round are
being created. Pratt claims, “The Wyatt’s (farm, in Kentucky) hydroponic tomatoes are
marketed as a natural product and they take many measures to minimize the need for chemical
spray”. Pratt also claims that the Wyatt farm is growing about 6000 tomatoes on one acre of
land. According to Sally Williams who wrote an article for the South Wales Echo, entitled,
Scheme’s the Fresher Scheme’s the fresher way to your five a day way to your five a day;
Vegetables are delivered to your door. Despite the confusing name, the article is informational.
She states that there is a business in South Wales, called Riverside Market, which delivers fresh
produce via bicycle. They claim that their business is providing a more healthy approach to
foods delivered to the consumer’s home. It has become a substitute for fast food and pizza.
Their consumers pay a fixed monthly rate and receive a box a vegetables weekly. This craze is
also gaining popularity in the states, even more local, they are gaining allot of headway in
Wisconsin. Although no local providers deliver yet, customers are happy going to the farm to
pick up their weekly produce.
Interviews with representatives from the Willy Street Co-op, and with the Amazing
Grace Farm in Janesville (who produces pesticide free veggies), claims that weather, seasons,
and insects are the biggest threat to the industry. Insects and weather can directly impact the
amount of harvest produced and the quality of food. Brendon Smith from the Willy Street Coop, said that when weather effects produce (like winter), prices in all of their goods soar. There
is no way to keep costs down when your business receives organic foods from California.
However, while these factors contribute to a negative impact in the local produce market, it will
have a positive impact on the demand for our produce. We will be the only producer that can
deliver fresh local produce to the market in the winter. Insects are not a big issue for
hydroponic systems because they are grown in a box indoors. Another real threat stated by
Amanda Jahnke Sauer, from the Whole Foods Market, is big business. Because of recent trends,
and allot of successful local markets, big business are starting to sell organic and pesticide free
foods. Amanda concern, is that big business (such as Wal-mart) can easily put allot of local
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markets out of business. This threat can negatively impact our business concept, because we
will be a very small local producer without much leverage against giant corporations.
AreoFarms is business in New York that sells hydroponic lettuce growing systems, they
claim that these systems have made a return on investment (which they recorded from real
market practices), of about 19% over 5 years. They claim that the average ROI for these systems
is about 20 to 33%. However, Brendan Smith, for the Willy Street Co-op says, margins in this
industry are relatively unstable, although the market is growing, there are so many variables
that play into growth, production, and distribution that can effect business negatively and
poorly.
Potential Customers
Our initial target market will be located in Madison; it will be here because, as of now,
no one in that area is doing what we want to do (deliver fresh produce, all year). There are
many trade associations in the area, which are showing goods signs of business and
profitability. Our first potential customers will have a need or ambition to eat and live healthy.
According to the success of other organic/pesticide free companies, there are a lot of people in
Madison that will pay a premium for these products. Other potential customers in the area feel
a need to buy local produce, because it helps save the world and lesson our dependence on
imported products. Jane Rouline in an article she wrote for Business World, called Veggie
growers step up to reduce imports, claims that local vegetable growers, all over the world, are
reducing country’s dependence on high value agriculture imports. Over the past few years
(2004) the market for imported vegetables has dropped 60-90% (depending on the country).
This shows that there is a market for local produce and the market size is almost infinite, but
constricted to local areas. That is why our target market is in a high populated area.
Allot of customers in the Madison area value both local products and healthy life style.
According to Cassidy Murray (age 24), who is a Madison resident, and a potential future
customer, she always tries to buy the best (healthy and local) produce that is offered. She will
track miles shipped on certain foods and will always try to buy (most of her produce) pesticide
free. AJ Morel (age 23), who is also a resident of Madison, and a potential customer, claims
that he enjoys contributing to local markets. AJ is not really a health nut, but he will pay
premiums to buy produce at local markets to help his community. He says he doesn’t mind
eating the food at Wal-Mart, but feels bad when he buys from such a big international
corporation. Many of our potential customers feel this way, and there are a lot of people like
this in Madison. We may segment our customers into healthy living and others in supporting
local markets, although it seems these two ideas work hand in hand.
Another factor that our customers’ must possess is financial stability. Our produce will
costs more than average produce (produce that is not pesticide free), but it will costs less than
organic produce. However many organic sellers show signs of profitability even though their
products are more than 50% more expensive than average produce. Shannon Menahan, who is
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another potential customer, and fits our target market definition, has two children, a husband,
and a stable yearly income. She claims that she would buy produce delivered simply because it
would save her trips to the store, because the life she lives is rather hectic. She said that the
secondary reasons for her purchases are due to healthy produce. The potential market in
Madison seems to be infinite because of the cities culture and proactive healthy lifestyles.
