Case Study: The Pedal and the Metal
Cheata Bikes hopes Milwaukee will be famous for another motorized two-wheeled vehicle
By Matt Hrodey
What it does: Custom-builds motorized bicycles
Sales: About 100 bikes in 2017
In a bland three-story building in South Milwaukee, up an elevator and down a dark hall, Cheata Bikes is building what might be the finest motorized bicycles in the country. Inside, a half-dozen employees , including head engineer Bill Rankin, make every Cheata Bike by hand. With curving lines, two-tone paint jobs, and names like Apollo, Goliath and Varuna, they look as if they materialized out of a 13-year-old’s dreams.
Rankin points out that the central engine is separated from the frame by rubber mounts and tricks, reducing the vibrations that are a major problem with motorized bicycles. Cheata Bikes also use a proprietary hub design for the rear wheel, which can be turned by pedaling, cranking the throttle or both.
Ravi Bhagat, a Milwaukee-area real estate investor and former technician at an aerospace company in Illinois, built the first Cheata Bike for his son, who needed a means to travel back and forth from a Downtown apartment to Milwaukee Area Technical College. It didn’t last long, however, as it was stolen off the street by a thief wielding some serious cutting equipment. “Someone wanted it that bad,” he says.
Cheata bikes, as Bhagat likes to point out, are legal to drive in both the bike and regular car lanes, as they’re wired to go no faster than 30 mph. With the larger Goliath model weighing in at about 70 pounds , they have something of a motorcycle feel.
Bhagat claims that his bikes are both more robust than high-end “e-bikes,” which are powered by a large battery, and cheaper to maintain. But as with the most expensive e-bikes, the initial price of entry is pretty steep, ranging from $1,795 to $3,995 for the Apollo model.
Cheata sold about 100 bikes in 2017 and hopes to sell twice that many this year as the bikes wiggle their way into more motorsports dealerships. Rankin modifies the engines – small, four-stroke models not much larger than a weed whacker’s – to pack more punch on the way up to 30 mph, without falling below 150 miles per gallon. As for range, Bhagat once rode 50 miles to a meet a friend, and 50 miles back, the farthest he’s gone to date.
The head-turning bikes have created their own buzz, both around town and online, and “revenue has been nice,” Bhagat says. He’s gotten them put on display at several Milwaukee hotels, where out-of-town visitors see them as exactly what they expected from a city that was once called the Machine Shop of the World.
Making ‘Med Tech’
The doctor will see you from just about anywhere – and three other ideas from young area companies
By Erik Gunn
The emergency room patient has come in with a really bad tummy ache – “severe abdominal pain” in medical lingo. The triage nurse takes some initial vital signs (temperature, blood pressure) and asks a few questions. But he also pulls up a webcam-equipped computer monitor and calls up a long-distance physician.
The doctor is miles away in front of a bank of monitors, connected to half a dozen hospital emergency rooms around the region. Within minutes of the patient’s arrival at the emergency room, that physician can be asking some more detailed questions and ordering certain tests – often hours sooner than might be possible otherwise.
That’s the premise behind EmOpti, a company founded in 2015 by emergency doctor Ed Barthell and one of a number of businesses in the region that leverage new technology to solve old problems in health care.
The idea is to get a doctor in on the patient evaluation almost as soon as the patient arrives – something that’s been tried in person but found to be too expensive. An in-person doctor will still complete the ER evaluation and order whatever follow-up is needed –from a prescription to a referral for surgery – but the remote “physician in triage” helps advance the ball, and ultimately increases patient satisfaction and hospital productivity, Barthell says.
EmOpti provides the necessary software and some hardware to make it all work; employment has now reached nine full-time and five part-time people. Early adopters include Aurora Health Care in Milwaukee and MedStar Health, a medical group in metro Washington, D.C.
Southeast and south central Wisconsin have quietly become a new incubator for these kinds of businesses in the last decade. “It’s a confluence of factors,” says Barthell. To begin with, “Wisconsin has had a very high quality health care system in general.” As well, some major business players – Verona-based Epic Systems, the electronic medical records business, and suburban Milwaukee’s GE Healthcare, the worldwide manufacturer of X-ray and other medical imaging machinery – have built a regional talent pool in the sector. UW-Madison, Marquette University, the Medical College of Wisconsin, and UW-Milwaukee bring expertise not just in medicine and engineering but also entrepreneurship. Several startups also credit Gov. Scott Walker’s Wisconsin Economic Development Corp.
