Because of the low price, "we can be the Southwest Airlines of the flower industry," says Bill Strauss, president and CEO of Proflowers and a former vice-president at Intuit, the software company. "We can get a lot of people to send flowers who don't send them now." By this fall sales were running at an annualized rate of only $16 million. Strauss says annual sales could reach $200 million within three years. "It's a big industry and highly fragmented," he says.
Schutz wanted to entice customers with more than flowers. "We wanted to develop the premium gift portal on the Internet," he says. To that end, Schutz also began selling his own brand of premium chocolates through the Blue Mountain site.
Like Proflowers, Dan's Chocolates owns no production facilities but concentrates instead on marketing and distribution. Schutz hired his old Princeton buddy, Dan Cunningham of Sportscape.com, to run the company. They contracted with a chocolate factory in Wisconsin to produce the candy, which Dan's Chocolates ships from a building just down the road.
The product competes at the high end of the market against brands like Godiva. Typical prices are $19.95 for half a pound and $32.95 for a full pound, a price point that Schutz says should be attractive to customers wanting to send a nice gift -- and one that should produce gross margins of up to 30%. "People buy chocolates that denote prestige," says Schutz. As Cunningham points out, only on the Internet could Blue Mountain even contemplate building a brand name in chocolates; in normal retail channels, it's unlikely that Dan's Chocolates could get even a toehold against established competitors.
After Dan's Chocolates, Schutz set out to launch a fruit company, Grandmajune.com (named after Schutz's grandmother June Polis, who for many years was the national sales manager for the company's printed cards). Like the flower and chocolate companies, the fruit business will bypass the standard distribution chain. Customers could pick an assortment of fruit or one of a number of baskets displayed on the site, with orders routed directly to a handful of growers around Fresno, Calif. "We have control over who we choose as growers," says Schutz. "We work with the farmers whose oranges we like the best."
Excite@Home's acquisition of the Web site didn't include Proflowers.com or Dan's Chocolates, although the start-ups separately agreed to pay fees to advertise on Excite's site. Grandmajune.com, Schutz says, was too young to be part of the deal.
Schutz believes that cost savings will enable Grandmajune.com to compete against the big catalog companies like Harry and David. "What we're doing is brandable, has little competition, and has good synergies with the Web site," says Schutz. And, of course, all the gift offerings will receive wide exposure -- if nothing else. "What better way to launch something than to be attached to one of the largest traffic generators on the Web?" says James McQuivey, a senior electronic-commerce analyst at Forrester Research, an Internet research company.
Not every idea Jared Schutz has had for selling branded products on the Web has taken off. Far from it, in fact.
Just after the launch of Proflowers, Schutz got the idea for Prolobsters, which packaged and delivered lobsters off the docks in Maine. Customers ordered from a Web page whose mascot was a lobster dressed in a tuxedo. If crustaceans in penguin dress seemed an odd image, not many consumers ever saw it. Schutz received some orders, but the idea went nowhere, and the life of the site was blessedly short.
Schutz won't say how much money he's burned in building Blue Mountain's Web site during the past three and a half years. In E-commerce, investors obviously don't care about losses -- at least in the short term -- as long as a site is a popular surfing spot. "We needed to grow," says Schutz. "Now is the time for rapid growth."
Until the acquisition by Excite@Home the Schutz family, not Wall Street, sustained the losses. Schutz believes that the Web site is largely responsible for the 20% annual growth in sales of the company's printed cards over the past three years -- at a time when the rest of the industry was growing in the low single digits.
The site's business model "has a lot of different possibilities," says Excite@ Home's Stevens. He says Excite@Home will add such services as on-line calendars, free E-mail, and voice mail. For Blue Mountain -- whose the-world-is-a-happy-place-full-of-love approach to life seems far removed from gritty questions of shipping fees and credit-card verification -- the reality of expanding its E-commerce offerings looks especially challenging. "Blue Mountain has created a great brand name, and it's a brand predicated on a trusting, noncommercial relationship with consumers," says analyst Cassar. "Consumers are wrapped up in good vibes."
Schutz, who remains chairman of Proflowers, showed sensitivity to that problem by separately branding each new business -- using the name Proflowers, for example, not Blue Mountain Flowers. And the businesses seem consumer friendly because they offer low prices.
But before the sale Schutz's biggest challenge may have been starting too many small companies with the idea of growing them quickly. Entrepreneurs know how difficult it is to run one fast-growth company successfully and to execute all the myriad functions well -- let alone do it in a constellation of new companies. Schutz already faced more than a full-time job just running his sprawling Web site. And although he had hired executives to run the new companies, neither he nor his top managers at each company had in-depth experience with the products they're selling. "It's a lot harder to sell things than it looks," warns Cassar. "Retailing is difficult."
