innovate arkansas

Much of the robust economy and quality of life in this area are because people like Sam Walton, J.B. Hunt, Don Tyson and several others staked their claim, rolled the dice and created multi-million dollar — even multi-billion dollar — companies from little more than a vision and bull-headed determination.

Though they’re like rock stars in many peoples’ minds, no captain of industry built it all alone. Most successful business owners will readily admit that there’s a network of professionals and advisers who helped make their ventures successful.

The Northwest Arkansas Business Journal has identified nine “need-to-know” people for any and every entrepreneur. Several successful small business owners — each with annual gross revenue of at least $1 million as estimated by the Business Journal — were asked about their experiences. A somewhat subjective list in no particular order follows:

The Customer

Logic has it that an entrepreneur needs someone who will give them money for a product or service. Most business owners say that identifying their customer is a substantial key to success.

Cindy Arsaga and her husband Cary opened the first of their now five-store chain of popular Arsaga’s Espresso Cafés on Block Avenue in Fayetteville in 1992. Both were tired of their jobs — she as a registered nurse and he as a junior high school math teacher turned Realtor — and thought that working for themselves sounded appealing.

In the beginning, they were unsure if they would be able to lure in enough people who would pony up $3 each for a cappuccino to maintain a profitable business.

Cindy Arsaga said they knew their business model worked elsewhere and figured that enough people had moved to Northwest Arkansas who wanted the level of product they had to offer.

They were right. Cary Arsaga declined to reveal his annual sales, but said they’ve increased 10 percent annually since 2000. According to city tax records, the five Arsaga’s locations brought in $1.1 million in sales last year.

“It’s a very eclectic base,” Cindy Arsaga said of her customers. She’s seen a guy with dreadlocks and a woman in a mink coat standing in line together, waiting for a caffeine fix.

Gregg Ogden, chairman and CEO of Athletic World Advertising in Fayetteville, said the keys to gaining customer loyalty are “price, quality and service.”

AWA produces sports-schedule posters for high schools and colleges. The company had a 15 percent increase in sales during 2005 over 2004, Ogden said.

His model was to do one thing extremely well, and replicate it over and over, he said. Only after dominating one niche market could he justify getting into spin-off products.

“What we’ve tried to do was give the customer what they wanted,” he said. Apparently it works, because the company has an average 82 percent renewal rate from advertisers on its posters.

The service sentiment is echoed by the Arsagas. Cindy Arsaga said her company initially couldn’t get the quality of baked goods her customers wanted, so they started a bakery, which wasn’t something they set out to do.

The bakery start-up is an example of flexibility in business and a desire to cater to customers’ demands.

An Accountant

Michael Baker started Houndstooth Clothing Co. of Fayetteville the same month as the Arsagas, and just down the block. The company makes t-shirts with retro and Razorback designs and sells them in mall kiosks across the state.

Baker declined to reveal his sales figures but told the Business Journal in 2001 that the company did about $2 million in revenue the year before. He said, overall, sales for 2005 were up about 5 percent over the previous year.

Houndstooth has an internal controller for day-to-day accounting, but Baker uses Mark Lundy as the company’s tax accountant and as an objective financial sounding board.

Lundy, a CPA, is a partner with Lundy Allard & Co. of Rogers, and he recommends entrepreneurs see a CPA before they decide to purchase a business. With some basic data from the books, he can valuate the business and usually tell if it’s profitable.

“Am I going to do something more than buy myself a job?” is what he tells clients to ask themselves.

Besides business valuations, Lundy said it’s important for new business owners to check in with a CPA so they can help set up the accounting system.

“The two most important things are: entity choice, [sole proprietor, partnership, limited liability company, etc.] and how are you going to keep your records?” Lundy said. “You have to come up with some method to track your payouts and intake.”

Sometimes that can involve costly software, and sometimes just a handwritten pocket checkbook will do, he said.

He said Baker’s in-house controller is top-shelf, but “even a seasoned entrepreneur sometimes needs a fresh look. It never hurts to get a second opinion.”

A Banker

Tim Walker started Walker Creative, a Fayetteville graphics and design company, in November of 1992 as well. His office was within a block of Baker’s first store and the first Arsaga’s coffee shop.

“The Arsagas have fueled a lot of late nights here,” he joked. He and Baker are friends and have done some business together.

Walker, who has since partnered with Neal Shipley and renamed the business DOXA Total Design Strategy, personally financed the business, which started as a one-man shop. He now has a good working relationship with The Bank of Fayetteville. But, if he had to do it over, he would’ve developed a relationship with a bank earlier on, he said.

Carol Reeves is an associate professor at the University of Arkansas. She teaches entrepreneurship and is a partner in an entrepreneurial venture, RiverEdge Game Co.

