Creative juices
First there was nothing, then there was Talkingpoint. How Phil Hotchkiss makes it that way.
by Liz Wolf With one successful startup company under his belt, Minneapolis entrepreneur Phil Hotchkiss is back at it again. While his first venture focused on the online investment market, the latest targets the big business of consumer market research — but with a high-tech twist.
Hotchkiss, founder of BigCharts Inc., an investment charting and research site, sold the company in 1999 to CBS Marketwatch.com in a multimillion-dollar deal. He then patiently waited for his next startup opportunity, which came along in 2003 with Talkingpoint Inc.
Talkingpoint develops and services wireless, in-store customer feedback kiosks that report real-time customer research. Hotchkiss, 35, started testing the touch-screen kiosks in December 2003 and has since surveyed more than 150,000 consumers. The company has seven employees, which Hotchkiss hopes to expand to 15 to 20 by the end of the year, plus a small team of contracted engineers.
He’s installed the kiosks in stores (Best Buy, Cub Foods and Saks), restaurants (Dairy Queen Grill & Chill), and airports (for Sun Country Airlines). He envisions them being used in hotels, auto dealerships and any other business looking for cost-effective, real-time customer feedback.
“What consumer-branded business that provides goods or services in a public-space environment doesn’t value customer insight?” Hotchkiss asks. “We’ve proven that Talkingpoint works across categories, including quick-serve restaurants, electronics, apparel, travel, food retail and pharmacy.”
Hotchkiss says launching a startup has a lot to do with the timing and the concept. He waited several years for the Talkingpoint deal to come along.
Hotchkiss sold BigCharts in June 1999 — at the peak of the dot-com market — for $6 million in cash and $160 million in MarketWatch.com stock. He stayed on as president of MarketWatch.com for a year after the sale to help with the transition. He took a one-year sabbatical to “smell the roses” and then spent time consulting for other entrepreneurs. All along he kept an eye out for a new opportunity, but times were challenging.
“Soon after I left CBS Marketwatch.com, the market started to crash,” he says. “The Nasdaq completely collapsed, the whole dot-com thing collapsed. Then 9/11 and the Enron scandal occurred. It was a tough era.
“As a startup guy, my view was, ‘Look, there’s a raging storm out there, and I’m not going to throw my boat back in the water until I see some signs that it’s calming down.’ Raising capital was tough then. The venture markets were pretty much shut down. It was a very tricky time, and I just didn’t have a compelling enough idea nor did I see a compelling enough idea that I wanted to pursue.
“For me, it was a real exercise of restraint. I’m very much wired to be doing something, so to sit there and have to constantly say, ‘Not yet, not yet,’ was difficult. But I’m glad I did.”
In 2003, a company called iCount caught his attention. It was a concept-stage company exploring the notion of surveying customers in stores with an interactive touch-screen device and providing analysis of data online.
“It was interesting to me the idea of having an interactive platform in stores engaging customers in the brick-and-mortar world and linking that to the online world,” Hotchkiss says. “I looked at it and it was a good concept and one that I felt I could expand and polish. They didn’t have a working product. They had some execution challenges. I decided to get involved, did some restructuring and rebranded it Talkingpoint.”
The next step was funding. Talkingpoint has raised a couple of million dollars so far. “We’ve been raising money from local angel investors and individual investors, and we’re moving toward doing an institutional round of financing in early 2005, likely in the $5 million range,” Hotchkiss says. He’ll approach venture capital firms and strategic investors.
Raising capital, however, is not one of Hotchkiss’ favorite duties as a startup entrepreneur. “When you’re building a branded, product-driven operating company and then to also be adequately focused on financing is the hardest thing for me,” he says. “I only have so much energy in a day. If raising capital were off the table, being a startup entrepreneur for me would be one-tenth of the challenge. Designing products and selling to customers — are you kidding me? If that’s all I had to do, it would be a dream.”
Talkingpoint has more than a dozen investors, including Dean Phillips, CEO of Minneapolis-based Phillips Distilling Co., who is also Talkingpoint’s chairman.
“I was approached when they were looking for seed money,” Phillips says. “I was immediately intrigued. I see a lot of ideas, and everybody thinks they’re going to hit a home run, but very few ideas are instantly intuitive. Talkingpoint struck me as a currently missing conduit between companies and their customers.”
