NetFlorist launched on Valentine’s Day in 1999. It seemed like the perfect day to test out a flower business, which is exactly what Ryan Bacher and his partners, Lawrence Brick and Jonathan Hackner, were trying to do.
Not because they wanted to start an online floral and gifting company, but because they wanted to prove to Makro that they could design and run an e-commerce site.
Between the three of them they couldn’t name one flower other than a rose, but floral arrangements seemed less complicated than books. They were dead wrong about how complicated it would be, but they were also wrong about the potential of the business. And the rest is history.
“I was the sales manager at NetActive, an Internet service provider,” says Bacher. “Johnny and Lawrence were the founders of the business, which was listed on the JSE. We were approached by one of our shareholders, who also owned a number of large retail brands, including Makro, about putting their brands online. We were excited by the idea. Online retail was in its infancy, not only in South Africa, but internationally, and it would mean new business for us.
“In order to get the business however, we had to build something to show what we could do. We picked flowers. We thought we’d deliver a few bunches, test it and close the site. We just needed to transact something to prove we knew how to build and run an online retail site.
“We had no idea how to get flowers delivered, so we contacted a florist in Sandton. We told them that we were getting orders (we hoped), and that we’d send them the details, pay them, and could they deliver? We had to fax them the orders because they didn’t even have a PC, let alone email.
“They agreed, and we built the site. It had one page, with 12 floral arrangements to choose from. There was a search bar, because we’d seen that other sites had one, but anything you typed in just redirected you to the same page. The ‘pay now’ button requested your credit card details and then an egg timer would turn on the screen while we captured the details on our side, manually running them through a credit card machine and then accepting the order. Technically, what we were doing wasn’t even e-commerce.
“Our plan was five orders to prove it worked. And then Valentine’s day arrived. We had a lot of email addresses because we were an ISP, so we sent out a mail to everyone on our database, advertising the site and the ability to order flowers online. All you had to do was click on a link, choose an arrangement, order and we’d deliver. The response was unbelievable. We sold R30 000 in one day. At the time, this was the equivalent of a month’s worth of orders for a single florist.
“And so 15 February came along, and we just didn’t turn off the site. I carried on managing my customer accounts for NetActive, and each day I’d also check for orders, fax them through to the florist and swipe credit cards. Orders kept coming in based on the original mailer we sent out.
“What’s really crazy is that people were paying for us to provide a service. We had no stock. We’d never even seen the stock. We knew nothing about flowers! And that’s how our e-commerce journey began. We were way too early in South Africa, but we decided to do it anyway.”
The Lean Start-Up journey
Long before Eric Ries coined the phrase Lean Start-Up, Bacher and his partners were following the core ideals of building a lean business.
“Step one was doing research. We needed to know something about the product, and be able to name at least one flower other than a rose. Step two was understanding how consumers were using the Internet in the retail space.
“We knew our best bet was to get the website out, hack it, and keep changing it. We would learn more from the site being out there in the market than we could ever learn in-house, trying to develop a perfect product. It was basically always a work in progress. We incubated the business inside NetActive, which also helped to keep our infrastructure costs down. I was still handling my NetActive work and running NetFlorist part-time until 2003, when I finally moved over full time. Johnny and Lawrence followed later, in 2009, once they sold NetActive to Mweb.
“To date the total investment into this business has been R5 million, and that includes our warehouses and fleets.”
Building a moat
“Great businesses are the ones where there’s a really high barrier to entry, and that’s what we had. It allows you to build a moat around your business that’s difficult for competitors to cross. Luckily for us, we liked the hard journey. Delivering a perishable good is a real challenge – especially in a hot climate. We initially thought books were complicated. We had no idea! But complicated businesses are harder to copy. This gave us a great opportunity, provided we could get it right ourselves.”
In keeping with their lean start-up approach, for the first few years NetFlorist didn’t touch the product itself, using a network of smaller florists across the country to fill and deliver orders.
By 2007 however, the business had grown sufficiently to invest in warehouses and delivery vehicles.
“This was always in the business plan, but it was a difficult transition because we knew it meant taking business away from our smaller suppliers. We tried to do it in the gentlest way possible. We employed staff from shops that had hired extra people to handle our orders and bought vehicles from those who had increased their fleet size to handle our deliveries. It was painful, but it was also a core part of our strategy – we had always planned to own the entire value chain, because it was the only way we could scale and have the flexibility and margins that the business needs.
