Lessons from 'Farm on the Roof' - Earnest & Associates, LLC€¦ · Lessons from 'Farm on the Roof'...

Lessons from 'Farm on the Roof' The Importance of Partnerships

Written by Tom Birdwell and John Mansfield

3/1/2016

Lessons from 'Farm on the Roof' 2

Contents

Introduction ........................................................................................................................ 3

*“Fifty Ways to Stay Afloat”: Customer Partnerships ...................................................... 4

Solutions for building more profitable customer relationships ................................ 5

“Knowing When to Sign a Deal”: Supplier Partnerships ............................................... 12

Solutions for building more profitable supplier partnerships ................................. 13

Lessons from an HVAC distributor .......................................................................... 14

About Anastasia Cole Plakias ............................................................................................ 17

About the E&A/StratMax Solution .................................................................................. 18

How it Works ................................................................................................................. 18

What It Is ........................................................................................................................ 19

Key Components .......................................................................................................... 19

Benefits .......................................................................................................................... 20

What you get ................................................................................................................. 20

Learn more .................................................................................................................... 21

References and Acknowledgements .............................................................................. 22


Introduction

“The Farm on the Roof: What Brooklyn Grange

Taught Us About Entrepreneurship,

Community, and Growing a Sustainable

Business” by Anastasia Cole Plakias is an

inspiring story of ingenuity, resourcefulness

and hard work.

Ms. Plakias is a founder and vice president of

Brooklyn Grange Rooftop Farm. She has

documented the company’s struggles from its

conception to becoming established as a

successful, thriving and well-known business

enterprise.

Proving a first-of-its-kind business model in

the very challenging New York City business

environment, Ms. Plakias’ book offers

profound lessons for business and life.

In this whitepaper, we apply lessons from Ms.

Plakias’ book about the value of customer and supplier partnerships.

As we hope to demonstrate, partnerships have proved crucial to Brooklyn Grange’s

success. We believe the lessons learned will provide insights into solutions that can

help you more critically evaluate your wholesale/distribution business and its

strategic partnerships.

1. "The Farm on the Roof: What Brooklyn

Grange Taught Us About Entrepreneurship,

Community and Growing a Sustainable

Business" by Anastasia Cole Plakias

http://www.amazon.com/gp/product/1592409482





*“Fifty Ways to Stay Afloat”: Customer Partnerships

Brooklyn Grange brought together a group of successful, like-minded Millennials

who, in the aftermath of the Great Recession, craved to do a more authentic kind of

work that offered more than financial rewards. The founders were determined to

grow organic produce for a city whose consumers craved more nutritious, tasty and

healthy food options.

To be sure, a rooftop farm is not a new idea. People have found space for gardens

on buildings as long as cities have existed (think of the fabled Hanging Gardens of

Babylon). However, operating a rooftop farm with the goal of generating a profit is

an altogether different matter.

Ms. Plakias talks about how Brooklyn Grange engaged in meticulous due diligence.

The management team analyzed the square footage available for production, the

length of the growing season, and myriad other factors to calculate the optimal

yield it might expect from its limited rooftop space.

In practice, however, Brooklyn Grange has found it necessary to continuously

improve its approach. After five years of operation, the company has learned what

its most loyal and profitable customers want. Brooklyn Grange has decided to

focus its resources serving three core customer groups:

Wholesale - Gourmet chefs in local NYC restaurants who want fresh herbs to

flavor and garnish their dishes

Retail – Mom-and-pop retail stores who sell organic produce to consumers

Community Supported Agriculture (CSA) – Individuals whose paid

memberships grant them access to weekly supplies of seasonal produce

In fact, Brooklyn Grange has learned how a diverse yet balanced mix of products

can maximize success among all three groups of customers. For example,

vegetables such as arugula are valued by gourmet chefs but can only be sold in

season; tomatoes are guaranteed to turn quickly in retail stores and are

appreciated by CSA customers, too; peppers can be bottled into hot sauce for sales


on retail shelves and CSA baskets – with the additional attribute of generating

income during the off season; and so on. Ms. Plakias says that Brooklyn Grange has

profitably discovered “Fifty ways to stay afloat”.

Today, the Brooklyn Grange farm includes space for herbs, vegetables, an apiary for

honey, entertaining and supplies. “We are generating more revenue on the two

rooftops we cultivate today than we’d projected we would realize from seven such

spaces,” enthuse Ms. Plakias. The ingenuity, passion and skill that Brooklyn

Grange’s employees have invested in satisfying their core customer’s needs have

allowed the company to significantly grow its sales without extending its physical

footprint.

