Description
With this brief criteria in relation to paradigm shift for a successful launch of a locally based start up in the food supply.
May, 2014 Agric Eng Int: CIGR Journal Open access athttp://www.cigrjournal.org Special issue 2014 21
A paradigm shift for a successful launch of a locally-based
start-up in the food supply chain
M. Handrinos
1
, K. Rotsios
1
, G. Moshonas
1
,
D.Folinas
2*
(1.
Perrotis College, American Farm School, Thessaloniki, Greece; 2.
Department of Logistics, ATEI of Thessaloniki, Greece)
Abstract: The aim of this paper is to design a friendly-user framework for a successful launch of a locally-based start-up in the
food supply chain. Specifically, the study is focused on a Small Medium Enterprises (SME’s) cooperative store in a farm
school. The store is operated by the students in the context of their entrepreneurship, business and marketing classes.
Authors made a number of interviews with the managers and employees of the locally-based store so as to identify its potentials
and challenges. The outcome of the study is a framework dealing with managerial, as well as, technological aspects and even
if refers to a specific SME it will act as a road map for an effective start-up development.
Keywords: customer loyalty, American farm school, SME co-operatives, agri-business
Citation: Handrinos, M., K. Rotsios, G. Moshonas,
D. Folinas. 2014. A paradigm shift for a successful launch of a
locally-based start-up in the food supply chain. Agric Eng Int: CIGR Journal, Special issue 2014: Agri-food and biomass
supply chains, 21?29.
1 Introduction
In today’s competitive environment, where size is of
extreme importance, and it has become even more
essential for Small-Medium Enterprises (SMEs) to be
able to compete based on the essence of reputation, trust
and loyalty as Ruben et al. (2004) argued in order to
guarantee effective governance. As the European
Commission (2005) suggests, SMEs frequently have
difficulties in obtaining capital or credit, particularly in
the early start-up phase. Their restricted resources may
also reduce access to new technologies or innovation.
In the literature there are many research initiatives
aiming to identify and prioritize the critical success
factors of a startup establishment especially for SMEs.
Abdullah et al. (2009) listed the following eight key
factors of success: achievement oriented, advancement
drive, tenacity, commitment, networking, decision-
Received date: 2013-01-19 Accepted date: 2013-12-15
* Corresponding author: Dimitris Folinas. Department of
Logistics, TEI of Central Macedonia, Kanellopoulou 2, 60100,
Katerini, Greece. Phone: +30–2351020940. Fax: +30–
2351047864; Email: [email protected].
making, ability, managing risk, and optimism. Tipu and
Arain (2011) argued that indiscipline and poor integrity
are the key factors contributing to the failure of
entrepreneurs in their business, while Norris (2008)
suggested that factors such as collective action,
decision-making, partnerships formation, and building
social capital are critical to the successful
entrepreneurship efforts. Benzing et al. (2009) as well
as Chawla et al. (2010) pointed out that management
skills and environmental conditions are critical for
business success for entrepreneurial.
Furthermore, a number of studies have concentrated
to the identification of critical success factors for specific
countries and business sectors. Wei (2013) cited many
studies that have been conducted regarding a number of
developing countries (such as Pakistan, Vietnam,
Romania, Turkey, etc.). As a common ground of the
aforementioned researches, honesty, friendliness, social
skills, hard work, good customer services, and product
quality were the most important factors. Additionally,
other factors include first, the culture (Busenitz and Lau,
1996; Chu and Katsioloudes, 2001); second, the religion
(Carter and Jones-Evans, 2006; Turan and Kara; 2007),
22 May, 2014 Agric Eng Int: CIGR Journal Open access athttp://www.cigrjournal.org Special issue 2014
and third, the gender (Hughes, 2003; Robichaud et al.,
2010), that may have a role in entrepreneurial successes.
Apart from taking into consideration the critical success
factors of the entrepreneurship initiatives another issue of
great importance is the identification of its barriers and
challenges. BMBF (2007) and Farrell (2004) identified
the bureaucratic hurdles and lack of intellectual property
rights, while Tiwari et al. (2007) as well as Rammer et al.
(2007) pointed out the shortage of capital and hindered
access to qualified personnel and the financial bottlenecks.
Nevertheless, there are a limited number of researches
focusing on the identification of critical success factors
and their barriers for the development and management of
a start-up company in the agri-business sector. After
synthesizing the literature most studies focused on the
establishment of start-up companies for the ICT and
services sector (Morrisa et al., 2003).
The purpose of this paper is to design a friendly-user
framework for an SME cooperative store, based on
empirical and secondary evidence collected from a Farm
School’s campus store. The store is operated by the
college students in the context of their entrepreneurship,
business and marketing classes. This framework will
deal with managerial aspects that will act as a road map
for an effective start-up development and management.
The proposed framework is based on two loyalty-based
models which recognize that customer loyalty is earned
by consistently delivering superior value.
The paper is organized as follows. The next section
presents two generic models for the loyalty-based start-up.
Section 3 presents a framework for an SME cooperative
in the agri-business sector based on the above models.
The findings of a research about the success of the
proposed model are presented in Section 4. Finally, at
the conclusions part the findings of that research are
presented along with suggestions for future research.
2 Loyalty-based start-up models
In the literature a researcher can find many studies
about the loyalty start-up companies. The following
table presents a number of researches and the targeted
business domain (Table 1).
Table 1 Loyalty start-up models in various business domains
Authors Title Business domain
Chen and Hu (2010)
The effect of relational benefits on perceived value in relation to customer loyalty: An empirical study in
the Australian coffee outlets industry
Food service sector
Tanford (2013) The impact of tier level on attitudinal and behavioral loyalty of hotel reward program members Hotel services
Guillén et al. (2012) Time-varying effects in the analysis of customer loyalty: A case study in insurance Insurance services
Auh et al. (2007) Co-production and customer loyalty in financial services Financial services
Bayraktar et al. (2010) Measuring the efficiency of customer satisfaction and loyalty for mobile phone brands with DEA ICT / mobile services
Ramanathan (2010)
The moderating roles of risk and efficiency on the relationship between logistics performance and customer
loyalty in e-commerce
e-Business
In this paper, in order to prepare a framework for the
management of a loyalty-based start-up company in the
agribusiness sector, two generic models are discussed;
one developed by Reichheld (2001) and one suggested by
Lazzarini et al. (2001).
