4 Sweet Spots for Startups
Little entrepreneurial engines that could are driving U.S. job creation. Small-business owners are more optimistic about getting on track now than at any time since the recession gripped the economy in early 2008, according to the Wells Fargo/Gallup Small Business Index. Startups and small businesses were responsible for about 7 million of the 10.9 million jobs that were added to the U.S. economy by the end of 2014, Small Business Administration figures show. And U.S. entrepreneurship rates rose to nearly 14 percent in 2014 from a post-recession low of 7.6 percent in 2010, says the Global Entrepreneurship Monitor 2014 Global Report released February2015.
The engines driving that growth seem very sector-specific, says Stewart Thornhill, executive director of the Samuel Zell & Robert H. Lurie Institute for Entrepreneurial Studies at the University of Michigan. Certain web-based sectors are exploding.
Here are the stories of some little engines in various stages of powering up:
1. Data-Driven Services
Matt Ehrlichman’s quest to build his dream house is a prime example of the possibilities in the online services sector.
A Seattle-based entrepreneur with two software company launches on his résumé, Ehrlichman, 36, decided to take a year off to build a house. As he began the daunting process of identifying what he needed and how to find the right contractors, he learned there was no reliable source to provide all of that information.
“The way I’m geared, I started exploring for a solution,” Ehrlichman says. He began seeking colleagues’ help—“about 10 to 12 of us started meeting regularly in my basement”—to organize inspiration, project data and word-of-mouth referrals in one place. Porch, based on the idea that its namesake is the public space of a private home, was the end result. Because he had a track record, Ehrlichman says he had no problem raising $6.25 million in seed money for Porch, which he co-founded in September 2013.
Ehrlichman didn’t get his year off after all (but he did build his dream house).
The company gained momentum in April 2014, when it launched a strategic partnership with Lowe’s 1,700-plus stores. The home-improvement chain points to Porch as an in-store resource to help homeowners find home-improvement professionals for nearly any project that falls outside the scope of Lowe’s installation services. In February 2015, it added Better Business Bureau information, including ratings and accreditation status, for millions of professionals in Porch search results.
In the process, Ehrlichman reports that homeowners in 62 percent of U.S. cities and towns use its services, and more than 3.2 million contractors have displayed approximately 150 million home remodeling projects on the Porch website. The company has 350 employees.
A staff that follows a laser focus—“no jerks, no egos, no bureaucracy” is one of Ehrlichman’s battle cries—and clear communication is crucial, he says, especially as a young enterprise encounters growing pains. The company’s principles are painted on the office walls and iterated in all-hands weekly Porch meetings. Ehrlichman has no five-year plan because Porch’s rapid year-to-year growth would render one useless, he says.
The market for online medical services and products is developing rapidly. In his role at a Research 1 University, Thornhill sees robust research and development in health care data analysis, health informatics (an evolving specialization that links information technology, communications and health care to improve the quality and safety of patient care) and medical devices. Expect major changes “in the online health treatment and services market over the next couple of years as the winners and losers get sorted out,” Thornhill says. “It’s going to be a really interesting shakeout.”
In preparing to launch MyDerm Portal, a website focused on follow-up dermatology visits, Austin, Texas-based Paul Robichaux saw “a lot of stuff on the web that just didn’t work.” The 33-year-old co-founder’s partners are his dermatologist wife, Chief Medical Officer Venessa Peña-Robichaux, M.D.; and Chief Technology Officer Victor Lyuboslavsky. Michigan-based Hamzavi Dermatology owner Iltefat Hamzavi and Minneapolis doctor Neil Shah are the two participating physicians.
While she was in medical school, Peña-Robichaux—who had grown up with limited health care access in South Texas—became interested in dermatology and technological solutions for providing better care. (The subject also fascinated her husband, who was doing IT consulting at the time.) During her residency, she pursued research in telemedicine and started a teledermatology pilot and report health system.
They focused on teledermatology and created software that allows doctor and patient to engage in an online exchange of follow-up information, updated images of patients’ skin conditions, and treatment solutions; the process is more convenient for patients and cost-effective for doctors. “Our goal is to provide a solution that is easy for physicians to take care of their patients outside of the clinic in between visits,” Paul Robichaux says. “Our goal is to have every dermatologist using our platform.”
MyDerm Portal’s development process, bankrolled by the couple’s savings and money from their partners, took about 18 months. “It always takes longer than you think,” Robichaux said just before the March launch. “You plan to the best of your ability, but you’ve got to be prepared to change your plan and be flexible. All of us see eye-to-eye on the sort of values that we have, and that’s been incredibly important.
