The Startup Hero Episode 2: Alvaro Ramirez

Hi, I'm Tim Draper. Here we are at Startup Hero. I'm here with Alvaro Ramirez. At eHarvest Hub, and he's gonna tell us about what he's doing.

Yeah, thanks, thanks for having me, Tim. I appreciate it.

My pleasure.

eHarvest Hub, we connect small independent truckers directly with fresh produce shippers so that they can bypass all the middlemen, be able to make more money per load. And that's essentially what we do in a nutshell.

So you connect the, the trucker directly to the farmer?

To the farmer, yep.

And who are the middlemen normally?

You have a lot of— there's a lot of brokers, usually truckers that became big enough. Now they broker deals instead of driving trucks themselves. And with that, maybe 40 to sometimes 60, 70% of the profit stays with the broker, whereas the trucker has to be on the road all the time.

I see. And this is a way for a trucker— does it also make the truckers more efficient? Do they, like, if a trucker's in St. Louis and the harvest is in Baltimore, you need the truck in Baltimore instead of the one in St. Louis, right?

Right, yeah.

So do you work a whole logistics thing?

Yeah, it's almost, think of it like an Uber in that sense. We connect the closest truckers Trucker drivers are able to tell us exactly what routes they'd like to take. So the system is smart enough to look up the orders and know how to match them up, be able to do multiple loads at the same time, make some more money in one delivery.

I see. So do you organize that for them? Do you tell them, hey, there's a half a load here and there's a quarter load here and there's—

We do.

Another quarter load. And if you pick up this one, So you can pick this one up here in Dallas, you can get this other one in Houston, and then you can keep going to New York?

Yeah, we can actually— the biggest problem that truckers have is that they don't have direct access to loads, and they'd like to be able to make more money per load, make less deliveries because they'd rather be home more time than on the road, right? So the system essentially can do all of that for them and basically manage their business so that they can just do their deliveries. We're able to tell when we can combine loads. So the system knows how to do all of that. And at that point, all the shipper does is, here comes a farmer needing a trucker, they'll hire them online. And on our app, the trucker will get the request to accept the load or not. Those requests are actually based on the rates that the trucker sets. We don't set rates. They do that themselves. We just take flat fees for connecting them.

And you then Find the best rate though for the farmer to get the food from one place to another.

Correctly, yeah. One of the biggest problems of moving food right now is that between the farmer and the grocery store, that food will zigzag seven to ten times between brokers.

The will what?

Zigzag seven to ten. It will exchange hands.

Zigzag.

Yeah.

Oh, okay.

And what we're doing is skipping all of that, so making it stream streamline it. Makes sense.

And it's it's still It's still the grocery store that ends up paying the farmer directly, right?

Right.

And so the grocery store pays the farmer for the food and the farmer also pays the shipping to get to the grocery store?

Yeah, sometimes they are in charge of it or the grocery store will pay for it, but whomever it is, we can connect them directly with the trucker. The biggest problem of transportation in produce is knowing where the loads are.

Right.

So if you own access to those orders, then you can pretty much dictate how the industry would work. And we're able to do that because we give farmers a marketplace where they can interact directly with the retailer, so we can see the orders. We'll have the ability to also predict the orders in advance so that you can leave a lower cost of shipping. Because what truckers want is they want consistent business and they want it secure. So you can actually lower that cost.

Are you coming at this from being in the trucking industry or the farming industry or what? How did you get this started?

You know, I, I actually got started because I had a friend that was a produce buyer and his problem was sourcing product. It would take him manually 3 hours on a daily basis to try to find the right product. And in the middle of that, we got a call from Walmart because Walmart wanted to sign up and buy from smaller farmers. And that really piqued my interest. So not being a farmer, I spent 7 months doing discovery, talking to farmers, trying to understand their pain point, and realized transportation was the big part of that. Sometimes these guys are not negotiating prices on product, but on transportation.

So it's like if I buy an orange, how much of that orange came from the growing of it and the picking and the real estate, and how much came from transportation?

It depends how far you move it, but you will typically have a cost of 40% to almost 90% for transportation, depending on where you're buying it. I'll give you an example. We have one of our advisors, a cannabidiol grower in Central Valley, and he ships to the East Coast. A full truckload, 20 pallets, maybe the product costs $26,000, but the transportation, he will pay $7,000 to $12,000.