There are many research initiatives about the
establishment of start-up companies in many industries
and business sectors but one could strongly suggest that
this is not focused in the area of the agribusiness sector.
Therefore, two generic frameworks are presented and
analyzed and a brief literature review is presented.
At first, as Reichheld (2001) argued, when customers
do trust an online vendor, they are much more likely to
share personal information. This information, he
believes, enables the company to form a more intimate
relationship with customers and to offer products and ser-
vices tailored to their individual preferences, which, in
turn, further increases the level of trust and strengthens
the bonds of loyalty. Such a virtuous circle can quickly
translate into a durable advantage over competitors.
One could also suggest that the story is much the
same for integrated supply-chain relationships. Unless
firms are comfortable engaging in highly transparent
relationships and sharing internal information, including
May, 2014 A paradigm shift for a successful launch of a locally-based start-up in the food supply chain Special issue 2014 23
costs and profit budgets, with their partners, little benefit
can be achieved through reduced inventory levels,
coordinated scheduling, or joint planning. Open,
transparent relationships work only when both sides are
committed to mutual success (Reichheld, 2001).
However, according Reichheld (2001), loyalty is dead,
and the statistics seem to bear them out. As statistics
suggest, on average, U.S. corporations now lose half their
customers in five years, half their employees in four, and
half their investors in less than one. We seem to face a
future in which the only business relationships will be
opportunistic transactions between virtual strangers.
The strategic advantage now enjoyed by large
companies in the United States, like Northwestern Mutual,
State Farm, MBNA, and John Deere shows why
acquiring the right customers is so critical. It becomes
more evident as capital ratios decline, and their
competitors, gasping for breath, trade leftover customers
back and forth in the increasingly vain and frantic hope of
maintaining growth in a mature market. If companies
are to prosper into old age, they must build a foundation
of loyal customers (Reichheld, 2001).
One could claim that this is true even in newer
industries -perhaps especially in newer industries- where
many competitors can earn respectable profits for a time,
but where sooner or later, there will not be enough good
customers to go around. Nevertheless, the smart
competitors will find ways to get the best ones early and
the smartest of the smart will then shift their growth
strategies away from new-customer acquisition and
toward building and broadening their relationships with
the good customers they have already won. A recent
study by Bello et al. (2012) states that the American Farm
School (AFS) has a small but very loyal customer pool,
based on the AFS image as a safe and ethical food
producer.
Customer retention is a subject that simply cannot be
confined within narrow limits. We came to understand
that business loyalty has three dimensions customer
loyalty, employee loyalty, and investor loyalty and that
they are far more powerful, far reaching, and
interdependent than we had anticipated or imagined.
Loyalty has implications that extend into every corner of
every business system that seeks the benefit of steady
customers.
2.1 The loyalty-based model
The implicit business model behind most present-day
strategic plans and budgeting procedures begins with a
profit target and works backward to arrive at required
revenue growth and cost reduction. In a research
Reichheld (2001) had undertaken, where it lasted for
almost a decade studying loyalty leaders and their
business systems, what one has learned has radically
altered the view of business economics. That research,
conducted by Reichheld (2001), led him to develop a very
different model, rendered graphically in Figure 1.
Figure 1 The loyalty-based cycle of growth (adapted from
Reichheld, 2001)
As he has discovered, what drives this new model is
not profit but the creation of value for the customer, a
process that lies at the core of all successful enterprises.
Value creation generates the energy that holds these
businesses together, and their very existence depends on
it. The physics that governs the interrelationships and
energy states of a business system’s elementary particles-
its customers, employees, and investors- we call the
forces of loyalty. Because of the linkages between
loyalty, value, and profits, these forces are measurable in
cash flow terms.
Reichheld (2001) believes that loyalty is inextricably
linked to the creation of value as both a cause and an
effect. As an effect, loyalty reliably measures whether
or not the company has delivered superior value:
Customers either come back for more or they go else-
24 May, 2014 Agric Eng Int: CIGR Journal Open access athttp://www.cigrjournal.org Special issue 2014
where. As a cause, loyalty initiates a series of economic
effects that cascade through the business system, as
follows:
? Revenues and market share grow as the best
customers are swept into the company’s business,
building repeat sales and referrals. Because the firm’s
value proposition is strong, it can afford to be more
selective in new customer acquisition and to concentrate
its investment on the most profitable and potentially loyal
prospects, further stimulating sustainable growth.
? Sustainable growth enables the firm to attract and
retain the best employees. Consistent delivery of
superior value to customers increases employees’ loyalty
by giving them pride and satisfaction in their work.
Furthermore, as long-term employees get to know their
long-term customers, they learn how to deliver still more
value, which further reinforces both customer and
employee loyalty.
? Loyal long-term employees learn on the job how to
reduce costs and improve quality, which further enriches
the customer value proposition and generates superior
productivity. The company can then use this
productivity surplus to fund superior compensation and
better tools and training, which further reinforce
employee productivity, compensation growth, and
loyalty.
? Spiraling productivity coupled with the increased
efficiency of dealing with loyal customers generates the
kind of cost advantage that is very difficult for
competitors to match. Sustainable cost advantage
coupled with steady growth in the number of loyal
customers generates the kind of profits that are very
appealing to investors, which makes it easier for the firm
to attract and retain the right investors.
? Loyal investors behave like partners. They
stabilize the system, lower the cost of capital, and ensure
that appropriate cash is put back into the business to fund
investments that will increase the company’s
value-creation potential.
Reichheld (2001) believes that profits are not central
to this new model, but they are nevertheless critically
important, not just for their own sake but also because
they allow the company to improve its value creation, and
because they provide an incentive for employees,
customers, and investors to remain loyal. Still, the
source of all cash flow, including profit, is the spiraling
pool of value that springs from the creation of superior
value for customers.
2.2 The netchain model
Lazzarini et al. (2001) launched the concept of
netchains at the interface of vertical supply chains and
horizontal networks. As Lazzarini et al. (2001)
indicated, netchains can be conceptualized as a
multi-layer hierarchy between suppliers, processors and
retailers where horizontal coordination between
reciprocal agents is embedded in a framework of vertical
deliveries (see an example of a netchain structure in
Figure 2). Horizontal cooperation (e.g., in farmers
cooperatives) may be better able to cope with the
stringent quality criteria and changing quantity demands
emerging from chain partners.
