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MushroomX Engr245 2021 Lessons Learned

business model, business model canvas, mission model, mission model canvas, customer development, lean launchpad, lean startup, stanford, startup, steve blank, entrepreneurship, I-Corps, Stanford

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MushroomX Engr245 2021 Lessons Learned

  1. MushroomX Day 1: Drone pollination 104 Interviews Later: Autonomous mushroom harvesting
  2. Team MushroomX Rongfei Lu Div Garg Julia Di Jamie Balsillie Stanford Degree 2nd year MS in AeroAstro 1st year MS in CS 3rd year PhD in robotics 1st year in MBA Role Designer/Hacker Picker/Hacker Hacker Hustler
  3. Current Status For mushroom farmers growing white button mushrooms indoors who have difficulty paying for increasingly expensive labor, MushroomX is an automated harvesting system that automatically identifies and picks desirable mushrooms. Compared to traditional methods, we reduce labor costs by 20% and increase yield by 15%
  4. Our Journey Over The Last 10 Weeks... Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1
  5. We started with autonomous drone pollination... To bee or not to bee, that is the question… Week 0 Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1
  6. And we bee-lieve we are onto something big! Bees are 5-15% of total costs for fruit, nut, and some vegetable farms Bees pollinate just 30-70% of flowers on each plant, limiting fruiting and yield Pollination suffers when it’s too hot, cold, windy, or wet. Bad weather during flowering is devastating U.S. Honeybee Colony Loss Week 1 Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1
  7. “Pollination is not a problem at all, water and labor costs are.” - Farmer, Swank Farms “The big need for pollination is almonds, which is once a year.” - Sole Proprietor, Coria Bees But upon getting out of the building, we heard... “You are required to use bees to qualify for crop insurance.” - Professor, UC Davis “I would never give up crop insurance.” - Farmer from Farmer’s Market “My biggest costs are harvest and crop thinning. Maybe pollination is third, but it’s not a big deal.” - Farmer, GoldLeaf Farms Week 2 Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1
  8. We are “dead in the water” Week 2 This is an unattractive problem to solve: ● Slow iteration: Once a year event ● Bad problem: Not massive pain point, major downside to messing up pollination ● Regulatory barriers: Insurance requires using bees, so we couldn’t replace them, only supplement Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1
  9. Without an inspired idea, we went where great entrepreneurs go on their down days: the farmer’s market Week 3 Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1
  10. We met Laura from Far West Fungi… Maybe there’s something here “Our production is like a factory.” “Labor is my biggest cost and my biggest problem.” Week 3 Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1
  11. Finding and paying for harvesting labor is a huge pain point for mushroom farmers Week 3 Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1 “There aren’t enough harvesters. It’s a specialized skill, so we’re paying them 50% more than other agriculture labor.” - General Manager, FarWest Fungi “Harvesters are more than half of my labor. Their productivity makes or breaks a farm.” - General Manager, Phillip’s Mushroom Farm “I make, say, 10% bottom line. I couldn’t pay [harvesters] more if I wanted to! That’s why farms are moving to Mexico and Canada.” - General Manager, Premier Mushrooms
  12. “Harvesting labor is my biggest cost and my biggest problem” - General Manager, FarWest Fungi “Labor is the ONLY issue” - President, Ostrom’s Mushrooms “I’m switching to food service because I can’t find enough harvesters” - General Manager, Farmer’s Fresh “If you have something that works I would buy right away” - General Manager, Phillips Farms “I’d renovate my entire farm’s shelves if it meant I could automate harvest.” - Growing Coordinator, To-Jo “This is 30% of my cost.” - General Manager, Farmer’s Fresh After many conversations, we found an intense interest in a better solution than manual harvesters “Is this what Steve means when he says 10/10 problem where they’d rip a solution out of your hand?” Week 4 Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1
  13. But is this a big enough market? Week 4 $47B of mushroom sales globally!
  14. But is this a big enough market? Week 4 Farmers make $18B of that
  15. But is this a big enough market? Week 4 $4B of that is white button in EU & NA for retail
  16. But is this a big enough market? Week 4 And 25% is harvest labor: $1B
  17. But is this a big enough market? Week 4 Increasing yields would be another $1B of value created
  18. But is this a big enough market? Week 4 Increasing yields would be another $1B of value created Is $2B a big enough market for a hardware startup? Although this is the market size for our product, not our company - maybe there are adjacencies?
