When the co-founders of organic food e-commerce company Thrive Market saw an Instagram of a bear mauling one of their deliveries, they were oddly delighted. "A box of food had been left on the porch of a woman in rural Wyoming," says co-CEO Nick Green. It's remote locales like this where he and his co-founders, Gunnar Lovelace and Sasha Siddhartha, hope to have their biggest success selling organic food that's accessible and affordable. For a $59.95 membership fee, consumers can buy organic products at up to 50 percent off the retail price. Green explains how they make it work. --As told to Liz Welch.

Democratize a luxury

Gunnar grew up on an organic farm in Ojai, California, where the farmers did group buying at wholesale prices, which made it affordable for everyone. Most Americans don't live near a health food store, and many can't afford the available options because of the retail markup. Gunnar wanted to broaden access to natural organic food, and in the fall of 2013, he pitched me a business idea to create a Groupon for healthy food.

The whole picture
Organic food is currently dominated by one player, with plenty of room for competition.
5 percent
of total U.S. food sales are for organic products
$15.4 billion
The net sales generated by Whole Foods, which operates more than 430 stores
51%
of parents say the cost of organic products is a key purchasing inhibitor

Pivot to a smarter model

We self-funded the first six months to explore the Groupon-like model, but it took too long. It can take up to 15 days to get enough orders for a group-buying discount. We were selling staple products, and people want their cooking oil or toilet paper tomorrow, not in 30 days. At the time, I was shopping at Costco and noticed it sold organic products. We did some research and learned that Costco was going to surpass Whole Foods as the largest seller of organic produce in the country. We researched Costco's annual membership model and learned that Costco also does more sales per store with 4,500 SKUs than Walmart does with 75,000. We decided to pivot to a wholesale buying club model with a curated catalog of products that you'd find in a place like Whole Foods, and put it all online.

We make our margins on the memberships, not on the products sold. When you remove the retail markup, which ranges from 25 to 50 percent to cover the costs of running a brick-and-mortar store, you put a product that you find at a health food store at or below what you'd pay for the equivalent product at a conventional retail store. So, you can get Kind bars at or below the price of a Snickers bar, and nontoxic laundry detergent at or below the price of Tide.

Turn fans into investors

We needed capital. We started pitching VCs in the winter of 2014, but the first two dozen of them--primarily affluent white men who lived in New York or California and shopped at Whole Foods--didn't understand what we were trying to do. In health and wellness, influencers--authors, YouTube stars, bloggers--are very powerful people with huge audiences. Our plan always was to gain their support, so they would share Thrive Market with their followers and contribute content on the site. But in a moment of desperation, we started asking these influencers for funding. We approached, among others, Mark Sisson, the godfather of the paleo movement, best-selling author Mark Hyman, and John Durant, who wrote The Paleo Manifesto. Most of them had never invested in a startup before, but each invested in Thrive, and then told their friends, many of whom invested as well. We went from "What are we going to do?" in May 2014 to raising $1 million by June 2014, in investments ranging from $15,000 to $50,000. Within six months of launching, we raised an additional $8.5 million, 70 percent of which came from influencers, including Deepak Chopra and Jillian Michaels.

We now have more than 150 investors, and that has changed the dynamic of our marketing and content. Our influencers fuel the rocket ship that grew the company. Thirty-five percent of the traffic to our site comes from our bloggers and influencers who produce content and promote Thrive through their networks. We track which members come in through their promotions, and offer commissions in cash or in the form of equity. We believe the more stakeholders, the better.

Design an experience

A common complaint about shopping at a natural-food retailer is that the choices are overwhelming. You have to pick from dozens of almond butters and six types of vitamin D. Whereas an average Whole Foods has at least 34,000 products, we launched in November 2014 with a curated catalog of 4,000 products. But what differentiates Thrive Market is how much we educate our customer about our products through content. So less really is more. For every product we add to the site, we remove others. We're continually honing.

Most of our products are third-party brands, but if we can't get the best-quality products at a price that feels right, we'll go directly to the supplier and make them ourselves. We currently sell 95 Thrive Market-branded products. The former manager for Whole Foods' 365 brand oversees our private label, which is already doing 6 percent of our sales. We'll have 100 private-label products on the site by the end of 2016, and another 100 in the pipeline for the first half of 2017.

Work toward a mission

There are hundreds of millions of people in this country who still have not embraced this lifestyle. We built our first fulfillment center in Batesville, Indiana, the epicenter of these organic food deserts. Today, almost half our total order volume is from the Midwest and Southeast. For every paid membership, we give a free one to a low-income family, teacher, student, or veteran, because we really want everyone to have access, regardless of wealth. We're also working with the USDA to allow food stamps to be used online. The movement has started, and we want to accelerate it.

FROM THE DECEMBER 2016/JANUARY 2017 ISSUE OF INC. MAGAZINE