Figure 2 Example of a netchain structure
(adapted from Lazzarini et al (2001: 8))
Netchains provide linkages between horizontal
networks of suppliers and vertical supply chains. They
involve different types of (nested) interdependencies
amongst agents, like:
? Reciprocal cooperation based on mutual exchange
between suppliers;
? Sequential delivery systems based on planning along
the supply chain; and
? Pooled interdependencies at business level to
guarantee standardization and harmonization of processes.
(Lazzarini et al., 2001)
May, 2014 A paradigm shift for a successful launch of a locally-based start-up in the food supply chain Special issue 2014 25
Finally, as Ruben et al. (2004) argued, contracts play
a critical role in the relationships between chain and
networks partners. They define the rules and obligations
for establishing cooperation, both between network
partners and chain agents; in particular, when repeated
transactions take place, contracts represent a
cost-reducing device. They also argue that for deliveries
that involve high-quality demands, self-enforcing
contracts that involve trust and loyalty are preferred to
reduce monitoring costs. Different options for
integrating (horizontal) networks and (vertical) chain
contracts are available for guaranteeing risk-sharing and
ensuring trust relationships. Given the high risks and
the difficulties of monitoring numerous heterogeneous
agents, entire-channel process control is increasingly
preferred (Van der Laan, 1993; Janssen and Van Tilburg,
1997).
3 Framework for an SME cooperative in the
agri-business sector
After presenting the relevant models related to the
establishment of start-ups, in this section a framework
focused on the agri-business sector is going to be
presented and analyzed. This framework is also based
in previous comprehensive study conducted by Awas et al.
(2010) who concentrated in the food-sector. This model
has been applied in the AFS campus store as the basis
towards the establishment of its relevant business
activities. Authors argue that this model is sufficient
towards the necessities of such a business initiative
because it handles both managerial and technological
issues effectively.
3.1 AFS profile
The organisation that will be applied upon the
afore-mentioned model is the campus store located within
a farm school (American Farm School - AFS). The
Farm School is an independent, non-profit educational
institution founded in 1904 to serve the rural population
of Greeceand the Balkans. Since May 2011, and under
the wider frameworks of farm to fork and learn by doing
context, a team of five students have upgraded the
campus store’s services and are promoting sales to a
larger audience, under the supervision of academic and
administrative staff. The established AFS products,
together with strategically selected AFS graduates’
products, enhanced the overall attractiveness of the store
by contributing to its product mix. The recent relocation
to a bigger and easier accessible site within the AFS
campus and the upgrading of the in store facilities both
have contributed further to the improvement of the shop’s
services. The products sold at the store are produced at
the school’s educational farm. Among others customers
can get dairy and pasta products, eggs, and wine. In
addition products from strategically selected American
Farm School graduates can be found, such as herbs and
spices, pies and a variety of dairy products.
3.2 Proposed framework for an agri-business start-up
Awas et al., (2010) in their bibliographical review
identified and grouped six managing success factors in
entrepreneurial ventures. The scope of this paper is to
analyze and compare the AFS campus store experience
with the findings of the above research and determine
their importance in the store’s success. Furthermore, a
proposed framework for successful similar enterprises
will be presented.
Figure 3 Framework for an agri-business start-up
According to the model above of the critical success
factors as well as incorporating the literature review
conducted by Avvas et al., (2010), the following table
where both the main success factors as well as the
particular entrepreneurial success factors are presented.
This categorization is the basis for the research which has
been conducted in the AFS campus store.
26 May, 2014 Agric Eng Int: CIGR Journal Open access athttp://www.cigrjournal.org Special issue 2014
Table 2 Main success and entrepreneurial success factors
Main success
factors
Entrepreneurial success factors
Start-up
planning
? Availability heuristics
? No formal business plan – just a general strategic idea
? Already existing location
? Already existing clientele
Managing
risk
? Favorable schema of already existing quality food AFS
products
? Enthusiasm
? Academic and administrative support
? Focus on nutritional added value e.g. whole wheat pasta with
saffron, plus organically and vegetarian certified sausages
Learning
? Favorable schema regarding learn by doing approach
? RandD, module material
? Processes (AFS)
Networking
? Strong relationship with suppliers for good credit terms and
agreements
? Long lasting tradition with a lot of exposure and various
contacts globally – little initial effort for networking
Managing
human
resources
? Careful selection of eager and able student team members and
entrepreneur spirited team leader
? Trust of student employees
? Training of employees, through their modules (accounting,
finance, marketing entrepreneurship) and seminars (food
additives, health benefits)
Managing
finances
? Favorable schema delaying payments to suppliers initially
? Low budget initially
? Consignment method where the store is stocked with various
quality products from our suppliers and then pay them back
4 Lessons learned from the successful launch
of a locally-based start-up in the food supply
chain
Based on the model presented in the previous section
a research has been conducted and the lessons learned
from this research are presented.
4.1 Research methodology
The scope of this research is two-fold: first, to
investigate the success of the proposed model in real-life
evidence and second, to present the lessons learned from
its application. In order to achieve the above-mentioned
goals, a qualitative research was undertaken based on
in-depth interviews with the managers and employees of
the locally-based store so as to identify its potentials and
challenges. The manager was asked to: first, to analyze
the critical success factors based on the entrepreneurial
success factors, and second, to rate the significance of
these factors. The interview was conducted within the
premises of the AFS campus store during the first week
of June 2012 and the data gathering tool was an
open-ended questionnaire.
4.2 Findings
With regards to the analysis of the critical success
factors, we received the following information from the
AFS campus store manager:
? Start-up planning. Since there was an already
existing store location within AFS which provided the
initial launch of the new student run store, the greatest
success factor that the manager pointed out was the
availability of existing loyal clientele who knew and
appreciated the quality of the AFS products. This
quality was the significant factor for the formulation of
the general strategic plan for the product selection and
mix instead of a formal business plan. Moreover, the
availability heuristics had a less important role since there
were few changes initially (i.e. shelves, extra freezer).
