1
Sales: 1
Technical Staff: 2
Legal Considerations
In order to operate this business legally, there are a few key legal considerations that must be
addressed:
Business Registration: The business must be properly registered as a legal entity in Ontario.
Based on the capital requirements and ownership structure, a sole proprietorship or corporation
would likely be appropriate.
Food Safety Regulations: As the business will be growing and selling food products, it must
comply with all applicable food safety laws and regulations. This includes things like proper
handling, storage, and transportation of food. Organic certification may also be desirable.
Building/Zoning Regulations: Installing aquaponic units on building properties
2. Brief Description of the New Business Model
Since we have changed our business model from the previous report, we summarize the new
business model as a preface of this report.
Customer Pain:
Building owners have anxiety as to their rent income
People living in Toronto ‘food deserts’ have barriers reaching fresh food
Business Model (Multi-Sided Platform):
Set up an aquaponic hotspot in a Toronto food desert
The units would be modular (and they do seem to be)
Hotspots could grow in intensity, but also diversity of locations
We would start with 1 hotspot and see the growth in intensity and add locations
The units would be set up in or around apartment buildings in Toronto food deserts
Partner with progressive building owners who purchase aquaponic equipment
So capital costs of individual hotspots carried by owners
Owners would do so to make their buildings more attractive to renters, and down the
road, allow them to charge higher rents
Our business brings the farming and retailing expertise. We manage the units and sell
food products to building occupants, who currently do not have easy access to fresh food
We would seek to have at least 1 staff from each building, but true farming expertise
resides with our company
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4. Target Customer Analysis
Who are they? : As stated in the business model overview, we will set up aquaponic hotspots by
partnering with building owners. Our criteria for selecting the buildings will be to look for
buildings in Toronto food deserts, which refers to areas with no healthy food retailers within a 1
km radius (Martin Prosperity
Institute, 2010). Figure 1 shows
these areas in Toronto. These
areas are characterized as low-
income families. This implies
that the reason why there are no
healthy food retailers is that the
potential customers in these
areas are not attractive for the
retailers. In addition, the fact
that these areas are not served
well by the subway lines may
have resulted in the deserts.
What are their behaviors and
priorities? : To analyze our
Figure 1
target market, the building owners in the food desert, we used a method called
‘netnography’, which was pioneered by R. Kozinets, professor in marketing at
Schulich School of Business. By conducting ethnographical research in the online space, this
method enables us to figure out real consumer behavior, as opposed to somewhat biased
conventional methods. The key findings of our netnography research on the concerns that the
building owners have are: i) politics (especially taxes), which is the most frequently mentioned
words in the online BOMA (Building Owners and Managers Association) community.
(Socialmention.com, 2012); ii) rent prices including the renter’s credits, real estate market
information, and factors that affect their rent prices, which are the main topic of the most viewed
blog in this online community, “Property Management Daily”. (Technorati, 2012); and iii) 91%
of the owners use social media as a business tool (Toronto, 2011).
What is their need/pain? : Based on the netnography research, we concluded that the pain of
the building owners is described as ‘anxiety’. Since they were directly affected by the financial
crisis in 2008, they feel insecure about their income. This is the reason why they are especially
concerned about the policies and the rent prices, and why they are eagerly trying to use the new
tools for their business.
What is their willingness to pay? : We conducted a questionnaire survey to figure out the
building owners’ willingness to pay for our product, however since it is hard to predict the ROI
of this investment, we could not receive any accurate information. Instead, we decided to
mathematically figure out the incentive of the owners. As the volatility of their income is the
major concern, we calculated the standard deviation of the rent prices in Toronto, σ=43, based on
the rent prices. (Kinnea, 2012) This means that the owners’ income may change by $43 per
month with 95% of probability. This risk amounts to more than $511 per year. As we assume
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5. that this investment increases their rental revenue and we will take care of it for two years, the
owners can feel relieved from the anxiety that arisen from the risk of $1,022 per the two year
period. Since we will target building owners, whose buildings presumably have at least 20 rental
spaces, we conclude that $20,440 ($1022 x 20) is fairly reliable number to estimate the
willingness.