Wow.

So he forgets the price of the product. He's trying to lower his transportation cost.

And then how's it going so far? You've been at it for a couple of years.

We've been at it for a couple years.

How many years?

We started, we actually started building our software in 2013.

Okay.

And we got, because I did a lot of discovery at the beginning, we got very methodical about understanding the space and how to release software. Farmers—

Are you the programmer or do you have a team?

No, we have a team of engineers, yeah. And what we developed first was a traceability software because of food safety. Now you got to track your food. Transportation is also part of that. So we provide farmers that software. What was neat about that is that it collects a ton of data for us. It tells us everything about their production, who their buyers are, but more importantly for us, it tells us who are the truckers in the space already doing this job. So our acquisition cost goes down. Once we did that, then we said, okay, let's go ahead and build a marketplace. And now we can see what the orders are coming in and going and then be able to connect the trucker.

So this is the first month that you— where you've had the whole package?

Yeah, the whole package. Yeah, this is our first month. Last year, our farmers shipped out about 7,000 orders using our system to manage their orders. This year—

And how much does that all add up to? And like, how much in revenue to the farmers and how much in revenue to the truckers and how much in revenue to you?

So for—

and what— how are you making money?

So the way we make money is we charge flat fees per transaction. So farmers pay us $3 for every order they ship. So once that truck is loaded, farmers invoice and so do we, $3 per order regardless of the volume of the order. That's really good for farmers. With farmers, you have to earn their trust. They're people that have been in business for a long time. They want to make sure you're going to be there a long time with them. So we are able to earn that trust. But what we're after is the transportation. We charge $100 for every load that a trucker picks up.

Oh, I see. So you're charging the farmer $3 for the, for the order, right? But you're charging the trucker $100 for the order.

For the order.

So you get $103.

$103.

Why not make it free to the farmer if you're only getting like 2.9% for the whole thing?

Yeah, we thought about that, and a lot of farmers said, charge me something because then I don't feel like I'm getting something cheap, and if I need help, then I know I can call you and you'll respond.

Oh, I see.

And that's why we said, okay, let's charge the $3, right?

That's great.

But this guy's due about $300.

And the trucker's willing to pay $100, because a typical truck run is worth how much to them?

It could be $700, a minimum.

So you're giving— they're giving you about 6— oh, a minimum.

Yeah. But let's— so let me break it down this way.

So at most, you're charging them about 16% of any revenue that you're getting.

At most, yeah. So I'll give you a couple examples on that. We did this with a trucker from Santa Maria to LA. That's about a 200-mile delivery. He charges $700. The broker had charged $1,200 for that load. He was half empty, so the broker gave him another load, asked him to pick it up for $50 and drop it off for another $50. So he paid him $800. The broker charged $2,400 at the end of the day. On the way back, on his dead haul, a broker told him to pick up a load for him for $300 because he was going home, so might as well make some fuel. But he was still charging $1,200. So the broker is making the bulk of the money. So on a one-to-one level—

I see. The broker knows the whole market.

They own the book of business.

I see. And that's where you're gonna be. You're gonna own the market, but you're gonna do it at a much bigger discount. The truckers are gonna like you. They're gonna trust you. Well, the trucker is gonna know how much the farmer's paying, right?

Right. Yeah.

So you're letting the trucker know what the farmer's paying, and the broker is not letting the trucker know.

What the broker does is he has a network of truckers. So he'll get a load and he'll put it up for a bid. The lowest bid gets the deal. Sometimes the trucker will show up to pick up product. If the product has not been loaded and that broker found a cheaper truck, he will cancel on him and bring— and send a new one.

So the people that— when this thing starts to roll and people are using it, the brokers are going to be furious. So what are they going to do to keep you Like, I mean, the taxi drivers are furious at Uber.

We don't see a lot of resistance from them. Some of these guys are truckers themselves that still have a small fleet.

Oh, I see. They may actually use your service.