And angel networks to invest in early-stage businesses have shown increased interest lately, especially in health-tech combinations. Concerted collaborations such as Bright-Star Wisconsin in Milwaukee and BioForward in Madison are part of “a specific, coordinated effort in Southeast Wisconsin to make that happen,” says Nick Maris, CEO of
Somna Therapeutics, a Germantown med-tech startup founded in 2012. Somna’s business is centered around the Reza Band, a medical device for patients who suffer from a form of chronic acid reflux disease caused by a weak upper valve in the esophagus. Devised by Somna co-founder Reza Shaker, an MCW gastroenterologist, the Reza Band is fitted like a collar around the throat to provide enough pressure to allow the weakened valve muscle to keep digestive juices out. Maris says the company’s research suggests that the $149 device could replace a significant segment of the market for expensive acid-reducing drugs. Manufacturing is contracted out; Somna itself now employs four people. Access HealthNet, with offices in the Third Ward, works on the other end of the sector by helping employers and employees manage the cost of health care. The company’s basic service is a web-based platform of health care providers that it sells to employers who are self-insured, paying employee medical costs directly instead of through an insurance plan.
The key, says Access co-founder and CEO Eric Haberichter, is that the providers Access has signed up have set fixed prices for their services that they are willing to live with – not prices padded knowing that insurers will then demand negotiated discounts. Access also includes in its terms a warranty that providers will provide follow-up care resulting from a provider error at no additional charge. By cutting out insurance-company middlemen and markups, Haberichter says, the Access approach has cut costs anywhere from 10 to 80 percent and “saves employers so much money they can eliminate the out-of-pocket cost to the employee.” Founded in 2014, the company has grown to 40 employees.
Then there’s iDAvatars, a 15-employee Mequon software company building cartoon-like avatars that guide consumers through potentially difficult choices online.
The company markets its chatbot software to insurers, and the industry has used the program initially to help people choose, for instance, which of several different car or homeowner plans would be best for them. The next step, says founder and CEO Norrie Daroga, who founded the business in 2013 after careers in engineering and law, will be providing medical information.
But not medical advice, Daroga says: “I’m not researching medical journals or trying to diagnose you.”
Old Dogs, New Tricks
Innovation isn’t just history at Milwaukee’s legacy companies
By Rich Rovito
MILLERCOORS: New beers start with the pilot
Beer has been brewed on MillerCoors’ sprawling Milwaukee complex for more than 160 years, but this facility is as much a laboratory as it is a brewery. It’s called the pilot brewery, a small but vital operation to MillerCoors’ effort to get a leg up in an increasingly competitive beer market.
Nearly all new products or line extensions, as well as packaging innovations, spring from the pilot brewery. “It allows us to react quickly,” says Megan Mares, a MillerCoors brewer.
Its notable successes include the Henry’s Hard Soda and Hard Sparkling lines; Leinenkugel’s Canoe Paddler kölsch, Grapefruit Shandy and Bavarian Dunkel; Redd’s Green Apple Ale; and the Vortex Bottle that swirled Miller Lite into mouths or glasses for a few years.
“There are other things that we try and miss the mark on,” Mares admits.
A.O. SMITH: A new water tech R&D hub
A.O. Smith Corp., which has manufactured tens of millions of water heaters since it was founded in 1874, is making what will be the company’s biggest commitment to R&D in decades with a new research hub at its Milwaukee headquarters.
The company, which began making its now signature product in 1939, generated sales of about $2.7 billion in 2016 and has 15,500 employees worldwide, including about 125 in Milwaukee.
The new 42,700-square-foot Lloyd R. Smith Corporate Technology Center will focus on advanced research and development in a rare combination of disciplines: potable and hydronic water heating, water treatment and air testing and purification, as well as prototype development. The $8.5 million facility is expected to open by the end of 2018.
“Our plan is to create a hub for our engineers to be able to share their successes and challenges with one another,” says Kevin Wheeler, president and chief operating officer.