Solutions for building more profitable customer

relationships

Distributors who want to drive more profitable growth must learn who its best

customers might be. Decision makers need to know which specific groups of

customers are willing to pay a reasonable price for its products and services.

Brooklyn Grange knew from its inception that one of its core customer groups

would consist of the city’s many local gourmet chefs who like buying fresh herbs

direct from the farm. Given the number of high-end restaurants in New York City

that are located mere minutes from the farm, this much was certain.

In the case of a legacy wholesale/distribution business that serves hundreds or

thousands of existing customers, however, the answers may not be as forthcoming.

Identifying who is, and isn’t, a good customer can be difficult. Perceptions can be

influenced by any number of factors. Individual sales people may have developed

personal relationships with certain customers and therefore may be inclined to cut

prices to maintain these relationships. Some customers might exploit their

purchasing power by asking you to provide costly add-on services at no charge.

Others might buy from you once, and then disappear.


A best practice is to remove emotion from the process. Better decision making

starts with an objective analysis of your sales data. You need to see the big picture.

“Customer Stratification: Best Practices for Boosting

Profitability” is the definitive guide to Customer

Stratification, a tool that can help distributors identify their

most profitable customers. The book, which is published by

the National Association of Wholesaler-Distributors (NAW) in

collaboration with Texas A&M University, has been widely

accepted in the industry.

Customer Stratification processes data in your company’s

enterprise resource planning (ERP) system through an

algorithm that tests key customer profitability factors such

as buying power, loyalty, profitability and cost-to-serve. The

insights yielded can guide you to spend more time on profit-building customers;

and less time on money-losing customers.

Following the NAW’s recommendations, a Customer Stratification analysis should

help you identify four customer groups. In the spirit of the Brooklyn Grange, we

will discuss each customer group and the various strategies you might deploy to

“stay afloat” and grow a more profitable distribution business.

2. "Customer Stratification:

Best Practices for Boosting

Profitability"

http://www.naw.org/publications/pubs_item_view.php?pubs_itemid=145



Customer

Groups

Definitions “Fifty Ways to Stay Afloat”

Core Core customers typically

comprise from 5 to 10

percent of your customer

headcount.

Core customers are most

important because they

typically produce 80 to 90

percent of your net

profitability.

Since these are your most

profitable customers, you need

to stretch the business you do

with Core customers while

protecting them from your

competitors.

Develop a top-to-top

relationship with

owners/decision makers to

show appreciation of their value.

Offer special deals and exclusive

access to value-added services

to reward and protect these

valuable Core accounts while

incrementally growing sales and

profits.


Customer

Groups


Opportunistic Opportunistic customers

typically comprise from 10 to

20 percent of your customer

headcount.

Opportunistic customers

often provide healthy profits;

but typically they buy from

you only when their primary

suppliers are out of stock.

These customers are profitable,

but Opportunistic customers

just aren’t buying enough from

you, consistently. Your

challenge is to develop

Opportunistic customers into

Core customers.

Do a gap analysis comparing

Opportunistic customers with

similar Core customers to figure

out what else they should be

buying from you.

Surgically offer Opportunistic

customers better pricing based

upon intelligent analysis.


Customer

Groups


Service Drain Service Drain customers

typically comprise from 10 to

20 percent of your customer

headcount.

Service Drain customers buy

a lot from you and are loyal,

but they are significantly less

profitable than Core

customers.

Typically, Service Drain

customers have pressed for

discounts based upon past

volumes or previous market

conditions while continuing

to demand increased

services without paying for

them.

While you want to continue to

develop these customers -

having them buy more items,

from more of your product lines

- you need to do business with

Service Drain customers more

profitably. This requires you to

closely examine the drivers of

their profitability and cost-to-

serve factors with you.

Review all pricing discounts that

have been provided to the

Service Drain customer.

Selectively increase prices where

market conditions are no longer

relevant.

Hold a relationship review with

the Service Drain customer.

Educate on the cost-to-serve

factors that are ‘transacting both

of us to death’, such as average

order size and average line

items per order.


Customer

Groups


Marginal Marginal customers typically

comprise from 60 to 70

percent of your customer

headcount.

Marginal customers don’t

buy a lot, are not loyal, and

usually seek maximum

service for minimal margins.

Sales to marginal customers

are rarely profitable for a

wholesale/distributor.

There will certainly be a few

Marginal customers who can

develop into Core customers.

Sales plans should be made for

these Marginal customers.