According to a study done in 2007 by UW-Madison, 37% of downtown Madison employees buy
produce or food items once a week. Of those downtown employees about 60% of them make
anywhere from $35,000/ year to $100,000/ year. These figures show a big market, with a
population that has an income, which has enough spare money to buy our produce at least
once a week.
Competitor Analysis
Competitors include places such as: Co-ops, grocery stores, local markets, organic farms,
CSA farms (community sponsored agriculture farms), and personal growing operations. CSA
farms have the closest business model to our own. According to the Center for land use
Education, CSA farms in Wisconsin provide “a unique social and economic relationship between
households and farmers who work together to share the responsibility of producing and
delivering (distributing) fresh food”. Distribution is usually done at the farm. Janet Kassel runs
the Amazing Grace farm in Janesville. The farm is on the CSA list, she claims that she is paid
upfront for 22 weeks of vegetables for multiple consumers. Every Friday people come to her
home to pick up a box of vegetables of whatever her farm has recreantly harvested. If there is
produce left over she sells it at the Janesville farmers market, anything left after that, her cows
eat (she also raises organic beef). The only issue with her produce is that it is grown outdoors,
and anything she tries to sell in the winter has to be canned, and therefore is not fresh produce.
Allot of their promotion comes from word of mouth and the CSA community.
CSAs, Farmers Markets, and Co-ops/grocery stores all go after the same market that our
business will target. All of their fresh produce sales are showing an incredible amount of
growth. However they seem to share a common weakness. That is, seasons. Our products will
be differentiated because we are immune to seasons. During the winter and late fall we predict
that our sales will soar because, we are the only local alternative for fresh produce.
Other competitors will include home growing systems and other commercial indoor
hydroponics operations. Grow and Brew is a company in Madison that sells items to brew beer
and grow plants hydroponically, on a small scale, in private households. I (Jake) have even
purchased everything I need for about $100 to grow sustainable, edible, lettuce, in my
apartment. According to Ryan Machkovech, who is a Brew and Grow employee, in home
growing systems is direct competition to locally and internationally grown produce. With a little
higher monthly energy bill, an average household can harvest their own lettuce twice
(sometimes more) every month.
Another big and direct competitor can be commercial indoor growing systems. There is
a company known as Aeroponics. They developed and now lease/distribute commercial
hydroponic growing systems for lettuce. Last month a unit went up in New Jersey, and Chicago.
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This system provides a way to do exactly what I want to do. Because these systems (and others)
are on the move, it is imperative that our business is started soon before the market is
saturated with new developmental ways to grow produce.
Product/Service Plan
Our product is unique; we will be selling environmentally controlled, pesticide free, and
non-seasonal, local produce. Their answer is hydroponics; the plants are grown in a box. Totally
out of harm’s way from outside forces that may hurt the plant, and immune to seasonal factors.
The light that is needed to have a healthy plant comes from LED lights. The roots are
suspended in a tank that feeds them nutrients via plant solution. This technology allows
entrepreneurs to grow very plentiful produce locally and without any pesticides, and also
allows opportunities for profit (all year round).
Our first month of operation will consist of growing only. By the second month we will
offer some produce in the Madison Farmer’s Market. The first two months will be spent
“dialing in” our growing operations. We will be testing daily and refining our systems for
optimal growth. At the Farmer’s Market we will offer free taste tests, and brochures that
outline what our organization is trying to accomplish. That is, to offer local, healthy produce to
our customers every week. We will deliver to their homes with a customer friendly face. We
will begin delivering (on the weekends) at the beginning of the third month.
There is a prototype already set up and being tested. We have been growing lettuce for
approximately 4 weeks. It is almost time to harvest, and growing has been going well. We are
using this prototype to estimate the overall expenses for growing produce for this business, and
timelines to harvest. After they are harvested we will give them to some “potential customers”,
to try and receive some initial interest.
Marketing Plan
The purpose of our marketing plan is to make our customers aware, and bring our high
quality, healthy products to market. Our biggest advantage (market niche) is that our produce
will be fresh and available all year round. No matter which sector of the produce market
currently holds customers during the growing season (Organic or standard grown), we are the
only one who will be able to offer freshly picked produce in Wisconsin in December. With that
single advantage we should be able to market that into year round customers.
Target Market
Our target market is consumers that want to provide healthier food for their families, or
individuals who simply enjoy foods that have never been doused in chemicals in order to kill
bugs, disease, or alter the color and flavor of the food. These targets will generally have a stable
income in excess of $35K a year. We are targeting the growing number of people who are
learning to read nutritional labels and raise their children on healthier foods. We will target
those shoppers who are driven to seek out healthier produce. Shoppers who fear the impact
that additional hormones and pesticides in their food products will have an adverse affect on
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their children's health. (News) By the end of year three we hope to have about 100 customers.