NORTHWESTERN MUTUAL: Committing to startups
A financial giant long touted as the “Quiet Company,” Northwestern Mutual Life Insurance Co. is making noise in the technology sector.
Northwestern Mutual, which has more than 5,000 employees in the Milwaukee area, recently created a $5 million venture capital fund to invest in local startups in a variety of industries. The Cream City Venture Capital Fund provides early-stage funding ranging from $100,000 to $250,000, as well as access to Northwestern Mutual advisers, mentors, technology resources and a co-working space at its sparkling new $450 million headquarters downtown. “We believe that Milwaukee has the talent and entrepreneurial spirit to be a premier city for startups,” says Craig Schedler, venture partner at Northwestern Mutual.
The news comes fast on the heels of the company’s launch of a $50 million fund to invest in financial technology startups.
Academic research and economic development meet at the Global Water Center in Walker’s Point.
By Anna Miller
The red-brown brick and rounded windows of the Global Water Center blend in with the Walker’s Point establishments that surround it at the bend of the Menomonee River. But its insides contain multitudes, from world-renowned water research labs to space for more than 45 water-focused startups, small businesses and organizations to an amphitheater and conference center that have hosted guests from more than 70 countries.
The center is structured to serve the nonprofi t Water Council’s three major aims: economic development, talent acquisition and technological innovation, according to its president and CEO, Dean Amhaus. When the council formed a decade ago, its members recognized an opportunity in the United States’ lack of what’s known in the industry as water clusters – organizations focused on both academic research and business development.
“We found that not only did we have 120 water-related businesses (in Milwaukee), but we also had thriving academic research,” Amhaus says. “Our combination of water industry and academia didn’t really exist anywhere else in the United States. We realized that we had something unique, and so we immediately thought of ourselves as a world water hub and looked towards other water conglomerates in Singapore and the Netherlands.”
The council did not open the Global Water Center building, however, until 2013, with a major fi nancial assist from the Wisconsin Economic Development Corp. Cate Rahmlow, WEDC’s senior development manager for water technology, says her organization had seen Milwaukee’s converging water academics and industry as a way to put the city and the state on the global water scene.
Since the center opened, its entrepreneurs have raised $2.6 million in additional capital; council membership has grown to 190, including the U.S. Environmental Protection Agency; and the building has hosted delegates from dozens of water clusters wishing to learn from or collaborate with Milwaukee researchers or businesspeople. Jean-Loïc Carré, general manager of Aqua-Valley, a water cluster based in southern France, visited the Global Water Center in early December to work with Amhaus and others on new strategies for watershed management.
“As always, our meetings are about cooperation, not competition,” Carré says. “We want to be able to cross-fertilize our respective businesses and facilitate new technology that can enter the global market.”
In addition to partnering on technological innovation, the Global Water Center had previously housed two businesses in Carré’s cluster and helped them learn essential business skills, such as how to pitch to potential investors and network with influencers. Such training is an integral part of the services offered to companies at the Global Water Center. These businesses have seen overwhelmingly positive outcomes, as have the academic researchers that are associated with the council and the center. UW-Milwaukee engineering professor Junhong Chen, for example, has commercialized his groundbreaking research in water sensor technology and was recently named one of the most-cited academic researchers in the world.
Local businesses that have partnered with the center have seen success as well. Stormwater Solutions Engineering founder Carrie Bristol-Groll leveraged the center’s networking and funding opportunities into growth in grants and patents. The engineering firm most recently received a pilot grant from the council and the center for its StormGUARDen technology.
All the business and visitor activity has had an impact on Walker’s Point, too, attracting water-related businesses to further boost the thriving neighborhood.
“The Global Water Center and The Water Council has been a great help to us over the years,” Bristol-Groll says.
“The center has been priceless in helping network with other women-owned engineering firms, which are rare in Milwaukee.”
Case Study: MiButler Drove It
Local concierge service battles big names to deliver to your doorstep
By Zach Brooke
Employees and contractors: 15
What it does: Text message-based concierge service
Customers: Approximately 460
All Baker Al-Qudsi’s friends wanted was coffee. And tacos. And a sweater.
