Editor’s Note: We’re constantly amazed at the innovations we see happening in small businesses every day. As part of a periodic series, we’ll highlight some of the companies we think are turning traditional business models on their ear, starting today with Back to the Roots, who have built a business that is environmentally sustainable while also being profitable.

Alejandro Valez and Nikhil Valora sat staring at the bucket of used coffee grounds, now filled with gorgeous, plump pearl oyster mushrooms that had grown over the course of just a few days in the kitchen of Alejandro’s fraternity house. Of the ten buckets they had filled with spent grounds and inoculated with mushroom spores, this appeared to be the only success – the other nine were totally contaminated with mold.

Neither Alejandro nor Nikhil had any experience in the food industry. The two had met just weeks before in their ethics class at UC Berkeley’s Haas Business School, Alejandro anticipating a career as an investment banker and Nikhil considering business consulting. After a lecture in which the professor offhandedly mentioned reading somewhere about growing mushrooms in spent coffee grounds, Nikhil approached him to find out more. The professor told him that another student, Alejandro, had asked the same questions, so he connected them.

Now, they sat pondering their one successful batch out of ten. “There’s no way I’m trying these,” Alejandro said.

So they took the bucket to a nearby expert in locally produced food – Alice Waters, founder of celebrated restaurant, Chez Panisse. Recognizing the mushrooms as safe, she grabbed her head chef, who quickly took a cluster of the mushrooms and sautéed them in butter. They were delicious.

Three years later, Nikhil, Alejandro and a team of 31 employees in Oakland produce and sell about 2,000 grow-at-home mushroom kits a week online, at Whole Foods stores, Home Depot and through direct sales at a variety of events. During the 4th quarter rush, they expect to produce and sell as many as 15,000 units a week and are currently hustling to get their products into Nordstrom and Bed Bath & Beyond.

“The most fulfilling thing,” Nikhil says, “is no one even knew what a mushroom kit was. Now people have seen them around. It’s cool to build something that people recognize.”

Both Nikhil and Alejandro see the mushroom kits as more than a cool science experiment or a way to save money on produce. Their ultimate goal with Back to the Roots is to build a sustainable business that is profitable, while helping both the environment and their community. This year, the company is on track to divert 3.6 million pounds of spent coffee grounds taken from Peet’s Coffee & Tea from going straight to the landfill. Every time a customer posts a picture of themselves with a completed kit on Facebook, Back to the Roots donates a kit to the school of that customer’s choice. “We’ve now donated to more than 400 schools nationwide,” Nikhil says. “It’s been an incredible program.” And, for every kit sold at a Whole Foods store, one dollar is donated to the Whole Kids Foundation to encourage a healthy and active lifestyle amongst kids.

Whole Foods Market stores have been one of their biggest boosters since the beginning. Shortly after tasting their success at Chez Panisse, Alejandro and Nikhil brought their bucket to the produce manager at the Whole Foods in Berkeley. The store’s team passed the bucket around the store and were so impressed that they called in the regional coordinator, who shared their enthusiasm. “This is the coolest thing I’ve seen in produce,” he told them. “If you do this, we’ll blow it up in Whole Foods.”

Nikhil and Alejandro started out by selling their mushrooms straight to Whole Foods and farmers’ markets as produce. Soon, everyone began asking how they could grow the mushrooms themselves, so the pair began making and selling the kits. The first kits were little more than bulky plastic bags filled with inoculated coffee grounds. “They looked disgusting,” Nikhil said.

Nikhil and Alejandro soon switched to putting the bags of grounds in recyclable boxes. As they demoed and sold the kits, they listened to customer feedback and improved the presentation. They also discovered that their original marketing strategy was too narrow. “When we launched, we didn’t know who the buyer was,” Nikhil said, explaining that they thought their biggest market would be in the natural food space. “Since then, we’ve learned we’re getting the best response on these things from families and kids.”

Kids love the kits because they get rapid gratification. It takes just 10 days to produce a batch of mushrooms with the kits. “Kids wait 90 days for tomatoes,” Nikhil says. “For kids, that’s a lifetime.”

The Back to the Roots team is taking the lead from their customers and working to improve the kits. Right now, they’re working on a box that comes embedded with vegetable seeds. When the mushroom kit has exhausted its harvest, customers will be able to plant the box, use the spent grounds and spores as compost and grow vegetables in a container or right in their garden. And it’s not just about the kits; they’re currently exploring ways to bring aquaponics – raising fish and plants in a symbiotic relationship that also provides fresh food – to the consumer market to further make growing food at home fun and easy.

“Our whole vision,” Nikhil says, “is to create experiences that make food personal again and to educate and inspire.”

As a special offer for VerticalResponse customers, Back to the Roots will take 10% off your online order when you enter “verticalresponse” as the coupon code at checkout. To take advantage of this special offer, simply visit Back to the Roots online at https://www.bttrventures.com/.

© 2012, Contributing Author. All rights reserved.

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