100 customers consist of less than 1% of the total population that goes to the Madison farmer’s
market every Sunday.
Marketing Mix Strategy
Product: The Urban Farmer grows perfectly clean produce. No pesticides, no dirt, no
mishaps due to weather. We control the temperature, humidity, sunlight, nutrition, and
watering levels. With the laboratory conditions that we are able to control, our plants are
completely clean and ready to eat immediately after harvesting. A major part of our advertising
is to educate people on the purity of the produce. Our produce is grown without the use of any
chemical fertilizers and pesticides that are normally incorporated into the foods and eventually
into the consumer’s body. The taste is better because there are no foreign substances being
blended into the produce (Healthy).
Price: Our products have a higher quality level than those products normally
found on the grocers shelf and therefore will be priced higher than the average produce.
However, our products are also of equal or higher quality than comparable organic produce, yet
our pricing will be far less than the organic brands.
Placement: The Urban Farmer is looking to be found at the local farmers market
in the summer and fall months (whenever the local farmers markets are available). Our main
source of business will come from pre-paid orders; we will start our business with family and
friends. Because of our high quality of food, we expect “good word” to get out about our
business. We also expect our customer base to double for the first three to six months and
grow even more in the winter months, due to lack of competition during the off season.
Promotion: Locally grown is a huge promoting factor for many consumers. People
worldwide are rediscovering the benefits of buying local food. It is fresher than anything in the
supermarket and that means it is tastier and more nutritious. It is also good for your local
economy--buying directly from family farmers helps them stay in business (Why local). The fact
that our products are grown and consumed in a relative small area is something that is
attractive to many consumers. Environmental safety is also another promotable factor. We are
growing all of our produce without dumping any chemicals or pesticides onto, into, or around
our products. We cause no water or pollution of any kind as we grow and harvest our crops.
With our delivery of the produce we are also trying to reduce the total amount of carbon
emissions that are emitted during that process as well. We will use promotion tools such as
informational pamphlets, radio and newspaper. But our biggest promotional tool will be word
of mouth and our customer friendly attitude. Because we deliver our produce we will be able to
give our business a personal touch that other competitors do not practice.
Communicating the message of our ultra clean pesticide free produce will be
accomplished one customer at a time via personal sales. We think our produce will speak for
itself and our customer base will grow rather quickly. We offer personability and direct grower
to consumer relations that other competitors don’t offer. We also provide fresh produce all
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year which is also not being done by any local produce market. We think that these two
advantages will communicate the message that we want to communicate to our customers.
The farmers markets are also a one-to-one selling atmosphere where we will have the
opportunity to pick up customers for our products all year long if they chose.
Local cable access has opened up an affordable way to advertise to a very
selected market area. This is a huge advantage to The Urban Farmer since we are a local grower
of produce. We can use this to attract individual customers or groups of people. The onion is a
local printed news paper that also offers a discounted price for advertising. A small ad can cost
as little as $50 in a localized newspaper.
Distribution
Farmers markets offer a simple way to gain some local familiarity. Once a space is
rented and the stand is up and open for business, the local shoppers will simply need to be
asked if they would like to try our products. The banners and advertising on the booth will show
a part of the growing process. A picture of the plants with their roots dangling in water is sure
to attract at least a little attention. Our ads will alert people to the fact that we have grown our
produce without the use of any pesticides or chemicals. Free taste tests can be handed out, and
in general we will need to be very personable in this highly competitive sales market.
The Hydro Farm will have a delivery schedule for the local customers. The delivery
routes will be run all year long since our growing season will never be shut down due to
inclement weather. These delivery routes can include stops at assisted living centers where
people are still fully capable of cooking but have no means of getting around town. The local
university offers an opportunity to sell and deliver to entire buildings of staff members at a
large number of locations, all within a very short distance of each other. Our distribution efforts
will cut down on Co2 emissions, and in turn be an effective marketing tool.
Our business identity will consist of one that provides quality with a customer friendly
attitude. Our first customer will be reached because he/she will already be aware of the
benefits that our produce will bring. He/she will become aware from word of mouth and
possibly tasting a sample of our produce at a Farmer’s Market. They will see and taste how our
business is trying to be environmentally friendly and that our produce is fresh, healthy, and
delicious.
Pricing
Our pricing strategy will be rather competitive to fresh (organic) produce, but still a little
less. However, it will be at a price premium for produce that is grown in “old-fashioned” ways,
about 100 to 150% more. The price reflects the fact that the food we grow is good for people. It
also says that our produce is slightly less than organic. Which we believe will be advantageous
for the business because our food is a healthy alternative to organic that won’t hit our
customer’s wallet’s so hard. Our sales for the first three to five years or so will be retail only.
They will be pre-ordered or sold by the pound or quantity, directly to consumers.