Phillips says he invests in people as much as concepts. “I was struck with Phil because he’s a visionary, he’s inspiring and he’s relentless. To me, those are the three legs of a business stool. Also, he invested in the company when he joined on. He put his money where his mouth is.”
Talkingpoint is easy to install, Hotchkiss says — it plugs in to any outlet with a wireless network connection — and easy to use. Talkingpoint asks customers to offer feedback on their shopping experience. Consumers answer a short list of questions and have an option of providing their e-mail or street address. In return for participating, they’re offered an incentive, like a coupon. By the time they get home or back to the office the coupon is already in their in-box.
Talkingpoint helps clients devise the questions, which can change frequently. Clients can get as detailed as they want, asking about price points and store atmosphere. Information from the survey is transmitted wirelessly to Talkingpoint, which crunches the numbers and sends the data to the client online.
Hotchkiss says Talkingpoint can drill deeper than traditional customer research because it analyzes data by age, gender and location. He says this information helps his clients make important decisions on everything from pricing to inventory.
“When you achieve customer understanding, you’re able to act on it,” Hotchkiss says. “You’re able to make well-informed decisions.” For instance, a retailer could use Talkingpoint to survey customers about a new concept store. “In a short period of time, that retailer hears from 20,000 of its customers before it makes a $500 million decision to build 50 more new concept stores. That’s understanding,” Hotchkiss says.
Hotchkiss hopes Talkingpoint will tap into the billion-dollar consumer research business. “Companies spent $6.5 billion in consumer research in 2003, and the market for e-mail marketing is forecasted to rise to $6.1 billion by 2008,” he says.
More than half of consumers who’ve been surveyed at a Talkingpoint station provided their e-mail or street addresses. Hotchkiss says that’s valuable information.
“Now you have a database and you can leverage the knowledge you’ve gained to better develop those relationships,” he says. “That’s the big story. That’s the big difference. That’s then used to develop customer relations and generate sales.”
He says Talkingpoint is more cost-effective than most traditional consumer research. “It costs our customers $15 to $20 a day to have a Talkingpoint working for them in their store. That’s fully loaded.”
Tom Lehmann, president and COO of Frauenshuh Hospitality Group in Bloomington, was the first to test the kiosk at four of his Minnesota DQ Grill & Chill restaurants and has since signed a long-term contract.
“The data is phenomenal,” Lehmann says. “Since we’ve installed Talkingpoint, we’re just shy of having 30,000 people complete surveys. That’s a huge sample. That’s a huge amount of data. We can ask customers if the dining room is comfortable, if the staff is courteous, if we have enough menu selection. We can then analyze the data according to age, gender, time of day and location. This data helps us make strategic decisions.”
He calls Talkingpoint the “thief in the night. It sits by the door and we’ve never directed anyone to it, but it piques your interest. What’s key is that the people who participate in the surveys are people who’ve actually done business with us. They’re real customers who have an opinion based on their visits. Also, the way the data is collected is non-intrusive. It’s not in your face.” At the same time, Talkingpoint allows Lehmann to compile a database with customers’ e-mails, which he’s using to promote special offers.
Elyse Gammer, operations officer for Marketing Research Association, a trade organization near Hartford, Connecticut, hasn’t heard of Talkingpoint but sees its potential.
“Any type of target research is good for the target,” she says. Talkingpoint “is a point of impact for the client. Customers get something out of it and it brings in repeat customers. It looks like they’ve taken a methodology, packaged it and marketed it well, and if the buyers are happy with the data, it’s valuable to them.”
Garnet Vaughan agrees that good consumer research is crucial for today’s businesses. She owns The Marketing Department in Greenwood, Indiana, a consulting company specializing in shopping center marketing. “The more we all know about our customers, the easier it is to serve them. For example, if I were Best Buy, I would want to know if the shopper was aware of its points program and other customer benefits. I would also want to know if the shopper was leaving the store without something on their list.”
Vaughan has one reservation. “How apt are time-stressed shoppers to spend time with the process? Maybe if it were portable, I could answer while I was standing in line to check out. But then all the answers might be about standing in line to check out.”
Hotchkiss discovered he was “wired” to launch startups a few years out of college. After graduating from Gustavus Adolphus College in St. Peter, the Bloomington native joined Dain Bosworth (now RBC Dain Rauscher) as a stockbroker. He enjoyed a successful career at Dain for three years, but something was missing.
