How Much Wood Would Sell If It Had $11M in New Venture Funding?

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make sure that Web shoppers are presented only with pellet types and sources that can be delivered economically, based on their zip code. (The site can also auto-detect shoppers’ locations based on their Internet addresses.) “Unlike Amazon, where you would see the same book for the same price whether you log in from Seattle or Boston, we offer not only different pricing but completely different products—even between nearby locations like Boston, Waltham, Methuen, or Manchester,” says Strimling.

On the back end, the software also helps the company figure out how to price pellets by region, and how to predict regional demand and make sure there’s adequate supply. The software needs to be surprisingly sophisticated to manage both “inbound” logistics (from pellet mills to the company) and “outbound” logistics (from the company to end consumers). “Most retailers have inbound logistics but don’t have much in the way of outbound, since they have people coming into their stores,” says Strimling. “We are actually a delivery service, so we have an inbound and an outbound leg, and those two are not decoupled, which I think makes us unique.” The patent application that has filed on Wang’s algorithms contains more than 100 claims, he says.

The 40-employee company expanded its delivery business five-fold in 2008 and has continued to grow strongly through the recession, Strimling says. Its service area ranges from Maryland to Maine on the East Coast and inland to Pennsylvania, Ohio, and Michigan. On the West Coast, it can deliver to Northern California, Oregon, Washington, and parts of Canada. The company also partners with dozens of pellet stove retailers, directing site visitors to local installers, who in turn send their customers back to to buy pellets. “They want to sell stoves and we want to sell fuel, so the two go together like peanut butter and jelly,” says Strimling.

Liam Donohue, a partner at .406 Ventures who sits on the company’s board, says his firm was attracted to “because the core bet is on the successful application of a technology-enabled business model to a proven green technology.” He says the company’s logistics software “solves a surprisingly complicated quoting and distribution problem,” giving the company a big edge over other wood pellet distributors.

Moreover, Donohue thinks is poised to benefit from several long-term trends, including the increasing cost of fossil fuels, the drive for independence from foreign petroleum sources, and a combination of regulatory pressure and consumer desire to move toward renewable and carbon-neutral energy sources. “Driven by the same trends, only a few years earlier, Europe has rapidly adopted wood pellet heat—which we saw as a particularly compelling precedent market,” Donohue says.

Even if other suppliers were to catch up on the software side, is investing in product development that could continue to give it a (wooden) leg up. Specifically, Strimling says the company is designing storage and transfer systems that would allow consumers to store wood pellets in large bins connected directly to their stoves. Such systems would save stove owners from having to haul pellets around by hand, and would allow to deliver pellets more cheaply, by blowing them from trucks into the bins using pneumatic pressure.

The details of the company’s storage and conveyor designs are still secret, but “much of this has been piloted in Europe, so we have a great precedent to follow,” Strimling emphasizes. “The systems have been worked out and proven—it’s more a matter of adapting it to U.S. markets.”

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Wade Roush is a contributing editor at Xconomy. Follow @wroush

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