From NW Arkansas To Ann Arbor, How Smaller Tech Ecosystems Are Faring Differently In The Pandemic

You might expect the small but fervent startup ecosystem in Northwest Arkansas would be weathering the COVID-19 economic storm better than other ecosystems because of the “Big Three,” as they are locally known. Walmart, Tyson Foods and J.B. Hunt are headquartered in the region, supporting local entrepreneurship programs and more importantly, offering markets and expertise.

It’s not clear yet whether the big companies’ presence will be a bane or boon. They give the ecosystem strength in areas such as logistics and retail technology – but as the big companies have suffered during the pandemic, they also leave the region open to collateral damage.

Rather, the bigger pandemic story here turns out to be the unexpected benefit of small. Some smaller entrepreneurial ecosystems, including Northwest Arkansas, may be benefitting, paradoxically, from what’s always been the knock against them: their size and focus.

The Northwest Arkansas ecosystem has launched 119 companies over the last five years, most notably in Fayetteville and Bentonville, according to the Northwest Arkansas Council. New York City-based non-profit Endeavor opened an office in Bentonville in March 2019. Silicon Valley’s Plug and Play partnered with the “Big Three” among others to launch a supply chain and logistics accelerator in July 2019.

“You get this great synergy of insight and attention on retail,” says April Seggebruch, co-founder of retail management platform Movista, of the region.

Movista was founded by Seggebruch and Stan Zylowski in 2010, making it one of the “elder statesman” startups. The platform has 150,000 daily users in the manufacturing and retail sectors nationwide, from Ghirardelli Chocolate to Central Garden & Pet. Based in Bentonville, Movista has raised more than $13 million in funding since its launch and according to Seggebruch, the company has experienced double digit annual revenue growth for the last five years.

Small Tech Ecosystems Have Grown Up In A Realistic Atmosphere

Movista added Project Health to its platform when the pandemic hit, a dedicated section that helps clients with workplace COVID-19 safety and compliance, from government regulations to tracking hotspots. Movista has not had to lay off or furlough any of its more than 100 employees across the country during the pandemic.

In Silicon Valley, layoffs, some of them brutal, have hit high-profile tech firms. The Wall Street Journal reported on the new sense of reality in the job market in the Valley

But smaller tech hubs have always grown their startups and talent pools in an atmosphere of reality.

With the caveat that it’s not always beneficial under normal circumstances, Angela Kujava, the managing director of Desai Accelerator in Ann Arbor, Mich., says that in its small ecosystem, “Everyone knows each other.”

When COVID hit, it was easy for people to reach out for resources, either for themselves or on behalf of others.

Donna Kelley, a professor of entrepreneurship at Babson College in Wellesley, Mass, researched and contributed to the recently published Global Entrepreneurship Monitor (GEM) report “Diagnosing COVID-19 Impacts on Entrepreneurship – Exploring Policy Remedies for Recovery.” 

Kelley predicts four types of outcomes for businesses during the COVID crisis, whether they are tech related or small businesses, or located within big or small metropolitan areas.

Four Outcomes For Entrepreneurs

One: businesses that are already struggling and likely to close.

Two: adaptable businesses have a chance at prevailing.

Three: businesses that, by nature, are in the right place at the right time and will likely thrive.

Four: entrepreneurs who launch startups because they see opportunities.

“After all,” writes Kelley in an email, “many successful startups that are household names today were started just after the 2007-2008 recession—WhatsApp, Venmo, Uber, Slack, Square to name a few.”

Kujava, in Ann Arbor, notes that some local startups pivoted within days or weeks of COVID. One Desai Accelerator alum is Mipadrino.com, a startup founded by Kim Gamez designed to help event planning within the Hispanic community, including Quinceañeras. “Well, no one was having events,” says Kujava, “it could have been a disaster. Instead, within weeks, she set up doyoumask.com and started selling masks, creating a new revenue stream.”

More than 20 companies have been launched in Ann Arbor in 2020 and according to Kujava, the region is on track to exceed 50 by the end of the year.

In addition, Ann Arbor has its own patron saint of startups. Dug Song, the founder of Duo Security, acquired by Cisco for $2.35 billion in 2018. When COVID-19 hit, he gave out $1 million in grants to local startups and small businesses.

Coplex, based in Phoenix, Ariz., shifted gears from a startup accelerator to a startup studio when COVID hit. “We used to focus on founder-lead startups but made our own pivot over the last six months,” writes content strategist Kimberlee Morrison in an email, “and are now focused on helping corporate enterprises innovate more effectively.”

In Phoenix, A PIvot To A Startup Studio

While Coplex’s pivot to a startup studio model was “somewhat in the works,” according to Morrison, the pandemic accelerated the transition. “We realized our business model was at risk and we needed to transition our focus more fully on corporations. In many ways we believe that corporations—not startups—will lead the post-covid innovation (especially in highly regulated industries) because they have the talent and the resources to make it happen,” adds Morrison.