? Managing risk. The favorable schema of already
existing quality food AFS products together with the
addition of excellent products of AFS graduates as it was
in the strategic plan were of great importance. The
enthusiasm of all (suppliers-graduates, students, old and
new customers, plus academic and administrative
supportive staff) was the greatest success factor and can
be attributed to the involvement into something entirely
new, the creation of new expanded market, the focus on
nutritional added value e.g. whole wheat pasta with
saffron, plus organically and vegetarian certified sausages.
All these while keeping business small, provided a sound
ground for minimizing/managing risk.
? Learning. The favorable schema regarding learn
by doing approach, was a very important success factor
since it allows for adjustments in this pioneering food
service area. The manager argued that the students and
the staff involved had to learn the new procedures,
processes and ways of daily operation, fairly quickly and
efficiently. The store offered chances for students’
modules and research and additionally the development
of new products (traditional yogurt) and the exploration
of customer tastes and preferences, since research theses
were produced, benefiting the students, the suppliers and
the store.
? Networking. The strong and close relationship
with store suppliers (AFS former graduates) allowed for
good credit terms and agreements, together with the long
lasting AFS tradition, were of greatest importance success
factors. The AFS long extensive network and contact
May, 2014 A paradigm shift for a successful launch of a locally-based start-up in the food supply chain Special issue 2014 27
database, the exposure to local and global media, (i.e an
interview about the store was broadcasted in German and
Dutch radio, the great number of guests and visitors)
provided with little initial effort for networking,
tremendous benefits. Days and events throughout the year,
distribution of pamphlets, and electronic media were
therefore very effective reaching a much larger market.
Visits from schools and exchanging programs both from
the secondary school, the college and the lifelong
learning programs, were helpful in networking.
Furthermore, the AFS graduates and the AFS sponsors
organised events on and off campus provided other
channels for networking.
? Managing human resources. The careful selection
of eager and able student team members and entrepreneur
spirited team leader was of greatest importance to the
success of the store. Specifically, the team leader,
coming from family entrepreneurship background,
together with his polite character and
hard-over-the-hours’ work, was the most important
success factor. A great effort was made to the careful
selection and training of the rest student-employees,
through their modules (accounting, finance, and
marketing entrepreneurship) and on and off the store
seminars (food additives, health benefits, customer
service) so their contribution to the success of the store is
equally great. The trust of all the student employees is
neutral to the success of the store but a relationship we
cannot do without.
? Managing finances. Until the store and the
processes were at speed, the favorable schema of
occasionally delaying payments to suppliers, gave
breathing room for the low budget at first. The extra
work load on staff, the new policies and procedures and
the contract paperwork were overcome in timely fashion
due to this extra time, thus allowing the store student
management to concentrate on the daily transactions and
day-to-day operations. A Consignment method was
used, where the store is stocked with various quality
products from our suppliers, and then pays them back;
further reduce the need for finances. The close
relationship with schools graduates and the mutual trust
really facilitated the whole process.
Then, we asked the manager to rate the significance
of the factors above, based on a scale from 0 to 4 (where
0 is the unimportant and 4 the most important).
According to the responses the following table was
developed presenting the range and the mean marks:
Table 3 Significance of the main success and entrepreneurial
success factors
Critical success
factors
Entrepreneurial success factors Importance
Start-up
planning
? Availability heuristics
? No formal business plan – just a general
strategic idea
? Already existing location
? Already existing clientele
? 1
? 1
? 2
? 4
Overall 2,00
Managing
risk
? Favorable schema of already existing quality
food AFS products
? Enthusiasm
? Academic and administrative support
? Focus on nutritional added value e.g. whole
wheat pasta with saffron, plus organically and
vegetarian certified sausages
? 3
? 4
? 4
? 3
Overall 3.50
Learning
? Favorable schema regarding learn by doing
approach
? RandD, module material
? Processes (AFS)
? 3
? 2
? 1
Overall 2.00
Networking
? Strong relationship with suppliers for good
credit terms and agreements
? Long lasting tradition with a lot of exposure and
various contacts globally – little initial effort for
networking
? 4
? 4
Overall 4.00
Managing
human
resources
? Careful selection of eager and able student team
members and entrepreneur spirited team leader
? Trust of student employees
? Training of employees, through their modules
(accounting, finance, marketing entrepreneurship)
and seminars (food additives, health benefits)
? 4
? 3
? 4
Overall 3.67
Managing
finances
? Favorable schema delaying payments to
suppliers initially
? Low budget initially
? Consignment method where the store is stocked
with various quality products from our suppliers
and then pays them back
? 3
? 4
? 2
Overall 3.00
Note: 0 =unimportant, 1= less important, 2 = neutral, 3 = very important, 4 =
most important.
Although the main emphasis of the “store” project is
hands on education for the students involved, the
financial results were also critical for the school’s senior
management. At the end of the fiscal year, the financial
outcome was positive.
5 Conclusions
In this paper, a framework for an SME cooperative
store, based on empirical and secondary evidence
28 May, 2014 Agric Eng Int: CIGR Journal Open access athttp://www.cigrjournal.org Special issue 2014
collected from the American Farm School’s campus store
was suggested. Moreover, the lessons learned from its
application were presented and discussed.
According to the findings, the two most critical
success factors were “Networking” and “Managing
human resources”. In particular, with regards to
networking it allowed for good credit terms and
agreements, together with the long-lasting farm school
tradition, were of greatest importance success factors as
well as the exposure to local and global media provided
with little initial effort for networking, tremendous
benefits. With regards to managing human resources
the careful selection of eager and able student team
members and entrepreneur spirited team leader is of
greatest importance to the success of the store.
Therefore, empirical evidence indicated that the careful
selection and training together with trust is critical for the
success of such entrepreneurial venture.
On the other hand, “start-up planning” and “learning”
are the least important factors. First regarding the first
factor it is true that a business plan demonstrates that a
start-up company is “establishing objectives, products
and service lines; setting up supply chains; and
identifying revenue targets and the investment and
financing requirements and marketing strategies to meet
those targets” (Boyer et al., 2009). One can say that in
the examined company due to its small size managers pay
more attention to the operational issues and not to
strategic ones. Furthermore, “learning” is a continuous
effort and key part of the farm school as an educational
and research institute; therefore, both mangers and
students must elaborate more in the innovative methods
and advanced tools. Further research in that area would
provide evidence for applicability of the suggested model
to other sectors and especially during financial and
economic turbulence.
