About once an hour, a bell rings inside the headquarters of Streamline Inc., a Web company based in Westwood, Massachusetts. It signals that yet another family has subscribed to the company’s ever-more-popular home-delivery service. Every time that bell rings, Streamline’s employees stand and applaud – not just because the company got a little bigger, but because one more family got a little saner.
“I want to simplify people’s lives,” says Tim DeMello, 39, Streamline’s exuberant founder and CEO. “That’s what I’m passionate about. That’s what I believe in.”
Most outsiders who try to understand DeMello’s company misunderstand it – at least at first. Here’s how the service works: Customers pay a $30-per-month subscription fee. In return, the company installs a Streamline Box in the customer’s garage. The box has three parts: a refrigerator, a freezer, and a set of dry-storage shelves. Next a Streamline field agent, equipped with a bar-code scanner, visits the home and records what the customer already has in the fridge, the pantry, the medicine chest. The agent then creates a first draft of the customer’s “personal shopping list.”
Streamline posts the list to its Web site, where the customer can edit the list and place orders as often as once a week. Customers select from more than 10,000 grocery items – everything from diapers and cereal to fresh seafood and custom-sliced pastrami. They can also order prepared meals, rent videos, arrange for dry cleaning, and ship UPS packages. As the standard list gets more and more refined, the ordering process gets more and more simple. Eventually, Streamline estimates, the process requires only 20 to 25 minutes per week.
The obvious conclusion: Streamline is an online grocer that competes with rivals such as Peapod and NetGrocer. Right? Wrong! “We are not in the grocery business,” DeMello insists. “We are in the lifestyle-solutions business. We’re not a product business, and we’re not a service business. We’re a relationship business.”
It’s a distinction with a profound difference. Plenty of Web companies operate on the cutting edge of technology. Streamline operates on the cutting edge of service. It makes a stark promise to its customers: In return for $30 per month, it will save them three to five hours per week – hours that they now spend on routine chores. And it will perform those chores with such attention to detail that customers will never consider going back. “We have taken the characteristics of the grocery product – necessity, frequency, reliability – and leveraged them into a home-based relationship with customers,” says DeMello. “That’s the asset we’re creating.”
The idea is so simple that it sounds obvious. The market potential is huge – and largely untapped. But how does a startup like Streamline, which unveiled its service less than two years ago, turn such an enormous opportunity into an enduring business? By creating a set of operating principles that defy conventional wisdom both on and off the Web.
Consider the people behind the company. Streamline’s CEO started by assembling a dream team of executives – not one of whom had ever worked for a grocery company. DeMello himself spent six years as a stockbroker before he started a computer-game company. Tom Jones, 53, Streamline’s CIO and technology wizard, is a database-marketing guru who has been a professor at the Harvard Business School. Kevin Abt, 42, the senior vice president, founded Takeout Taxi Inc., the nation’s largest multi-restaurant delivery service. Mary Wadlinger, 38, vice president of customer quality, was director of process reengineering at Melville Corp., a retailing giant whose companies then included CVS, KB Toys, and Marshall’s. Frank Britt, 32, vice president of marketing, and Gina Wilcox, 29, director of strategic relations, both came from Andersen Consulting, where their work focused on the consumer-products industry.
“When you’re inventing a new business model, one critical question is, What kind of team do you put together?” says Britt. “We’re pursuing a ‘best available athlete’ strategy. It’s like when a pro football team drafts a college sprinter and turns him into an All-Pro receiver. It’s not about what you’ve done. It’s about what you can do.”
The same logic applies to Streamline’s strategic partners. DeMello’s major investors include Intel, SAP, and GE Capital. These allies add money, technology, and clout to Streamline’s homegrown ideas and passion. “GE Plastics is redesigning the Streamline Box,” says Britt. “We could never do that ourselves. What startup could?”
Like most Web entrepreneurs, DeMello and his colleagues have huge ambitions. By 2004, they plan to have 8 operating regions, to be in the top 12 metropolitan areas, and to serve more than 1 million homes. (At which point, given current revenues per customer, Streamline would boast sales of more than $5 billion per year.) But unlike many Web entrepreneurs, the leaders at Streamline are patient and persistent. Forget “Get Big Fast,” the current mantra of the online world. Streamline wants to Get It Right First – and then to grow like gangbusters.
“You have to get your business model absolutely perfect before you do a full-scale launch into the market,” DeMello says. “Because if you succeed on the Web, you succeed big. And you can’t change a tire on a car that’s moving at 80 miles per hour.”