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As of November 2nd, the Park Slope Food Coop in Brooklyn came out with a price list for
fresh produce that they offer. To explain our pricing strategy further, I will use the average
prices for organic lettuce and salad mix (which will be much of our main produce). The average
pound for organic lettuce is about $1.90 cents per pound, and a bag of salad mix runs for about
$8.00 per pound.
Our stand at the local farmer’s market will have both of these items. However if the
prices (above) are average for organic on any given day, our prices would be roughly $1.40 to
$1.50 and about $6.50 respectively.
Our main source of income (small amount from Farmer’s Market) will come from preordered produce. Delivery sales are $85 per month; which includes 4 deliveries. This price
positions our service as a cheaper alternative to CSA farms and other organic suppliers. CSA
farms usually charge in the range of $90 to $100 per month for boxed vegetables, there is a
value difference because we deliver, and more produce is received from us than other CSA
farms. This pricing strategy fits our positioning strategy because the price reflects our good
quality food, but at a more affordable price than organic.
-Compared prices come from the Harmony Valley Farm in Viroqua, WI and from
Simply Wisconsin LLC’s CSA brochure out of Monona WI
Founding Team
Hydro Farmer LLC is being started by two Entrepreneurship Majors at the University of
Wisconsin at Whitewater. The idea is based on hydroponics, and includes a complete set of
business plans that covers the initial startup through the third years predicted sales and
financial figures.
The Founders:
Jake Lakowske (I) completed an Associate’s Degree in May of 2007 and decided to
continue my education at UW Whitewater in order to achieve a Bachelor of Business
Administration degree, Entrepreneurship major in May of 2011. Although I have some of the
expertise to operate this business, I will be joined by a number of people who have agreed to
form a Mentor Board that will assist to fill in the experience gaps that have been identified.
The Mentor Board includes:
Jim Stamper: A thirty year veteran of the greenhouse business will be bringing a vast
amount of knowledge in regard to the nutrition and care of the plants. His expertise will be
invaluable to the successful startup of the Hydro Farm. Stamper’s Greenhouses are located in
Oconomowoc, WI. Jim has also agreed to assist with securing of the proper vendors for all of
the materials that will be required by Urban Farm. His extensive knowledge in the greenhouse
growing field will be utilized early on and should prove to be invaluable at the start of this
company.
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Randy Vail: Is a recently retired banker who has agreed to help with any financing and
financial questions or issues that are sure to come up as we launch the new business. He has
assisted hundreds of customers as they navigated through the finances involved with both start
up and continuing operations.
John Lakowske: Is an experienced entrepreneur. He started Monroe Medical equipment
in 1994 and has enjoyed many successful years of business. He also launched Fort Medical
Equipment in the late 1990’s and sold the half of his business late last year (2009). He also
recently sold his real-estate company (Towne Square Realty) and owns a car wash. He has
agreed to be a general business advisor.
Zach Menehan: Is a Co-owner of the New Glarus Fitness center. Zach and his partner
purchased the business in early 2007. They have, so far, re-organized a failing gym. It is now
showing signs of improvement and positive business. He has also agreed to be a general
business advisor.
Perry Conkle: Is a home farmer that grows a variety of fruits and vegetables in Beloit WI.
Perry will be used for helpful insight on plant nutrition and harvesting.
A mentor board was used because Advisory Boards usually charge for their time.
Organizational Plan
The philosophy of the company is to maintain high standards and to sell the highest
quality products we can. We define quality by evaluating the ingredients, freshness, safety,
taste, nutritive value and appearance of all of the products we sell.
We have decided to make the company a “Limited Liability Company”. The main
purpose for the LLC is to take advantage of the pass-through taxes and the limited liability for
the business and owners.
Our organizational chart currently has Jake listed as the Presideny. While also filling the
roles of: janitor, inventory control, human resources, secretary, delivery person, purchasing
agent, ect….
Currently I am undertaking the task of lining up all of the suppliers and ensuring that we
will have a line of credit available for ordering when we are ready for the genuine launch of
Hydro Farm. I am also loading a spreadsheet with all of the tasks needed for the watering,
temperature, and light changes that will be made during the production of our first batch of
produce. I will handle the duties of checking on and testing of the equipment required for
moving the water solution around the facility.
Financials
The owner will invest $30,000 and try to receive a bank loan for $30,000 (matching the
owners’ investments). It will take approximately $60,000 in start up expenses to get the
business running. There will be roughly $20,000 left from start-up. We will use this money as a
Urban Farm 15
Assignment 9
cushion for unforeseen events and to keep the company floating until we earn a profit. Based
on the sales and expense forecast we will be profitable in the fifth month of operation, and we
will break even of our initial investment of $30,000 (assuming the loan is paid off in two years)
at the beginning of the third year.