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doc_108960336.pdf
With this brief criteria in relation to paradigm shift for a successful launch of a locally based start up in the food supply.
May, 2014 Agric Eng Int: CIGR Journal Open access athttp://www.cigrjournal.org Special issue 2014 21
A paradigm shift for a successful launch of a locally-based
start-up in the food supply chain
M. Handrinos
1
, K. Rotsios
1
, G. Moshonas
1
,
D.Folinas
2*
(1.
Perrotis College, American Farm School, Thessaloniki, Greece; 2.
Department of Logistics, ATEI of Thessaloniki, Greece)
Abstract: The aim of this paper is to design a friendly-user framework for a successful launch of a locally-based start-up in the
food supply chain. Specifically, the study is focused on a Small Medium Enterprises (SME’s) cooperative store in a farm
school. The store is operated by the students in the context of their entrepreneurship, business and marketing classes.
Authors made a number of interviews with the managers and employees of the locally-based store so as to identify its potentials
and challenges. The outcome of the study is a framework dealing with managerial, as well as, technological aspects and even
if refers to a specific SME it will act as a road map for an effective start-up development.
Keywords: customer loyalty, American farm school, SME co-operatives, agri-business
Citation: Handrinos, M., K. Rotsios, G. Moshonas,
D. Folinas. 2014. A paradigm shift for a successful launch of a
locally-based start-up in the food supply chain. Agric Eng Int: CIGR Journal, Special issue 2014: Agri-food and biomass
supply chains, 21?29.
1 Introduction
In today’s competitive environment, where size is of
extreme importance, and it has become even more
essential for Small-Medium Enterprises (SMEs) to be
able to compete based on the essence of reputation, trust
and loyalty as Ruben et al. (2004) argued in order to
guarantee effective governance. As the European
Commission (2005) suggests, SMEs frequently have
difficulties in obtaining capital or credit, particularly in
the early start-up phase. Their restricted resources may
also reduce access to new technologies or innovation.
In the literature there are many research initiatives
aiming to identify and prioritize the critical success
factors of a startup establishment especially for SMEs.
Abdullah et al. (2009) listed the following eight key
factors of success: achievement oriented, advancement
drive, tenacity, commitment, networking, decision-
Received date: 2013-01-19 Accepted date: 2013-12-15
* Corresponding author: Dimitris Folinas. Department of
Logistics, TEI of Central Macedonia, Kanellopoulou 2, 60100,
Katerini, Greece. Phone: +30–2351020940. Fax: +30–
2351047864; Email: [email protected].
making, ability, managing risk, and optimism. Tipu and
Arain (2011) argued that indiscipline and poor integrity
are the key factors contributing to the failure of
entrepreneurs in their business, while Norris (2008)
suggested that factors such as collective action,
decision-making, partnerships formation, and building
social capital are critical to the successful
entrepreneurship efforts. Benzing et al. (2009) as well
as Chawla et al. (2010) pointed out that management
skills and environmental conditions are critical for
business success for entrepreneurial.
Furthermore, a number of studies have concentrated
to the identification of critical success factors for specific
countries and business sectors. Wei (2013) cited many
studies that have been conducted regarding a number of
developing countries (such as Pakistan, Vietnam,
Romania, Turkey, etc.). As a common ground of the
aforementioned researches, honesty, friendliness, social
skills, hard work, good customer services, and product
quality were the most important factors. Additionally,
other factors include first, the culture (Busenitz and Lau,
1996; Chu and Katsioloudes, 2001); second, the religion
(Carter and Jones-Evans, 2006; Turan and Kara; 2007),
22 May, 2014 Agric Eng Int: CIGR Journal Open access athttp://www.cigrjournal.org Special issue 2014
and third, the gender (Hughes, 2003; Robichaud et al.,
2010), that may have a role in entrepreneurial successes.
Apart from taking into consideration the critical success
factors of the entrepreneurship initiatives another issue of
great importance is the identification of its barriers and
challenges. BMBF (2007) and Farrell (2004) identified
the bureaucratic hurdles and lack of intellectual property
rights, while Tiwari et al. (2007) as well as Rammer et al.
(2007) pointed out the shortage of capital and hindered
access to qualified personnel and the financial bottlenecks.
Nevertheless, there are a limited number of researches
focusing on the identification of critical success factors
and their barriers for the development and management of
a start-up company in the agri-business sector. After
synthesizing the literature most studies focused on the
establishment of start-up companies for the ICT and
services sector (Morrisa et al., 2003).
The purpose of this paper is to design a friendly-user
framework for an SME cooperative store, based on
empirical and secondary evidence collected from a Farm
School’s campus store. The store is operated by the
college students in the context of their entrepreneurship,
business and marketing classes. This framework will
deal with managerial aspects that will act as a road map
for an effective start-up development and management.
The proposed framework is based on two loyalty-based
models which recognize that customer loyalty is earned
by consistently delivering superior value.
The paper is organized as follows. The next section
presents two generic models for the loyalty-based start-up.
Section 3 presents a framework for an SME cooperative
in the agri-business sector based on the above models.
The findings of a research about the success of the
proposed model are presented in Section 4. Finally, at
the conclusions part the findings of that research are
presented along with suggestions for future research.
2 Loyalty-based start-up models
In the literature a researcher can find many studies
about the loyalty start-up companies. The following
table presents a number of researches and the targeted
business domain (Table 1).
Table 1 Loyalty start-up models in various business domains
Authors Title Business domain
Chen and Hu (2010)
The effect of relational benefits on perceived value in relation to customer loyalty: An empirical study in
the Australian coffee outlets industry
Food service sector
Tanford (2013) The impact of tier level on attitudinal and behavioral loyalty of hotel reward program members Hotel services
Guillén et al. (2012) Time-varying effects in the analysis of customer loyalty: A case study in insurance Insurance services
Auh et al. (2007) Co-production and customer loyalty in financial services Financial services
Bayraktar et al. (2010) Measuring the efficiency of customer satisfaction and loyalty for mobile phone brands with DEA ICT / mobile services
Ramanathan (2010)
The moderating roles of risk and efficiency on the relationship between logistics performance and customer
loyalty in e-commerce
e-Business
In this paper, in order to prepare a framework for the
management of a loyalty-based start-up company in the
agribusiness sector, two generic models are discussed;
one developed by Reichheld (2001) and one suggested by
Lazzarini et al. (2001).
