Startup Profile: One Local Food Systems Software to Unite Them All
June 23, 2011 | Robert Puro
Software that provides local sustainable farmers with the ability to supply their products to larger customers such as food hubs or institutions has the potential to play an outsize role in delivering healthier, sustainably grown food to a wider pool of consumers. One company at the forefront of software development for the local food sector is Philadelphia, PA-based software startup Local Food Systems. The company is developing a cloud-based Software as a Service (SaaS) solution that automates business processes and facilitates transactions between all of the participants in the local food value chain from farmers and food hubs to institutions and food warehousing operations.
I recently interviewed Sam Earle, the Founder and CEO of Local Food Systems, to learn more about the company’s product, business model, considerations for sustainable agriculture and plans for the future.
Q: What is your background and how has it informed the development of Local Food Systems?
Sam Earle: I come from a large technology background. In the dotcom era, I worked for an internet services firm called Viaduct. I also owned a consultancy. Our major client was Hewlett Packard. I then moved on from dotcom into the technology of finance – investor relations systems, trading systems, data warehouses. So very large IT systems. I did that until about 2008 when financial things collapsed and I decided that I wanted work that was a little more sustainable and socially minded.
I’ve always had a great love of food, and the best food is the best grown. It tastes the best and it’s the best for you. In 2008, I started volunteering in non-profits that were centered around sustainable agriculture and farms. I quickly realized that all of the technology I knew about was desperately needed in this sector in order to enable it to scale from strictly consumer direct value chains.
Q: Can you explain how your product works and what benefits it provides to the various value chain stakeholders involved in the local food sector?
SE: What I realized in researching the market and getting to know lots of participants was that the information systems such as Enterprise Resource Planning (ERP), supply chain management, relationship management, financial transactions and reconciliations thereof, and the business intelligence that comes out of that for market planning and forecasting was not there.
Our company set out to build software as a service (SaaS) that automates business processes, whatever they may be, for different value chain participants. At the food hub level it might be inventory management and relationship management. At the trucking and warehousing level it might be warehouse scheduling and truck routing. At the food services or institution level it’s resource planning; it’s that we need a bushel of potatoes everyday for the next six months and who’s going to supply them. Through all those participants, the one common thread is the financial transaction that both needs advanced ordering and then after the fact reconciliation of that transaction.
What it is that we do is we automate business processes of different value chain participants that makes their business more efficient and profitable and facilitates transactions with many more value chain stakeholders.
Q: What is your business model?
SE: It’s Software as a Service. So we’re creating interfaces for each participant that are incredibly simple. It’s got an enterprise backbone, but it’s only the things they need and that help facilitate transactions, reduce waste, and create efficiency that increases profitability. Once those processes are automated and they facilitate those transactions, we take a percent fee of every transaction that they do. So we’re a transactional revenue model, free Software as a Service.
Q: How has customer input shaped the Local Food Systems product?
SE: We’re strictly architecting the system with them and for them. You know there’s an old software model where you build software and try and go out and sell it to people. We did the exact reverse. We went out to people and said, “What do you need? What are your pain points?” and we figured out a vast list of things with every participant. Then we did standard business process modeling looking at how information and transactions flow, and that helped us architect the system to specifically meet their needs. We have a phased rollout schedule of solving all of those problems, but it’s strictly based on their largest needs first and things that affect their bottom line first.
Q: How large is the market for your product?
SE: Total addressable market is expected to increase to approximately 50 billion dollars by 2015. That’s multiple transactions on single products within multiple participants.
Q: How do you market your product to customers?
SE: Having volunteered and been so entrenched in the movement, I have gotten to know national level people as have a lot of the other people working with me. We are leveraging those relationships for introductions all over the place, doing interviews, doing process modeling. Jim Barham at the USDA has been promoting us all over the place. We get calls from food hubs that are in development all the time.
It’s a grassroots movement and any enterprise systems that are going to enter this space have to come from a grassroots effort. Somebody like an SAP can’t enter the space, because it’s a values-based system. People don’t trust large corporations and it’s kind of against that type of business. It’s a value chain as opposed to a supply chain. There are strategic partnerships everywhere and people have their other participants’ businesses in mind and are concerned for the system as a whole, whether it be environmental or economical.
Q: Why did you decide to target independent hospitals and schools as your first customers?
SE: They’re really the first customers, but on the other side of it is the first supplier, which is the food hub.
A food hub is a manual aggregator of product, so they’ve got enough inventory that makes it worth our while. If we go any farther down the value chain the cost of customer acquisition is way too high. We expect in phase II or III to go a little farther down the value chain. In phase I, those first suppliers have first customers, which are independent schools and hospitals. We’ve found that they’re clamoring for the ability to do larger purchases of these types of products and obviously they have health concerns for their end consumers, being children or hospital patients.
Q: What are the challenges to scaling Local Food Systems’ software product?
SE: Adoption. And we hope we have addressed this. You give them a large complex system, we’ve seen this time and again with a lot of things that have been implemented, and it doesn’t work. These aren’t business users. These aren’t enterprise IT experts. So think of it as the Salesforce business model. Salesforce rolled out CRM software with a huge backend, but their mantra was ‘no software,’ ‘we’re the anti-software’. ‘We’re going to solve one thing for you and get you used to it and make sure it suits your needs and then we’re going to move onto solving the next thing for you.’
It has to be adopted in a way that’s actually useable by the customers and that’s going to be difficult. We’ll probably have some successes and some failures. Getting people to adopt and to create that large network effect, which we’re counting on, in other words one participant bringing in another five participants to use the system, is a challenge.
Q: What differentiates Local Food Systems from other solutions in the marketplace?
SE: What differentiates us from all of the other point solutions that are popping up – you look at Local Dirt, you look at Farmigo – they all solve one little problem, but don’t think about the systemic solution. It has to be a standardized data warehouse, normalized data, APIs connecting to everything and it has to be an enterprise system in the back. At the front it can look exactly like Local Dirt. It has to have the robust technology behind it in order to enable it to scale to enterprise systems that are going to connect with it.
Q: What considerations for sustainable agriculture did you have when developing the product?
SE: Our mantra is access, equity, security and traceability. Those are the end outcomes that we’re working on. Give people larger access to sustainable agriculture, make sustainable agriculture more equal, etc. We think by opening up the marketplace to a larger percent of the food economy prices comes down, it becomes easier to purchase, information flow from farm to fork becomes more readily available. By disintermediating supply chains, food security is an obvious outcome. Some other obvious outcomes are that by making farming more profitable you make sustainable farming more viable. While we’re advocates, we’re businessmen first. We believe in sustainability through profitability. Then we hope that we’re affecting all of those outcomes through our business.
Q: Where do you hope to see Local Food Systems in five to ten years?
SE: India, Africa and China. Philadelphia is our launch market. San Francisco is our secondary market. And when I say market, I mean the food shed and 100 miles around it. So in Philly you connect with New York and almost connect with Washington. We’re testing in Philly and we’ve got everything on the ground, lots of customers, same in San Francisco. Hopefully it will go viral around the US.
But you look at what hedge funds are doing in Africa buying up land. China’s buying up Africa, South America’s being bought by Saudia Arabia, and these are all already local food economies. It’s the same supply and demand problem that’s here, it’s just on an international scale. So as soon as these hedge funds get these cooperatives up and running, you know 500 farmers on 500 acres, they’re going to need exactly what we’re talking about in order to manage the supply and all of the transactions within those systems. So we see with the population boom around the world, there are great needs for exactly what we’re doing.