Reacquaint yourself with Local Dirt, the subject of Case 5.2. Do you think Local Dirt’s unique method of connecting the growers of local food products with the buyers of local food products is suitable for a business method patent? If so, if you were the founder of Local Dirt would you spend the money to try to obtain a business method patent? Why or why not?

Case 5.2

Imagine the following scenario. The produce buyer at Whole Foods Market in a Midwestern city wants to buy sweet corn from local producers. She’s familiar with about a dozen local sweet corn producers. She calls each producer and asks them to e-mail, fax, or drop their price sheets by the store. The buying day comes. She lays the price sheets on her desk and picks the two or three farmers from whom she wants to buy food products. She then starts playing phone tag with the farmers. When she finally reaches them she asks, “Do you still have the product? Is it still the same price? How soon can you get it to the store?”
She genuinely wants to buy local—the produce is fresher and surveys have shown that Whole Foods customers like to buy locally grown produce. But what a hassle! If she gets distracted or busy, she has a quick and easy alternative.
She can go online and get anything she wants from Whole Foods’ regional distribution center.
This is what happens in the highly fragmented food industry. There are dozens, maybe hundreds, of small sweet corn producers within driving distance of the Whole Foods market described previously, all looking for buyers.
And Whole Foods isn’t the only store in the area looking for sweet corn—there are many others. You’d think the buyers and sellers would get together. But often they don’t. It’s not the price, the quality of the product, or the fact that it’s grown locally that’s the problem. Like Whole Foods, most grocery stores want to sell locally produced products. In fact, one study in Maine, Vermont, and New Hampshire found that 17 percent to 40 percent of consumers in each state were willing to pay $2 more to buy a locally produced $5 food item. Similarly, a study by the Leopold Center for Sustainable Agriculture found that “grown locally” ranked higher than “organic” in regard to consumer preferences for fresh produce and meats. The reason local buyers and sellers don’t do a better job getting together is because it’s difficult, and is time-consuming for everyone involved.

Heather Hilleren
Heather Hilleren observed this problem firsthand as a team leader working in a Whole Foods Market in Madison, Wisconsin. She majored in education in college, and her first career was a teacher. She took a part-time job at Whole Foods, and when she became a team leader, quit her teaching job to work at Whole Foods full-time. As a team leader, she saw the desire on the part of Whole Foods buyers to buy local but the difficulties they had making it work. She didn’t think much more about it until she was pursuing an MBA and started working with a local food nonprofit. She told the nonprofit that they needed to get farmers to put their products online, so local food buyers could simply log onto their Web sites and place orders. The group she was working with didn’t follow up on the idea, but it stuck with Hilleren. She wondered if she could start a company to make this happen.

Local Dirt
Local Dirt grew from this idea. A week before she got her MBA, Hilleren launched Local Dirt Inc., an online marketplace that connects local farmers and producers with local buyers of agricultural products. The diagram that follows provides an overview of how Local Dirt works.
Local Dirt uses software as a foundation for being a service platform. Once registered, buyers and sellers can see what each other has to offer. Buyers create a profile, receive a Local Dirt URL, and specify delivery and distance preferences (for example, a grocery store can say that all purchases must be delivered to the store and the store is only interested in products produced within a 75 mile radius of its location). They can then search the database of sellers in their area, and the products they have for sale.
Once products are ordered, payment can be made either directly to the producer or through Local Dirt. Local Dirt archives all purchases in both the buyer’s and the seller’s account, and handles the paperwork for transactions.
Local Dirt updates the inventory each seller has available in real time to minimize the possibility that an order can’t be filled. Buyers can post requests for products they need, such as 20 crates of tomatoes the third week of July. They can also list contracts that they would like to develop for the following year. The service is not limited to produce; in fact, all locally produced agricultural products are fair game. This includes flowers, plants, processed items (like cheeses or jams and jellies), and meat.
Sellers interface with Local Dirt in much the same way. Each seller creates a profile to list and display the products it has for sale. “Deals” can be posted to try to unload product that may spoil if not quickly sold. Price sheets can be regularly e-mailed to select buyers, so the buyer is kept abreast of what’s for sale. Sellers can also specify delivery options and distance preferences, and are not discouraged from reaching out to buyers one on one. They can also create newsletters and other marketing materials and use Local Dirt as a platform for sending them out. Local Dirt is not restricted to businesses. It is open to individuals, businesses, farms, local producers, food co-ops, and buying clubs.

Discussion Questions
1. Make a list of the environmental trends and the business trends that are working both for and against Local Dirt and its business proposition.
2. To what degree has Local Dirt established a new approach to interface with businesses in the agricultural and food sales industries? How well do you think Local Dirt is executing its approach? What do you think of Local Dirt’s business model? What are the pluses and minuses of not taking a small commission on each transaction processed through its site?
3. What barriers to entry is Local Dirt erecting to prevent competitors from moving into its space? Do you believe the entry barriers Local Dirt is creating will prevent competitors from entering the firm’s industry?
4. Are you surprised that Local Dirt received $1 million in venture capital funding? What do you think the venture capitalists that invested in Local Dirt saw in the company that prompted them to make the investment?

Application Questions
1. Address the most significant challenges that Local Dirt has in growing and reaching its full potential.
Briefly describe how you’d address each of the challenges.
2. Think of a fragmented industry, other than agriculture, in which an online platform connecting buyers and sellers might work. Name the industry and describe the type of online platform that you’d build to connect buyers and sellers in the industry.