Vital start-up expenses
We will take care of the mortgage for the building we are able to use; it will cost $300 a
month. The utilities will be signed over to the owners of the company and will not incur a bill
until end of the first month of operation.
To start the growing operations we need to spend about $11,400 in machinery and
equipment. The major costs are in the grow lights needed to sustain plant growth. I found some
high efficient LCD grow lights for $450 apiece (it is a 100 model light from Procryon). I believe
that we can sustain enough food for ten people under four lights. I will buy 20 lights right away
for approximately $9,000. Under 20 lights I predict that I can grow for 50 people. I will buy 20
more lights before the winter season in the first year. Other costs for machinery and equipment
included have been estimated by comparing costs from our prototype (growing lettuce in Jake’s
apartment). All costs are critical to the growing system. They include; grow pods, aeration
devices, tape, foil, new tools and tester kits.
$15,000 will be set aside to purchase a vehicle for delivery and promotion. The vehicle
will be fuel efficient and be able to deliver large quantities of produce (Toyota scion). If other
cars are needed for operation personal cars will be used.
There will be $650 reserved for open inventory purchases. These items are not so much
inventory, but they are part of COGS, they include: root holders, seeds, and plant food. We
have purchased a small number of all of these items already. I calculated the total cost from
already incurred expenses. Inventory purchases will rise about 50 percent every year. I will
make 2 inventory purchases a year.
Other Start-up expense assumptions
Other costs include Insurance, Advertising, attorney fees, and computer equipment. See
attached “Start-up Expenses”.
Sales
There will be a very big seasonal factor with our sales. We predict that in the winter
sales can grow by nearly 10 to 15 percent each year until we reach an efficient scale. By the end
of year three we hope to have 100 customers. 100 customers consist of less than 1% of the
total population that goes to the Madison farmer’s market every Sunday.
In the winter season sales will decrease because local produce will flood the market in
the growing seasons. We predict that we will lose about 5 to 10 percent in the months
Urban Farm 16
Assignment 9
following the winter season. However, during every winter season our sales should spike. By
year three we expect to gain enough customers to earn a steady profit, customers will stay
relatively stable at 80 during the non winter season, and jump to 100 during the winter season.
We assume our sales level will stay there until we expand our operations. With 100 customers
and our sales at the farmers market will have roughly $96,000 in sales in year three.
10000
8000
6000
4000
2000
0
These are our predicted sales levels for the first three years of operation. You can clearly
see our seasonal patterns from December through March every year. The first two months of
operations are spent growing the produce we need to sell. Half way through the second month
we will be able to sell some freshly harvested produce at local Farmer’s Markets and spread the
good word of our business. By the beginning of the third month we will be able to start our
deliveries. We predict to start with 10 customers and rise to 55 by November of the first year.
We also predict that in year two are largest sales volume for deliveries will be 90 customers.
Year three is when we hit our “efficient scale” with 80 customers in the growing season
and about 100 customers in the winter. The net income is at about 29%, totaling $28,257. If we
would want substantially more income, we would have to expand our operations in year four
(refer to the growth section for more detail).
Inventory Assumptions
Inventory purchases are not a tremendous expense of the business, but they are vital to
its operation. The purchases include, seeds, plant food, and root holders. I start with $650 in
purchases (refer to Start-up expenses). We will buy more inventory as I consume the materials
needed. I will purchase these materials about twice a year, in year two and three our purchases
total $4000 twice a year.
Production Expenses
Utilities are a vital part of our operations. We assume that 80% of the utilities will go to
electricity. The other 20% will be used for mainly for water. Areo Farms, who uses growing
technology similar to our own, says that 87% of their utilities are dedicated to electricity and
13% is dedicated to water. I believe that our systems use a substantive amount more water, so
we dedicated 80% and 20% respectively.
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Assignment 9
The lights I use are very economically friendly. With our lighting schedule (12 on, 12 off),
we calculated that it will cost 54.75 per year to operate one (using the generic energy cost
calculator). I believe I can sustain enough food for ten people under four lights. Based on these
assumptions our calculation for utilities used per month is:
(The number of lights/10)(4)= the number of lights needed
(The number of lights needed)(54.75)/12= electricity used for a month
Electricity used for a month/x=80/100
X= the monthly cost for utilities
For example, I will use the 17th (August, year 2) month of operation from the financials
to determine the utility bill. In the 17th month I predict I will have 60 customers.
(60/10)(4)=24
(24)(54.75)/12=109.5
109.5/x=80/100
X=$136.86
I repeated this process for every month in the prepared financial set. I also set aside
$1,000, $2,000, and $3,000 for year one, two and three, for repairs and maintenance of our
growing systems.