Right. So we're not, you know, when it comes to our platform, it's exclusive between farmers, retailers, and truckers. But there's nothing to say that we don't want to open up a transportation platform for the rest of the industry or even other industries like And right now the farmer doesn't even know where the retailer—

who the retailer is, do they?

No.

So the broker has that too. So now the farmer is going to know which retailer they're sending it to, and they're going to know which trucking company or which trucker they're using, right? So they're going to know that direct connection. You— how are you getting the retailers to sign up? Why are they— why is it worth it for them?

For the retailer, it's a couple of things. One is because they get full transparency. Because food comes through the supply chain, remember I told you zigzags a bunch of times?

Right.

They don't know necessarily where it originated. So when it comes to food safety, it's a big issue for them. When consumers get sick, retailers are the ones that pay the price because they're the ones with the deep pockets. So they want that full transparency. Also, it's cheaper, it goes straight to the farmer. They save about 17% going straight to the farmer. And the farmers, they're able to make at least 36% more, bypassing everybody else.

So you, you're also telling the retailer there's a way of saving 17% on the purchase of your vegetables. How do you reach the farmers?

Boots on the ground. Farmers are still a handshake kind of deal.

So you have to go to each individual farmer?

Yeah.

Now, would smaller farmers would be your Biggest customers to start with, right? And then you work your way up.

Yeah, we found out that the larger producers like Driscoll or Dole, these guys have their own technology.

How many of them say yes versus how many say no?

So far, every farmer that we've talked to has said yes because, because when they look at how much they can do with the technology, from tracking their product to managing their order, doing inventory management, and now be able to reach their buyer all electronically. You know, for $3. And that's a big sell to them is that we only charge them when they invoice because that's how they do business. One of their biggest pain points with technology and startups especially is you guys charge me upfront and you don't care if I made money this season or not. I didn't want to do that model. I wanted to show them that we do care about them making money. So when they make money, we make money.

Well, wait a second. When they make money, you only make $3.

$3.

Yeah.

From them, but I get all the data for transportation.

And they get all the— they get the data too, right? You're giving it to everybody.

Yeah.

So, okay, so isn't there a, like, don't farmers talk to each other? Well, isn't there a way to get on some farmer Facebook page or a farmer something or other to—

These guys are kind of old business, you know, they're old school how they do business. What we do is when we go to them, You know, we ask them for a list of names. Who do we go talk to? When I was doing discovery—

Names of truckers?

Farmers, farmers.

We get names of other farmers. Oh, of other farmers. You ask for truckers and farmers from them.

Yeah, their trucker information comes every time they have an order. They have to enter the trucker information in the system so that we can track that product.

Are they reticent to tell you who the other farmers are or who the other truckers are, who the truckers are that they use?

No, with other farmers, they actually tell us who they are. They're, they're in that, in that way, they're pretty helpful with each other. If they find something that's good, they'll tell everybody else. On the transportation side of things, they give it to us because they know it has to do with food safety. So we just help them keep all their records in the event of a recall.

And you're going to do ranchers too? Are you going to have—

Eventually.

Meat and—

Yeah, yeah. Transportation for meat is a big deal. It's a big problem, and we can solve that too. We're focusing on produce because it's huge. California produces 60% of produce for the US.

Oh, I see. So if you get all of California farmers, you've got a pretty good thing going.

Yeah, if we— yeah, the total market for California mid to small farmers is about 70,000 farmers. If we look at an obtainable market of about 13,000, that could potentially generate $5 billion plus for us.

For you or for—

For us, for eHarvest Hub. Yeah, when you look at the US market—

What's the cost of all the trucking, To take all the vegetables everywhere?

You're looking somewhere around, I think the last number we looked at, it was about close to $720 billion in transportation.

Whoa, that is amazing.

It's a big industry, yeah.

So, okay, so then how, okay, so you got the farmers, that's definitely your way to get in, and then they'll get You get you the truckers. How do you get the retailers?

If you can aggregate the volume, then we'll come shop, because aggregation is our biggest problem. That's why we don't shop from farmers, because they don't have enough volume on their own. But our marketplace does all of that for them. So once we have the aggregation, then it's easier to go to them.

Now, do you think it makes sense to be completely transparent to the retailer? I mean, I understand being transparent to the farmer with respect to the trucker, but what about the retailer? Don't you want to sort of be the one with all that information the way the brokers have all that information?