Market Analysis
Size and Place: The potential market is quite large since we aim at all the food desert areas
shown in Figure 1. According to Toronto Star, 49% of the population lives in these areas in
Toronto (Toronto Star, 2010). Comparing this fact with the numbers in Figure 2 as well as the
income level shown in Figure 1, we could find that these numbers agree with each other, which
implies that 40%-50% of the GTA population will be our target. In other words, 2.5-3.0 million
people are our potential customers.
Figure 2 – Source: http://www.toronto.ca/demographics/pdf/profile_income2004.pdf
Characteristics: We conducted a survey to figure out to what extent people in the target market
are interested in our healthy products. The average household income level is $37,600, which is
fairly equal to the national income level. The sample size of 30 represents +/- 17.85 of accuracy
when projected to 2.5 million people (and this range is correct at 19 times out of 20 times).
Figure 3 shows that 53.3% of the
respondents answered that they do not
like the food quality of the stores whose
main target market is the lower income
households. This number is the same
when we extracted the people whose
household income is less than $15,000.
Thus, we can expect at least 850,000
highly potential customers [6 million
people x 40% desert area population x
(53.3% - 17.9%)]. Furthermore, we see
the convenience we brought more
attractive to women, who are Figure 3
presumably the main purchaser of food
products, since it allows them to save time to go more than 1km for grocery shopping while
doing other housekeeping tasks such as babysitting and/or caregiving for elderly people.
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6. Entry barriers/ substitutes: Barriers to entry is considered to be low. We will elaborate on this
issue in the risk section. As shown above, people are seeking good quality substitutes to the
currently available foods. Thus, the threat of substitutes is negligible..
Growth Trend: According to a community research conducted by University of Toronto, it is
forecasted that the low income population, whose incomes are more than 20% below the average,
will grow by 16.4% by 2020. (Hulchanski, 2007) This group is not an attractive segment for food
retailers, or even if so, the quality of the products provided to this group will be questionable.
Therefore, the food desert will continue to exist, and most likely to grow at a fast pace.
The Competition
In terms of an organization selling aquaponics systems to low-income, high-density buildings in
Toronto, there would appear to
be zero direct competition. List of Aquaponics System Providers
Aquaponics is a relatively new • Aquaponic Gardening (Boulder, CO, USA)
concept, with little traction in • Backyard Aquaponics (Success, W Australia)
Canada. There is no local • DIY Aquaponics (Orange Park, FLA, USA)
aquaponics Toronto chapter. A • Friendly Aquaponics (Honoka’a, HI, USA)
self-help aquaponics website • Growing Power (Milwaukee, WI, USA)
exists in Edmonton, • Nelson + Pade (Montello, WI, USA)
www.edmontonaquaponics.org, • Practical Aquaponics (North Maclean, QLD, Australia)
however there is no similar • S&S Aqua Farms (West Plains, MO, USA)
Canadian site. At this website, • Urban Aquaponics (Bundamba, QLD, Australia)
almost all commercial (or retail)
Figure 4
links suggested to purchase
equipment are in the US or Australia (see Figure4).
To summarize, the commercial and retail aquaponics market is in nascent phase, with no Toronto
or Ontario presence, and with a fractured US presence. There would be appeared to be no threat
of any of these suppliers competing with our business.
Other urban farming organizations, such as Foodshare, or Young Urban Farmers, would also not
post a serious competitive threat, as they would either welcome our entry into the market, or find
themselves serving entirely different markets.
Similarly, the issue of food security is so broad, the size of Toronto’s food deserts so large, that
any solution will have hundreds of components. The likelihood of any one solution in the market
completely addressing the social problem is essentially zero.
Lastly, there would seem to be no credible competitive threat in terms of building improvement.
A building owner looking to improve his/her building can do so in innumerable ways, so one
improvement (e.g. better water pressure) does not preclude the addition of other improvements,
such as an aquaponic system.
In conclusion then, the key assumption would be that competition is either non-existent, too
fractured or non-competitive, and research would support this assumption. If this business is to
fail, it will not likely be because we are out-competed.
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7. Risk
There are multiple kinds of risk associated with this business plan. It is important to be aware of
all potential sources of risk before undertaking this venture so that every possible action can be
taken to mitigate these risks and increase the viability of this business.
