September 19, 2014

Entrepreneurs in the Midwest Actively Bootstrapping

bootstrappingThe Midwest is often overlooked as a hub of startups, overshadowed by Silicon Valley on one coast and New York City on the other. But it is merely a common misconception, as the companies I will introduce you to here will prove that the Midwest is alive and well as a center of creativity and entrepreneurial activity.

As you read these short vignettes, notice, that most of these entrepreneurs have bootstrapped their ventures with very little infusion of outside capital. You don’t hear about them, because they don’t have big funding announcements to make. The entrepreneurship media ignores all these companies that don’t raise big money, but they generate big revenues.

The entrepreneurship media of the world is yet to come to terms with a simple fact that entrepreneurship equals customers, revenues and profits; financing is optional.

WaterFilters.net

Following a childhood filled with small-scale business ventures, including selling rulers to his neighbors, it was always clear to Minnesota entrepreneur Jamin Arvig that he would start a company. After attaining degrees in electrical engineering and law and a short time spent in the patent law practice, he decided to invest additional energy into an old venture, taking it online. Jamin and his wife come from technical backgrounds. They knew of the many opportunities associated with the e-commerce boom, and the benefits of building a business that drew upon the Internet’s global audience.

WaterFilters, started in 2002 while Jamin was still in college, simplifies the process of finding and purchasing water purification and treatment products. Jamin and his wife shared a limited knowledge of the water treatment industry. But they knew that the green industry was a growing trend, and they identified water filters as a key element.

After purchasing around $1,000 of water filters and setting up shop in his Minnesota condo, Jamin leveraged his wife’s existing connections in the industry to forge relationships with distributors, growing business slowly. These relationships allowed Waterfilters.net to list many of their products in an online catalogue. The couple also leveraged SEO and pay-per-click (PPC) advertising to acquire customers. The company reached close to $4 million in revenue by 2008.

2008 marked WaterFilters move to a custom-built warehouse that would serve as a distribution center. The business has also picked up a great many business customers, and even supplies retailers as a wholesale vendor.  The company has been entirely bootstrapped to the $10 million mark, running on only Jamin and his wife’s savings.

Quantum Retail

Also operating from Minnesota, Vicki Raport worked in retail software for a while, before setting up her own shop to plug gaps she observed in her domain.

Quantum Retail is Vicki’s missing piece: a layer of applications that takes information generated by enterprise apps, point of sale, customer transaction files and radio-frequency identification data, and brings it together in a manner valuable to retailers. This data, collected in a usable and manageable format, is intended to drive quantifiable improvement in retail operations. Quantum’s solutions align a company’s capabilities to buy and sell merchandise in tune with consumer preferences. Vicki described the product as “technology that thinks like a business.”

Vicki and her five co-founders (with a sixth introduced shortly after) draw upon a common background at Retek. They began with retail analytics using small sets of data points. Using open source materials combined with the generous support of a sponsoring customer, the team developed a prototype that they used to garner initial customer validation. The prototype was funded by Guitar Center in 2005.

Quantum Retail now operates on a platform that supports three key retail processes: allocation replenishment, forecasting and order planning, and assortment planning. Customers are given the option to enroll in one, or multiple services concurrently. Direct competition comes mainly from Oracle, JDA and SAP.  The business is fully bootstrapped by Vicki and her co-founders. Quantum Retail grew from six co-founders to over 100 employees and to $13.5 million in revenue by 2010.

Bay.ru

Born and raised in Chicago, Aaron Block never imagined a career in commercial real estate would take him all the way to Moscow, where he was to develop a newly acquired division of Cushman and Wakefield in 2005. His return to Chicago in 2010 also marked his move to Bay.ru, the first cross-border e-commerce business in Russia and the country’s fastest growing shopping site. Just two years later, Aaron is its CEO.

Bay.ru was founded in 2007 by the Russian-born brothers Gene and Anton Herman to help friends and family concerned about the security of items purchased online outside Russia’s borders. While in Russia, Bay.ru is designated as a ‘middleman’ operation, in the Internet industry, the company is known as a cross-border e-commerce company. Working in the ‘cross-border space’ implies that purchases are made from one country, the shopping is done from another, and goods are delivered directly to the consumer from a third.

As for the business itself, the supply chain is almost entirely U.S. based. Products are shipped to the company’s Chicago warehouse, where they are inspected for quality and checked against the customer’s original order. Additional services for quality assurance, such as photographs and consolidation, are also performed here before orders are shipped to the Soviet Union. By ensuring that the vendor never sees the consumer, Bay.ru has established itself as a single point of trust with its buyers.

Bay.ru has further established its success by integrating popular American catalogues, such as eBay and Amazon, into its online inventory. Perhaps the largest generator of business, however, is the offering of 500,000 separate “touch points” in Russia available to take orders. Because Russia allows pre-payment, Bay.ru has established a strong presence in kiosks, bank branches, post offices, Western Unions, and online payment systems, making it possible for the customer to pay in whatever manner is most comfortable, at any time.

