Michigan Innovators

Michael Cole: Bank Financing Overview

2008-07-02T01:52:18Z

]]> Michael Cole, VP of the Technology Innovation Group at Bank of Ann Arbor provides our first overview of bank financing in our series on Financing Innovation. In considering banks, it is important to remember that each one is unique. They specialize in different types of business and therefore are more likely to make loans to some businesses than others. That said, bank financing is a more risk averse form of financing, focusing on assuring adequate collateral to cover a loan in case of default. Highlights include:

Bank of Ann Arbor provides loans to early stage companies and also has products for equity financing targeted and angel investors and venture capitalists.
Bank of Ann Arbor finances working capital at the rate of 80% of a company's receivables. In case of default, a receivable is much harder to recover than an asset like a building or a piece of machinery.
In all loans, the bank's primary concern is how it will be repaid. It looks first to the strength of the cash flows and the business. Next it looks to assets that the company holds. Finally it looks

John Bonaccorso: Inside 9thX.com

2008-06-30T02:34:00Z

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]]> 9thX.com kicks off our Network Businesses series. For our purposes, Network Businesses are those that exploit unique features of the Internet in their business model. Often these businesses have a unique information asset that they are able to charge for. Further, they then exploit the network to make that asset even more valuable. This model lies at the heart of major upheaval in many industries.

As explained by John Bonaccorso, 9thX.com's CEO, the 9thX.com allows people to buy and sell digital media. They are an "end-to-end" solution that allows content producers and distributors to sell their content and receive royalty payments each time the content is resold. Some highlights from this conversation:

9thX.com allows content producers to be paid directly for their work. Most niche content producers have too small a market for an advertising revenue model to work.
9thX.com spends no money on marketing. All marketing is done by word of mouth through the web site and distributors.
9thX.com makes its money by controlling the digital rights management system that makes royalty-based payments possible. Each time an asset is purchased or resold, 9thX.com gets 5%.
9thX.com's computing infrastructure is supplied by Amazon's EC2 and S3 services.

Scott Dunham: A Detroit-Windsor Event

2008-06-24T21:03:20Z

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]]> This weekend will mark the inaugural running of the Detroit-Windsor International Film Festival. As with many non-profit undertakings, organizing the festival has been an exercise in building a network of participants and contributors. Scott Dunham, the festival manager, provides the highlights of getting this year's festival together:

From the beginning, the commitment was to develop the festival with "Detroit style" using resources from Michigan and Windsor. The organizing committee specifically ruled out using one of the canned approaches available for purchase so as to maximize the contribution from local Michigan groups.
Significant contributions have come from two academic institutions whose missions coincide with the goals of the festival: Wayne State University and the College for Creative Studies.
Windsor has provided an important link into the Canadian film industry and into the Toronto Film Festival, a major North American festival.
While the festival has been a coalition effort, John Kelly's leadership as festival director has been the glue that holds it together.

Sharon McRill: $10,000 to Start a Business

2008-06-22T02:54:12Z

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]]> We continue our series on financing your innovation in this interview with Sharon McRill, founder of The Betty Brigade. The Betty Brigade is a full service concierge service that will come to you to help you with everday chores and organizing tasks. It has been in existence for five years and is growing at a rate of 40%.

Many might wonder where people get the money to start a business. The financial barrier to entry in service businesses can be quite low. The Betty Brigade is one such business, and Sharon lays out the challenges she faced and how she overcame them:

Sharon had not planned to start a business, but inspired by an episode of Oprah, she decided to invest a recent $10,000 severance package in her business.
Needless to say, the Betty Brigade, like many services start ups, did not require much initial investment. Sharon bought a computer, a copier, and a phone.
Working capital, the amount of money you need to keep your day to day operations running, can be a significant issue when a business first starts. Sharon received payment immediately upon rendering service, reducing the need for working capital. She now manages working capital by taking money up front for large jobs.
Another issue is financing growth. In the early years, Sharon eschewed outside financing because she wanted to maintain control. One way she financed growth was to presell business for a year. Customers made a large up front payment that Sharon could use to finance necessary purchases for growth.

Sharon is no longer seeking to finance growth purely from internal cash flows and is currently pursuing external financing. In future segments, we will discuss her efforts and progress on this front.

Catherine Juon: Working Capital for Services

2008-06-17T02:50:39Z

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]]> This interview with Catherine Juon, Co-Founder and Catalyst at Pure Visibility, marks the first in our series on "Financing Your Innovation". The series was sparked by the observation across multiple interview participants that they faced common problems in financing their innovative businesses.