Potential Entry: The first source of risk would be from the potential entry of firms using similar
business models. Though aquaponics itself and this business model specifically are new in
Toronto it can be easily replicated by those with access to the correct technology and the
technical knowledge to be able to use and maintain the units adequately. Though the business
model (and the aquaponic units themselves) is new in Toronto there is nothing proprietary about
the technology and, as a result, there is not much our company could do to prevent another
business from sourcing and selling their own units to interested parties within the same
geographic market. Naturally, competition in the market would drive product prices down and, in
fact, there is no way of ensuring our company is not undercut by those entering the same market.
However, we should try to differentiate our business as much as possible. One way this is done is
to utilize the first mover advantage. This allows us to tap into the ‘blue ocean’ in which we can
expect high profitability and high growth. As long as we can grow rapidly, we can remain
competitive to some extent even if there are low-price competitors since it is difficult for the
building owners to replace the units once installed. In addition, we could switch our supplier to a
more cost-effective supplier if the competition intensifies.
Wrong Prediction: Another huge source of risk would be the chance that aquaponics – or the
way we have presented it to potential customers through our business model – would not gain
traction among Toronto consumers. This technology is unlike any that exists in the Toronto
agriculture market currently and there is a chance that will not be embraced by building owners
in general. If for whatever reason the technology is rejected, then the business model as it exists
now would inevitably be a failure. In this case, we should immediately cease our business model.
Therefore, we should constantly pay attention to the inventory level so as to sustain the liquidity.
Supplier: At present, our business plans to import these aquaponic units from a supplier in either
the US or Australia. The risk here is the chance of this supplier going out of business/bankrupt.
Since the commercial and retail aquaponics market is in nascent phase, there is a chance that we
may be left with no supplier in the case our supplier goes out of business on short notice. Any
delay in sourcing these units (or parts or accessories for the units) could have a negative effect
not only on sales but on customer relationships.
Currency: As we purchase the aquaponic units from abroad, our procurement activity is always
exposed to currency risk. Although a conventional wisdom tells us that we could entirely hedge
this currency risk by using currency forward contracts, it is not easy for us to implement because
we also need to keep the inventory level low. In other words, we would have to have so many
long-positioned contracts that our labour cost increases. In addition, the labour would need to
have a skill to settle these OTC contracts. This also adds up the labour cost. Instead, we could
pursue cash transaction without incurring accounts payables. This way, we could at least
negotiate purchasing price with the supplier even though we are still fully exposed to the risk.
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8. Market Strategies
In this section, we will draw market strategies for the building owners as well as the buyers of
the fresh vegetables in the food desert.
Pricing/Promotion/Distribution Strategies:
The price of the aquaponic unit should be less than $20,000, considering the procurement cost,
$13,000, and the building owners’ willingness to pay, $20,440. In order to fully utilize the first
mover advantage, we will set the selling price at $15,000. For the vegetable buyers, the prices
should be 5-10% more than the
food they can normally consume,
according to our survey. (see
Figure 5).
The promotion for the owners
should utilize social media since
most of them are eagerly using it.
Furthermore, they are considered
to be more cost effective than
traditional media such as
magazines and TV ads. For the Figure 5
vegetable consumers, we should
rely on local papers as our netnography research tells us that they hardly form online
communities in which our brand awareness could spread with word-of-mouth effect. Nonetheless,
since the building owners will try to promote their properties, the overall advertising effect will
be not as strong as the traditional media.
The distribution of the aquaponic units should be delivery with installment as the building
owners have little knowledge about the system. Distributing food products to end-consumers
should occur in or beside the buildings in which the aquaponic units are installed. Not only does
this bring the vegetables and fish to the areas, it builds a sense of local community.
Strategic Alliances:
In addition to the relationships with the building owners, we need to have support from i) the
aquaponics supplier, ii) building owners associations such as BOMA, and iii) governmental
entities. The aquaponics supplier is important for cost control. We have to negotiate the price
exploiting the economies of scale we have while seeking technical support. In other words, we
should create a win-win relationship by providing the manufacturer with increase in sales while
receiving large discounts. Builder owner associations can be a very effective marketing tool
since the online community of the building owners are built around these organizations. Finally,
governmental agencies can provide the building owners with further incentives to install
aquaponic units, such as “greening” subsidies.
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9. Organizational Infrastructure
In order to carry out our business plan, there are four different functionalities required.
