Acumen Brands, Rockfish and PrivacyStar propel the state's tech start-up culture.
by Lindsey Millar
Kristian Andersen has big ideas. When he talks about them, they come out in paragraph bursts. Of 10-part plans. Of sweeping visions. Of theories built on tangents supported by other theories.
A 38-year-old Conway native who built a successful design and management company in Indianapolis that works with web-based enterprises like Angie's List and Groupon, he's become the oracle of Arkansas's burgeoning technology start-up business scene since moving his family back to Arkansas four years ago, the person with the clearest — or at least most articulate — vision for how Arkansas can grow that culture into a national force.
So far, his grand ideas have come to fruition at an impressive rate. He laid out the vision for The ARK Challenge, a start-up accelerator that provides entrepreneurs access to business leaders, office space and seed money to launch fully formed technology companies in only three months. On Monday, the ARK's 15 teams of entrepreneurs — eight from Arkansas, five from elsewhere in the U.S. and two from outside of the country — started work in Fayetteville. All aim to develop companies tied to retail, food processing and logistics industries, not coincidentally the three industries in which Northwest Arkansas, and especially Walmart, Tyson and J.B. Hunt, excel.
Andersen's also behind the forthcoming Arkansas Fellowship Program, a competitive post-graduate apprenticeship at innovative companies in Arkansas aimed at slowing the exodus of the state's best and brightest, and he led the way in launching Gravity Ventures I and II, a pair of seed-stage venture capital funds that actively invest in and provide guidance for Arkansas tech start-ups.
Even though he still spends much of his time in Indianapolis running his business, managing two Indianapolis-based Gravity Ventures funds and operating an 8,000-square-foot converted warehouse he co-founded that he describes as a "Moose Lodge for nerds," he mixes and mingles in Arkansas regularly. He squeezes a lot into a short time. In early July, his meeting with a reporter was the first of two lunches he was having that day.
To understand why Arkansas hasn't flourished, Andersen offers a formula successful tech cultures share.
"There's a recipe that no successful start-up ecosystem has ever deviated from: You need capital, you need talent, you need a corporate patron and you need a culture of risk."
Take Austin, for instance.
"If you don't have Michael Dell assembling work stations in his dorm room in the '80s, there is no Austin start-up scene. Were there other substantive businesses in the Hill Country of Texas, between San Antonio and Austin? Absolutely. But you needed a company that would attract and grow a highly trained technical workforce."
Preferably a workforce trained by a local research institution. All of the most vibrant start-up cities and areas — Boulder, Boston, Seattle, Silicon Valley — boast at least one significant university as well as at least one corporate patron, Andersen noted. Without the success of the latter, however, he said it's hard to establish the necessary culture of investing for a start-up community to thrive.
"When Dell popped, it made lots and lots of millionaires. It made lots of extreme millionaires — Michael Dell and his early lieutenants. And hundreds of people who were made lower millionaires. You know who invests in start-ups? People who've built and or worked in start-ups. So even if you look at the local investment community, the really active angel investors are people who come out of start-up culture.
"There's no shortage of really wealthy investors in Arkansas, but they're not predisposed to invest in high-risk tech start-ups. If you want to go start a community bank or a new subdivision, I've got a list a mile long who you could go talk to. But rarely is the wealthy commercial developer or banker writing checks to high-risk, early-stage firms."
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The elements — a corporate patron that trained or attracted talent and made a lot of them rich enough to go start their own businesses — still hold true. Now, however, developments in technology have eliminated the need for a large workforce, so the Dell model is outdated.
"Fifteen years ago if you wanted to start a tech company, you had to go raise five million bucks," Andersen said. "Because you needed a million dollars worth of hardware. You needed to hire 30 engineers on day one. You needed 100 Aeron chairs. That's not the way it works anymore.
For every 10 engineers, you need one. I don't buy hardware anymore; I just shove it up in the cloud and pay $500 a month for it, instead of paying $1 million. Most successful start-ups today start out as a couple of guys working out in the coffee shop. They may be making $100,000 in monthly revenue before they start thinking about getting an office."