Her husband, Phillip Zweig, created the board game Wordigo, which is sold in area stores, including Arsaga’s, and recently was slotted in about 550 Barnes & Noble Booksellers stores.

Reeves said a good personal relationship with a banker is valuable, though RiverEdge was initially privately financed too.

Knowing a banker and having a line of credit pre-arranged can make or break a small business when it comes time to capitalize on expansion opportunities, Reeves said. A line of credit also comes in handy as “float” over a rough spot while waiting for payments from customers.

Ogden said he initially used BOF and had a good working relationship with John Lewis, former president, chairman and CEO of the bank. But as his business progressed, he developed a relationship with Dan Dykema, chairman and CEO of ANB Financial N.A. of Rogers.

It pays to have a banker intimately familiar with his business, Ogden said. Last year, he required a line of credit to launch a spin-off product that meant hiring 20 people or so. AWA had a 200 percent increase in sales on that one product alone in 2005, he said.

“We couldn’t have done that without a good banking relationship,” Ogden said.

Burt Hanna started Hanna’s Candle Co. in 1987. Hanna declined to reveal revenue numbers, but in 1999, he told the Business Journal he brought in $38 million the previous year and hoped to be doing $200 million annualy within a decade.

Gary Head, the chairman and CEO of start-up Signature Bank of Arkansas, was his commercial lender at what was then McIlroy Bank & Trust. The candle maker’s favorite banking memory is when Head told Hanna his father’s co-signature was no longer required on his loans. That was Feb. 14, 1989, Hanna said.

An Investor

Some entrepreneurs require a significant amount of capital based on little more than an idea.

Lee Thompson is the president and CEO of Rogers-based Vision Technologies Inc., a company that makes rugged remote-controlled cameras for military use. The company landed part of a U.S. Navy contract in October that is worth “tens of millions” of dollars.

A bank wouldn’t have done the trick for him because there was no collateral to speak of, Thompson said, only an idea to build a product and sell it.

The company exists because angel investors stepped up to the plate, he said. Vision Technologies now has 28 shareholders, including Thompson and his son.

Thompson said gathering investors can be a risky proposition too. An entrepreneur has to decide how much, if any, control they’re willing to give for the money. In his case, Thompson maintains the company’s reins.

“Investment isn’t a better way, it is a way,” Thompson said.

Virtual Incubation Corp. of Fayetteville, headed by President Calvin Goforth, provides clients with management, research and fundraising support. It takes an equity stake in its client firms and derives some fees from the small business innovation research awards it helps them obtain. As of Dec. 31, the company had been in operation for three years and had landed $6.6 million in 31 different awards.

Investors want someone who is hardworking and can deliver on their promises, Goforth said. Often, an entrepreneur will over-sell their concept because it’s easy for them to see the “blue-sky potential.” In reality, a commercially viable product may be a long way out and will cause a researcher to ask for more money.

A good investor will help keep an entrepreneur somewhat grounded. Communication between the two groups about expectations is the key to a good business relationship when it comes to investors, Goforth said.

A Lawyer

As for a lawyer, Ogden said he uses Greg Jones of Jones Jones & Doss of Fayetteville for his basic business, estate and tax planning law. But if a special need pops up, he goes looking for a “hit man,” or someone who specializes in the problem.

“Thank goodness we haven’t had to deal with a lot of legal things,” Ogden said.

But AWA does develop some proprietary technology for itself, designing call systems to make it more efficient. Ogden said he spends about $500,000 a year in technology development, so he has Boyd Cox, a Fayetteville lawyer, keep tabs on AWA creations.

David Pieper is a registered patent lawyer and a partner with Keisling Pieper & Scott PLC of Fayetteville. He said a lawyer is imperative for anyone setting up a business.

“When you set up a business, you want to put into place a corporate structure … to protect your personal assets,” he said. Most lawyers are able to help set up a business because it’s a fairly simple filing with the state, he said, but it can be helpful to find one who specializes in business law because they know all the pitfalls.

Several entrepreneurs mentioned Jim Smith, a partner with Friday Eldredge & Clark’s Fayetteville office, as a business-savvy lawyer.

Beyond the initial stage of setting a business up, Pieper said, it’s important to protect an entrepreneur’s intellectual property with any number of filings. He reviews between 50 and 100 inventions every year.

The genesis of patent and trademark searches can be done by anyone at www.uspto.gov, he said. But entrepreneurs can get confused in a topsy-turvy world of provisional, utility, design and other patents, copyrights and federal filings, he said. Therefore, a good patent lawyer is worth the money to secure a novel idea from the competition.

A Competitor

It’s been said that competition is good for business. But no one wants too much of a good thing.