At the time, no delivery service would drop off all three items, especially in one trip, and no one gathered at the Shorewood residence that day volunteered to peel themselves away from the Packers game to collect everything themselves. Then it hit him.
“It took a few seconds, but I just quietly kept thinking, why not? Why couldn’t that happen?” Al-Qudsi says.
Thus began MiButler, the latest endeavor from a serial startup junkie. MiButler is a concierge service that brings Milwaukeeans anything they ask with a simple text message. Well, almost anything. For liability purposes, it won’t chauffeur tobacco, cash, pets, people and, significantly for Wisconsin, alcohol.
“I know, it would change the game,” Al-Qudsi says. But he doesn’t want to risk selling to minors with a fake ID or being party to any other infraction. “Unfortunately,” he says, “it would take just one bad apple to ruin it for everybody… We don’t want to be in the news for the wrong reasons.”
What it will deliver is any meal, grocery, parcel or prescription located in Southeastern Wisconsin. MiButler customers who text 262-671-4756 are connected to a dispatcher employed by the company. The agents, on call from 6:30 a.m. to 10 p.m., confirm order details and pricing, and then assign the delivery to one of 12 drivers. The flat rate for food delivery is $7.99 within a 3-mile radius of the pickup spot; grocery deliveries start at $15. For an extra fee, people can order items across a greater distance or bundle several errands into one order. “Our customers are starting to get creative. ‘Can you grab my Amazon package, and then my mom’s medication at CVS?’ The answer is yes,” Al-Qudsi says.
It’s that service stackability that Al-Qudsi believes separates his venture from the well-funded tech giants of Silicon Valley. And despite the throwback nature of interfacing through SMS, Al-Qudsi is adamant the approach provides superior customer service to that from an app. “I don’t want to come off as app-hating, but an app is really limited by the parameters that the developer wanted to or could create at the time,” he says. “An app requires space on your phone. You have to download it. It takes time to learn how to use the app, and then also build your account. That’s wasted time from the consumer’s perspective.”
MiButler is not Al-Qudsi’s first company. Previously, he poked around in the renewable energy sector, looking to fund a solar power project. Next, he sought a way to leverage his passion for cars into a workable concept, ending up with a proto-MiButler model that shuttled around mechanics and hairdressers.
To start MiButler, Al-Qudsi, 35, says he invested funds “somewhere in the $20,000 range,” most of which went to developing communication and payment processing technology needed to support the business.
He launched with a full appreciation of the challenges of operating a shoestring service in a crowded delivery market that’s come to include DoorDash, Peapod, Grubhub, UberEATS and Amazon’s move into grocery delivery. But MiButler is in the black and looking to expand heading into 2018, according to Al-Qudsi. It added 182 new customers in 2016 and 277 by December 2017, and has a new partnership with Hayat Pharmacy – where Al-Qudsi works as VP of marketing – to deliver over-the-counter medications anywhere in Southeastern Wisconsin.
Al-Qudsi is bullish about what lies beyond the horizon. Part of it is personality-based. “What keeps me going is there’s a fire on the inside. Once an entrepreneur has that fire, it’s difficult to contain.”
Evolution of a Startup
How two beer drinkers built their idea for a wine business into a 19,000-subscriber reality
By Kristine Hansen
What it does: Monthly wine-subscription company targeting millennials
Number of subscribers: 19,000
“We’re a data-driven wine company for a new generation of wine drinkers,” says Bright Cellars co-founder Richard Yau. Yau and Joe Laurendi view customer data as essential to company growth. They also love Milwaukee. “From a talent and culture perspective, this is a very good place to grow a business,” says Yau, pointing to the city’s low cost of living, enthusiastic and supportive community, and affordable real estate. Here’s how they went from inspiration to execution, in seven not-so-easy steps.
Step 1: Identify a problem.
Working at Boston start-ups, MIT grads Yau and Laurendi noticed their 20-something peers were distrustful of wine experts. “Wine connoisseurs have historically been snobby,” says Yau. “Millennials want to learn about the product they’re consuming.”
Step 2: Research the subject.
An entrepreneur has to know the product well in order to sell it. “We were very comfortable with beer but didn’t know a lot about wine,” says Yau, who took two semester-long wine classes at Boston University, featuring tastings, lectures and assigned readings about wine regions and grape varietals.