For the balance of Marginal

customers, however, you should

examine the factors that

contribute to their low

profitability and adjust

accordingly. Eliminate the time

your sales team spends with

these customers.

Increase prices to Marginal

customers by setting a minimum

gross margin rate for these

customers.

Move the sales assignment of

Marginal customers to lower

commission options like inside

sales or web-only orders.

Ms. Plakias writes, “There’s more to farming than simply ordering the right kinds of

seeds. It’s not just about what you grow, but about how you sell it – and that’s true

of almost any business that markets a product.”


We believe that Customer Stratification is an important decision tool for

distributors. Customer Stratification will provide the information you need to sell to

a diverse customer base in the most sustainable and profitable manner possible.

Armed with a thorough understanding of your customers, you too will discover

“fifty ways to stay afloat” and grow a more profitable and sustainable distribution

business.


“Knowing When to Sign a Deal”: Supplier

Partnerships

Bottom-line profitability is crucial to the Brooklyn Grange’s survival. A better food

product could not be brought to market if the farm could not prove its economic

viability. For Brooklyn Grange, this meant taking special care to select the right

business partners.

Finding the right site for the Brooklyn Grange farm was critical. Satellite imagery

and document searches helped the team identify a number of prospective

industrial sites that could physically support the farm’s size, weight, logistics,

sunlight and other requirements. However, the Brooklyn Grange team soon

discovered that those landlords who didn’t appreciate the total value offered by the

partnership asked for rents that made it impossible to strike an amenable deal.

“We tend to be cautious yet decisive with potential new partners,” says Ms. Plakias.

“We might dream big, but when it comes to making deals, we’re firmly grounded in

reality.”

After months of searching, Brooklyn Grange found the right partner. The landlord

at the Brooklyn Navy Yard understood that Brooklyn Grange could provide much

more than mere payment of rent. The rooftop farm raised the profile of the

property – and its perceived value – both within and without the community. In

fact, the substantial benefits of the Brooklyn Grange / Brooklyn Navy Yard

partnership that accrued to both parties included:

A reasonable rent payment that represented new income to Brooklyn Navy

Yard yet allowed Brooklyn Grange to operate the farm at a profit

A green event site that generated add-on revenues from the hosting of

weddings, photo shoots, parties and the like

A ready-made platform for showcasing Brooklyn Grange’s ancillary for-profit

urban landscaping services


Significant tax incentives from the city in recognition of the farm’s

contribution to managing storm water run-off

Recreational amenities for Brooklyn Navy Yard tenants who gained

convenient access to an aesthetically pleasing green garden

Opportunities for onsite foodservice tenants to purchase their produce direct

from the farm on the roof

Community outreach in the form of school field trips, refugee work therapy

programs, and various other cultural events hosted at the farm

Simply put, Brooklyn Grange and the Brooklyn Naval Yard engaged in a mutually

beneficial partnership that significantly increased the value of each other’s

respective businesses.

Solutions for building more profitable supplier

partnerships

Like the Brooklyn Grange, your business must seek out partnerships with like-

minded companies such as the Brooklyn Navy Yard who understand your business

model and value the customers you serve.

In this light, segmenting customers using Customer Stratification is merely an

important first step. You need to start with an understanding of who contributes

the most to your company’s profitability. It is imperative to focus your company’s

resources on satisfying those customers who are most loyal and profitable to you.

The next step is to leverage this information to negotiate more profitable supplier

relationships. When you can prove that your distribution business intimately

understands the customers who are most coveted by suppliers, your company’s

value in the supply chain will increase significantly.


Lessons from an HVAC distributor

To illustrate this point, let’s look at a real-life example of an HVAC distributor who

has successfully implemented a Customer Stratification solution.

Before customer stratification, the HVAC distributor possessed only the most

generalized, broad-based sales data This information was very similar to what

other distributors in the channel could provide. Competing for the supplier’s

mindshare was difficult because there seemed to be little in the way of

differentiation.

After customer stratification, the HVAC distributor was able to have a completely

different conversation with its suppliers. The HVAC distributor could identify those

specific core customers who were most profitable to them. At a more granular

level, gaps in the various products being purchased could be identified using a

“white space” analysis. The distributor could also easily identify the Opportunistic

customers who were profitable, but were buying from other sources. And so on.

Following the NAW’s recommended best practices in customer stratification, these

myriad insights could be broken down not only by customer stratification label

(Core, Opportunistic, Marginal and Service Drain) but also by customer class,

region, branch, etc.