In Miami – a rising hub that was ranked #1 for startup activity in 2017 – the impact has been mixed. Ana Paula González, director of global ecosystem development at 500 Startups, launched the early stage fund’s Miami operation two years ago. She notes by email that seed funding for early stage startups has mostly dried up as investors are waiting to see how the economic landscape pans out. However, funding continues to flow for a few high performing startups. Miami based Fuel Venture Capital just raised $30 million in series C round for Ubicquia, a smart city streetlight tech company based in Fort Lauderdale.

González says there’s been a flock of investors from New York and San Francisco recently moving to Miami for a better quality of life. “It is unclear how much of their capital they will be allocating to local startups,” writes González in an email, as some have stated they’re looking for local investment opportunities.

Northwest Arkansas has experienced some economic pain – but it’s also benefitting from the years of work that have gone into the building the ecosystem.

Walmart recently announced it will cut corporate jobs and Tyson Foods—with nearly 5,000 employees who tested positive for COVID-19 in its facilities nationwide and some deaths—has seen its stock price drop to near $60 from $85 a year ago. And John James, one of the area’s most successful entrepreneurs/venture capitalists, was slated to launch Engine, a software startup, but instead, it went dark in late June. According to the Northwest Arkansas Business Journal “…the company had a funding round fall through just as the COVID-19 pandemic hit. Laying off all of its roughly 25 employees was the company’s only option.”

Lauren Blanco and Preston Stewart, the chocolatier cofounders of Markham & Fitz, have been developing their Northwest Arkansas ecommerce business since the pandemic hit. When Markham & Fitz launched six years ago, it was primarily manufacturing bean to bar chocolates in beautifully designed packaging, sold wholesale. Three years ago the company added a Bentonville shop and café, which became 60 percent of their revenue. COVID shut down the shop, now reopened, and nearly all events they used to supply chocolate to, have ceased; Blanco says her staff of about 20 has shrunk in half.

“I think that we’re more or less trying to weather the storm,” says Blanco. They upped the ecommerce ante for locals, offering various  “date night” pairings of wine and chocolaty treats, a tub of chocolate chip cookie dough, chocolate cakes, among other goodies, all for curbside pick up or delivery.

The presence of the University of Arkansas, in Fayetteville, and the region’s lower cost of living, manufacturing and labor, compared to high profile startup cities like San Francisco, New York City or Seattle, are still standing it in good stead. The University’s Office of Entrepreneurship and Innovation, currently lead by Sara Goforth, has become a pipeline of students with clever startup models; in fact it’s where Movista was first conceptualized when Seggebruch was a graduate student.

From Dirt Road To Superhighway

Seggebruch notes that huge manufacturers like Kimberly-Clark and General Mills all have a local presence in the Northwest Arkansas because of Walmart. Smaller ancillary companies looking to introduce their retail operation services or process technology, like Semperis, a cyber security company from greater New York City, also have a presence.

“We like to say we grew up on the dirt road,” says Seggebruch, “now Northwest Arkansas has a super highway!” she laughs, reflecting on the region’s growth. It’s home to a variety of startups, from WattGlass, which makes eco-friendly coating for solar panels, and 3D printing company AMBOTS.

Homegrown organizations supporting the entrepreneurial ecosystem are plentiful. Startup Junkie Foundation in Fayetteville provides free one-on-one mentoring, hosts startup events, runs the AI accelerator FUEL, and recently partnered with Kiva US for local entrepreneurs who need microfinancing. Bentonville’s Grit Studios is an advisory network of members from 12 companies in the Northwest Arkansas business community. It attracts local entrepreneurs and founders, as well as those from outside the region who want Northwest Arkansas connections and a local presence.

Taylor Hasley, executive director of Startup Junkie Foundation in Fayetteville, highlights the benefits of the region’s smaller startup ecosystem. “With smaller ecosystems comes a more loyal customer base. Startups who acknowledged the downturn and kept an open line of communication with their customers were able to pivot to their customers’ needs,” he writes in an email.

Startups in Northwest Arkansas with physical dependencies were affected with lower valuations from loss of traction, notes Hasley, “… but we continue to see investments growing in AI and the digital economy,” he writes. While some businesses in Northwest Arkansas did shutter, Hasley predicts the region will not suffer a recession and that the worst of the market correction is over.

Rick Webb, managing director of Grit Studios, says he’s seen rapid growth in several members’ businesses that provide solutions for clients during the COVID crisis. Webb notes one member began actively recruiting for a sales team to be based in the region after the pandemic hit.

“Only negative I’ve seen,” writes Webb in an email, “has been a delay (but not canceling) of some venture funding till later this year or early 2021.”

This story was produced as part of the Arkansas Reporting Project, focusing on entrepreneurship in Northwest Arkansas and the Arkansas-Mississippi Delta, sponsored by the Walton Family Foundation.