story by Kim Souza
Editor’s note: The City Wire has consulted with people closely affiliated with Northwest Arkansas entrepreneurial programs to compile a list of the five entrepreneurial startups to watch in 2014. Our goal with this effort is to document as much as possible about the ups and downs and other directions a new venture may take as it struggles to prove a product, service or both. We also plan to report within this series on the issues faced by business owners managing a new company.
Northwest Arkansas is becoming a hotbed of innovation for startup ventures looking to make a name for themselves among an impressive junior alumni group such as Amy Callahan of Collective Bias, Jay Howard with I.O. Metro or John James and Terry Turpin of Acumen Brands.
“The past five years have been incredibly remarkable with the velocity of entrepreneurial startup ventures in the region,” said Jeff Amerine, director of technology ventures at the University of Arkansas.
An ecosystem of support has evolved, also, with at least five active angel investment funds to help with seed money and early stage capital. Equally important, Amerine said, there is active engagement from the state level down to local chambers of commerce from leaders who understand the importance a thriving entrepreneurial sector can have for moving the economy forward.
The downturn in the economy was the catalyst for this local movement and now that the “flywheel” is in place, Amerine said sustaining high levels of intensity could be a challenge, although there is no sign yet of a letdown. Longer-term, he said, the region must commit to educating future technical talent beginning in grades K-12 to make sure there is an ample workforce with specialized technical skills.
“Startups that grow require more talent. Without it, the region and state run the risk of losing those companies to areas with more abundant technical centers,” Amerine said. “It is good to hear our local schools and two-year colleges making commitments in these areas.”
WIth respect to funding, Amerine said it’s always hard for startups, but there are more options for local companies than ever before. He said the angel fund networks are applying more rigor to their selection and investment process and hope to work more with private equity capital partners in the future with $1 million to $2 million stage investments, a level that has been lacking.
More than 300 startups launched in Northwest Arkansas in the last five years, raising more than $190 million in funding to do so. Amerine said the bulk of that capital was raised last year and put the region on the map as a viable place to start a business.
“There is no shortage of ideas in this region and the state. We continue to see really strong candidates and some solid business plans presenting for capital infusions,” said Ramsay Ball, an angel investor and mentor for several startup ventures in the region.
With the help of entrepreneurial advocates like Amerine and Ball, The City Wire has tagged five new companies in various early business phases as the ones to watch in 2014. Oh Baby Foods, Overwatch, Silicon Solar Solutions, EcoVet and DataRank were selected because they have talent, capital and ideas — three main ingredients necessary for success, according to local advocates and investors. Some of these five startups may thrive for years, some may get acquired and some may fizzle. (Videos from four of the startups may be viewed at the end of this story.)
OH BABY FOODS
Oh Baby Foods and its founder Fran Free are dubbed the pacesetter for this year’s class. She launched Oh Baby Foods in 2009, armed with two college degrees, a baby on board and $50,000 of her own money. Product hit the shelves on daughter Lucy’s first birthday.
Free said she toted Lucy from store to store as she tried to sell her way into the retail space. Oh Baby found a following, but keeping up with the growing demand for the product has not always been easy.
Free almost quit two years into the effort. She developed a frozen baby food product that was offered in several retail outlets, but profits were nil and the seed money was almost gone. That’s when an angel investor stepped in and provided the capital she needed to reformulate the product to go on the shelf in the baby food aisle. Free worked with Whole Foods to get additional funding in 2012 to convert to squeeze packets and the retailer put in her more than 200 stores across the country.
“Sales are up 1,113% in our Whole Foods business since we went to the squeeze packets in September,” Free said.
She said Whole Foods accounts for 40% of her business, and she has retailers regularly calling and wanting the product. Free said she has secured a line of capital from Arvest Bank, but is at a crossroads that requires carefully evaluation of how the capital is used.
Expanding into regions like the Northeast U.S. is costly, she said, but there are many offers from specialty stores in the area or moving to the area. Working with food brokers and distributors, Free said there would be numerous fees and promotional costs associated with taking on a new retailer in a region far away from her processing production in California.
Free recently hired a new "options analyst,” someone who carefully evaluates all the options for future distribution the company receives each week.
"We are having to turn down retailers. We want to grow, but we are being cautious about how fast," she said. “We have four employees and just moved to a new office in the Three Sisters Building in downtown Fayetteville.”
Free said the future is bright for Oh Baby, but getting a handle on how many stores and retailers they serve is a constant challenge as there is limited inventory and sales visibility with 60% of her wholesale customers.
“I was eager enough to fake what I didn’t know in those early years, but the business is becoming more complicated as it grows. There is a lot to process mentally each day. We are a close team and we are working really hard to make the best decisions for the company’s future,” Free said.
EcoVet began as S.A. Concepts in 2012, a startup venture dedicated to provided liveable wage jobs for military veterans also trying to get a college degree. S.A. Concepts initially hoped to secure nonprofit status as a workforce program but because the employees were manufacturing a product for sale, the company was denied non-profit status.
Drake Vanhooser, co-founder of S.A. Concepts, said last year the company was approached by Ecoart , a locally based supply chain management company that took over ownership of the workforce venture. At that time the name was changed to EcoVet and the focus moved from making aero dynamic skirting for semi trailers to crafting wood furniture that could be sold to furniture retailers.
EcoVet takes old semi trailers headed for the graveyard, breaks them down and reclaims the maple and oak planks that make up the trailer flooring. They sell off any extra scrap metal and use the wood for their furniture. EcoVet employs nearly 30 full-time workers, running two shifts a day in their Springdale facility. The workers have the capacity to break down three trailers a day.