Equipped with these unique customer insights, the HVAC distributor has been able

to build actionable sales and marketing plans with their key suppliers that are

specific, targeted and measurable.

The HVAC distributor has differentiated itself from other HVAC distributors.

Suppliers want to work with the HVAC distributor, knowing that their efforts are

based upon actionable information – meaning there is a greater chance for success.

In fact, these constructive business partnerships have allowed the HVAC distributor

to grow its sales revenues and improve gross margins by 200 basis points, at the

same time.


3. Detailed Product Sales by Vendor and Customer Class

As you can see, there is tremendous value in knowing the profitability of your

customers for both the distributor and its business partners. Distribution industry

executives might choose to leverage this information, as follows:

Improve supplier negotiations - Understanding exactly what is being sold

to your most profitable customers can improve your negotiating position in

the channel. When you are empowered with actionable data, you can

approach suppliers proactively. Ask how you can deepen relationships with

customers who value the supplier’s products and have the purchasing power

to buy more from you.

Referring to the illustration above, you may have a proven competency

selling ‘Brand X’ controls to Commercial HVAC customers. Can you leverage

this strength to negotiate a higher-level relationship with Brand X? Think in

terms of value-adds that Brand X might provide to its best channel partners:

technical training, priority delivery services, preferred support, and etc. Your

goal should be to leverage the Brand X relationship in a way that helps

further differentiate your distribution business from the competition.

More targeted marketing campaigns - Sales and marketing campaigns can

be designed to more effectively leverage the opportunities. Team up with

suppliers to target accounts with specific marketing programs, price support,


and other strategies that might drive sustainable sales growth. Your

suppliers will appreciate working with a knowledgeable distributor like you

who has deep insights into its customer base and can help measure the

effectiveness of channel marketing campaigns.

To continue with the same example, the HVAC distributor might well discover

opportunities to sell more Brand X products. A review of the data might

prove that specific Commercial HVAC customers have purchased fewer Air

items than others, when compared to similar companies in their peer group.

As a practical matter, the HVAC distributor might design a targeted marketing

campaign that educates this specific subgroup of Commercial HVAC

customers about Brand X’s Air products; including why end users should buy

these items from the HVAC distributor.

The HVAC distributor has leveraged its Customer Stratification data to better

position itself in the supply chain. This is not unlike how Brooklyn Grange has

leveraged its various partnerships to build greater value. As Ms. Plakias writes, “The

business world is an ecosystem…we all work better because of our

interconnections.”

Distributors who have keen insights into their customers are highly valued by

suppliers. Customer Stratification can prove your company’s indispensable role in

connecting suppliers with customers. Ultimately, Customer Stratification will help

your distributorship gain competitive advantage versus those distributors who

cannot demonstrate value to their customers and suppliers as effectively as you.


About Anastasia Cole Plakias

Anastasia Cole Plakias is co-founder and Vice President of

Brooklyn Grange Rooftop Farm. A published writer and

photographer, Anastasia is a passionate and outspoken

crusader for fresh, healthy foods and greener, more

sustainable cities.

As a managing partner of Brooklyn Grange, Anastasia has

run the business’ sales department, created its events

program, and manages the farm’s communications and

external affairs.

Anastasia has recently completed a book about the business, ‘The Farm on the

Roof: What Brooklyn Grange Taught us About Entrepreneurship, Community, and

Growing a Sustainable Business’ (Avery Press, April, 2016).

When Anastasia isn’t zipping from farm to farm on her bicycle or leading a tour for

a visiting delegation of city planners, she can be found at her Greenpoint, Brooklyn

apartment conducting a cider tasting for dinner guests, or hiking through the

Hudson Valley in search of migrating hawks.

Source: http://brooklyngrangefarm.com/anastasia-2/ (as of February 17, 2016)

4. Anastasia Cole Plakias

http://brooklyngrangefarm.com/




http://brooklyngrangefarm.com/anastasia-2/


About the E&A/StratMax Solution

Instinctively, you know that not all of your

customers are the same. Some are more profitable

than others. Research has shown that typically 80%

of a company’s profitability is concentrated in 10%

of their most profitable customers while 75% of

customers represent less than 5% of their

profitability. But how do you objectively determine

which are the most and least profitable customers?

And how should you treat them differently?

E&A and StratMax have partnered to help distributors answer these questions with

its Customer Stratification solution. Adhering to industry best practices articulated

by the National Association of Wholesaler-Distributors (NAW), the E&A/StratMax

customer stratification solution allows businesspeople to implement strategies that

drive more profitable growth.