Management/Governance: Decision making, maintaining relationships with key partners,
representing a company as a legal entity (compliance), and coordinating all the other
functionalities. The CEO and the assistant will assume this task.
Sales and Marketing: Implementation of the promotional strategies described above and all the
transactional activities including supplier negotiation. The sales person assumes this task.
Finance: Accounting, seeking investors (see the finance section), budget management, and risk
hedging. The CEO and the assistant will assume this task.
Technical Operations: Aquaponic unit delivery, installation, maintenance, and advisory.
Assistance in selling foods to building occupants. The technical staff will assume this task.
To fulfill these four areas of functionalities, we will need eight employees:
CEO (1): Undertakes the management/governance and the finance functionalities. Fair
knowledge of management, strategy, and finance is required. In addition, strong passion for
solving the food desert problem is required.
Assistant (1): Supports the CEO. Competitive communication skill and knowledge of
accounting are necessary. Strong interest in the social problem is required.
Sales (2): Undertake the sales and marketing function as a team. Directly reports to the CEO.
Experience in B2B sales, and knowledge of social media marketing and the real estate industry
are required. Part of the salaries is commission-based to incentivize these staff.
Technical Staff (4): In charge of the technical operations and directly reports to the CEO as a
team. Knowledge of agriculture (especially urban farming) is necessary. Passion to solve the
social problem is required. At the inception, we will require two employees. After 6 months, we
plan to add another two depending on the sales growth.
Since most of the clerical functions are done by the CEO and the Assistant, the employees will
work from home, except the Assistant who will work at the CEO’s place.
Legal Considerations
Legal Framework: As a food business, there are several key legal considerations, which include
but are not limited to:
Register our business with Ministry of Business and Consumer Services
Gain a municipal license
Obtain a provincial operating license
Secure proper municipal zoning approvals for our farming units
Obtain a business number from Revenue Canada
Registering for the PST
Prepare for being employers, in particular compliance with Ministry of Labour
regulations and Workers Safely Insurance Board rules
Securing business insurance
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10. Having regular health inspections
Obtain a food handler’s certificate from Toronto Public Health
Our business will also require sufficient insurance for employee claims, and any food sales
liabilities.
Legal Structure: This business operates as a private for-profit company to minimize reporting
requirements. Co-op could be another option because the building owners have an established
community, however it may be difficult to ask them to be members without considerable support
from the community leader such as the BOMA. Additionally, the somewhat hierarchical
governance style may not fit the characteristic of co-op, which delegates voting share to each
member regardless of the amounts of their investment.
It is our assumption that we will require modest capital startup funds, as our business would start
small and then scale up. If our organization could secure business development grants or external
investors, we would ideally structure as a for-profit business. This would allow our organization
to make quick decisions and retain maximum flexibility with decision making. Should start up
capital come from a foundation or government granting agency, our organization may be forced
to set up as non-profit, though not a registered charity. Forming as a non-profit is not desirable,
as it limits the scope of activities the organization could undertake.
Financials
With Aquaponic units being installed in buildings with intent to sell the produce to the building
occupants, we will be selling the largest size units called the deluxe (Backyard Aquaponics). In
order to map out our financial forecast, we make the following assumptions:
1. While the retail price for these units (including installation) is $11,475, we believe that
including the shipping costs we will be able to import this product at $13,000.
2. With limited time (30 minutes per aquaponic unit) and farming expertise required, we
believe that on an average one technical staff will be able to cater to 12 aquaponic units a
day in an 8 hour shift and will be paid at an hourly rate of $12 per hour.
3. We will require 2 technical staff for the first 6 months, and as number of units installed
increases we will require 4 staff in all.
4. Due to economies of scale, cost of producing the vegetables and fish will be 5% lower
than what it would cost an individual to produce the same yield.
