story by Kim Souza
ksoua@thecitywire.com
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. This is second of two final stories to wrap up our watch of the startups.
For the three local ventures — Oh Baby Foods, Overwatch and PicaSolar — each tagged by The City Wire as startups to watch in 2014, there is a great deal of work and opportunity around product launches in 2015. The company founders report optimistic outlooks despite challenges around their business ventures.
OH BABY
Oh Baby Foods founder and CEO Fran Free said after the stellar growth her startup experienced in 2014 she is focused on refining business practices with the professional staff added last year.
Free would love spend all her time in product development and complete the Big Kids line she has been mulling for two years. But the Oh Baby business has gotten so big – hitting $1 million revenue in 2014 – and the costs of ingredients risen so quickly that her immediate attention is on refining the business she already has and securing affordable organic produce, while adding more stores to help grow top line sales.
“It doesn’t matter how many awesome products we come up with, if we can’t make them and sell them at breakeven or a profit, it doesn’t matter,” Free said.
She’s excited about the growth opportunities that exist for Oh Baby in 2015 behind the strength of her management team, despite the recent headwinds from higher sourcing costs.
“I was a one-woman show for so-long that it’s been hard for me to let go and take advantage of the talent that now surrounds me. This year we are focusing on increased efficiencies in everything from promotional spends to freight and logistics costs,” Free said.
In the fall of 2014, Oh Baby Foods was picked up as a private label for a major grocery chain. Free said the retailer chose six new product items which have completed a trial run at her manufacturer in California. All of the ingredients for those products have been secured and production for the new product line is expected to debut in more than 2,000 stores later this spring.
Free said the private label launch is huge because it will give her products more reach which should help promote substantial sales growth this year.
“We continue to add new stores each month and now we’re sold in all 50 states. Our national sales manager began pitching our products in December. We are still waiting to hear from several chains.” Free said.
PRICE INFLATION
She said the ingredient costs of organic fruits such as apples have nearly doubled in recent months thanks in part to Wal-Mart’s push to offer expanded organic products.
“I think it’s great that Wal-Mart is offering organics at prices so many can afford. But, the downside for Oh Baby is the increased demand for the organic apples which has pushed my costs up from 55 cents a pound to 90 cents a pound. We lock in our organic produce prices during the growing season and for Oh Baby, we’re having to calculate the ceiling price that we can bear,” Free said.
One strategy she employed was to look at recipe reformulations with her food scientist who is based in Boulder, Colo. Free said he has come up with three alternative formulations that could bring down the ingredient costs. She did not disclose exactly what the differences could be, but said substituting pears for apples would be a fairly easy switch in terms of processing and regulatory label protocol.
Free said raising the retail price would be a last resort. She said the company is looking for ways to find operational efficiencies re-evaluating all the services it uses in order to streamline other costs.
PICASOLAR PROGRESS
Douglas Hutchings, CEO of Fayetteville-based PicaSolar, said the solar technology startup enters 2015 armed with a second round of funding from the U.S. Department of Energy’s SunShot Initiative.
The startup garnered $800,000 from SunShot awards late last year to continue their work in creating higher efficiency solar cells. This came on top of $1.2 million gleaned from private investors. Hutchings said the company is working with Zingli, a large Chinese manufacturer of solar cell panels. He said this long distance relationship has its challenges but so far so good.
“This is a critical relationship for PicaSolar because if we can show them that our technology works in their cell panels we hope to have them implement our product into their design. They are one of the largest solar panel manufacturers in the world,” Hutchings said. “If we can get Zingli onboard it would create instant demand for our product technology.”
He said the startup is proactive in protecting its intellectual property in working with the foreign enterprise.
The startup has added another research engineer to its team giving the company a total of eight employees, half of which hold doctorate degrees. He plans to add two more to the team in 2015. Hutchings said the startup has outgrown its office space and is moving across the street to a larger office in the Enterprise Center at the Arkansas Research and Technology park in south Fayetteville.
Looking at 2015 goals, Hutchings said the improving economy and the broad adoption of solar by companies like Wal-Mart are having a positive impact on the solar industry at large. He plans to deliver solar technology to Zingli that hopefully can be implemented in their manufacturing process and he has not given up on his dream of manufacturing the solar panels in Arkansas down.
“Managing this relationship with Zingli will be crucial for us this year,” Hutchings said.
OVERWATCH DELAYS
Josh Moody, CEO of Overwatch, said the fast train the startup rode in 2014 has applied the brakes and is taking time to integrate user feedback and work on updates to the IOs application which launched last fall.
“We are close to launching the Android version of the app, it’s being tested now. We held back on the launch to take advantage of the solid feedback we got from Apple users following that launch. We also have several new features coming in a 2.0 update for Apple users in the few weeks,” Moody said.
The biggest hurdle in the startup’s efforts to bring their gaming hardware mounts to market is their manufacturing partner in China. Moody said the hardware mounts went through several redesigns and production in China has not yet begun.
Overwatch is working with the Cyber Gun’s manufacturer, which is reportedly the best and also the most busy, which has meant delays in Overwatch getting the hardware out to retailers. He said the hardware mounts will retail somewhere between $15 and $19 as they are shooting for a affordable product.
“We knew we were going to miss the holiday window we originally shot for so we decided to hold off for an early summer product launch. That’s still the plan. Cyber Gun will take care of our inventory and ship it out to retailers once the product comes off the manufacturing line,” Moody said.
In the meantime, the Overwatch crew has focused on IOs updates and the launch for Android users. Moody said 4,600 users have downloaded the Apple App but without the hardware they can only test and get comfortable with the gaming product.
“We are also taking the opportunity to build in more social functions within the apps that will help our users stay connected across the world. We hope to build an Overwatch community among avid gamers and the changes we’re making to the apps will help,” Moody said.
Moody said 2014 brought several challenges to the effort. The biggest was coordinating the timing of software and hardware launches, especially with using a manufacturer n China. He said it was great that Cyber Gun hooked Overwatch up with their manufacturer but that also ties Moody’s hands. He has to wait on someone else’s schedule.
On a positive note, Moody said Overwatch secured $100,000 in funding from local angel investors and Gravity Ventures II. He said this has allowed them to push forward with the software updates that will improve user experience and connect users.
The most important goal for Moody in 2015 is to get their hardware mounts out in retail stores so the gamers can experience Overwatch for real.