Step 3: Develop a solution.
Pricing out a startup’s operating costs is key. Bright Cellars calculated fulfillment costs before developing a pricing plan that’s a sweet spot for customers: $68 for four bottles of wine, shipped. “A lot of our competitors are price-driven,” says Lau. “We’re not. (The wines selected) are pretty high-quality but not inaccessible.”
Step 4: Test the concept.
Bright Cellars self-funded Facebook ads, an advertising approach many start-ups use to get the word out. “We’ve always been active on social media,” says Yau. They also used the minimum viable product (MVP) technique, an under-the-radar test phase to earn early adopters, relying heavily on their feedback to tweak customer service.
Step 5: Acquire data.
Data collected from customers helps startups understand what’s working and what’s not. Bright Cellars learns about its customers at sign-up via a seven-question survey resulting in four custom-tailored wine choices. Direct feedback and customer reviews after each shipment, says Yau, enable Bright Cellars to react immediately and continue refining wine choices.
Step 6: Secure funding.
Without funding, startups crash and burn. In exchange for 4 percent investment, Gener8tor (an accelerator that invests in early-stage, high-growth startups) accepted Bright Cellars into its three-month program in Madison, providing mentors and $70,000. This support made the move to Milwaukee possible, says Yau, who until then had never visited Wisconsin. Yau estimates nearly half his time while he was in Gener8tor was spent courting investors.
Step 7: Grow.
Increasing customers helps bring a startup to the next level. In Bright Cellars’ case, it hired staff to take care of the customers. Last fall, the company sold its millionth bottle and reached 30 percent growth since 2015. Up next: selling their customers’ data – wines they liked best and why – to wineries, to help them choose what to make.
Start Me Up
By Matt Hrodey
All new businesses face challenges, but startups with big ideas walk a particularly precarious path. Accelerators aim to offer a trail map and a new pair of boots. These outfits provide a small amount of seed capital to a handful of budding startups with the goal of incubating them into companies with enough swagger to pull in a larger chunk, potentially millions, from venture capitalists.
A big player helping startups in the Midwest is the highly competitive Gener8tor incubator, which was founded in Milwaukee in 2012 and has expanded to Madison, Beloit, Minneapolis and Detroit. Three times a year, it invests up to $140,000 in five startups and surrounds them with mentors, technical experts and connections to investors. The Wisconsin Economic Development Corp. has a “Seed Accelerator” grant program aimed at drumming up more such programs.
While many accelerators are exclusive, Startup Milwaukee aims to gather everyone under a big tent, with events where startups pitch themselves to scores of investors and fellow entrepreneurs. “Milwaukee is a very siloed city,” co-founder Matt Cordio says, “and to have a real culture of innovation, we need to have people break through those barriers and focus on helping each other.”
With an assist from the now-defunct accelerator 94 Labs, Cordio in 2011 founded Servique, a startup intended to be an online marketplace to conect homeowners and contractors. Servique “failed pretty quickly,” he says, but of the 24 businesses in his “class” at 94 Labs, about half still exist. “It really created a network of entrepreneurs.”
Is Wisconsin’s business climate sunny enough nurture newbies?
We asked the founders of two local startups — one so high on Milwaukee that he moved his company here from Boston, and one who has “entirely bootstrapped” his startup, getting no outside funding.
By Larry Sandler
Richard Yau CEO, Bright Cellars Inc. The big factors for us were availability of talent, availability of capital and a great support network. We were hiring a type of person (who) was otherwise going to move to Boston or San Francisco; our first hire here was a software engineer who had already accepted a job offer in Silicon Valley. Milwaukee’s definitely not a hot spot yet for venture capital (but) we were fortunate because our lead investor was CSA Partners, based in Milwaukee. I would say the level of mentorship, per capita, is higher than anywhere else we could be.
Craig Sweeney CEO, Shift Savings Inc. The main issue we have here (is) risk aversion. A startup contains considerable risk to the founder, the team and the investors. Wisconsin-based investors are looking for more of a proven opportunity. (With) organizations like Startup Milwaukee, The Commons, Gener8tor, you do have a momentum. We still have a far way to go in relation to other entrepreneurial ecosystems around the country. I think it’s getting better, though. Organizations like Northwestern Mutual and Aurora are starting to do their part to increase that ecosystem here.