  19. Can we solve it? Seems like yes! Iterate with each batch The technology will be provided as a service to provide clear ROI and to minimize operating costs Computer Vision determines the mushrooms to pick Autonomous harvesting system picks mushrooms Advanced Analytics predicts and optimizes yield Week 5 Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1
  20. Will margins work? Is the market big enough? Has this ship sailed given those two guys in Ukraine are also building a harvester? Is there really an opportunity here? But it’s still hardware… there’s a reason it’s not called ‘easyware’ How fast would it have to be? How much would it cost? How fast would it need to pay back the hardware? How effective would it need to be? We also learned more about mushroom growing and learned more about opportunities this will unlock: Increasing yield through continuous picking, increasing yield through connecting with perfect yield data Week 6 Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1
  21. What metrics would matter most to our success ● Price: ~$1 cent / pick => annual subscription fee / month depending on the volume (e.g. $ 1M / Yr for 5M lb / Yr mushroom farm) ● Competitor charge (labor: ~$1.2M for 5M lb / Yr mushroom farm; other robotic solution ~$1.2 cents / pick) ● CAC: $100k ● Churn: monthly 1% ● LTV: $645k for 5M lb / Yr mushroom farm ● Mostly direct sales ● Indirect sales: promotion / trial cost: $10k / customer ● Referral cost: $5-10k / customer Value Proposition Customer Relationships Operating Costs Channels Revenue Burn Rate ● ASP: $600k / Yr (3M lb / Yr mushroom farm) ● Fixed: ○ Lab space cost: ~$60k ○ Development tooling cost: $10k ○ R&D Labor cost: 3x $100k / Yr for ME + CS + robotics engineer ● Variable: (typical 3M / lb Yr Mushroom farm) ○ COGS for robot: ~$10k / unit ○ Replacement / Repair: $1k / unit ○ Maintenance contractor labor cost: 2* $80k / Yr ○ Sales: $100k ○ Ops contractor labor cost: 5 * 50k / Yr ● Burn rate: $12.5k/ month, 12 months of runway with 1.5M initial investment Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1 Week 7
  22. Who we would work with to make this happen Physical / Hardware ● Gantry system ● Grippers ● Cameras / sensors ● Metal frames ● Computation Platform Software ● Computer vision system ● Motion planning ● Control system Human ● Engineers ● Designers IP ● Brand/trademark/logo (trademark, copyright) ● Robotics technology (patent, trade secrets, licensing) ● Commercial-in-confidence / trade secrets re supply chain, customer deals etc. Partners ● Equipment OEMs and retailers ● Robotic components manufacturers ● Warehouse operators ● Local governments , mushroom grower associations ● Corporate partners ● Product Development Lab + Tooling ● Manufacturing space ● Warehouse space ● Install / Maintenance tooling ● Service fleet (vans / trucks) ● Predictive Analytics ● Production Planning / Optimization ● Data Collection ● Development environment ● Predictive maintenance ● Sales / Business Development ● Customer Success ● Public relations ● Maintenance staff (contractors)) ● Mentors / technical advisors Week 7 Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1
  23. What we learned from him: 1. Some guy in his garage could build a prototype that’s fast enough for production (it’s easier than we thought?) 2. He’s keen to work together, which could accelerate us by 6-9 months Week 8 Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1 And then we met John...