So if not a behemoth like Dell or Google or Facebook, what's the future?
"I think we've reached the end of the $50 billion company that employs 35,000 people. The new big company is a billion dollar company that employs 1,000 people and there's a lot more of them."
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John James, the 36-year-old CEO of Acumen Brands in Fayetteville, bears a passing resemblance to Kenneth Parcell of "30 Rock": blond, smiley and baby-faced. His elevator pitch for his company ends with a goal. "We want to build a billion dollar company in Northwest Arkansas. I know it seems audacious, but we're well on our way."
Without knowing anything about Acumen, James' bio might make you a believer. His story rivals any Silicon Valley wunderkind's. The Benton native could do long division before kindergarten. He wrote his first computer program at 6. At 15, in the early days of the web, he started his first business, a subscription-based Internet bulletin board. As a teen-ager, he turned a high school passion for Quiz Bowl into a direct mail and early e-commerce business selling quiz bowl questions that he wrote in his spare time. His company, Champions Quiz Preparation, which he started as a college sophomore, eventually sold Quiz Bowl questions to one out of every nine schools in the country and made enough money for James to pay for medical school, where he told those who asked what he did for a
living that he was an entrepreneur. While working 100-hour weeks as a medical resident and fulfilling Quiz Bowl orders on weekends, he started an e-commerce site with his older brother selling barbecue grills online.
"We said, 'Hey, if we could have a $30,000 year in 2002 [their first full year in business], we've built a great business.' Well, we had a $30,000 day at the end of 2002," James recalled, laughing.
After the success of the site (grillstuff.com), James and his brother started selling auto racing safety equipment online (saferacer.com), which proved to be an even bigger success. Then, while still in residency, with three e-commerce businesses and a young family, James started buying from Google millions of keywords, which he directed to websites he owned and filled with topics that attracted high-paying ads (Google frowns on this today, and makes it much, much harder to do). By the time Google went public, James told a group at a Fayetteville speaker series in May that he represented 1.6 percent of the search giant's partner revenue.
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James sold his share of the e-commerce business at the end of 2008, and promptly started Acumen Brands in Fayetteville with four people and one website called scrubshopper.com. The idea, James said, was that if they could sell scrubs, they could sell anything. After six months of tinkering with the back end of their site and fine-tuning marketing, Acumen turned it into a company worth between $3 million and $4 million. From there Acumen launched a work wear online store (toughwield.com), which was an immediate success. Venture capital money came. In a year, the company grew from four to 70 employees.
Acumen used a big chunk of its initial venture funding to buy the Kiva System, a robotic "fulfillment system" — finding and moving orders from a warehouse — that counted Amazon as a customer until the retail giant bought the company for $775 million in March. The squat orange boxy robots that power the system — think Roomba, not C-3PO — follow a grid in the 50,000-square-foot Acumen factory. When a customer places an order in one of Acumen's stores, the order goes to the robots who know on which shelving the item sits. The bots then pick up the shelf and zip it to the shipping area, where a small team only has a few feet to walk from the drop-off point to the packaging area to the shipping conveyor belt. Before Acumen, the quickest the system had ever been installed was 14 months. Acumen managed it in three months.
That success brought Alex Dillard, president of Dillard's, which also uses the Kiva system, to Fayetteville for a visit last fall. James saw an opportunity, which he recounted in May.
"I told him, 'Mr. Dillard, here's the deal, I never have presidents of publicly traded companies in my office, much less one of a company I shopped at for my entire life, so I want to ask you three things: I'd like you to invest in our company, I'd like access to your supply chain and I'd like to help you with Dillard's.com.' He stands up, and I'm like, 'Oh gosh, he's going to hit me or take his team and leave,' and he shakes my hand, and says, 'Done.' "
Dillard's invested $4 million, and all the first-round investors came back with a collective $1 million. Today, James said, Acumen's most successful store is countryoutfitter.com, which primarily sells cowboy boots. The company also recently did a deal to be the e-commerce provider for capezio.com, which James has described as "the Nike" of dancewear. He said the five e-commerce pillars of the company — building the underlying technology of a site, the front-end website, fulfillment, customer service and driving traffic to the sites — can easily be rolled into other companies.