Break Even Analysis
Sales Volume; Break Even
I calculated two forms of our break even analysis. One is how many customers I need to
maintain to earn a profit in any given month. The other is analysis tells us when I start earning a
profit past our initial investment, that is “breaking even”.
To figure out our break-even analysis (in sales volume) I needed to figure out the actual
variable cost of goods sold. I broke it down by how much electricity and plant material it
needed to grow food for one person for a month.
Some assumptions are needed before understanding the equation:
-
It takes 4 lights to grow for 10 people.
-
It takes one month of light for one week of deliveries.
-
Electricity is 80% of our utility expense.
-
It costs $54.75 to run one light for a year.
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Assignment 9
The equation is as follows:
-
(# of Lights)(54.75)= 219
-
219/12months= 18.25
-
18.25/10 customers= $1.83 per month of light per customer
-
1.83/x=100/80
-
X=$2.29 per customer for utilities for one delivery.
$2.29 represents the utility cost for one week of deliveries. Because I sell monthly
subscriptions of our service, that includes four deliveries, I will multiply this number by four.
This will result in a “COGS” of $9.16. There is also an added cost for seeds at 30 cents and plant
food for $1.00. The resulting “COGS” for one month of deliveries is roughly $10.50. With our
monthly subscriptions costing $85.00 the cost of goods sold is roughly 12.4%.
The equation I decided to use for our break-even analysis is as follows:
-
Average fixed costs for 3 planed years/ (selling price- variable cost per
unit)= Break even sales volume per year
-
Break even sales volume per year/12= customers needed to break
even
I decided to take the average fixed costs for three years because the more customers I
have the more supplies in some areas we need such as postage, gas, and office supplies. I
marked these expenses as fixed because they are relatively easy to determine. I am taking the
average of three years because it only varies by about 3,000 dollars and stays relatively “fixed”.
The numbers that vary stay fixed for the proportion of customers. The Average is taken from
the income statement and the average fixed expenses equal $25,102.
So, our break even analysis, in sales volume looks as followed:
-
25,102/(85-10.5)
-
25,102/75.4
-
=332.9=333
-
333/12 = 27.75=28 customers to break even
Our analysis shows that I need to keep 28 customers a month, to break even, and beat
our expenses in any given month. I assume to break this mark by the 6th month of operation.
This break-even analysis is also done without the consideration of sales from the farmer’s
market. However, I do not see that income as pertinent to the business survival; the farmer’s
market is more or less a marketing tool.
Urban Farm 19
Assignment 9
Profit; Break Even
The other form of break even analysis is done by studying Hydro Farms predicted cash
flow. The important thing here is to note that we are predicting to pay our $30,000 bank loan
off at the end of the second year. So, that sets our break even mark at $30,000, because that
will “break us even” with our initial $30,000 investment.
Cash Flow: First 3 years
60000
Cash Flow ($)
50000
40000
30000
20000
10000
0
Month
Here you can see that our initial cash balance is about $20,000, we begin to hit that
mark again by the beginning of the second year, and we break even on our $30,000 investment
in May of the third year. The sharp decline in the first year represents Hydro Farm buying extra
grow lights. The other sharp declining slopes are salaries paid to the owners in the second and
third years.
Growth Plan
As stated previously, the healthy food market is in its growth stage; therefore, potential
for growth with this company is tremendous. I would need to establish a line of credit or apply
for an additional bank loan to support our growth. This loan would be used for a new building,
for larger growing operations. It would also be utilized to reform our companies, logistics, paid
personnel, and growing operations. If I decided to go this way I would have to be one-hundred
percent involved and would not be able to keep my day job. Growth could include growing
more produce to withstand a larger amount of customers that I have not previously served.
Another potential customer would include produce sellers like, grocery stores and Co-ops.
According to Brendon Smith from the Willy Street Co-op, the co-op would buy wholesale
produce from a local grower in the winter because they have to acquire their produce from
California in the off season. I believe that this theory would hold true for other local produce
sellers.
Eventually (when I have capital to produce a high volume amount of produce,
approximately 3 to 5 years) I would like to make our produce available in small neighborhood
Urban Farm 20
Assignment 9
grocery stores located around the Madison area. These stores are generally known by the
customers as having a higher quality item in stock and that is precisely why they shop at these
stores. Locally grown products are sought after in the smaller stores and The Urban Farmer has
exactly what these customers are looking for: fresh, locally grown, pesticide free, healthy, good
tasting foods. At the same time, I will also be approaching the local restaurant owners and
purchasing managers with samples of our produce. Restaurants that want to offer fresh, locally
grown produce “all year round” can only fulfill those wants in the winter with our products.
Once I am able to get a foot in the door of a fine restaurant, I should be able to retain them as
customers as long as our produce remains a high quality product.