“It just wasn’t the thing for me,” he says. “I came to a point that I realized, ‘I’m just not happy. I’m doing well. I should be happy. I’m getting recognized for doing well in this job, but I’m not happy.’ So when you’re 25, not married, no children, it’s a lot easier to say, ‘I’m not happy and I’m going to do something totally different.’ ”
Hotchkiss says he felt a need to “design and build something that was unique and different,” and for his first endeavor he stayed close to home. As a stockbroker, he was interested in financial markets, applications and analyzing data. He launched BigCharts and brought in two partners, designer and creative director Chris Foss, and Jamie Thingelstad, who became chief technology officer.
“I’d been a stockbroker. I didn’t know about product design. But once I was exposed to the design world, something just clicked,” Hotchkiss says. “It was like, ‘Wow!’ I truly love product design and interactive design and all of the business strategies that go along to bringing it to market. I’m focused on product and design and usability and getting all that part right, because that supplies the passion and energy it takes to do everything else you have to do as a startup CEO.”
Thingelstad, now CTO of CBS Marketwatch.com., has known Hotchkiss for a decade and says he’s very persistent. “He doesn’t let simple things get in his way and his persistence pays off,” Thingelstad says. “When we were building BigCharts, there were at least four times where our board members told us that most startups at this point would have shut down. We stuck to it, believed in it and felt we were on the right path.”
Something else that stands out about Hotchkiss is he has an appreciation for the aesthetics, Thingelstad says. “He’s absolutely aware of everything. When we were making a presentation, he paid attention to the quality of the paper we printed on. Were we dressed right? Was the room set up right? He’s very particular and that’s one reason he’s successful.”
Though Hotchkiss makes the BigCharts endeavor look easy, looks can be deceiving. “It certainly wasn’t a perfectly straight, upward charge,” he says. “Within successes, there are failures. I think that’s where I’ve learned my most valuable lessons.
“For example, when I started BigCharts the initial focus was different. It was still data-driven, interactive financial applications, but it was focused on a much more narrow market of very active traders using much more sophisticated financial models. I learned a lot from that. First, that wasn’t a market I wanted to service. It was too based on trying to time the markets and predict things. I also learned it was too narrow of a niche.”
He and his team went back to the drawing board and came up with a product that was geared toward a much wider audience and made no predictions. “BigCharts didn’t recommend anything,” Hotchkiss says. “It gave people tools to look at factual information, make decisions and to do it in a fun, creative, graphic way.”
Hotchkiss also has faced challenges with Talkingpoint. “Bringing something new to market is interesting, because you don’t know what’s going to happen until you put it out there,” Hotchkiss says.
“When we launched Talkingpoint, we didn’t know what numbers of consumers we could actually engage. There was a lot of doubt with investors. The constant question was, ‘Will anybody do it? It sounds great, but will anybody do it?’ If consumers don’t do it, it’s worthless.
“I always tell investors that if we don’t get the front-end design right for the consumer, it’s like having a Ferrari without spark plugs. The spark is the number of customer interactions.”
Hotchkiss says it was tense when they put the first Talkingpoint out there. “Fortunately, we were validated immediately. So in that first test we knew people would do it, and we knew enough people would do it to justify our existence. But then we didn’t know if they’d do in another category. Maybe we just got lucky. So we kept going and going. Now we know statistically.”
Talkingpoint is entering the rollout stage, securing more national accounts and continuing to raise capital. Hotchkiss says the whole process of building a startup intrigues him.
“I enjoy working where there’s nothing, building up something and being able to look at it and go, ‘Cool.’ It was a whiteboard and now it’s a thing — a living, breathing entity that does something purposeful. That’s what motivates me.”
[contact] Elyse Gammer, Marketing Research Association: 860.257.4008; elyse.gammer@mra-net.org. Phil Hotchkiss, Talkingpoint Inc.: 612.486.1250; phil@talkingpoint.com. Tom Lehmann, Frauenshuh Hospitality Group of Minnesota: 952.829.3477; tom.lehmann@fcmpls.com. Dean Philips, Phillips Distilling Co.: 612.362.7500. Jamie Thingelstad, CBS Marketwatch.com: 612.371.1524; jthingelstad@marketwatch.com. Garnet Vaughan, The Marketing Department: 317.889.8400; GarnetTMD@aol.com.