Apps on the Rise
It’s not as if you’ll mistake Wisconsin for Silicon Valley, but a number of startup companies here are nonetheless carving out their own niches on the internet. Whether you’re looking for ways to save money, share pictures or find someone to work out with, local companies have an app for you. Here are six that we find particularly intriguing.
By Larry Sandler
Fleet of Foot
Brookfield’s Doering Fleet Management notches growth in an industry on the edge of upheaval
By Zach Brooke
What it does: Advanced fleet management and leasing operations
Annual revenue: $20 to $25 million
The Doering family first hitched its fortunes to the fledging automotive industry two generations ago, when Chip Doering III’s grandfather opened a car dealership in 1924. Nearly a century later, the Brookfield company has revamped its business model, helping it flourish as automation causes technological upheavals unseen in the industry since the days of Henry Ford.
“This is a sleeper industry,” says Adam Berger, co-owner of Doering Fleet Management. “It’s been such a traditional business where you’re just moving metal around and playing logistics games. It’s different now. … There’s never been so much excitement and innovation in the automobile industry as there is right now.”
Much of the transformation Berger mentions involves electric cars, self-driving vehicles and new business models that eschew car ownership. “That’s a pretty prolific change,” Berger says, citing a trade report that estimates mobility services such as Uber and Lyft will reduce consumer sedan sales 40 percent over the next 12 years.
Berger joined the business in 2003, 14 years after Doering transitioned away from dealerships and into leasing. In 2009, it evolved to include fleet management, or the maintenance of company vehicles. Think financing, risk management, repairs, upkeep and retrofitting of cars, trucks and buses owned by organizations.
Since then, Doering swelled from a four-state presence to a nationwide operator, and from a four-person outfit to a bustling office of 17 full-time employees and six part-timers.
It’s not enough. Berger says his No. 1 challenge at the moment is filling open positions with talented specialists. “There are so many opportunities that some are frankly falling out because we don’t have the team power to do it all,” he says. “We’ve got headhunters looking as we speak.”
Powering all that growth is a mushrooming roster of loyal clients, including hometown businesses Quad/Graphics (owner of this magazine) and Butters-Fetting, as well as out-of-state accounts like Tesloop, a Greyhound of sorts but with Teslas, that is the brainchild of a California teenager. Berger is particularly bullish on its fortunes: “They have a vision for transportation in the future where possession of the vehicle is not important but access to it is, and it’s certainly where the world is going.”
Since launching the fleet management business, Berger says Doering has never lost a customer; he likes to say it’s the last company people choose. “The automobile business is a very simple business, but it is riddled with poor service, bad customer experiences and broken promises,” he says. “Doering actually does everything we say. It’s really that simple.”
While Doering is not close to the same level as multinational industry giants LeasePlan and Element, which purchased GE’s fleet management business in 2015 for $6.9 billion, it’s seen its fortunes rise significantly in recent years. Doering’s annual revenue in the neighborhood of $20 million to $25 million makes it one of the largest fleet managers in Wisconsin, and with growth exceeding 15 percent last year, it may be only a matter of time before the larger players take notice of what’s happening in Brookfield.
“There’s going to be a shock to our competitors when they hear how far ahead we are,” he says.
Made in Wisconsin
In 1973, Brookfield mothers Kate Bloomberg and Betty Morris – in need of a Cub Scout project for their sons – discovered that shrinking polystyrene plastic in an oven fascinated kids. By 2008, K & B Innovations had sold $150 million worth of Shrinky Dinks; the brand was sold to New Jersey-based Alex Brands in 2014.
Alfred Woelbing launched an international cure when he began hand-pouring a lip treatment in his Milwaukee kitchen in 1937. Today, Franklin-based Carma Laboratories is the No. 4 name in the industry, with $40.8 million in sales in 2015.
Founded by Sicilians Gaspare and Zina Fallucca in 1979 and still in the family, the Palermo’s label itself makes up only a small slice of the Milwaukee frozen pizza company’s business. Screamin’ Sicilian alone generated $75 million in sales in 2015.