Challenge Changes, Firm Endures

Jim Young and Mark Kuss founded Challenge Environmental Systems Inc. in 1990 to help university professors turn ideas into marketable products. But the biggest challenge they faced was funding.

Their expertise is in engineering and biological sciences, and for the last decade speculative money favored dot-com companies and other hot telecommunications startups.

As a result, Challenge Environmental focused on developing two products the duo had patented through the University of Arkansas — an environmental respirometer system and the ERSA (Evaluator of Rutting and Stripping in Asphalt) machine.

Young, the company’s president, said the idea was to commercialize their scientific instrument business first and then add the patent development element when it was economically feasible.

The firm has since obtained more patents and in 1996 founded Challenge Environmental Labs LLC to serve clients with lab support services related to various civil engineering and microbiology disciplines. About 120 equipment customers worldwide, and another 30-40 who use Challenge Environmental’s testing services, now contribute to the firm’s $400,000 in annual revenue.

“We haven’t pursued our original goal as vigorously as we intended,” said Young, a UA professor from 1982-1991 and a former department head of civil engineering.

“We found that development was so costly, so we brought along a few products that we had patented ourselves to establish some revenue. We still have the goal of working with other faculty who have patentable ideas and products, but we just haven’t had the resources to do that yet.”

Young said Challenge Environmental’s rate of sales for the last four months was 50 percent higher than that of 2002’s first two quarters combined. But the cost of helping develop new patents into marketable products is still high.

It takes about $250,000 to take one scientific instrument from the drawing table to market, Young said. That alone would represent 63 percent of Challenge Environmental’s gross. And it could cost $250,000-$500,000 to properly market the items.

Challenge Environmental is a client of the Genesis Technology Incubator in Fayetteville. It occupies about 2,700 SF of space and employs the equivalent of eight full-time workers.

The company’s instruments are used for high-tech analytical applications related to environmental monitoring and pavement analysis. Scientific instruments often have a shelf life of 10-20 years and therefore go to market slower than consumer throwaway products such as televisions.

Challenge Environmental’s lab work is done on a contract basis. Respirometer studies, which measure the respiration of bacteria that degrade organic materials in waste waters, often run $1,000-$5,000 each. And the instruments sell for about $25,000.

The company’s asphalt pavement analyzer sells for more than $100,000 and measures the impact of traffic on asphalt pavement. It calculates within 24 hours the potential damage traffic causes on pavement during a 5-10 year period.

Construction contractors and state agencies are Challenge Environmental’s biggest customers. Most of the firm’s products serve a niche created by tests that the federal government requires.

“We have a lot of money tied up in the products we have on the table, but we’re open for new ideas that come along,” Young said. “Financing is just so much more available for mass-consumer products such as microchips and telecomms.”