“There’s a segment of telemedicine that’s called direct-to-consumer, in which a physician whom you’ve never seen before will diagnose you. It’s been tempting to move into that model because there are some companies that have been somewhat successful doing that. But it’s really against our values and the way we think health care should be practiced.”
3. Color It Green
Green services and technology drive many startup endeavors. Their founders are usually passionate about the environmental mission regardless of whether the companies are hugely profitable.
Melissa Tashjian, 34, started Milwaukee’s Compost Crusader, which in June 2014 began picking up predominantly food waste—including food-soiled paper products—from clients and delivering it to a compost farm that recycles it. “Initially, being an entrepreneur never really crossed my mind,” says the former executive director of Kompost Kids, a Milwaukee nonprofit volunteer organization that helps divert organic materials from the waste stream.
“At the time, I was trying to maintain Kompost Kids’ programming,” she says. While doing this work, she began considering how to address the bigger picture of community composting. “My boyfriend [Matt Scannella, owner of a machinery company in Milwaukee] and I were having dinner, and I was talking about this concept. And he responded, ‘What’s holding you back?’ ” He volunteered his services as a mechanic, and a composting power couple was born.
Over a period of six months, Tashjian used savings earmarked for remodeling her kitchen to buy a 25-year-old dump truck, which Scannella fitted with overhead forks for collecting refuse. After reaching out to the city of Milwaukee and its entrepreneurial programs, she received mentoring (including helpful number-crunching) and business templates (for a business plan, cost projections and other basic financial data) to follow.
Compost Crusader’s client list quickly grew from five to 20, one of them a school; she’s talking with an additional four school districts that have expressed interest. Tashjian says she expects to have 100 customers by year-end. The company hauls about 10,000 pounds of material a week, diverting it from Milwaukee’s choked landfills, which are about 75 percent full, Tashjian says.
Food waste comprises about 14.5 percent of municipal solid waste in the United States, according to a 2012 Environmental Protection Agency report. Americans diverted 21 million tons from landfills that year through composting efforts, the EPA says.
This summer Compost Crusader will start using a bigger, 25-cubic-yard garbage truck for pickups. “My goal is to be able to fill that truck every day,” Tashjian says. “Right now I’m still recouping my investments. Matt drives the truck, and I get out there and move the receptacles around. He’s got the sweet end of the job when it’s below zero outside, and I look like a big giant green monster because I’ve got eight layers on. But it works; it works great. I’d love to hire my first employee this summer and have a one-person route with somebody I could actually pay to do what I’m doing now.”
4. Pet Projects
Two startups at opposite ends of the country offer a glimpse at the diverse online opportunities in the pet sector.
The pet ownership and pampering industry continues to grow steadily. According to American Pet Products Association figures, 65 percent of American homes include a pet (79.7 million homes), and total pet expenditures have risen to about $58 billion in 2014 from $34.4 billion in 2004. About $4.84 billion of that involves services such as grooming and boarding.
After spending 12 years in the financial sector, New York-based dog lover Michael Maione—who says he’s always had the entrepreneurial spirit—decided to start “the first comprehensive social pet website.”
Maione became frustrated when he tried but failed to track down “a very knowledgeable woman who used to walk her dog Pancake at my East Side dog park.” The woman had shared lots of quality veterinarian and other dog service-related information with Maione, but he couldn’t write it down because his hands were full. He didn’t catch her name, only her dog’s name, and when their paths didn’t cross again, he had no way to find her.
He decided there was a need for a social network where he could look up a dog in his vicinity by name, breed and/or ZIP code, where a supplementary picture of the “parent” was included to confirm his search. So the app “hi Pancake!” was born. It allows “pet parents” to create profiles for their pets and to connect with other nearby pet parents.
The service is free. Maoine says he intends to eventually solicit advertising to generate revenue for the app.
Then there are San Diego-based husband-and-wife pet enthusiasts Andy Smit and Amber Kirsten-Smit, who in 2013 launched Furlocity Inc., a pet accommodations website and online booking platform that allows “pet parents” to search, identify and book trusted pet-boarding facility stays, veterinary services and pet-friendly hotels (yes, the name is a takeoff of the well-known people travel site Travelocity).
Furlocity’s online marketplace includes top-rated pet boarding facilities and veterinarians in more than 80 cities and 30 states, as well as more than 100,000 pet-friendly hotels across the United States. Before booking through Furlocity, pet parents create a pet profile by uploading important information, including vaccination/medical records, to streamline the check-in process. It offers a 24/7 “pet concierge phone number” so users can easily change or cancel reservations.
Late in 2014 during a private offering, Furlocity secured $1.2 million to continue expanding its brand. “People love their pets and treat them like family, making the pet accommodations and pet care services industries ripe for growth,” Smit said when announcing the private offering.