“It was also an important ingredient in building and maintaining our moat. Same-day delivery is not easy to achieve. Next day delivery is pretty common, but the fact that we offer same day is a real differentiator, and very difficult to get right. Our gifting is about more than just flowers: It’s about roses, champagne, chocolates and a host of other options.
“We couldn’t do this properly with myriad suppliers. We needed it to all be in-house. We didn’t create the ‘flowers delivered’ category in South Africa, but we did introduce all the non-floral gifts. This didn’t exist before we started doing it, mainly because you need everything under one roof to do it.
“We’ve even gone so far as to open a confectionary operation, from strawberries dipped in chocolate, to cakes – all baked and delivered on the same day. This doesn’t scare us. We’ve had people ask ‘how do you deliver a cake?’ We deliver red roses in the middle of summer. A cake is a piece of cake.
“In order to get this completely right though, we’ve made the decision to keep everything in-house, and that includes managing our fleet. For many businesses, it makes sense to outsource this function. Not for us. You want to always focus on what your core business is, and the delivery of our gifts is core. It’s at the heart of our strategy, and so we wanted full control of our supply chain.”
Even though Bacher is head of marketing today, he had no marketing background when NetFlorist launched. Understanding his limitations, and knowing that start-ups (and even established businesses) should always leverage their networks, he approached a friend, Brett Morris, who was a creative guy at FCB.
“Today Brett’s the CEO of FCB, but then he was just a guy I grew up with who worked at a great agency. He convinced the then-CEO to take a chance on us. We were a small business with no budget, who needed a great partner to help us grow. That chance paid off. Today we’re a major market player, and we’re still with FCB. They helped us grow, and at the same time grew a client within their brand.
“I was protected from being ‘dumb’ by Brett. So many business owners are clueless when it comes to advertising. It’s a very specific skill and talent. Thank goodness for Brett. I came up with ideas, and he gave me honest guidance and advice. It gave the brand consistency that fledgling brands often don’t have – and when you’re building a brand, consistency is everything.
“We chose to be a tongue-in-cheek brand. We knew our budget was small, but we still needed to stand out from the clutter. People noticed us because of our cheekiness. Our campaigns led to massive exposure relative to spend. We’re small compared to Nando’s and Kulula, and yet we’re seen in the same light. The association immediately made us look bigger than we were, which has really worked in our favour.”
No brand journey is without its hiccups, and NetFlorist is no exception.
“Between 2001 and 2003 we were just focused on gaining traction in the market. All we cared about was transacting; getting revenue into the business. We’d seen the concept of a white label site in the US in 2001, and so we created an ‘affiliate’ marketing strategy of our own, and offered our services to other brands. For them it was a value-add to their customers, and revenue for us.
We turned so many big South African brands into florists at that time. 083 139 was MTN’s flower business for example. We thought it was great. They were marketing to their customers, which meant we were transacting without spending any money on marketing ourselves, and they loved it because it was a big branding exercise for them.
“It boosted our sales, so from that perspective it really worked, but it was actually detrimental to our brand. In retail, all you are is your brand. You need to be one or the other, the brand, or the company behind the brand. You can’t be both.
“We had loads of orders, but no-one knew who we were. It was an incredibly precarious position to be in. We were reliant on a few big contracts. What happened if those went away? We realised we needed direct control of our market.
“So by 2003 we changed our strategy and took the brand back. Instead of Discovery Vitality Flowers, it became ‘Discovery Vitality brings you NetFlorist’.
“Many of our clients were fine with the switch, but some weren’t, and we had to make the painful decision to let those clients go. It meant losing revenue, which is hard for a start-up and even established businesses to do, but we needed to stick to our guns.”
The business’s second big mistake came almost a decade later. “The Internet in South Africa really only took off in 2012, but by 2011 we were getting impatient, and so we opened eight retail stores. I still can’t tell you exactly why we decided to go the brick and mortar route, because it ended up being a terrible idea.
“The Internet is really scalable. Retail stores aren’t. We’d have needed 50 stores to make the business work. It was the first time we consciously stepped away from our core offering, and it ended up being a costly mistake. We’ve digested it and moved on, and we still have two signature stores that we’ve kept open, but on the whole it was a bad foray into an area that isn’t our core focus.”
IMAGE CREDIT: http://startupgrind.com/