There are many research initiatives about the
establishment of start-up companies in many industries
and business sectors but one could strongly suggest that
this is not focused in the area of the agribusiness sector.
Therefore, two generic frameworks are presented and
analyzed and a brief literature review is presented.
At first, as Reichheld (2001) argued, when customers
do trust an online vendor, they are much more likely to
share personal information. This information, he
believes, enables the company to form a more intimate
relationship with customers and to offer products and ser-
vices tailored to their individual preferences, which, in
turn, further increases the level of trust and strengthens
the bonds of loyalty. Such a virtuous circle can quickly
translate into a durable advantage over competitors.
One could also suggest that the story is much the
same for integrated supply-chain relationships. Unless
firms are comfortable engaging in highly transparent
relationships and sharing internal information, including
May, 2014 A paradigm shift for a successful launch of a locally-based start-up in the food supply chain Special issue 2014 23
costs and profit budgets, with their partners, little benefit
can be achieved through reduced inventory levels,
coordinated scheduling, or joint planning. Open,
transparent relationships work only when both sides are
committed to mutual success (Reichheld, 2001).
However, according Reichheld (2001), loyalty is dead,
and the statistics seem to bear them out. As statistics
suggest, on average, U.S. corporations now lose half their
customers in five years, half their employees in four, and
half their investors in less than one. We seem to face a
future in which the only business relationships will be
opportunistic transactions between virtual strangers.
The strategic advantage now enjoyed by large
companies in the United States, like Northwestern Mutual,
State Farm, MBNA, and John Deere shows why
acquiring the right customers is so critical. It becomes
more evident as capital ratios decline, and their
competitors, gasping for breath, trade leftover customers
back and forth in the increasingly vain and frantic hope of
maintaining growth in a mature market. If companies
are to prosper into old age, they must build a foundation
of loyal customers (Reichheld, 2001).
One could claim that this is true even in newer
industries -perhaps especially in newer industries- where
many competitors can earn respectable profits for a time,
but where sooner or later, there will not be enough good
customers to go around. Nevertheless, the smart
competitors will find ways to get the best ones early and
the smartest of the smart will then shift their growth
strategies away from new-customer acquisition and
toward building and broadening their relationships with
the good customers they have already won. A recent
study by Bello et al. (2012) states that the American Farm
School (AFS) has a small but very loyal customer pool,
based on the AFS image as a safe and ethical food
producer.
Customer retention is a subject that simply cannot be
confined within narrow limits. We came to understand
that business loyalty has three dimensions customer
loyalty, employee loyalty, and investor loyalty and that
they are far more powerful, far reaching, and
interdependent than we had anticipated or imagined.
Loyalty has implications that extend into every corner of
every business system that seeks the benefit of steady
customers.
2.1 The loyalty-based model
The implicit business model behind most present-day
strategic plans and budgeting procedures begins with a
profit target and works backward to arrive at required
revenue growth and cost reduction. In a research
Reichheld (2001) had undertaken, where it lasted for
almost a decade studying loyalty leaders and their
business systems, what one has learned has radically
altered the view of business economics. That research,
conducted by Reichheld (2001), led him to develop a very
different model, rendered graphically in Figure 1.
Figure 1 The loyalty-based cycle of growth (adapted from
Reichheld, 2001)
As he has discovered, what drives this new model is
not profit but the creation of value for the customer, a
process that lies at the core of all successful enterprises.
Value creation generates the energy that holds these
businesses together, and their very existence depends on
it. The physics that governs the interrelationships and
energy states of a business system’s elementary particles-
its customers, employees, and investors- we call the
forces of loyalty. Because of the linkages between
loyalty, value, and profits, these forces are measurable in
cash flow terms.
Reichheld (2001) believes that loyalty is inextricably
linked to the creation of value as both a cause and an
effect. As an effect, loyalty reliably measures whether
or not the company has delivered superior value:
Customers either come back for more or they go else-
24 May, 2014 Agric Eng Int: CIGR Journal Open access athttp://www.cigrjournal.org Special issue 2014
where. As a cause, loyalty initiates a series of economic
effects that cascade through the business system, as
follows:
? Revenues and market share grow as the best
customers are swept into the company’s business,
building repeat sales and referrals. Because the firm’s
value proposition is strong, it can afford to be more
selective in new customer acquisition and to concentrate
its investment on the most profitable and potentially loyal
prospects, further stimulating sustainable growth.
? Sustainable growth enables the firm to attract and
retain the best employees. Consistent delivery of
superior value to customers increases employees’ loyalty
by giving them pride and satisfaction in their work.
Furthermore, as long-term employees get to know their
long-term customers, they learn how to deliver still more
value, which further reinforces both customer and
employee loyalty.
? Loyal long-term employees learn on the job how to
reduce costs and improve quality, which further enriches
the customer value proposition and generates superior
productivity. The company can then use this
productivity surplus to fund superior compensation and
better tools and training, which further reinforce
employee productivity, compensation growth, and
loyalty.
? Spiraling productivity coupled with the increased
efficiency of dealing with loyal customers generates the
kind of cost advantage that is very difficult for
competitors to match. Sustainable cost advantage
coupled with steady growth in the number of loyal
customers generates the kind of profits that are very
appealing to investors, which makes it easier for the firm
to attract and retain the right investors.
? Loyal investors behave like partners. They
stabilize the system, lower the cost of capital, and ensure
that appropriate cash is put back into the business to fund
investments that will increase the company’s
value-creation potential.
Reichheld (2001) believes that profits are not central
to this new model, but they are nevertheless critically
important, not just for their own sake but also because
they allow the company to improve its value creation, and
because they provide an incentive for employees,
customers, and investors to remain loyal. Still, the
source of all cash flow, including profit, is the spiraling
pool of value that springs from the creation of superior
value for customers.
2.2 The netchain model
Lazzarini et al. (2001) launched the concept of
netchains at the interface of vertical supply chains and
horizontal networks. As Lazzarini et al. (2001)
indicated, netchains can be conceptualized as a
multi-layer hierarchy between suppliers, processors and
retailers where horizontal coordination between
reciprocal agents is embedded in a framework of vertical
deliveries (see an example of a netchain structure in
Figure 2). Horizontal cooperation (e.g., in farmers
cooperatives) may be better able to cope with the
stringent quality criteria and changing quantity demands
emerging from chain partners.
