The Upsize Growth Challenge, presented by Winthrop & Weinstine, is a contest created by Upsize magazine to match two winning business owners with the expert advice they need to reach their goals.
DataTrec, Hennes Art Co. share their successes, challenges for expansion
About this project
From nominations, judges select two winners based on the ambition of the growth goal and the quality of the work already completed to meet it. They participated in a workshop this spring with expert advisers supplied by the sponsoring companies, which was covered in the August/September issue. In September, winners told their stories at a public event and experts gave advice applicable to all growing firms, covered in this article. Nominations for next year’s contest open in spring 2018.
Last month we introduced Minneapolis-based Hennes Art Co. and Eagan-based DataTrec as this year’s participants in the Upsize Growth Challenge.
In the time since, Brian Anderson, president of DataTrec, and Greg Hennes, founder of Hennes Art, met again with the panel of experts, this time at a public event at the Minneapolis Club, where they again spelled out their growth questions and provided an update on progress since the private meeting six weeks earlier.
Below is a look at where these companies came from and what they are trying to accomplish.
DataTrec
When Brian Anderson got out of college in 1982, he was dating a woman in town and his car was “going to heck.” So, he took a job in import-export sales that offered a company car and international travel. “It sounded like it had some flair to it,” he says.
Every 18 months to two years later, he took a new job or move up in his existing role until 1990, when he started his own company, Anderson Air Cargo. Over the years, the company evolved. It began expanding service offices into international shipping and domestic trucking.
Sept. 11 attacks changed the logistics industry significantly, he says.
Regulatory compliance issues became more stringent and fuel costs went through the roof, making the economics of flying cargo in inefficient planes difficult. So, air freight went from 35 percent of his Eagan-based business to about 3 percent.
Around the same time, what is now Anderson Cargo Services Inc. began building a business around more challenging logistics work related to the relocation of computers and servers.
“Computers started to take over everything,” Anderson says. “It began with people reselling computers.”
Minneapolis is a big market for electronics, but the companies that use them don’t necessarily buy them here. They had to pick them up — and when they did, he says, they were typically not packaged well, if at all. Over the last decade, that evolved into the movement of higher and higher value equipment, such as data centers. As companies moved them offsite, Anderson Cargo would help the company reallocate them.
It became a big enough part of the business where Anderson, at the beginning of this year, established DataTrec to handle that challenging cargo activity.
Provides an exit strategy
In addition to growth in a niche market, Anderson sees DataTrec as his opportunity for an exit strategy at some point. The difference between Anderson Cargo and DataTrec, he says, is like the difference between Dairy Queen and Bob and Cheryl’s Ice Cream.
“Anderson Cargo has been a very good company,” he says, “It, I think, has been defined by others in business as what they would call a lifestyle company.”
DataTrec has much broader appeal. The name isn’t tied to the family. “It’s very focused, very defined and it’s not tied to an individual,” he says.
The Growth Challenge
Anderson wants to see DataTrec grow substantially into 15 to 20 markets. He was seeking feedback on raising money to do so.
Presently DataTrec operates as a brand of Anderson Cargo Services. They share staff. But he believes splitting off the specialty business provides a better opportunity for marketing those services, and he definitely sees DataTrec as the growth engine going forward.
In just 10 months, the company has done three campaigns and has sourced a large number of names and prospects within a pyramid of customers he and his staff have identified.
He’s looking to expand with a physical presence into 15 to 20 strategic markets that would not only allow more direct marketing to targeted companies but also would create a more efficient disbursement of the equipment his company has created to safely package and transport the sensitive equipment DataTrec relocates.
Between the packaging equipment, the armed security and the chain of custody guarantees, DataTrec attempts to greatly assuage the anxiety a company feels when it’s taking highly secured data and moving it from one location to another.
“It’s their whole livelihood you are moving,” Anderson says. “I think we’ve really identified a service niche that is not presently being serviced well.”
“About 85 percent of small businesses still have their computers in what we would call a closet,” Anderson told attendees at the public event, held at the Minneapolis Club in mid-October.
“We have taken a decade of experience … to learn how to facilitate this process,” he says. “This is a high-risk endeavor. You’ve got an entire company at stake. You’ve got your clients, your software, your backend. The stress of the people we are dealing with, they are freaking out.”
What the experts say
A panel of experts convened by Upsize for the Growth Challenge was excited about Anderson’s prospects for success.
Before approaching banks or investors, he needs to hone a business plan that outlines best- and worst-case scenarios, says Melissa Johnston, vice president of business banking for Highland Bank. But he’s established a unique niche and he’ll have plenty of options for financing, from traditional banks to venture capitalists or angel investors.
“There is a lot of money sitting on the sidelines right now and also folks looking to invest in good ideas with a track record,” she says. “Brian is positioned well for that.”
Jon Cassens, a director at DS+B | CPAs + Business Advisors, says Anderson will have several options for how he wants to proceed with expansion.
One option that could reduce costs might be following the U-Haul model of establishing partnerships with complementary businesses in new markets.
“[U-Haul] partnered with many different businesses to stick their sign out,” he says. “The cost of getting in would be relatively low and that’s a different revenue stream. The opportunities there are big and diverse, which I think is a big opportunity.”
Because he doesn’t already have a huge pot of money, it might make sense to decide whether to target small or large businesses at the outset,
says Dean Willer, an attorney with presenting sponsor Winthrop & Weinstine. With large clients, a direct sales force might take away the need for having a physical presence in all the important markets, but if small businesses are the target, it might be necessary to have people on the ground in those cities to help find the right contacts.
“Decide where you want to be,” Willer says.