"Move fast and break things" is a motto. So is "In God we trust, all others bring data." Acumen has been successful by trying a lot of different approaches and seeing what sticks, something at which a younger workforce might be more constitutionally adept.
"Our goal is to hire the younger kids, the 20 to 25 year olds, and teach them how to do things," James said. "I hope we spring a lot of companies out of Acumen."
His decision not to practice medicine after going through medical school and residency was easy on a lot of fronts, James said. "I enjoyed being a physician. I enjoyed the science and the people. It wasn't the lifestyle for me. There wasn't a lot of innovation going along with a family practice physician, and how can I cram 35 to 40 patients in a day and support my family and find time for sleep? But really, I want to do something to change the world, and I think I've got a better chance of doing it over here than I did in the medical system. I don't know if that's a sad commentary on the medical system, or a sad commentary on my personality."
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It's not hard to imagine Acumen's Josh Clemence, 25, leaving the company to start a business of his own. Like James, he's a boy wonder. At Acumen, he works as a brand manager with companies like capezio.com. But he's also at the center of Fayetteville's start-up culture. He is the visionary and designer behind The Iceberg Co-Working Facility, a 5,600-square-foot basement space in downtown Fayetteville where, for a small monthly fee, members get access to whiteboards, wireless Internet and plenty of workstations.
As an undergrad studying architecture, Clemence co-founded the Northwest Arkansas Entrepreneurship Alliance to foster the start-up community by pairing budding entrepreneurs with seasoned ones. He said his architectural background made him particularly interested in the idea of creating a space that could serve as a "physical resource" for the entrepreneur community.
In this new, leaner start-up environment, the alternative to the coffee shop, The Iceberg provides a niche venue that can be good for innovation, suggests Kristian Andersen, whose "Moose Lodge for nerds" in Indianapolis follows a similar model. "Being in proximity to other smart people can have a profound impact on what you're working on," he said.
With polished concrete floors, exposed brick, IKEA-type furniture and desks, brilliant lighting and a lot of white paint, the basement space has the look of "a business gym," start-up evangelist and consultant Jeff Amerine observed on a recent tour. Since it opened in March, funded by donations from local individuals and organizations, it's been used to host coding clubs for kids, a networking event called Tech Drinks and other events organized by the Entrepreneurship Alliance. The ARK Challenge is based in The Iceberg.
The networking imperative of the Iceberg is especially important to Clemence. For some time, he said he tried to meet with someone he didn't know or had a weak relationship with every day. He'd figure out if he could help them with a project and if he could, he would. "If you're going to meet with me, be prepared for me to be invested in you," he said. Help might come in a lot of ways, he said.
"I don't know that I'm a pro in anything except getting things done. I don't think I fall into any silo — a coder, a hacker, a marketer, a business mind. I'm a little bit of each."
Naturally, he has some start-ups of his own. Two that he mentions are StyleBy.Me, a hyper-local, user-generated look book where users upload photos of themselves and tag what they're wearing, and Picnic with Me, a Groupon-type app where users get deals on restaurants by bringing friends along to eat. They're on the back burner for now, ready to be revived or scrapped in favor of some new idea, Clemence said.
Clemence talks a lot about the Fayetteville entrepreneurial culture from the perspective of his generation. He's a millennial, a group often maligned as a solipsistic bunch of over-parented, entitled brats. Naturally, he sees it differently. He thinks he's part of a generation that feels entitled but is willing to put the sweat into getting what they want. "If I want it, I'll get it," he said. "No matter what, nobody is going to tell me that I can't do something."
