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The Greenhouse Effect

Gene Gage wanted a quiet life in the country where he could indulge his hobby of growing herbs. That was before he hitched his wagon to an Internet star.
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THE REAL WORLD

Gene Gage had in mind leading a quiet life in the country while indulging his hobby of growing herbs. That was before he hitched his wagon to an Internet star

When Gene Gage left an executive job in New York City, in the late 1970s, he returned to his rural Nebraska roots. He planned to slow down and take more control of his life by being self-employed. After a couple of false starts, he began Papa Geno's Herb Farm in 1993 to indulge his hobby. He thought he'd run an herb nursery and garden center, do some mail-order business, and sell plants to local nurseries.

But a technological wrinkle called the Internet has since rejiggered -- massively so -- that idyll. Gage, a closet techie despite the dirt under his fingernails, decided three and a half years ago to move his agrarian, low-growth business onto the electronic grid of the World Wide Web. Today Gage, at age 55, finds himself working 80-hour weeks and forecasting that his sales will quadruple between 2000 and 2003, to more than $2 million. "There are a million decisions to make every day," says the suddenly unretiring Gage with enthusiasm. "This is my Viagra."

Gage's company offers a telling example of how the Web can take a simple business based in a place that no one's ever heard of -- Roca, Nebr. -- and put it on the map. Gage predicts that what was to be his hobby in semiretirement will be, by 2004, the largest direct-to-the-customer supplier of fresh herb plants in the United States.

Going for market share
The shift in Gage's customer base has been tectonic. The plantsman has moved totally out of retail and even away from his traditional wholesale customers. "In 1998 I turned down at least $100,000 in business from magazine and catalog coverage," he says. The reason was simple: Gage was busy building capacity in sync with a new and potent horticultural player in E-commerce, Garden.com.

Their relationship is really more of a strategic alliance -- on a grand scale. Garden.com has invested $1 million in Gage's business. The results can be seen behind Gage's barn door, where state-of-the-art workstations link up to Garden.com's extranet through a satellite dish. The multimillion-dollar E-tailer shares its proprietary forecasting model with Papa Geno's so that Gage may hone his numbers in real time and ensure smooth deliveries. "We have to keep raising our estimates monthly," Gage says. And Garden.com backs up its projections with long-term guarantees in the form of minimum purchase orders. "They are sharing the risk and helping us obtain half our working capital each year," says Gage. For the fiscal year ending next month, Garden.com will account for 70% of Gage's sales. Gage sees that figure approaching 90% by 2004.

He acknowledges the risk in dancing with this gorilla, but he believes a muscle-bound alliance like this one is the wave of the future. "The Internet is a much more efficient channel for ordering and distribution," he says. In the past year Gage has been able to cut in half the amount of time required to process and ship an order. The cost of processing that same order has declined by 80% in five years. "Once you learn how to do business online, the other stuff is more poky, and there is more room for mistakes," he says. But to be a serious player on the Internet you have to jump in with both feet and seize market share. Gage adds that the results -- his sales soared 185% last year, while the gardening industry saw low, single-digit growth -- speak for themselves. "It's a rechanneling of the industry," he says. "With growth like this, we're obviously taking market share."

Keeping up with growth
Gage has insisted upon a similarly wired relationship with his suppliers. "If they can't handle me electronically, forget it," he says.

Gage replaced his supplier of cardboard boxes. "He couldn't cut the mustard in terms of keeping up with our online demand," he says. That's because not only has Gage's need for cardboard boxes increased by 400% in two years but the pace of meeting that demand has also increased.

He used to grow all his own "plugs" (herb seedlings or cuttings in a clump of dirt) but now farms out the greater part of that chore to 10 different suppliers in order to focus on cultivation and rapid delivery. That has created a new issue -- a lack of control over supply. In one case, speaking of a supplier of rare specialty herbs who's located in Canada, Gage says, "I could take 100 times as much stuff from him."

In the summer of 1998, Gage figured the Roca operation -- five greenhouses on four acres -- would suffice for five years. It is now at capacity. So he bought a second farm, in nearby Martell, Nebr., on which he'll build at least six new greenhouses each year for five years. That timetable was too much for a regional contractor, so Gage has put the bid out nationally to about a dozen greenhouse builders. Rather than contracting for one greenhouse at a time, he's stockpiling the building material on-site and will erect the greenhouses as needed.

Finding the right people
Once you get to Roca, finding Gage's farm isn't hard. It's the one with the biggest FedEx truck in Nebraska parked near the barn.

This spring Gage will ship 130,000 plants in a 15-week period. Making that happen has required big increases in productivity. As for his "picking process" -- retrieving plants off greenhouse flats -- Gage has streamlined that by reorganizing the back end of the operation. "We are able to do at least four times as many orders per person per hour as two years ago," he says. And Gage's operation can now ship one order per person every 46 seconds, compared with an earlier average of 8 to 10 minutes. He says he's accomplished those efficiencies not only through technology but also by hiring "better people who are better trained." Gage does not hire part-time migrant labor, a practice common in agriculture. And he pays generous benefits to his 17 full-time employees. That puts his labor costs at 25% above those of anyone else in the industry in the region. Still, finding the right people is a struggle. Gage says some people just "don't get" the Internet, no matter what he pays them. So he ends up as a de facto "mentor and motivator." That spills over into his teaching a night course on the E-economy at the University of Nebraska's business school.

That helps out -- somewhat -- with recruiting. Gage says it's easy to find young people who know about horticulture and young people who understand the Internet but that finding people who know both is not so easy. When Gage encounters such rare birds he grabs them, but keeping them is problematic, given the company's less-than-glamorous location. Of the six horticulturalists Gage has hired out of the university in the past two years, four have moved on to livelier locales such as Austin, San Francisco, and Seattle.

Moving with the Net economy
After blowing out his original business plan, Gage needed a lot more working capital. When his former banker grew nervous about his borrowing needs, Gage interviewed three local bankers. "The first two asked me what kind of collateral I had," recalls Gage. "They wanted to see my real estate."

The third banker asked Gage about his revenue stream. That was the right question. The banker, John Daubert, understood that in the Net economy assets mattered little compared with cash flow. On top of that, Daubert was part owner of Security First Bank, a 14-branch statewide bank. He had the power to make a decision on the spot. "We could get decisions pretty quickly," says Daubert. How quickly? "Fifteen minutes." How much did he lend Gage? Three hundred thousand dollars and counting. By the end of the year, Daubert will hold at least $500,000 worth of loans to Gage.

Gage says the need to move with such dispatch is central to his business and drives the types of relationships he seeks. "We make decisions in hours or minutes that used to take days," he says. Gage has severed relationships with professionals who, relatively speaking, were moving at a snail's pace. Twice a lawyer didn't get back to Gage for four days on an important real estate deal. He found another lawyer. "My Web designer didn't return my calls in two days. She's out," Gage says. "Ditto the accountant. He told me, 'I can spend half an hour with you a week from Tuesday.' That's BS."

But for all its new-world ways, Papa Geno's Herb Garden retains a little of the old. One of Gage's suppliers is a woman who grows lavender in rural Provence. "I don't think she's ever seen a computer," says Gage. Each year he sends two workers over to France "with cash stuffed in their underwear" to seal the deal over a bottle of wine at the kitchen table. "This woman really has no idea how the Internet has affected her," says Gage.

Except that this year Gage's employees went over with twice as much money, and his supplier is planting an extra hectare of lavender.

Edward O. Welles is a senior feature writer at Inc.


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