  24. “I can get you into our Morgan Hill facility; let’s keep talking!” - R&D, Monterey Mushrooms “YES I WANT THIS. Let’s do a trial!” - General Manager, South Valley We got tour & demo offers! It feels good to be wanted! Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1 “Let’s test something!” - General Manager, To-Jo “I can get you a tour for our facility!” - General Manager, Phillips Farms Week 9
  25. This is a ~$2B market with an intense enough problem such that adoption pace would not be our constraint. There are challenges, but we’re seriously considering diving in. Where are we now Week 10 Week 0 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Week 9 The Future Week 1 Contact us: jbalsil@stanford.edu, rongfeil@stanford.edu, juliadi@alumni.stanford.edu,divgarg@stanford.ed u
  26. Fundraising & Operations Plan Q1 Q2 Q3 Q4 2021 2022 2023 2024 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Cash reserves 5M 10M 20M 30M Seed $2M Series A $10M Series B $20M Operations Protect IP Build salesforce and sell across US & Canada Sell and service first 2-3 customers with very manual solution LLP Optimize hardware for robustness and manufacturing Hire part time mech design eng Engineering Development Improve hardware for speed Optimize software for pick speed Initiate manufacturing & supply chain development F&F $0.3M Start manufacturing Manufacture at scale Expand salesforce to Europe Optimize software for speed, robustness, and optimizing yield Design 2nd generation hardware for scaling manufacturing Expand hardware to include sensors across farm operations Improve AI for optimal pick pattern and timing Build optimization for growing conditions Hire engineers, build and manage operations org, fundraise, protect IP,
  27. Business Model Canvas Problem: harvesting is mostly manual and more expensive to hire and pay for. Non- continuous harvesting leaves yield on the table Operate and service harvesting robots Off the shelf hardware manufacturers Consultation on how to harvest in a non- traditional way Large scale (>1m lbs/year) white button mushroom farmers in high income countries with aluminum shelving having trouble finding and paying for harvesting labor Exceptional engineering talent in autonomy, computer vision, and hardware. Direct to grower sales force Hardware costs: robot, cameras, etc. Customers are highly willing to pay if they expect to save costs and improve yield Customer needs: We are satisfying the customer’s need for more efficient, cheaper solution for harvesting Computer vision, autonomy, and other general-purpose AI & software providers Innovation to minimize hardware and operating costs Shelving and control system suppliers Proof of efficacy and accountability for performance below expectations Deep operations understanding to fit into existing set-ups. We plan to offer harvesting as a service. This will allow us to minimize operational burden for the farmer and guarantee positive unit economics for the customer. Distributor costs: Sharing profits with retailers, maintenance engineers Operating costs: energy, repairs Yield prediction and data analytics
  28. Appendix of Past Slides
  29. Potential Partners Spawn company Sales financing company Shelving company Why do we need them? Revenue opportunity (channel partner for them) Improve attractiveness to customers / improve our cash flow Channel partner for us Why might they need us? Sales channel More businesses Additional value for converting to their solution Risks They’re uninterested Increases our COGS Few companies that we can work with → low power Costs Data preparation Interest Time for co-selling
  30. Start diligence of Pluk Robotics: ● Assess technical capabilities of Pluk Robotics’ current product ● Understand the technical bottleneck with Pluk Robotics’ current progress, then build refined estimates of engineering / funding requirements ● Develop a strategy for negotiating licensing / collaboration ● Understand IP requirements to defend the technological edge Develop better understanding on the operational / customer requirements ● Discovery more precision on farmer’s shelf heights and yield variances ● Set up date to visit with Monterey Mushrooms’ farm in Colusa Next Steps
  31. Potential Partners Spawn Companies Sales Financing Companies Shelving Companies MushroomX
  32. Drivers/assumptions over next 3 years Customer: ● CAC: $100k ● Churn: monthly 1% ● LTV: $1.8M for 3M lb / Yr mushroom farm Goods and services, revenue model ● Variable: (typical 3M / lb Yr Mushroom farm) ○ COGS for robot: ~$20k / unit ○ Replacement / Repair: $1k / unit ○ Maintenance contractor labor cost: 2* $80k / Yr ○ Sales: $100k ○ Ops contractor labor cost: 5 * 50k / Yr Sales and Marketing ● Mostly direct sales: $80K ● Indirect sales: promotion / trial cost: $20k / customer Expenses ● Fixed: ○ Lab space cost: ~$120k ○ Development tooling cost: $100k ○ R&D Labor cost: 5x $200k / Yr for ME + CS + robotics engineer