Catherine introduces us to the issues faced in financing a services business. As we have covered previously, Pure Visibility is a three year old Internet marketing firm that helps its clients grow their businesses online. Like many services businesses, Pure Visibility has grown through bootstrapping. In their particular case, this has meant:

They started with immediate cash flow from clients they had garnered in previous ventures so could forego bank financing.
In addition to contract work, they established monthly recurring revenue streams that guaranteed a source of revenue.
Working capital, the difference between payables and receivables, has been an issue as the company has grown. Pure Visbility is currently seeking bank financing to help with working capital but has also financed it through credit cards and loans from friends and family.

Menawat: Problem Definition and Analytics

2008-06-12T02:56:11Z

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]]> Often business problems present with one set of symptoms but have an entirely different cause. Further, in the larger analysis, the symptoms may not even be worth treating. In this segment, Anil Menawat and Adam Garfein of Menawat & Company discuss how they use techniques from Profit Mapping to help their clients discern problems' root causes and what if anything they might do. A few highlights:

Discerning the root cause of the problem is really about defining the true prolem the company faces.
Like Root Learning, Menawat takes a holistic, collaborative approach to problem definition.
Once the problem is defined, future scenarios can be explored to determine its potential impact on the business.
Anil and Adam provide two concrete examples from the automobile industry and manufacturing to illustrate their points.

Rachel McCormack: Avionics and White Goods

2008-06-09T02:32:16Z

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]]> Looking over the next 12 months, Rachel McCormack, President of MicroMax, is looking to expand into avionics and white goods. Avionics represents a good fit. Mike, MicroMax's CEO, got his start in avionics and so is familiar with the industry. Further, mission critical avionics components require stringent testing much as in the automotive industry.

The market for MicroMax's products in white goods like refrigerators and washing machines is less clear. While these products have embedded systems, the extent to which testing is necessary is less apparent.

BioLumix: Question and Answer

2008-06-06T17:03:28Z

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]]> We follow up Gideon Eden's elevator pitch for BioLumix with a few clarification questions:

Competitors vary by segment. In larger segments, like food, pharmaceuticals, and cosmetics, BioLumix is competing with other rapid testing technologies. In nutraceuticals, BioLumix is competing against external labs.
FDA's testing mandate for nutraceuticals is rather loosely defined. These companies are mandated to test but the precise tests themselves are left to the company to justify.
A nutraceutical can easily run 100's of tests per day. These companies have multiple products and each product can require multiple tests. For instance, a company with 20 products, each requiring 5 tests per day, would consume 100 test vials per day.

BioLumix: Rapid Microbiology

2008-06-03T21:33:48Z

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]]> This interview with Gideon Eden, CEO of BioLumix, is the first in our New Enterprise Forum series. In this series we are looking at early stage technology companies. At the heart of these companies is innovative intellectual property coupled with a potential business model. The goal of these interviews is to understand how the entrepreneurs got to where they are now and why they think they can succeed.

BioLumix has developed a product to detect bacteria and microorganisms on-site in production facilities. Its target industries include food, pharmaceuticals, and nutraceuticals. BioLumix estimates the total testing market in those segments to be $2.2 B/year. Its initial focus is on the nutraceuticals segment estimated at $250 M/year.

The nutraceutical segment has recently been subjected to new regulatory requirements by the FDA that they test their production processes for contaminants. These firms typically have neither testing labs nor trained microbiologists so must outsource their lab work at great time and expense. The bioLumix product reduces both the cost and time associated with testing. Recently, over the course of two major industry gatherings, the firm garnered 150 qualified leads and 10 definite orders.

BioLumix operates off of a "razorblade" financial model. Their product comes in two parts: an electronic tester and disposable testing vials. The tester costs $15,000 and the vials $2 to $3 apiece. Over time, the financial outlay for the vials far exceeds that for the original tester.

In future segments, we'll explore the details of the business model, get a demo of the tester, and discuss with Gideon and his co-founder Ruth Eden how they founded BioLumix.

Dawn Farm: Optimizing Non-profit PPC Ads

2008-06-02T19:20:57Z

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]]> As I indicated in my previous post, I had a unique classroom experience working with Google to develop a pay per click advertising campaign for Dawn Farm, a local non-profit organization. I created actual online ads that connected people to Dawn Farm's website, and I was able to monitor the progress of my ads daily and develop successful optimization strategies.

My project's success came from learning how to identify the specific target market for each of my ads and creating ads that focused on what people in those target groups were searching for on the internet. I learned that by using strong, catchy headlines and descriptive words in the ad text, I was able to make my ads stand out and grab my target audience's attention. I also learned that by keeping my ads focused on a very specific product, my target audience was more likely to click on my ad and become potential customers.

As I learned to optimize my ads, the quality score of the ads increased. This increase in quality score further improved ad visibility by causing the ads to be positioned at the top of the search page. The project required a lot of work and attention to detail. From my hard work came a lot of valuable knowledge and experience. At the end of my experience, I was rewarded with the ultimate measure of success, my ads obtained a clickthrough rate comparable to that of a highly successful commercial ad.