Gene and Anton, with the help of family loans, bootstrapped the business on their own. The company has also raised $2.3 million in angel investments. Bay.ru became profitable in March 2012, and was scheduled to reach the $40 million mark by the end of 2012. Profits are generated in part through product markup above retail price, which can be anywhere between 9-45%. The value-added services performed in the Chicago warehouse add more margin. Additional profits are made by purchasing shipping at wholesale prices, as well as wholesale purchasing of freight, postal and courier services.

So you see, if the Midwestern journalists focused on companies with good, solid revenues, they would have many strong entrepreneurs to write about. As it stands, though, they are more interested in which venture capitalist has funded the company.  What a silly idea!

PerBlue

Shortly following the releases of the iPhone and Google’s Android operating system in 2007, then-University of Wisconsin student Justin Beck became intrigued by the possibilities that these new mobile technologies brought to the world of gaming. He began work on a concept for Parallel Kingdom, a location-based massively multiplayer game that uses the GPS on a player’s mobile device to place them within a virtual world overlapping their reality.

The first version of Parallel Kingdom, “The Age of Exploration,” was released in 2008 as the first game of its kind. The release coincided with the founding of PerBlue, Justin’s Madison, Wisconsin-based mobile and social gaming software company. Beck and his business partner, PerBlue’s CTO Andrew Hanson, both boast double degrees in Computer Science and Computer Engineering. The two bootstrapped the business, providing initial funds on their own and offering early employees stock options in place of a paycheck.

Justin’s concept garnered a great deal of attention, and soon demand was high enough for the release of a second installment of the game in March 2009, “The Age of Gathering,” as well as a third, greatly expanded version in November of the same year entitled “The Age of Emergence.” The most recent release, “The Age of Thrones,” launched in October 2010 and focused on the game’s social features. It joins two other mobile multiplayer RPG’s (role-playing games), Parallel Mafia and Parallel Zombies, to round out PerBlue’s products.

PerBlue eventually raised some financing, but more importantly, the company has crossed $2 million in revenue.  And now, onto some entrepreneurs that are just about starting to get their businesses off the ground.

SimaFore

In 2010, Bala Deshpande and the three coworkers who would become his fellow team members were working in Ann Arbor, Michigan as resellers for a software startup, building an all-purpose analytical tool capable of identifying and managing risk in complex situations. Through his work in sales, Bala came to realize that not only were most companies incapable of extracting value from such complicated analytical tools, oftentimes the purchase of such software did not solve their original problem. With the assistance of these same coworkers, Bala decided to work toward a more tailored solution, avoiding the broad aspirations of general purpose analytics software.

SimaFore is a reliable way to convert data into an informational asset, providing analytics-based solutions to companies that cannot afford expensive software or a staff to extract value. The company develops custom-built apps tailored to solve specific issues based on a business need. Such services may include identifying key performance indicators, optimizing product quotes using cost forecasting, and overhead cost tracking, among others. By leveraging emerging trends in open source technology and cloud computing, the solutions SimaFore offers remain affordable.

The target market for SimaFore is small and medium-sized businesses, with an ideal customer that has between 10-100 employees, possessing at least some resources for collecting and managing their data.  SimaFore hopes to deliver custom apps to at least 25 SMBs in 2013. The solution is set to be priced at $10,000 for the first year, with an ongoing maintenance fee of $300-500 per month per customer thereafter. Over time, some of these apps would be productized and sold to larger numbers of customers in specific segments.

LinguistaLogix

As a language specialist for over 20 years, Ohio-based Professor Rex Ferguson often finds he is called upon for his services. While working as a Spanish language medical translator, he observed his work save a child’s life. He realized that hospital personnel were not given the language instruction necessary to successfully do their job while working with ESL patients. In response to this industry deficiency, Rex created LinguistaLogix, an educational software business focused on teaching oral proficiency targeted toward medical professionals.

Of course, there are many more entrepreneurs working throughout the Midwest, often unsung due to the media’s obsession with venture-funded startups. It is every bit our intention to highlight their stories.

Midwest, USA Photo via Shutterstock

2 Comments ▼

Sramana Mitra


Sramana Mitra Sramana Mitra is the founder of One Million by One Million (1M/1M) initiative, a virtual incubator that aims to help one million entrepreneurs globally to reach $1 million in revenue and beyond. She is a Silicon Valley entrepreneur and strategist who writes the blog Sramana Mitra On Strategy.

2 Reactions

  1. I agree with you. The midwest is definitely a center of start ups. PerBlue is a really cool concept.

  2. Great post. I admire those businesses who bootstrap it and make a way out of now way. Very inspirational. Thanks for sharing this info with us.

    Ti

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