Figure 2 Example of a netchain structure
(adapted from Lazzarini et al (2001: 8))
Netchains provide linkages between horizontal
networks of suppliers and vertical supply chains. They
involve different types of (nested) interdependencies
amongst agents, like:
? Reciprocal cooperation based on mutual exchange
between suppliers;
? Sequential delivery systems based on planning along
the supply chain; and
? Pooled interdependencies at business level to
guarantee standardization and harmonization of processes.
(Lazzarini et al., 2001)
May, 2014 A paradigm shift for a successful launch of a locally-based start-up in the food supply chain Special issue 2014 25
Finally, as Ruben et al. (2004) argued, contracts play
a critical role in the relationships between chain and
networks partners. They define the rules and obligations
for establishing cooperation, both between network
partners and chain agents; in particular, when repeated
transactions take place, contracts represent a
cost-reducing device. They also argue that for deliveries
that involve high-quality demands, self-enforcing
contracts that involve trust and loyalty are preferred to
reduce monitoring costs. Different options for
integrating (horizontal) networks and (vertical) chain
contracts are available for guaranteeing risk-sharing and
ensuring trust relationships. Given the high risks and
the difficulties of monitoring numerous heterogeneous
agents, entire-channel process control is increasingly
preferred (Van der Laan, 1993; Janssen and Van Tilburg,
1997).
3 Framework for an SME cooperative in the
agri-business sector
After presenting the relevant models related to the
establishment of start-ups, in this section a framework
focused on the agri-business sector is going to be
presented and analyzed. This framework is also based
in previous comprehensive study conducted by Awas et al.
(2010) who concentrated in the food-sector. This model
has been applied in the AFS campus store as the basis
towards the establishment of its relevant business
activities. Authors argue that this model is sufficient
towards the necessities of such a business initiative
because it handles both managerial and technological
issues effectively.
3.1 AFS profile
The organisation that will be applied upon the
afore-mentioned model is the campus store located within
a farm school (American Farm School - AFS). The
Farm School is an independent, non-profit educational
institution founded in 1904 to serve the rural population
of Greeceand the Balkans. Since May 2011, and under
the wider frameworks of farm to fork and learn by doing
context, a team of five students have upgraded the
campus store’s services and are promoting sales to a
larger audience, under the supervision of academic and
administrative staff. The established AFS products,
together with strategically selected AFS graduates’
products, enhanced the overall attractiveness of the store
by contributing to its product mix. The recent relocation
to a bigger and easier accessible site within the AFS
campus and the upgrading of the in store facilities both
have contributed further to the improvement of the shop’s
services. The products sold at the store are produced at
the school’s educational farm. Among others customers
can get dairy and pasta products, eggs, and wine. In
addition products from strategically selected American
Farm School graduates can be found, such as herbs and
spices, pies and a variety of dairy products.
3.2 Proposed framework for an agri-business start-up
Awas et al., (2010) in their bibliographical review
identified and grouped six managing success factors in
entrepreneurial ventures. The scope of this paper is to
analyze and compare the AFS campus store experience
with the findings of the above research and determine
their importance in the store’s success. Furthermore, a
proposed framework for successful similar enterprises
will be presented.
Figure 3 Framework for an agri-business start-up
According to the model above of the critical success
factors as well as incorporating the literature review
conducted by Avvas et al., (2010), the following table
where both the main success factors as well as the
particular entrepreneurial success factors are presented.
This categorization is the basis for the research which has
been conducted in the AFS campus store.
26 May, 2014 Agric Eng Int: CIGR Journal Open access athttp://www.cigrjournal.org Special issue 2014
Table 2 Main success and entrepreneurial success factors
Main success
factors
Entrepreneurial success factors
Start-up
planning
? Availability heuristics
? No formal business plan – just a general strategic idea
? Already existing location
? Already existing clientele
Managing
risk
? Favorable schema of already existing quality food AFS
products
? Enthusiasm
? Academic and administrative support
? Focus on nutritional added value e.g. whole wheat pasta with
saffron, plus organically and vegetarian certified sausages
Learning
? Favorable schema regarding learn by doing approach
? RandD, module material
? Processes (AFS)
Networking
? Strong relationship with suppliers for good credit terms and
agreements
? Long lasting tradition with a lot of exposure and various
contacts globally – little initial effort for networking
Managing
human
resources
? Careful selection of eager and able student team members and
entrepreneur spirited team leader
? Trust of student employees
? Training of employees, through their modules (accounting,
finance, marketing entrepreneurship) and seminars (food
additives, health benefits)
Managing
finances
? Favorable schema delaying payments to suppliers initially
? Low budget initially
? Consignment method where the store is stocked with various
quality products from our suppliers and then pay them back
4 Lessons learned from the successful launch
of a locally-based start-up in the food supply
chain
Based on the model presented in the previous section
a research has been conducted and the lessons learned
from this research are presented.
4.1 Research methodology
The scope of this research is two-fold: first, to
investigate the success of the proposed model in real-life
evidence and second, to present the lessons learned from
its application. In order to achieve the above-mentioned
goals, a qualitative research was undertaken based on
in-depth interviews with the managers and employees of
the locally-based store so as to identify its potentials and
challenges. The manager was asked to: first, to analyze
the critical success factors based on the entrepreneurial
success factors, and second, to rate the significance of
these factors. The interview was conducted within the
premises of the AFS campus store during the first week
of June 2012 and the data gathering tool was an
open-ended questionnaire.
4.2 Findings
With regards to the analysis of the critical success
factors, we received the following information from the
AFS campus store manager:
? Start-up planning. Since there was an already
existing store location within AFS which provided the
initial launch of the new student run store, the greatest
success factor that the manager pointed out was the
availability of existing loyal clientele who knew and
appreciated the quality of the AFS products. This
quality was the significant factor for the formulation of
the general strategic plan for the product selection and
mix instead of a formal business plan. Moreover, the
availability heuristics had a less important role since there
were few changes initially (i.e. shelves, extra freezer).