Menawat: Innovation & Business Objectives

2008-05-31T01:51:33Z

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]]> What's the real underlying business problem? What's the best solution? Anil Menawat and Adam Garfein, cofounders of Menawat & Company, walk us through some of the example business problems they've encountered, how they have determined the underlying causes and then resolved them. Adam outlines two areas where the firm focuses:

Business innovation, in this case aligning with customer needs.
Process optimization

Anil brings these two areas to life with a recent example from the auto industry. A tier 1 supplier was experiencing problems with a production process that management attributed to poor labor relations. Investigation determined that, even if labor doubled its throughput, the problem would remain. Menawat suggested a process redesign that solved the problem.

Future segements will examine Menawat's staffing model and global scope. Anil and Adam have written a book on their process called Profit Mapping.

Dawn Farm: Search Advertising for Non-profits

2008-05-29T21:00:00Z

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]]> Last semester, I participated in an innovative partnership between Google and Eastern Michigan University where my classmates and I developed Google Adwords campaigns for several local non-profit organizations. This is the first segment of a case study I have prepared about the challenges we faced and overcame as part of this experience.

My team had the pleasure of working with an Ypsilanti-based organization called Dawn Farm. Dawn Farm works to assist alcohol and drug addicts obtain long-term recovery. This first case study segment that I'm presenting here provides an overview of the initial challenges we faced in managing this account. New to the world of pay-per-click advertising, my classmates and I went through the growing pains of learning how to effectively market a company over the internet. We found that trial and error, actively monitoring our progress, and good communication with our organization were all key to our Google Adwords success.

We were able to establish a strong working relationship with Jason Schwartz, the Clinical Director of Dawn Farm. This relationship was one of the key elements that helped us figure out an effective strategy for Dawn Farm. Jason provided us with valuable insight regarding Dawn Farm's clients and the advertising needs of the Dawn Farm organization. As my classmates and I worked dilligently at fine tuning the online ads we created for Dawn Farm, we observed how our efforts caused a significant growth in the amount of traffic that Dawn Farm's website received. By the end of the semester, it was obvious that our efforts had paid off. Jason Schwartz reported that the amount of traffic on Dawn Farm's website increased over 60%, and Dawn Farm noticed a growth in the amount of applicants.

Currently I am still maintaining Dawn Farm's Google Adwords account and am also a reporter in Michigan Innovators' bullpen section. In future segments, I will focus on how we brought Dawn Farm's Google Adwords campaign on par with high performing commercial accounts.

Wagner Design Associates: Network & Adaptation

2008-05-28T03:00:09Z

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]]> In the past few years, Wagner Design Associates has significantly progressed from a sole proprietorship to a partnership with seven employees. Founded more than 20 years ago, the firm is clearly not on a rapid growth path. Rather they view their small size as an advantage. It allows them to more closely interact with their clients.

The firm adapts to client needs by pulling from its network of collaborators. They provide additional staffing as required. They also allow the firm to stay current with technology by supplying a pool of people familiar with the latest trends. It's worth noting that Wagner Design Associates became a partnership in part by incorporating one of its longtime collaborators, Kathy Roeser.

MxVDev: Testing Transcends Communication

2008-05-26T02:22:06Z

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]]> MicroMax developed MxVDev as a response to the demands of software project management in a global economy. MxVDev is MicroMax's product for testing embedded software systems. As mentioned in an earlier segment, embedded software systems are those where software enhances an already existing function. For instance, embedded software is what enables anti-lock braking systems.

Given the importance of embedded systems like anti-lock braking, testing is critical. MxVDev attacks testing differently in a few ways:

It eliminates communication overhead by expressing the requirements into software tests that are either passed or not. Both parties agree that the requirements are met when the tests are passed.
It emulates the embedded system itself in software eliminating the need to ship expensive equipment around the world for testing.
It allows multiple tests to occur at once, thereby accelerating the testing process.

Wagner Design Associates: From Print to Web

2008-05-20T02:04:51Z

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]]> As described in our last segment on Wagner Design Associates, the firm started as a print design shop. However, by the late 1990's, it was clear that the web would play a more significant role, at least partially displacing print, so Jill Wagner began the move toward the web. Some highlights from this segment:

Shortly after the start of the current decade, Jill approached Kathy Roeser because she felt she needed more web expertise.
Much like Carrie Hensel at Inner Circle Media, Kathy had become a self-taught web guru with a grounding in design and she was actively engaged in teaching others.
Kathy's design background also fit well with the culture of Wagner Design, smoothing the firm's transition from print to web.
Wagner Design Associates now does about 50/50 print and web work.