Yes, the Web is global. But Streamline, for now, is unapologetically local. The company opened its first distribution center in October 1996. The 56,000-square-foot facility, attached to Streamline headquarters in Westwood, is a high-tech marvel. But it services only the western suburbs of Boston (44 of them, at last count). DeMello vows that Streamline will limit its business to this market until it has improved enough to make the service work according to its ideal. Only then will its expansion campaign begin. Its next two markets: Washington, DC and Atlanta.
“The way you grow a company is to make it work for one customer,” says DeMello. “Then you make it work for 10 customers. Then for 100, and then for 1,000. Today we understand our customers. We understand their needs. Now we’re ready for a national rollout.”
Streamline’s CEO has followed this less-is-more course from the beginning. When he founded the company in April 1993, he called it SkyRock. “That’s my philosophy,” he explains. “Head in the clouds, feet on the ground. Great companies try to make quantum leaps – and to get a little better every day.”
Which means that one of Streamline’s most important business disciplines is knowing when to say no. Early on, when Streamline was a six-person outfit desperate for more people, DeMello fired three employees in one day. “They didn’t seem like people I wanted to do business with,” he says. “So I asked them to leave. This is not about creating a cool service, hooking it up to the Net, and going public fast. It’s about longevity. It’s about creating a genuine service culture.”
What goes for employees goes for customers as well. Streamline is ruthlessly clear about who is in its target market: the BSF, or “busy suburban family.” BSFs are young and middle-age couples with high incomes and at least one child. Today more than 90% of Streamline’s customer base lies within the BSF bull’s-eye. A roughly equal percentage of its customers have household incomes of $75,000 or greater.
“We have a laserlike focus on BSFs,” says Wilcox. “Everything we do involves them.” DeMello agrees: “Just because you can do business with someone doesn’t mean that you should. It’s easy to get customers. It’s harder to get the right customers.”
And the right customers tend to do the right thing: They buy, and they buy often. On average, Streamline customers place orders 47 weeks out of 52. The average order, which consists of about 75 items, totals more than $110 – which means that the average customer buys nearly $5,000 worth of products and services per year. And Streamline’s annual customer-retention rate hovers at 90%.
DeMello understands the value of selectivity. He also understands the cost. Choosing to acquire the right customers means choosing to acquire fewer customers than the company would otherwise. “Everybody asks me the same question,” DeMello sighs. ” ‘How many customers do you have?’ That’s the wrong question! The right questions are, How much business is each customer doing? and How many customers are referring new people to you? In the categories we serve, we get 85% of the money that our customers spend each year. And our referral rate is out of sight.”
Moreover, acquiring the right customers doesn’t just let you do more business with them. It lets you get closer to them as well. Here’s the real power of Streamline’s business model: The company is leveraging the Web to build a physical channel into the home. There’s nothing “virtual” about Streamline’s relationship with customers. Delivery reps have permission to enter a customer’s garage even when no one is home. How many companies have that kind of access?
“We collaborate with families that want to run better,” says Britt. “It’s an intimate relationship. Consumers come to depend on us to make their lives simpler and better.”
What happens when customers depend on you – and you deliver? They decide to depend on you even more. One of Streamline’s most popular services is called Don’t Run Out. Families identify their must-have items – milk, toilet paper, diapers, pet food – and authorize the company to replenish their stock of each item automatically. Today almost every Streamline household uses Don’t Run Out. The average household has standing orders for more than 10 items. “It’s extraordinary,” says Wilcox. “The consumer makes a purchase decision once, and we fill the order throughout the year. It redefines brand loyalty. It redefines marketing.”
This intense relationship also redefines strategy. Streamline has created the ultimate learning loop: The more a family orders, the more Streamline learns about the family’s preferences. The more Streamline learns, the better it serves the family. “We’ve created a two-way channel with our customers,” says Jones. “It’s vibrant. It’s ongoing. It’s reliable. We become part of our customers’ lives.”
Streamline works on improving that channel every day. The company is fanatic about measuring customer satisfaction. Its Web site has a tool that lets customers use Java-enabled smiley faces to rate each interaction. And DeMello keeps looking for ways to innovate. “We’re not perfect,” he says. “I want to get as much feedback as I can. We’ve even considered setting up a ‘Streamline Screamline.’ It would be a place where people could vent when we disappoint them. We’ve done a good job with customer service. But until we’re perfect, it’s not good enough.”