? Managing risk. The favorable schema of already
existing quality food AFS products together with the
addition of excellent products of AFS graduates as it was
in the strategic plan were of great importance. The
enthusiasm of all (suppliers-graduates, students, old and
new customers, plus academic and administrative
supportive staff) was the greatest success factor and can
be attributed to the involvement into something entirely
new, the creation of new expanded market, the focus on
nutritional added value e.g. whole wheat pasta with
saffron, plus organically and vegetarian certified sausages.
All these while keeping business small, provided a sound
ground for minimizing/managing risk.
? Learning. The favorable schema regarding learn
by doing approach, was a very important success factor
since it allows for adjustments in this pioneering food
service area. The manager argued that the students and
the staff involved had to learn the new procedures,
processes and ways of daily operation, fairly quickly and
efficiently. The store offered chances for students’
modules and research and additionally the development
of new products (traditional yogurt) and the exploration
of customer tastes and preferences, since research theses
were produced, benefiting the students, the suppliers and
the store.
? Networking. The strong and close relationship
with store suppliers (AFS former graduates) allowed for
good credit terms and agreements, together with the long
lasting AFS tradition, were of greatest importance success
factors. The AFS long extensive network and contact
May, 2014 A paradigm shift for a successful launch of a locally-based start-up in the food supply chain Special issue 2014 27
database, the exposure to local and global media, (i.e an
interview about the store was broadcasted in German and
Dutch radio, the great number of guests and visitors)
provided with little initial effort for networking,
tremendous benefits. Days and events throughout the year,
distribution of pamphlets, and electronic media were
therefore very effective reaching a much larger market.
Visits from schools and exchanging programs both from
the secondary school, the college and the lifelong
learning programs, were helpful in networking.
Furthermore, the AFS graduates and the AFS sponsors
organised events on and off campus provided other
channels for networking.
? Managing human resources. The careful selection
of eager and able student team members and entrepreneur
spirited team leader was of greatest importance to the
success of the store. Specifically, the team leader,
coming from family entrepreneurship background,
together with his polite character and
hard-over-the-hours’ work, was the most important
success factor. A great effort was made to the careful
selection and training of the rest student-employees,
through their modules (accounting, finance, and
marketing entrepreneurship) and on and off the store
seminars (food additives, health benefits, customer
service) so their contribution to the success of the store is
equally great. The trust of all the student employees is
neutral to the success of the store but a relationship we
cannot do without.
? Managing finances. Until the store and the
processes were at speed, the favorable schema of
occasionally delaying payments to suppliers, gave
breathing room for the low budget at first. The extra
work load on staff, the new policies and procedures and
the contract paperwork were overcome in timely fashion
due to this extra time, thus allowing the store student
management to concentrate on the daily transactions and
day-to-day operations. A Consignment method was
used, where the store is stocked with various quality
products from our suppliers, and then pays them back;
further reduce the need for finances. The close
relationship with schools graduates and the mutual trust
really facilitated the whole process.
Then, we asked the manager to rate the significance
of the factors above, based on a scale from 0 to 4 (where
0 is the unimportant and 4 the most important).
According to the responses the following table was
developed presenting the range and the mean marks:
Table 3 Significance of the main success and entrepreneurial
success factors
Critical success
factors
Entrepreneurial success factors Importance
Start-up
planning
? Availability heuristics
? No formal business plan – just a general
strategic idea
? Already existing location
? Already existing clientele
? 1
? 1
? 2
? 4
Overall 2,00
Managing
risk
? Favorable schema of already existing quality
food AFS products
? Enthusiasm
? Academic and administrative support
? Focus on nutritional added value e.g. whole
wheat pasta with saffron, plus organically and
vegetarian certified sausages
? 3
? 4
? 4
? 3
Overall 3.50
Learning
? Favorable schema regarding learn by doing
approach
? RandD, module material
? Processes (AFS)
? 3
? 2
? 1
Overall 2.00
Networking
? Strong relationship with suppliers for good
credit terms and agreements
? Long lasting tradition with a lot of exposure and
various contacts globally – little initial effort for
networking
? 4
? 4
Overall 4.00
Managing
human
resources
? Careful selection of eager and able student team
members and entrepreneur spirited team leader
? Trust of student employees
? Training of employees, through their modules
(accounting, finance, marketing entrepreneurship)
and seminars (food additives, health benefits)
? 4
? 3
? 4
Overall 3.67
Managing
finances
? Favorable schema delaying payments to
suppliers initially
? Low budget initially
? Consignment method where the store is stocked
with various quality products from our suppliers
and then pays them back
? 3
? 4
? 2
Overall 3.00
Note: 0 =unimportant, 1= less important, 2 = neutral, 3 = very important, 4 =
most important.
Although the main emphasis of the “store” project is
hands on education for the students involved, the
financial results were also critical for the school’s senior
management. At the end of the fiscal year, the financial
outcome was positive.
5 Conclusions
In this paper, a framework for an SME cooperative
store, based on empirical and secondary evidence
28 May, 2014 Agric Eng Int: CIGR Journal Open access athttp://www.cigrjournal.org Special issue 2014
collected from the American Farm School’s campus store
was suggested. Moreover, the lessons learned from its
application were presented and discussed.
According to the findings, the two most critical
success factors were “Networking” and “Managing
human resources”. In particular, with regards to
networking it allowed for good credit terms and
agreements, together with the long-lasting farm school
tradition, were of greatest importance success factors as
well as the exposure to local and global media provided
with little initial effort for networking, tremendous
benefits. With regards to managing human resources
the careful selection of eager and able student team
members and entrepreneur spirited team leader is of
greatest importance to the success of the store.
Therefore, empirical evidence indicated that the careful
selection and training together with trust is critical for the
success of such entrepreneurial venture.
On the other hand, “start-up planning” and “learning”
are the least important factors. First regarding the first
factor it is true that a business plan demonstrates that a
start-up company is “establishing objectives, products
and service lines; setting up supply chains; and
identifying revenue targets and the investment and
financing requirements and marketing strategies to meet
those targets” (Boyer et al., 2009). One can say that in
the examined company due to its small size managers pay
more attention to the operational issues and not to
strategic ones. Furthermore, “learning” is a continuous
effort and key part of the farm school as an educational
and research institute; therefore, both mangers and
students must elaborate more in the innovative methods
and advanced tools. Further research in that area would
provide evidence for applicability of the suggested model
to other sectors and especially during financial and
economic turbulence.
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