Vanhooser said the company sources its trailers from Wal-Mart and several large trucking companies which is challenging because they are often located hundreds of miles from the Springdale manufacturing center.
He said these are interesting times for EcoVet as they have been building up inventory to take to Sam’s Club for a Road Show next week in San Antonio at a new club opening.
“We have 24 of these Sam’s Club opening Road Shows to do in the next few months and hope this will lead to the retailer purchasing the product for online or in club merchandise. We are working with two other prominent furniture, home furnishing retailers about carrying the EcoVet products,” Vanhooser said.
The 2014 goal for this company is to ramp up sales, so more veterans can be hired.
Harnessing the power of big data, Ryan Frazier and his DataRank team help companies sort through social media feeds to better understand the power and influence of their brand and company image within the cyber world.
Frazer and co-founders Kenny Cason and Chuong Nguyen started the company they first called TTAGG while in college at the University of Arkansas in the fall of 2011. Frazier said they changed the name to DataRank last year because they felt it better told their story.
In two and a half years DataRank has been able to market their analytical dashboard software to numerous customers, namely consumer packaged goods (CPG) brands such as Clorox and Callaway Golf.
DataRank uses nine dimensions that they divide into two categories: content influence and user influence. They then prioritize the best, most actionable information from the content feeds.
Frazier said DataRank’s strength is its ability to take cumbersome data sets and make them more manageable. While the startup pales in comparison to well-known data analytic firms such as Nielsen, Frazier said the sector is still ripe with opportunity.
Since founding the business, the company has grown to nine employees with plans to ramp up to 12 in the next few months. They recently closed a deal for $1.4 million in funding and are looking to add a smaller investment in the next few months from a local angel network. Frazier said that should be adequate funding for a couple of years as DataRank continues to grow its customer base. Sales grew 350% during 2013 and Frazier said the company is profitable.
Frazier sees the big data industry only get bigger. He said it took time to get the technology scaleable, but now that it’s available, DataRank is signing partnerships with agencies and marketing firms in addition to signing on new CPG customers.
A recent study of 75 North American retail executives found that 46% of retailers considered the volume of information they had to deal with to be their biggest challenge. That creates an even bigger need for companies like DataRank.
SILICON SOLAR SOLUTIONS
Silicon Solar Solutions, co-founded by Douglas Hutchings in 2008 while he was a graduate student at the University of Arkansas, has grown from a class assignment into a nationally recognized solar technology company with a spinoff startup known as Picasolar.
Hutchings later earned his doctorate and has expanded the company to eight employees, all with advanced engineering degrees. In October, Silicon Solar received a SunShot Incubator Award from the U.S. Department of Energy. The award came with $500,000 in funding which was targeted toward early-stage assistance for startup companies seeking to commercialize their inventions.
The company has developed patented solar technologies since 2008, subsisting on private capital raised along with numerous grants and awards at the state and federal level. Silicon Solar Solutions also licenses core intellectual property to existing solar manufacturers. The recent award is for a patent-pending process that will increase the efficiency of solar cells.
“Our goal is to prove our technology on industrial cells and work towards Arkansas-based manufacturing of the equipment,” he said.
The newest technology is a self-aligned hydrogenated selecting emitter for N-type solar cells that was invented by Seth Shumate, the chief technology officer for Silicon Solar. This product could improve the efficiency of solar cells by 15% and save an average-sized solar panel manufacturer $120 million annually and make solar energy more affordable for consumers, Hutchings said.
The emitter is marketed through Picasolar Inc., a sister company that shares the same senior management and board of directors as Silicon Solar Solutions.
Hutchings said the company’s next move is to raise $2 million from private investors or strategic partners. This would help Picasolar partner with an equipment manufacturer to prove if the technology can be scaled for production in the marketplace.
The SunShot Initiative is a collaborative national effort to drive innovation to make solar energy fully cost-competitive with traditional energy sources before the end of the decade.
“As part of the SunShot award we have access to the testing labs affiliated with the Department of Energy, which is helping us speed up the process to manufacturing phase,” Hutchings said.
The new kid on the block in this group of local startups is 17-year-old Josh Moody, CEO of Overwatch. He is finishing his senior year at Little Catholic High School and helping to scale-up his company that was an idea only eight months ago.
Moody’s idea marries video game play with physical outdoor activity such as laser tag, airsoft and paintball. Moody said it’s a $70.4 billion market, $19.1 billion of which is combat video games.
He took his idea to RevUnit, a software development company in Bentonville, in hopes of hiring them to create the application. But Joe Saumweber and Michael Paladino of RevUnit loved the idea so much the three of them partnered together and decided to toss the business concept into the ring for the ARK Challenge.
In that 14-week competition Overwatch secured a partnership with Cybergun for the gun hardware rights and distribution, which will give them access to online stores and 9,000 store fronts where they do business, including Cabella’s and Wal-Mart, Moody said.
Overwatch was one of three ARK Challenge winners selected in September. Since then, Moody and team have been developing the application, which is 90% complete for iOS and Android smart phones. Along with the application, Overwatch has developed a casing for the phone that attaches to the gun.
“We are working on the final design prototype for the casing that will be manufactured by Cybergun. Once the app is complete we have about 70 users designated for beta testing. We should be to that phase in the next couple of months,” Moody said.
He expects the commercial product launch of the hardware casing will to happen later this summer. The app will be a free download with the purchase of the casing. Overwatch plans to upsell premium gaming services to frequent users for added revenue.
He said the startup has raised $170,000 in capital funding with plans to secure up to $450,000 more in the next few months as they are pitching to several of local angel networks.
“Overwatch is approaching a vital point as we begin testing and prepare to launch the app and case simultaneously later this summer. From idea to manufacturing in just 8 months is a rapid ramp-up,” Moody said.