“Do you want go to the big boys first and work down or go to the little guys first and work up and end up with a situation where you can target your resources to the most advantageous way to attack the market.”
Dan Moshe, founder of Tech Guru, says Anderson has tapped well into the minds of tech savvy individuals. He complimented DataTrec’s quick turnaround time on quotes and the ability to own a process that troubles customers.
“Brian really understands how us techie people think,” Moshe says.
“He knows and understands that we want it right now. We want to just have it work and not have to mess around with it, especially if it’s something as analog as boxes and trucks and moving stuff.”
Hennes Art Co.
Greg Hennes graduated from St. Thomas University with a double major in business and economics, but he always loved architecture and knew he wanted to work in a creative field.
After graduation, he answered an ad for a job managing an art gallery, where he worked closely with architects and designers in helping set up corporate art collections.
After that, he helped an office furnishings dealer set up an art division. When the owner sold the business and retired, the buyer didn’t want anything to do with the art side. So, in 1989, Hennes took his client list and vendor relationships and struck out on his own.
Through a variety of mergers and acquisitions, over the next 20 years, he built Art Holdings Corp. into a solid company with 66 employees at its peak. He sought an investor to facilitate national growth, but in a short time the relationship soured over philosophical differences.
“I basically walked out the door and started this new company,” Hennes says.
When he started Hennes Art Co., his intention was to keep it small. He wanted to be able to run it from a boat with a laptop. He set up a gallery in downtown Minneapolis doing high-end art shows. But then growth started happening and, with that, returned his desire to expand.
Corporate clients from his previous company started finding him and, just a few years later, the company moved into an 11,000-square-foot showroom in the Warehouse District. He’s added a handful of employees and is again doing full-service art consulting catering to corporate clients of any level.
“I needed to be better prepared for the growth that was coming by having a larger facility and a few more employees to make sure we actually did it right and that every step we take continues to fuel the growth,” he says.
The main difference is that Hennes Art outsources most of the mass production, which allows for lower overhead costs because facility needs are smaller.
“It’s a much more streamlined, efficient model,” he says.
Sales in 2016 were just under $1 million. He expects to close 2017 at around $1.5 million and push $2 million in sales in 2018.
The Growth Challenge
While he’s comfortable with the company’s trajectory, Hennes entered the Growth Challenge for a couple reasons.
First, he’s looking for a cost effective and technologically sound way to enhance the user-friendliness of the company’s web platform, a way to automate many of the choices customers make.
But he also was looking for advice on the hiring of a business development person, whose responsibilities would include reducing a significant backlog of projects on which the company hasn’t had the resources to bid.
He’d been looking for that person for a while, but has been carefully balancing the desire to grow with the need to ensure that he’s keeping the company on a manageable track.
After meeting with the panel of experts, however, he upped the urgency and made the hire. By mid-October, the new person had already facilitated an additional $200,000 in bids for business, Hennes says.
“We, literally, with that one add, will be able to double our revenue next year,” he says. “That’s how much was sitting on the table that we weren’t getting to.”
What the experts say
When Hennes first met with the assembled panel of experts, they were intrigued by his desire to improve the company’s web capabilities but also suggested that he first accelerate his search for a business development colleague. Panelists were happy he made that hire before the second meeting.
“What Greg did after starting his company in 2010 is make really good choices in terms of when to add to his team and how to manage that growth appropriately,” says Highland Bank’s Johnston.
“He’s built his company based on service and how he delivers to his clients. Adding people just to fill those seats isn’t a great solution.”
He’s put himself in a position to build a strong case for financial assistance, should he need it to help with future growth. “Yes, there are some great opportunities for Greg to add some capital, through traditional bank financing or other sources,” she says.
Willer, from Winthrop & Weinstine, says it’s great that the company has moved forward with hiring a salesman to help work down the backlog of potential orders.
While finding a new business development person was Hennes Art’s low-hanging fruit, Willer and Tech Guru’s Moshe add that Hennes still has tremendous opportunities for growth through a technological enhancement. Moshe suggests Hennes should do an exhaustive search to see if the technology necessary to improve the company’s website exists elsewhere before committing substantial resourcs to building one from scratch.
Scouring tradeshow lists and studying the websites of companies in adjacent industries are a couple ways he’s found answers to similar problems.
“I’ve been involved with many projects where it’s obvious that a technology play is going to transform the business,” he says, “You’re not alone. Somebody else has probably come up against a similar business problem. It’s up to us entrepreneurs to see if we can apply a little creativity … That’s what entrepreneurs’ specialties are, we can see connections that aren’t obvious.”
Cassens, from DS+B | CPAs + Business Advisors, agrees that there is a room for technological enhancements with Hennes Art, but cautions against going too far.
“The differentiator for your business is that personal touch, the ability to sift through the weeds the client may not want to as well as the ability to have those touch points with the decision makers,” he says.
Contact the experts:
Brian Anderson, DataTrec: 651.209.0047;
brian.anderson@datatrec.com; www.datatrec.com.
Jon Cassens, DS+B CPA + Business Advisors: 612.630.5071; jcassens@dsb-cpa.com;
www.dsb-cpa.com.
Greg Hennes, Hennes Art: 612.377.2630;
greg@hennesart.com; www.hennesart.com
Melissa Johnston, Highland Bank: 952.858.4798;
melissa.johnston@highlandbanks.com;
www.highlandbanks.com.
Dan Moshe, Tech Guru: 612.235.4895;
dan@techguruit.com; www.techguruit.com.
Dean Willer, Winthrop & Weinstine: 612.604.6633; dwiller@winthrop.com; www.winthrop.com.
