Dec. 21 (Bloomberg) -- After leaving the software enterprise company he helped take public in 2009, Bryan Burkhart spent months mulling one question: What was the biggest industry that hadn’t been reinvented by technology?
Title insurance was a possibility. So was property management. After interviewing flower shop owners in New York’s Chelsea neighborhood, Burkhart became fascinated with flowers -- a $32 billion market still sometimes managed on notepads in retail shops and grocery stores. He found that despite shop owners’ talent for arrangements, as much as half their product often went unsold.
“They were artists, not businesspeople,” the former senior vice president of sales at Callidus Software Inc. said. “We thought, we’re going to hire the best designers, give them a good salary, and they can do what they’re good at and we can do what we’re good at.”
Burkhart, 37, teamed up with Sonu Panda, a co-worker at software companies since the late 1990s, and started H.Bloom Inc., a company that delivers flower arrangements to hotels, restaurants, and businesses that sign up online for subscriptions. The two-year-old company, which now operates in five cities with 550 corporate customers, has raised $18 million from Battery Ventures, Shasta Ventures Inc., and private investors including ShoeDazzle.com Inc.’s Brian Lee.
While Burkhart and Panda were not lovers of flowers before starting the business -- Panda is allergic to pollen -- they saw an opportunity to significantly increase the industry’s efficiency. At H.Bloom, only 2 percent of inventory goes to waste, Burkhart said.
Other companies, such as FTD Group Inc. and 1-800-Flowers.com Inc., sell arrangements through a local retailer network and have limited control over quality. Burkhart’s company buys its own flowers and designs and delivers its own arrangements. Its software manages inventory down to the stem and uses real-time data analysis to purchase, for example, a variety of red rose that’s 2 cents cheaper than others.
H.Bloom -- the H doesn’t stand for anything, Burkhart said he added it to convey a sense of sophistication -- uses software to plan quicker delivery routes based on heat maps that show where customer orders are concentrated, or to flag a supplier that’s been sending too many damaged flowers.
At the H.Bloom office in Manhattan, a hallway separates software engineers and florists. On one side is a fresh-scented warehouse where salsa music blares as employees assemble shipments. On the other, Tonimarie Stanzoni, the director of buying operations, keeps her eye on three screens that display information from the order database, organized by type of flower. The system will tell her how many calathea cigar or amaryllis red lion stems she needs (and when), which of the 500 varieties of red roses are in season, and what their prices are.
Stanzoni can balance the benefits of buying cheaper lilies from California with importing higher-quality ones from the Netherlands. The software also helps her choose the best kind of flower for an order; while an oriental lily, for instance, is more expensive than other varieties it can span eight inches, taking up more room in an arrangement.
If the system alerts Stanzoni to a supplier with a history of problems, she can use the data to bargain for better prices. Mike Lenner, vice president of engineering, based the flower trading platform on his work at Amazon.com Inc., where he ran a set of applications that helped customers purchase mobile phones on the site and activate them. Former co-workers at MLB.com, where he worked after Amazon, jokingly call him “The Florist.”
Burkhart declined to say if H.Bloom is profitable. With expected sales of more than $4 million this year, its share of the flower market is tiny. Going only after corporate customers is limiting, said Jennifer Sparks, vice president of marketing at the Society of American Florists.
“A traditional florist certainly has much more opportunity to sell flowers in many different capacities, not just corporate, and the everyday sales keep the business steady,” she said. Corporate customers make up about a fifth of the retail flower market, according to the Society of American Florists’ website.
Potential investors were initially skeptical of H.Bloom’s business model, Burkhart said.
“There are some investors for whom physical product, local market rollout, and complex logistics is anathema,” he said. “There are others that look at this and think, if you can get it right in one market or a handful of markets, there are clearly hundreds of markets where it could go.”
The company is beginning to deliver plants as well, and eventually wants to expand its subscription service to other products.
H.Bloom investor Battery Ventures took a pass on some of Burkhart’s early ideas, such as creating a luxury version of 1-800-Flowers, said Brian O’Malley, a partner at the firm Corporate subscriptions, especially for flowers, made sense to him.
Unlike items from startups such as Manpacks, which makes regular deliveries of underwear and socks to men, or Birchbox Inc., which delivers beauty products, “flowers die and you actually want more,” he said. “You’re going to need a new shipment every week or the week after.”
Before investing, O’Malley walked around flower markets as Burkhart had, talking to florists about unsold goods spoiling.
“It was bad,” he said. But with H.Bloom, “because they’re measuring everything, as it gets bigger it will only get better.”
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