  33. Key Activities ● Negotiate collaboration with Pluk Robotics ● Partnerships with research institutions and mushroom farms Maintenance / upkeep Customer development Fundraising ● Identify sources of funding and programs (debt and equity both an option) ● Complete applications and manage interview processes ● Replacing / repairing broken equipment ● Training for humans to work with the robots and basic maintenance (lubrication, cleaning) Partnership development ● Provide and sell harvesting as a service to customers ● Lend, install, train and maintain equipment for customers Product development ● Collaborate and iterate on prototype development ● Iterative design for manufacturability, robustness, efficacy, speed and cost
  34. Key Resources & Partners Physical / Hardware ● Gantry system ● Grippers ● Cameras / sensors ● Metal frames ● Computation Platform Software ● Computer vision system ● Motion planning ● Control system Human ● Engineers ● Designers IP ● Brand/trademark/logo (trademark, copyright) ● Robotics technology (patent, trade secrets, licensing) ● Commercial-in-confidence / trade secrets re supply chain, customer deals etc. Partners ● Equipment OEMs and retailers ● Robotic components manufacturers ● Warehouse operators ● Local governments , mushroom grower associations ● Corporate partners ● Product Development Lab + Tooling ● Manufacturing space ● Warehouse space ● Install / Maintenance tooling ● Service fleet (vans / trucks) ● Predictive Analytics ● Production Planning / Optimization ● Data Collection ● Development environment ● Predictive maintenance ● Sales / Business Development ● Customer Success ● Public relations ● Maintenance staff (contractors)) ● Mentors / technical advisors
  35. Metrics that Matter Value Proposition ● Price: ~$1 cent / pick => annual subscription fee / month depending on the volume (e.g. $ 1M / Yr for 5M lb / Yr mushroom farm) ● Competitor charge (labor: ~$1.2M for 5M lb / Yr mushroom farm; other robotic solution ~$1.2 cents / pick) Customer Relationships ● CAC: $100k ● Churn: monthly 1% ● LTV: $645k for 5M lb / Yr mushroom farm Operating Costs Channels ● Mostly direct sales ● Indirect sales: promotion / trial cost: $10k / customer ● Referral cost: $5-10k / customer Revenue ● ASP: $600k / Yr (3M lb / Yr mushroom farm) Burn Rate ● Fixed: ○ Lab space cost: ~$60k ○ Development tooling cost: $10k ○ R&D Labor cost: 3x $100k / Yr for ME + CS + robotics engineer ● Variable: (typical 3M / lb Yr Mushroom farm) ○ COGS for robot: ~$10k / unit ○ Replacement / Repair: $1k / unit ○ Maintenance contractor labor cost: 2* $80k / Yr ○ Sales: $100k ○ Ops contractor labor cost: 5 * 50k / Yr ● Burn rate: $12.5k/ month, 12 months of runway with 1.5M initial investment
  36. Our MVP Brochure
  37. Diagram of Payment flows MushroomX $0.20 / lb picked Equipment sales, upgrades
  38. 3-year Income Statement
  39. Channels: We plan to primarily sell direct to growers Direct to grower sales: Target Head of Operations / Growing, quickly get to President / Owner R&D: $1 million CapEx: $1 million OpEx: $100K / yr * 5 yrs CAC: $100K Profit: $2.4 million Selling through shelving & control system company referrals 5 million lb grower: LTV = $5 million R&D: $1 million CapEx: $1 million OpEx: $100K / yr * 5 yrs CAC: $300K Profit: $2.2 million Argument for: Ensures focus, controls customer experience & impression, few sales targets, small CAC to LTV Argument for: Leveraged channel
  40. Recap: We are focusing on automating harvest for indoor white button mushroom farming ● Consistently the #1 problem and cost category for at-scale white button mushroom farmers. Multiple people told us they’d buy it if we can solve it ● Appears to be technically possible to solve ● Imperfect solution may be acceptable since automation will also bring yield increase ● Serves $47B mushroom market. Harvesting labor in high income countries is ~$1.5B. Why we’re excited about this problem ● Question of whether the market is big enough to support hardware investment (Steve B & Heidi say yes) ● Inconsistency of shelf set-ups across farms ● Technical difficulty of developing effective solution and scaling with a novel gripper ● Competing start-up that’s currently raising a seed round (Steve B & Heidi say don’t worry) What’s concerning us about this problem