My company always strives to be socially responsible by decreasing Co2 emissions in the
air by delivering local produce. I also offer fresh produce that is pesticide free and healthy for
our consumers. I will continue to be socially responsible after our business expands.
Contingency Plan
The fact is things go wrong in every business venture. This section provides some insight
on what to do in-case things don’t go the way I predicted them. It would be tough to liquidate
our assets if we are not making money and decide to go out of business. The only things we
could liquidate are our grow lights, delivery vehicle, and our produce that is ready to sell; which
would only accumulate between $15,000 and $25,000. If I decide/have to go out of business
that is what I will do, I will use the money to pay off any debt (bank loan), and then split the
remainder amongst the owners. If we do not get as many customers as we predicted, our
business will still survive. As long as we get over 28 per month we should start to see positive
earnings.
Harvest Strategy
The only strategy I have set up to harvest the wealth created from the business, is an
owner’s salary. There is only one owner in entire business. I look at the earnings twice a year
and pull out a reasonable salary. For year one Urban Farm only paid $2,000. In year two the
business paid a total of $20,000 (two payments of $10,000), and in year three it paid a total of
$30,000 (two payments of $15,000). I am hoping in year five it will pay a total $50,000 each (if I
do not expand operations).
Goals and Timeline
Our main goal is to spread our company through good word of mouth. I will start with
very few customers (10), that will want deliveries before I even start our grow operations. I
predict that these numbers will grow at about 50% per month for the first few months then
level off until the winter season, when they will grow at double the rate. Before the winter
hump I must prepare for more sales, which means growing more plants and advertising in
different ways. I will invest in some marketing strategies, during the winter season, such as
radio, and newspaper advertisements. Also our pamphlets that I hand out all year will let our
customers know that we grow fresh produce all year long.
Urban Farm 21
Assignment 9
This graph shows the first two years of predicted customer base of those who I deliver
to weekly. I get paid $85 per month by customers. As you can see I start small, this is when
word of mouth spreads, from good customer service, local farmers markets, and informational
pamphlets.
March
February
January
December
November
October
September
August
July
June
May
April
March
February
January
December
November
October
September
August
July
June
May
April
100
90
80
70
60
50
40
30
20
10
0
First 2 Years
December, January, and February, will be the biggest months in terms of sales. It will be
imperative that I advertise with pamphlets, radio, and newspapers, to explain that I am a viable
option for produce in the winter. I predict that sales will drop off in March and April because
the warmer months bring saturation of the local produce market. The farmer’s market sales will
be a little less predictable, simply because I am just selling the left over produce from my
deliveries. I can only receive this revenue during non-winter months. It will be mainly a source
of advertising and extra income.
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Assignment 9
Year 3
This graph shows my customer base at year three. I predict that the sales level will stay
consistently around these numbers for years after year three. This is when the business is
efficient. Also, if I receive any more customers I would have to expand operations. The
maximum number of people I could grow produce for is about 120, because of building space.
My highest number of customers on the chart is 103. If we receive any more customers we
would need to buy land and grow our operations.
120
100
80
60
40
20
-
Urban Farm 23
Assignment 9
Bibliography
Secondary Research
Center for Landuse Education, Community Supported Agriculture in Wisconsin. (2007).
Supporting local farmers and protecting drinking water www.uwsp.edu
CSA sign up form. From Harmony Valley Farm. Retrieved November 2, 2010 , www.harmony valleyfarm.com
Health Benefits of Organic Food [organic facts]. (2010). Retrieved October 30, 2010, from RuralTech
Services website: http://www.organicfacts.net/organic-food/organic-food-basics/health-benefits-of-organicfood.html
Lombardino's Restaurant. (2008 ). Lombardino's [Informational]. Retrieved October 30, 2010, from ; Lombardino's
Italian Restaurant & Bar website: http://www.lombardinos.com/
Matthew, Enis. (2007, November 26). Fruit and vegetable consumption could offset rise
in disease. Supermarket News , 48(55),
News about planet earth. (2006, May 15). Farm news (who really buys organic). Retrieved October 30, 2010, from
SpaceDaily website: http://www.terradaily.com/reports/Who_Really_Buys_Organic.html
Pratt, K. (2009, October 21). Kentuky growers branch out with hydroponics. Southeast
Farmpress
Product Price List. (2010, November, 2) Park Slope Food Coop, Retrieved November 2, 2010
www.foodcoop.com
Roulee,Jane, Calayag,F . (2004, October 12). Veggie growers step up drive to reduce
imports. Business World , 3.