Yeah, we don't necessarily share everything with everybody. So when a— if a retailer is paying for transportation, the system tells them these are the truckers available for this route. There's no way to contact them but through the system. So you have to hire them online and the trucker has to accept on their app the load.

Now, are other people doing this? Do you have competition?

We do have competition. There's a lot of competition in the transportation space. Obviously, it's a big industry.

No, but other people that are sort of Uberizing this farmer-to-retail?

We do. There are a couple companies, startups. We don't know much about them other than they're just doing transportation. The problem they'll run into is what we found at the beginning, is that if you don't own the load, you can have a list of truckers that will go somewhere else because business is not there. There's a couple other companies on the East Coast that are doing something similar to us. Their challenge, I know one of them has something very close to what we have, but they claim to have transportation, but they don't because they reach out to us trying to tap into our transportation platform to access truckers.

Well, also all the farmers are here.

All the farmers are here.

So you have a little bit of an advantage.

Yeah, we do.

So wait, who created, who was the engineer who designed and developed the platform?

So we have a team. My co-founder, Jose, has a supply chain background. He was part of the team that helped build the supply chain system for Walmart e-commerce a couple, 10 years ago. And then we have a team of engineers. Our lead engineer was here in the States. We have a team of engineers, young engineers in Nicaragua, did the bulk of the work. So we did desktop, iOS, and Android platforms.

Are you from Nicaragua?

I am.

Oh, terrific. Yeah.

I got out of there a long time ago.

Yeah. But you still have a bunch of buddies back there, programmers.

Yeah. I have friends. Yeah, we got in touch with younger guys, other ones over there that know technology.

And the product is done and ready to go?

It's ready to go.

So you're just about shipping it?

Do we go after market share or do we go after the revenue? Knowing the space, going after the market share made more sense because if you do business with the farmer, they'll do business with you for a long time.

Yeah.

And it's the same thing with the trucker. And so we decided, okay, let's build technology that makes sense for them so that we can get consistent business out of it. And all of our farmers— the neat thing about—

So you've been giving it away for a while?

We've been giving it away. What we've seen is the way we release all our technology and the steps we did it, we Got 100% adoption, not just because it was free, because it was user-friendly. Our goal this year is to generate 720,000 transactions and convert—

Wait, 720,000 transactions times 100?

Times 100.

Wow. So you're thinking you're going to do $72 million in revenue?

It's possible. It's possible. You know, I'm being more conservative and saying, okay, let's convert, you know, 10 to 15% of that.

Oh yeah, that's if everybody converts.

If everybody did it.

If they don't convert though, then they don't get to use the platform anymore, right?

If they don't use our transportation platform, the neat thing about transportation is that even if we know on average—

Is there anything they would use before?

Yeah, they can, farmers can use our marketplace.

They can use something for free?

They can use our marketplace, yeah.

And that's the marketplace for what?

To buy and sell product, produce.

To each other?

Yeah, or, you know, where Safeway would come in and buy product from them.

Yeah, yeah.

I see. So the neat thing is because we get to—

So Safeway can buy that and they can do their own trucking around you.

They can do their own trucking around us, yeah.

But if they want to do trucking with you, then that's when you're going to start charging.

Then we charge for everything.

And when do you think you would launch it so that you're going to really start charging?

We've built those relationships already, so it's easier for us to say, here are the truckers that can get you this, this a cheaper, a cheaper way.

And then what's your current cash So we raised $1 million.

Half of it came from Ventures Lab.

Oh, great.

Yeah.

And so I'm an investor.

Yes, yes, you are.

Terrific. Yeah, good.

And the other, we got another half a million from Jeff Wang in China, one of Mark's good friends.

Have you had any problems with that being in Nicaragua? It's a long way away.

No, you know, time difference is only 1 hour ahead of us. So it works great. Language, my lead engineer here, my co-founder, and I all speak Spanish. So it's easy to communicate with them. Those guys all understand English as well. So we haven't had any problems communication.

This is exciting. Good for you.

It's pretty good.

Yeah. Well, great. Thank you. Thanks so much for coming, and thanks for being on our show.