How it Works

Leveraging your existing ERP investment, E&A and StratMax work with your

management team to tailor the factors in the customer stratification model that are

most relevant to your business. The E&A/StratMax solution leverages the

quantifiable information within your ERP system. The customized model is

delivered to you through a cloud-hosted solution that features easy-to-use,

interactive dashboards. Gain unique insights into your business – and your

customers – all in one place.

E&A has teamed with StratMax to turn your data into actionable information.

StratMax business consultants will help ensure that you are doing the right things

with the right customers to boost your bottom-line profitability. Over 30 years of

sales and marketing experience has established StratMax as the leading

5. The E&A/StratMax Partnership


practitioner of customer stratification strategies in the wholesale/distribution

industry.

What It Is

The E&A/StratMax customer stratification solution is a set of sophisticated yet easy-

to-use tools that are customized to your business. Empower your sales team with

strategies that have been proven to drive

more sustainable, profitable growth.

Key Components Groundbreaking industry research

by the National Association of

Wholesaler-Distributors (NAW)

serves as the foundation of the

E&A/StratMax solution.

The customer stratification model

is customized to each client’s

unique business needs.

Results are delivered using a

powerful cloud-based, interactive dashboard.

The comprehensive solution combines E&A’s technical expertise with

StratMax’s hands-on customer stratification management.

Creative strategies to ‘stretch’, ‘develop’, ‘examine’ and ‘protect’ your

customers are provided by industry experts with deep industry knowledge.

Model data is updated quarterly on an ongoing basis to help your business

gain control of a rapidly changing competitive environment.

No more sifting through reams of paper reports and complex spreadsheets

to get the vital data you need to develop more effective sales and marketing

strategies.

6. Power BI for MS Office 365


Empower your sales and management team to collaborate and sell more

effectively using cloud-based applications, E&A’s business intelligence tools

and online access to StratMax consultants.

Best practices, case studies of additional strategies, and personalized training

and implementation services are included.

A significant upfront capital investment is not required to get started.

“Pays for itself” as license holders implement strategies that drive profitable

growth and EBITDA improvement.

Benefits More Accurate Sales Force Deployment

Improved Negotiations

Identify New Growth Opportunities

Understand Cost to Serve (CTS)

Optimize Pricing for Greater Competitiveness and Profitability

Better Inventory Management

Better Marketing Communications

Targeted Sales Force Compensation

Industry studies have demonstrated that Customer Stratification can significantly

drive EBITDA improvement, with positive effects across the business enterprise.

What you get Copy of NAW Research book “Customer Stratification: Best Practices for

Boosting Profitability”

Full Day Onsite Modeling Workshop (Facilitated by StratMax)

Half Day Onsite Management Workshop (Facilitated by StratMax)

Half Day Onsite Sales Team Workshop


Daily Profitability Trends Updates

Interactive Dashboards

Over 50 Proven Best Practice Strategies in an Interactive Dashboard

Model Updated Quarterly

Best Practices Web Conferences

E&A Online Learning Modules

Learn more

To learn how the E&A/StratMax sales collaboration solution

featuring Customer Stratification can help grow your

wholesale/distribution business, scan the QR code or go to

www.earnestassoc.com/customer-stratification.

http://www.earnestassoc.com/customer-stratification


References and Acknowledgements 1. ‘The Farm on the Roof: What Brooklyn Grange Taught us About

Entrepreneurship, Community, and Growing a Sustainable Business’ (Avery

Press, April, 2016). The book is available through major book sellers including

Amazon.com.

2. ‘Customer Stratification: Best Practices for Boosting Profitability’ by F. Barry

Lawrence, Ph.D., Pradip Krishnadevarajan and Senthil Gunasekaran. The book is

available at the National Association of Wholesaler-Distributors (NAW) website

at http://www.naw.org/publications/pubs_item_view.php?pubs_itemid=145.

3. Graphic provided by StratMax

4. Biographical information and photo of Anastasia Cole Plakias is from the

author’s page at the Brooklyn Grange website at

http://brooklyngrangefarm.com/anastasia-2/.

5. Graphic provided by the E&A/StratMax partnership.

6. Illustration by 6bdesign.

* All quotes used in this whitepaper are from Anastasia Cole Plakias book, “The

Farm on the Roof” cited above.

http://www.penguin.com/book/the-farm-on-the-roof-by-anastasia-cole-plakias/9781592409488

http://www.penguin.com/book/the-farm-on-the-roof-by-anastasia-cole-plakias/9781592409488



http://brooklyngrangefarm.com/anastasia-2/

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