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Clemence refers to James, his boss, as his mentor. The idea of mentorship is one the start-up community talks about often. James said that, in addition to a lack of start-up capital, lack of mentorship from seasoned entrepreneurs is holding back the state's start-up culture.
"So few people in the community who are successful entrepreneurs are getting in the trenches with the next generation. No one did that for me."
James is both mentor and angel, investing in local start-ups and giving them advice when he can. One of those companies, MobileFWD, has a symbiotic relationship with James and Acumen.
About a year ago, MobileFWD's founders, Matt Hudson and Joey Nelson, came to James with ideas for mobile games. He suggested they use his database of Quiz Bowl questions to build a trivia app. Trivi.al, a trivia take on the popular mobile game Words with Friends, emerged from that partnership. James has suggested that, down the road, Mobile FWD might help Acumen with mobile e-commerce.
Hudson, 32, and Nelson, 33, learned app development at Rockfish Interactive, a digital services agency based in Rogers that's experienced perhaps the most meteoric rise in Arkansas business in recent history. Since it was founded as a one-man start-up in 2006, the company has grown by 60 perecent to 100 percent every year, CEO Kenny Tomlin said.
Tomlin, 39, explains that success as a byproduct of the talent he's been able to attract and, crucially, having Walmart as a "champion client," which has given Rockfish a portfolio that's helped it land other big names such as Proctor & Gamble and EA Sports. National press hasn't hurt. In 2009, Advertising Age named the company its small agency of the year and put it on its cover. The following year, the publication called Rockfish the third-best agency in its industry-wide survey.
Kristian Andersen and other local tech observers see Rockfish as central to the future of Arkansas's start-up culture not just because it's growing (200 people in offices in Rogers, Little Rock, Dallas, Cincinnati and Austin) and it presumably made a number of entrepreneurial types rich as part of the terms of its sale last year to the ad giant WPP (terms of the sale weren't disclosed), but also because it's intentionally fostered a culture of entrepreneurialism.
In fact, Tomlin says innovation is a foundational principle of Rockfish. "The company was founded to be one part services business to clients and one part incubator of our own platforms," he said.
To that end, Rockfish Labs, the business incubator side of the business, has launched everything from a specialty coffee shop (Silver Joe's) to a digital coupon creator (couponfactory.com). Its latest venture, an employee rewards platform called youearnedit.com, launched three months ago. Already more than 70 companies are using it.
"That's a business that we're putting more and more resources on," Tomlin said. "We've validated the business model, we've validated the receptivity of the market. Now we're all in on growing that company. Now we'll hire dedicated people — which doesn't mean there aren't other parts of Rockfish that don't contribute to that company as-needed."
Because of that culture and the success Rockfish has had, Tomlin said a number of former employees have left to start their own entrepreneurial businesses.
Hudson, the former Rockfish mobile developer who started Mobile FWD, said he feels like a seed that's been watered by the big institutions in Northwest Arkansas.
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"I went to the [University of Arkansas] business school, and I was told that we were one of the best in the country. When I got out I felt like I could do something good. I'd always worked for Walmart or at Rockfish, and the natural progression for me was, 'Hey, I've learned how to build these apps. I've learned from the best companies in the world, I have the confidence to do it and go pitch [my ideas] to someone.' "
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Acxiom certainly fits Kristian Andersen's mold of a corporate germinator. It's a 40-year-old, billion-dollar company that's unquestionably one of the leaders in big data analysis. Conway's PrivacyStar might represent the beginning of the ripple effect of Acxiom's success — and a nudge in the right direction for Central Arkansas's start-up community as it tries to catch up to Northwest Arkansas's. The 4-year-old company, officially held by former Acxiom CEO Charles Morgan's First Orion Corp. and co-founded by former Acxiom management, makes smartphone apps that allow users to, among other things, block unwanted calls and automatically file nuisance reports to the federal Do Not Call registry. The company recently announced that as part of its expansion of its corporate headquarters in downtown Conway, it will add 121 jobs at an average hourly wage of $38 over the next two years.
