How to create a fast-growing company

Seed capitalism

Mar 11th 2008
From Economist.com

How to create a fast-growing company

TO UNDERSTAND why America remains the world’s most successful entrepreneurial economy, look no further than AeroGrow International. Housed in a nondescript office building on the edge of Boulder, Colorado, this young company is thinking big: it claims to have created a new product category—kitchen crop appliances, which allow people to grow plants quickly without soil—with potential global sales of (it hopes) billions of dollars.

AeroGrow was started in 2002 by Michael Bissonette, who is a serial entrepreneur—an increasingly important role in America’s system for creating new firms. Mr Bissonette was driven by nothing more than a desire to start another successful company. By taking a technology that had largely been left to scientists and criminals and making it accessible to ordinary consumers, AeroGrow may have found growth where nobody thought it was possible.

Herbs without a garden

Mr Bissonette previously sold a voice-recognition based remote-control company and a wireless home-security company. Looking for his next big idea, reading journals and chatting with contacts, he became excited about the potential of a technology called aeroponics. Originally developed by NASA, aeroponics accelerates the speed at which plants grow by drizzling nutrients onto their roots, which dangle in the air instead of being planted in soil.

Commercial aeroponics systems have long been available, but they were big, clunky and expensive (at around $900 each)—not consumer friendly. That was because they were bought mostly by the geeky criminals of the crop-production world: people who grow marijuana at home.

They cared neither about the look of the product nor about its effectiveness at growing anything other than cannabis. But with the demand for fresh, organic produce booming, Mr Bissonette saw a potentially huge market for an aeroponics system that looked good, was easy to use, and worked with the kind of crops (tomatoes, strawberries, legal herbs) that home kitchens need.

This proved easier said than done, which highlights two other key characteristics of the successful entrepreneur: persistence and perfectionism. Mr Bissonette had expected to have the new product on the market within a year to 18 months. In the end, it took four years.

Experience had taught Mr Bissonette that “when you launch a new category, you make one mistake and it could be your last chance.” So each new version of AeroGrow's kitchen garden was tested to destruction with people whose fingers were anything but green. “We kept building the best system we could, watched how people would kill their plants, and changed it so they couldn’t kill their plants that way any more,” says John Thompson, AeroGrow's marketing director.

The firm boasts that each seed planted in its gardens has a 99.9% probability of growing successfully. But Mr Thompson says the company is “still trying to figure out what to do about people who put it on their radiator and bake their plants.”

Among the other challenges were finding the most effective way to deliver the nutrient to the roots, identifying plants that would grow in a small enough space to make the garden kitchen-friendly, developing low-energy lighting and automatically adjusting the nutrient for chemical differences in tap water. After solving these problems, the firm spent another six months perfecting the machine’s look.

In 2006 the product was launched. It was marketed using another technique that America’s entrepreneurs have mastered better than anyone else: the television infomercial. AeroGrow's included convincing displays of greens growing twice as quickly in an aeroponics machine as they did in soil.

One obvious problem facing a start-up that launches a consumer product is that there are plenty of big kitchenware firms that can crush an innovator with a branded imitation of the new idea. Mr Bissonette has followed several strategies in the hope of warding off the big boys, at least for a while.

One is to use the “razor and blade” approach that has worked so well for giants like Gillette. AeroGrow’s appliances (the razors) are relatively cheap—now around $150—but the firm makes its real money from selling seeds (the blades) in specially designed capsules that only work with their gardens.

Also, AeroGrow had to get many fiddly things right before it could sell its gardens, which may make it harder for established firms to rush out a copy-cat product. “There are so many processes that the quick knock-off guys aren’t going to touch it,” Mr Thompson explained, “while the people with brands will take two or three years at least to get it right.”

To keep it that way, AeroGrow is continuing to innovate—another lesson that American entrepreneurs learned long ago. Rather than resting on its laurels, it is now working on versions of its product that meet every taste and price range, from a small $29 plastic garden to a $350 cool, metallic version.

It is also adding one- and three-plant gardens to its standard seven-plant version, and has designed a flower garden that allows a plant to be put in a vase for up to 48 hours before resuming its aeroponic growth. AeroGrow’s gardens were sold in around 4000 stores in America last Christmas (up from around 700 in late 2006) and are also available in Britain, Australia and, since last month, South Korea.

AeroGrow’s products consistently occupy a number of the top ten slots among Amazon.com’s bestselling indoor plants. In the final quarter of 2007, AeroGrow’s revenues topped $14m, three times its revenues from the last quarter of 2006. It is approaching profitability.

Mr Bissonette believes annual revenues for the aeroponics industry could eventually rise to $1.5 billion—the sort of vision that could only occur to someone in the grip of entrepreneurial animal spirits. But if he is even close to right, it would be remarkable if the big beasts of consumer electronics or kitchenware did not try to dominate the new product category—though that would probably let Mr Bissonette sell his firm at a juicy price.

Already his mind may be moving on to the next project. Last month, he appointed a new chief executive, a veteran of several leading consumer businesses, to help the firm grow even faster (he says he will remain at the firm in a less hands-on role).

Lest anybody doubt that the product works, look at the behaviour of cannabis growers. The AeroGrow garden is too small for their plants, and anyway the firm does not supply that sort of seed. Nevertheless, a crop of websites has sprouted explaining how to adapt the AeroGrow garden for growing marijuana. No wonder sales keep reaching new, er, highs.