  41. We talked to: Interviews this week deepened our understanding of the opportunity to automate mushroom harvesting ● 5 mushroom growers ● 2 robotics CEOS Hypothesis What we heard Implication / learning Growers would accept a solution with ~90% efficacy Half of the growers we spoke to were content with 90% efficacy if we could increase yields and reduce overall costs Our hypothesis here is still intact. We need to push further on this question. >50% of the market has shelving that can support a robotic harvesting solution An estimated 10% of US farms, 90% of Canadian, and 90% of European have aluminum shelving. Most aluminum shelves have 14-15.5 inches of space between the mushrooms and the shelf above We are considering this hypothesis confirmed. All growers have 14” - 15.5” height aluminum shelving, and 5-10% of US farms have aluminum. There is a plausible robotic motion that would pick with >90% efficacy Growers and mushroom academics we spoke to both said that the preferred motion is to twist and then pull the mushroom. 2 robotics experts said this is possible. We’re considering this hypothesis confirmed. We’ll revisit once our solution is concrete. We will be able to develop a robot gripper that picks with ~90% efficacy A gripper narrower than caps should avoid damaging others Growing conditions can be altered to make harvesting easier (increase CO2, lighten growing substrate, stage fruiting). We have prototyped potential gripper solutions. Our hypothesis here is intact but uncertain. We need to understand picking best practices, potential gripper solutions, & continue prototyping We can build a solution economically We estimate COGS of 20K for which would take about a year to pay back at our dimensions and performance requirements Our hypothesis here is intact but needs to be pushed further by talking to robotics experts with experience in scaling ● 1 robotics investor ● Stanford farm manager They’d buy this We can build this We can sell this
  42. Customer Relationship Funnel Acquire Activate Keep Customers Up-Sell Next-Sell KEEP Cross-Sell Referrals GROW GET Sales Team Paid Media - Ag Trade Show Demos - Ag Magazine Ads - Press conferences Earned Media - Extension school (Penn State, UC Davis) papers - Ag blogs Recurring Value - Regular software updates - customer calls & support - integrated maintenance Upsell (potential future products) - Sensor network & data analytics for yield optimization - ERP based on sensor data Referrals - C2C - 3rd party shelving firms - Virtual cycle
  43. Customer Acquisition Cost Direct to Customer Convert to Paid User 2 20% Conversion Estimate Paid Acquisition 1 $20K Trade Show Demos, Magazines, Sales Force $100K Customer Acquisition Cost
  44. Customer LTV Annual Subscription Assumes a 5 million pounds per year mushroom grower (medium scale) A. MONTHLY REVENUE (K) $7.5 B. MONTHLY CHURN 1% C. CAC (K) $100 D. GROSS LTV (K) A*(1-B) / (B) $742.50 E NET LTV (K) GROSS LTV - CAC $642.50
  45. Demand Creation Budget & Forecast ● Word of mouth: Total $80K ● 2 systems for “Demo day events,” 20K ea ● 2 systems for customer demos, 20K ea ● World Ag Expo + PA Farm Show: Total $30K ● 1 x 20 x 20 corner booth with demo ● Hold press event breakfast ● Booth decor, banners, hotels ● Mushroom Magazine Campaign: Total $20K ● 3 ads in 2 magazines ● Goal – get 2 articles on us ● Ad agency ($10K) ● Total $130 K
  46. Learning Goals Midpoint Self-Assessment LEARNING GOAL SCORE R/Y/G COMMENTS EXPLAINING YOUR SCORE AND/OR WHAT YOU WILL CHANGE 1. Form hypotheses y Good at understanding how to form hypothesis 2. Design and conduct customer, partner, and supplier interviews We are getting very good at landing customer interviews, but need to focus on landing a mushroom farm partner, as well as making sure that we don’t ask leading questions. 3. Design and build minimum viable products (MVPs) We have MVPs in the form of slides and brochures for customers. We need to focus on updating system specs based on customer feedback, and developing gripper technology that works. 4. Design and run experiments Need to focus on iterating and testing more! High priority for us to try to find a farmer to partner with to close the customer iteration loop. 5. Determine if hypotheses are true or false based on interview and experimental results We’re getting good at this, but still something to improve upon 6. Work effectively in teams under pressure Good team dynamic! 7. Communicate your progress in weekly presentations Great note-taking and communication. 8. Form new hypotheses based on learning Very analytical team 9. Pivot (adapt strategy) based on new data Objective with data, pivoting based on learnings 10. Achieve (or know you have not achieved) product-market fit

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business model, business model canvas, mission model, mission model canvas, customer development, lean launchpad, lean startup, stanford, startup, steve blank, entrepreneurship, I-Corps, Stanford

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