Tracking Startup Success

What does the philosophy of a 19th-century Prussian military figure have to do with the success of dozens of local entrepreneurs?

Plenty, said Omid Moghadam.

Moghadam is executive vice president of Fayetteville technology venture development firm Virtual Incubation Co. His specialty is creating new ventures and developing self-sustaining business models for them.

Moghadam’s advice to early-stage entrepreneurs contrasts with the philosophy of Helmuth von Moltke, the Prussian Army’s chief of staff for much of the 1800s. Von Moltke’s stance often boiled down to this: No battle plan survives first contact with the enemy.

And while that might have held true on European battlefields, Moghadam said it’s not wise to employ when trying to advance a new business.

“The challenge is not to lose sight of your strategy,” Moghadam said. “A lot of entrepreneurs get caught up in the hand-to-hand combat of daily operations.”

Reviews of a sample of new businesses spanning more than two years show entrepreneurs in Northwest Arkansas mostly have avoided that pitfall. The Northwest Arkansas Business Journal highlighted 49 new businesses between Sept. 7, 2009, and Dec. 27, 2010, and at least 38 — 77.6 percent — of them are operating today.

That success rate is impressive given numbers released by the U.S. Bureau of Labor Statistics in 2007. That report indicated 65 percent of small businesses make it past two years.

 

Success Story

Fran Free is one of the area’s success stories, and also a pupil of sorts of Moghadam. The two met shortly after Moghadam moved to Fayetteville last year, and made an immediate connection based on Free’s product, Oh Baby Foods.

Oh Baby Foods is a line of certified organic baby foods.

“I knew exactly what market she was going after because I remember when my kids were that age and how unhappy I was with the baby food that was available,” Moghadam said. “I even made some of my kids’ food when they were that age.”

Free had done much the same thing for her daughter before becoming inspired to launch her own company. With an initial investment of about $50,000, she began buying food from local growers, manufacturing and delivering it — frozen — in a 16-foot refrigerated truck to about a dozen stores in Benton and Washington counties.

“I was definitely a newbie, a green entrepreneur,” Free said, laughing.

Free followed that course for about two years before deciding she needed to shift to a shelf-stable product to grow her business. At that point, Free finally decided to take on an outside investor.

The change has transformed her from practically a one-woman shop into the owner of a blossoming enterprise. Within the last year, Free reached an agreement to place her products in 23 Whole Foods Market stores.

Her line of six foods now is made by a contract manufacturer in Oregon and will be distributed by United Natural Foods Inc. Free also has hired a food scientist consultant and plans to add two new employees in 2012.

“Now I get to focus more on advertising and marketing, I get to focus on strategic partnerships and growing the business from the office,” Free said. “I could never do this if I was still in the kitchen.”

Since their initial meeting, Free has leaned on Moghadam as a mentor. In addition to helping her with things like business planning and exposing her to additional sources of capital, Moghadam said one of his biggest achievements with Free has been “starting her CEO mindset.”

“They tend to put everything on their own shoulders,” Moghadam said of entrepreneurs.

Moghadam thus teaches people like Free the importance of delegating responsibilities and understanding how their roles most likely will change as the business grows. He also reiterates the importance of maintaining a long-term vision.

“Be strategic,” Moghadam said. “I think people are very strategic in the beginning. Then, once they get into it, they become very tactical.”

Seeking help from others is another must, Moghadam said.

“No matter how small your business is, if you have ambition to grow it, put a board of advisers together,” he said.

The boards can be used not just for advice, but as links to potential partners and sources of capital, too.

 

Survey Says 

The 49 new businesses highlighted by the Business Journal covered a wide range of industries. They included everything from yogurt shops to bio-waste disposal service contractors.

Partners have come and gone, and some locations and services have changed, too. A couple of common threads among all of them, though, were long-held desires to be one’s own boss and can-do spirits.

The result is a mix of ongoing successes sprinkled with some inevitable failures. Eight of the entities profiled no longer are in business, while the status of another three couldn’t be determined.

The cause of the failures varied. A death ended one enterprise, while poor sales doomed one retailer.

In Shannon Williams’ case, a better opportunity presented itself. Williams started Rock Solid Solutions, a technology provider for small business, in July 2009. The reason for its closing was simple.

“I found out I could make more money as a consultant than running my own business,” Williams said, “so I shut it down.”

More prevalent were entrepreneurial types still bent on growing their young companies.

“The main gist of everything is still the same,” said Wendy Finn, owner of I.M. Spa in Fayetteville. “I’m glad we’re still on the map.”

Finn said I.M. Spa might eventually move into a bigger space, and such expansion wasn’t uncommon among the businesses surveyed. Bliss Cupcake Café in Fayetteville has plans to open a second store as soon as this spring, despite a change in ownership, while Jonathan and Kim McNeill opened a second YumYos Premium Frozen Yogurt — at Pinnacle Hills Promenade in Rogers — after enjoying success at their original Bentonville location.

Niche operations (Miss Jan’s School of Charm & Manners in Springdale) and seasonal enterprises (Golf Mountain in Rogers) also reported positive results. ZweigWhite, a resurrected consulting and publishing firm in Fayetteville, reported annual revenue of about $6 million.

 

Having a Vision

For many of the businesses, the next few years will be critical, as the Bureau of Labor Statistics report indicated only 44 percent of small businesses make it past four years.

Moghadam said one key for such businesses is maintaining “current planning for growth” even as some of them focus on simply “surviving to the next month or the next year.”

Free has been able to make that work, though sometimes through unconventional methods. When an online application process with Whole Foods didn’t produce the desired results, for instance, Free took her products to the Little Rock store and made an informal presentation.

That proved to be the start of her ongoing relationship with the company, and she took a similar tack when trying to partner with Oh Baby’s manufacturer in Oregon. Free said she called the CEO of the company and told him she would “be in the neighborhood” and asked if a face-to-face meeting was possible.

When he said, “Yes,” Free bought a round-trip ticket.

“Procedures are really important,” Free said, “but sometimes you have to work around those and go straight to the source. It worked.”

Moghadam said that kind of spirit and vision is vital on the battlefields of new business.

“You have to have a plan of where you want to go,” he said.