Roznik, Sharon. (2010, September 3). Seeing red: Johnsburg hydroponic tomato farm is
producing juicy beuties. The Reporter, 1,
Thomas, Jim; Up on the Farm, The Ecologist; 39 no3 April 2009
UW-Madison, . (2007). Downtown madison market analysis . Unpublished manuscript,
Business,
Williams, Sally. (2010, September 11). Scheme's the fresher scheme's the fresher way to
your five a dayway to your five a day ; . South Wales Ec ho, 6
Weiland, A. (2010, September 17). Did you know. Biztimes, 4,
Why Locally Grown? (2010). Local Harvest. Retrieved October 30, 2010, from LocalHarvest, Inc.; website:
http://www.localharvest.org/
Urban Farm 24
Assignment 9
Interviews
Market Experts
Amanda Jahnke Sauer, Market and Community Relations, Whole Foods Market
3313 University Ave. Madison, WI (608)233-9566
Brendon Smith, Director of Communications, Willy Street Co -op,
1221 Williamson St. Madison, WI (608) 233-9566
Janet Kassel, Owner/Operator, Amazing Grace Farm,
1431 N. Cty H. Janesville, WI 53546 (608) 876-6311
Rebecca Lamson, Production Manager, Natures Bakery Co -op
1019 Williamson St. Madison, WI, (608)257 -3649
Potential Customers
AJ Morel, 950 Jenifer St. Ma dison, WI (608)669 -0353
Cassidy Murray, 1344 E. Dayton St. Madison, WI (608) 214 -1344
Shannon Menehan 1761 13 St. Monroe WI (608)558 -5231
Willy Street Co -op 1221 Williamson St. Madison, WI (608)251 -6776
Trade Associations
AeroFarms, Contact with Ed Harwoo d, CEO and Founder,
Ithica, New York (607)233 -3383
Brew and Grow, Contact with Ryan Machkovech, employee, Ed@aerofarms.com
3317 Agriculture Dr. Madison, WI (608)226 -8910
Urban Farm 25
Assignment 9
Jake Lakowske
950 Jenifer St. Apt. 3
Madison WI, 53703
(608) 558-1403
Lakowske@uww.edu
PROFESSIONAL OBJECTIVE
To build a successful entrepreneurial venture that will solve societal needs.
EDUCATION
University of Wisconsin-Whitewater
Anticipated: May, 2011
Bachelor of Business Degree
GPA: 3.30
Major: Entrepreneurship
Blackhawk Technical College
Completed: May, 2007
Associates Degree of Criminal Science
GPA: 3.20
WORK EXPERIENCE
In-home medical Equipment Technician (for Monroe Medical Equipment)





2005-present
Have been trained and certified, to instruct and deliver many in home medical necessities.
Trained to appropriately respond to emergency situations, which may arise inside patient’s
homes.
Trained 3 other employees, on how to deliver equipment, as well of how to inform patients on
how to use equipment.
Trained 3 employees on how to fill out, appropriately, mandatory Medicare
paperwork/insurance forms.
Instructed, with clarification, hundreds of patients on many different forms of equipment. Such
as: beds, oxygen, lift chairs, walkers, rotators, bi-paps, c-paps, etc…..
Urban Farm 26
Assignment 9



Trained and implemented, the installation of in home stair lifts. I have successfully installed
over 20 stair lifts.
Led many in-home evaluations of patients qualifying for equipment.
Participated in the on-call service that Monroe Medical offers
Monroe Medical Accreditation Facilitator



Summer 2009-Summer 2010
Served as one of 4 accreditation organizers, to facilitate Monroe Medical passing new Medicare
guidelines.
Facilitated in passing accreditation by 99%, two years in a row.
Facilitated in the revamping of delivery processes, vehicle organization to meet Medicare
guidelines, and organizing the corporation’s intranet.
Volunteer of the Dane county Humane Society



Have been trained in microchiping canines and felines which includes; proper animal constraint,
animal behavior, microchip fundamentals, and microchip placement.
Facilitate with microchiping events monthly.
Facilitate in taking care of felines on a weekly basis (cleaning, washing, and providing company)
HONORS & AWARDS
Dean’s List for Academic Achievement (UW- Whitewater)
References for Jake Lakowske
Mr. Zach Menahan
Day-to-Day Operations Manager
Monroe Medical Equipment
1601 10th Street
Monroe, WI, 53566
(608) 329-6300
zachmonroemed@tds.com
Relationship: Former Supervisor
Mr. Joe Ballard
Former Franchise Manager
College Pro Painters
315 N Franklin Street.
Madison, WI, 53703
(608) 214-9123
jlballard@matcmadison.edu
Relationship: Known Avid Entrepreneur
Fall 2007, Winter 2010
Urban Farm 27
Assignment 9
Mr. Garret Wartenwieler
UW-Wisconsin Graduate
1405 East Dayton Street.
Madison, WI, 53703
(608) 558-9194
GarthWart@hotmail.com
Relationship: Peer
Pictures of Growth
Urban Farm 28
Assignment 9