5. Sales personnel will be paid $3000 per month and a 3% commission on each sale.
6. We will be able to sell 55 units in the first year. (6% of the BOMA members)
7. Any unsold produce will be sold to restaurants or local markets.
8. The rent for the hotspot is one-year contract.
The financial forecast is shown in Figure 6. Based on this forecast, we calculated the following:
Start-up Financial Need: $35,000
Net Profit Margin: Pessimistic = -35%, Baseline = 4%, Optimistic = 11%
Break Even Units: 43 units
Break Even Sales: $947,505
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11. As explained in the risk section, we would have to withdraw from this business if the sales
trajectory is similar to the pessimistic scenario. Therefore, we will provide the start-up cost in
order to make the liquidation process simple in case of the withdrawal. Assuming no interest
charge and no need to concern repayments, the business will be off the hook both from financing
cost and a potential forced-bankruptcy.
Unit Price Expected quantities Total amount of dollars
Items
$ per unit Pessimistic # Baseline # Optimistic # Pessimistic $ Baseline $ Optimistic $
Revenue
Aquaponic Unit Sales 15,000 20 55 80 300,000 825,000 1,200,000
Veggies and Fish per Unit 7,035 20 55 80 140,700 386,925 562,800
Total Revenue 440,700 1,211,925 1,762,800
Costs
<Startup>
Aquaponic unit for the hotspot 13,000 1 1 1 13,000 13,000 13,000
Rent for the hotspot (1yr contract) 1,000 12 12 12 12,000 12,000 12,000
Start Up Costs (Website/Social Media) 10,000 1 1 1 10,000 10,000 10,000
<Fixed>
CEO salary 5,000 1 1 1 60,000 60,000 60,000
Assistant salary 3,000 1 1 1 36,000 36,000 36,000
Tech. Staff salary for the first 6 months 2,880 2 2 2 34,560 34,560 34,560
Tech. Staff salary after 6 months 2,880 2 4 6 34,560 69,120 103,680
Sales Personnel salary (Fixed part) 36,000 2 2 2 72,000 72,000 72,000
Utilities and Miscellaneous 1,500 12 12 12 18,000 18,000 18,000
<Variable>
Procurement for Aquaponic 13,000 20 55 80 260,000 715,000 1,040,000
Veggies and Fish
1,743 20 55 80 34,865 95,879 139,460
(including utilities and seedlings costs)
Sales Personnel (Commission) 450 20 55 80 9,000 24,750 36,000
Total Costs 593,985 1,160,309 1,574,700
Net Profit (Total Rev‐Total Cost) ‐153,285 51,616 188,100
Figure 6
Exit Strategy:
Up to one or two years from installation, the units already sold to building owners will be taken
care of by the technical staff. After this period, our service will be limited to advisory, assuming
that the owners can either learn the way to manage the units or find someone to take this job over
at their expense. This model enables us to effectively and rapidly expand in the market without
being over-staffed, in order to attain the first mover advantage.
This will help us to withdraw from this business in case of sluggish sales. In addition, the “just in
time” business model, which refers to the low-inventory strategy in which we import the units
upon orders from the building owners, will make it even easier to exit.
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12. Bibliography
Backyard Aquaponics. (n.d.). Cost Benefit Analysis of Aquaponic Systems.
Hulchanski, J. D. (2007). Centre for Urban & Community Studies: Research Bulletin 41.
Toronto: University of Toronto.
Kinnea, J. (2012, March 17). Toronto Real Estate Statistics Database. Retrieved March 17,
2012, from Toronto Real Estate Statistics Database: http://juliekinnear.com/toronto-real-
estate-market-statistics
Martin Prosperity Institute. (2010). Food Deserts and Priority Neighbourhoods in Toronto.
Toronto: Martin Prosperity Institute.
Socialmention.com. (2012, March 17). Mentions about "BOMA toronto". Retrieved March 17,
2012, from Socialmention.com:
http://www.socialmention.com/search?t=all&q=%22BOMA+toronto%22&btnG=Search
&start=15
Technorati. (2012, March 17). Blogs relating to “real estate owners”. Retrieved March 17,
2012, from Technorati:
http://technorati.com/search?return=sites&authority=all&q=real+estate+owners&x=11&
y=20
Toronto Star. (2010, June 14). A struggle to eat in Toronto’s food deserts. Retrieved March 18,
2012, from thestar.com: http://www.thestar.com/yourcitymycity/article/823514--a-
struggle-to-eat-in-toronto-s-food-deserts
Toronto, B. (2011, July 22). BOMA Toronto @BOMATORONTO. Retrieved March 17, 2012,
from Twitter: https://twitter.com/#!/BOMATORONTO
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