Can the Flower Industry Learn From Amazon?

Bryan Burkhart and Sonu Panda are two of the least likely candidates to start a floral business. Both hail from the software industry, neither knew roses from ranunculus until recently, and Panda is severely allergic to flowers.

But approaching an industry with fresh, if not watering, eyes can lead to a great business concept. Amazon.com's Jeff Bezos was a hedge fund guy, not a bookseller, when he applied technology to the way books get sold. "The outsider can break the old business models and create more radical and more forward innovation," says Dennis Ceru, adjunct professor of entrepreneurship at Babson College.

That's what Burkhart and Panda were thinking after leaving the software biz in 2009. They researched industries that they deemed could use a jolt of technology, considering insurance and property management before seizing upon the $35 billion floral industry. The business of sending flowers across the country as gifts, an estimated $4 billion chunk of the market, had already moved to the Web. But the biggest bloom in the bouquet—supplying everyday flowers to companies and living rooms—had not. It was dominated by some 18,000 small local stores that were selling much the way they had for a century, like, uh, booksellers.

When Burkhart is pleased, he smiles like Harrison Ford, to one side. These days he smiles a lot when describing H.Bloom, the online florist he and Panda launched last year in New York. Burkhart, who easily slips into business-school jargon, says H.Bloom targets "consumers facing a binary decision"—that is, a choice between $100 boutique arrangements or desultory grocery store flowers that sell for $20. H.Bloom offers to bring high-end flowers to the masses via a subscription plan priced between the florists and delis—starting at $35 a bouquet, including delivery.

How they do it: Most florists attract buyers with expensive storefront real estate. Because it's online, H.Bloom needs only generic office space, which Burkhart says costs only 25 percent as much. Florists also overbuy, because they can't predict precisely what they'll need, and many of their flowers die unsold. H.Bloom's subscription model lets it order more accurately and dodge some spoilage. Plus, "subscriptions paid up front give us positive working capital," notes Burkhart.

The first year hasn't all gone smoothly. H.Bloom's first customer signed on before the founders had a designer in place; Burkhart and Panda bought a florist arrangement, ripped off the tags and made their delivery, "losing money the whole way." And early on, their own stash of flowers froze to the sides of a dorm-room beer cooler they were using to store them.

An initial $1.1 million in angel financing helped with big purchases like real commercial fridges, and hiring bouquet designers and salespeople. More recently, Battery Ventures, a venture capital firm, invested another $2.1 million to help H.Bloom with its expansion plans to be in 25 major cities within five years.

The biggest obstacle to success might be customer habits. Corporate clients and consumers alike tend to be loyal to their florists, says Jennifer Sparks, of the Society of American Florists. H.Bloom has lured customers with discounts and online promotions; after one such deal, 12 to 15 percent of its new customers converted to subscriptions. Right now, Burkhart says, the company is on pace to have sales of about $1 million a year. That's in the zone of what they need to make it from the bud stage to a full-grown flower.