For all the tech talent in Arkansas, PrivacyStar co-founder and COO Josh Smith says he's having to go outside of the state to find mobile developers. But PrivacyStar has pledged to work with local universities to develop talent.
"The awareness is out there, from the governor to all the universities," Smith said. "But there's got to be 100 different, smaller conversations going on throughout the state [about the opportunities]."
Smith sees the University of Central Arkansas's new EPIC (Entrepreneurship, Public Scholarship, Innovation and Community Engagement) residential program, where teams of students work on innovative projects that often combine science and business, as a hopeful sign for the future. It's an example Arkansas Economic Development Commission Director Grant Tennille cites as a positive step as well, and one that Tennille hopes can work in tandem with AEDC's tools.
"AEDC is probably best known by the public at large for pursuing companies you've heard of to locate in the state," he said. "The reality is that a lot of the work we do is focused on trying to generate entrepreneurial activity to grow Arkansas companies and help companies that are already here expand."
AEDC tries to do that with tax credits and incentives. For equipment for its new headquarters, PrivacyStar got $224,000 from the Governor's Quick Action Closing Fund. The company also got money from the Risk Capital Matching Fund, which is aimed at helping promising tech companies get off the ground quickly. It allows the state to match as much as one dollar for every four raised by a technology company in the early stages of development up to $750,000. Since it was first funded in 2010, it's made commitments to 15 Arkansas companies (Acumen is one). Tennille said to look for the AEDC and other agencies working on expanding the tech community to ask the legislature to shift some of its funding from the General Improvement Fund to the General Revenue Fund to give the programs a more assured and sustainable source of funding.
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"People often want to compare places like Fayetteville and Little Rock to Austin, Texas, both positively and negatively," Tennille said. "The one thing I think we've got to get focused on is a chicken and egg question: Which comes first, the cool environment that spawns the entrepreneurs? Or the entrepreneurs who ultimately are responsible for creating the cool environment that sustains that kind of effort?"
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Little Rock residents have been asking themselves that question thanks to the proposed Technology Park here, which only has tax dollars invested in it so far.
"I'm not a big advocate of build-it-and-they-will come, but I think that Little Rock has enough going on between UALR and UAMS and a growing number of smart companies that there is enough infrastructure and environment to take something like a proactive, speculative investment in a tech park and make it go," Tennille said.
Kristian Andersen is skeptical. Even though he's one of the most connected people in the Arkansas start-up world, he didn't know anything about the Little Rock Technology Park until a reporter asked him about it.
"Why do people move to Portland? Why does a young entrepreneur go to Silicon Valley? Is it because they've got a new tech park? No way, man. If you're in San Francisco in the Mission District, all those start-ups, they're just in old ratty buildings shoved off the street somewhere. Even the big ones.
"The most vibrant start-up communities I've been in look like communities. Within two square blocks, there are 30 start-ups and 16 restaurants and four bars. That being said, I'm not saying [the tech park] can't work or is even a bad idea, I'm just saying there are better ideas."
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While Central Arkansas works on developing talent and growing companies like PrivacyStar, one of those better ideas for sparking a vibrant tech culture might be figuring out a way to further empower someone like Arlton Lowry. The 30-year-old contract designer in Little Rock has become the go-to person for hosting tech conferences in Arkansas. He expected to draw 40 to his first in 2010 and 140 people came. In June, on the same weekend as the Little Rock Film Festival and Wakarusa, he still managed to attract nearly 250 people to a tech conference in Conway called BarCamp.
Before he started organizing conferences, Lowry sold his car to raise money to open a co-working space in Conway. It was short-lived. The demand for the space wasn't there, he said. Asked if he regretted selling his car, he said, "I can't take that with me when I die. It takes a certain kind of person who's willing to take chances. Life doesn't just happen. You've got to do things to make it
happen."
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