Reeves, the UA associate professor, said there’s something to the theory. She points out the cluster of technology companies at the UA Genesis Incubator, the number of packaging companies in Benton County and the number of trucking companies throughout the region.

Competition draws like-minded customers and a pool of talented employees.

Cindy Arsaga said there was only one other “coffee house” in the area when she and Cary started out. Since then, others have come and gone, and a few have stayed. But their overall revenue has increased and they’ve been able to maintain a base of loyal customers.

“We have learned to welcome competition,” she said. “It forces you to be your best. It raises the bar if someone is doing a good job.”

Ogden said there are only a few other companies nationwide that do what his does, and none of them is as good. The competition is someone to study, he said. Basically, mimic their successes and avoid their failures.

Ogden’s a competitive person, but he admits, “If you didn’t have any competition, it would deprive the customer of better quality, pricing and service.”

A Friend

Reeves said a friend, or someone to serve as an emotional sounding board, is a must-have for most entrepreneurs.

“It’s such a roller-coaster ride,” she said of the business she shares with her husband.

The Arsagas agree that they probably couldn’t have built a successful business without each other. They were married in 1982 and have worked together since ’92.

“We are a really good team,” Cindy Arsaga said. “We complement each other as far as our strengths and weakness.”

Kim Sharpe and her husband Charles Sharpe own CKB Management LLC of Fayetteville, a parent company that operates CitiScapes Metro Monthly magazine and Arkansas.Net, an Internet service provider.

Kim Sharpe echoed Cindy Arsaga. She said that she and her husband look to each other for inspiration.

It just happens that most people who were asked about a friend pointed to their spouse. If they weren’t in business with a spouse, they called the friend a mentor.

A Mentor

The concept of a mentor means different things to different people. To some it’s a confidant, to others a connection.

Ogden said Frank Broyles, athletic director at the UA and an AWA board member, helped him drum up business for the company early on, and from there a friendship formed. Ogden said he’s learned from Broyles’ passion, character and integrity, so in a way he’s a friend he looks up to, or a mentor.

Elise Mitchell, president of Mitchell Communications Group Inc. of Fayetteville, talked about both sides of the mentor concept.

She mentors people as often as she can because it was done for her. All in all, she said, mentoring can be a sort of short cut for people by speeding up their learning curve. However, it’s important for a mentor to not dole out pat answers. Instead, it’s preferable to encourage independent thought.

On the flip side, she tells people that in order to find a good mentor, one has to prove him or herself worthy. She tells people to always put their best foot forward and demonstrate that they would be a good investment of a potential mentor’s time.

Rebecca Garner, president and chief investment officer of Garrison Asset Management, said she looks to Fred Vorsanger, manager of Bud Walton Arena, as a mentor.

“He’s a wise man,” she said.

A Buyer

Some people say a business owner should always have a buyer for their business in mind — in other words, an exit strategy.

“Everything about the company needs to be structured for the exit,” Reeves said.

Some companies start out with selling lock, stock and barrel in mind, and have two or three buyers lined up when they open, she said.

She and her husband fully intend to sell Wordigo in the future and everything they do with the business is designed to make it an attractive buy.

But several entrepreneurs had different thoughts on exiting their businesses.

Garner sold her firm, Garner Asset Management, to Garrison Financial Corp. in February 2005. The offer came completely unsolicited. It was the right price, the right buyer and the right time, she said.

The Arsagas don’t have a strategy in mind. Cary Arsaga said he likes what he does, so there’s no reason to exit, as long as he can pace himself.

Baker said he’d sell Houndstooth tomorrow — for the right price. But then he’d probably take on a project of similar size, scope and vision.

Ogden said there’s plenty of time and opportunity yet; he’s only 44.

“It doesn’t make any sense for me to think about an exit at the moment,” he said.

Entrepreneur’s Resource

A fertile resource for entrepreneurs is the Arkansas Small Business Development Center on the University of Arkansas campus.

The ASBDC is funded in part through a cooperative agreement with the U.S. Small Business Administration and a partnership with the UA’s Walton College of Business, so its counseling services are free of charge.

Tracy Jeffers, the center’s director, said the office helped area entrepreneurs gain $10.6 million in business loans during calendar 2005. Employees of the center counseled 130 clients at an average of eight hours each throughout the year, she said.

Services include counseling on everything from business expansions, acquisitions, loan proposals, financial projections and coaching on business plans.

The ASBDC office holds business seminars throughout the year to help educate potential and practicing entrepreneurs. The center charges a minimal fee for the seminars, and a schedule can be found online at sbdc.waltoncollege.uark.edu, or in the business calendar section of the Business Journal.

The ASBDC also recently started offering online seminars, called SmallBizU, for working professionals with little time. Registration and information can be found at asbdc.ualr.edu/smallbizu.