The Boom Ahead (Part 1) – Why Northwest Arkansas Could Be The Next Silicon Valley

Could Northwest Arkansas become the next Silicon Valley?© Michal Maly |

Walmart was to Northwest Arkansas by the 1990s what the Defense Department had become to the San Francisco Bay Area in the 1950s.

Driven by a tremendous influx of talent and resources that poured into the Bay Area during the 30s and 40s for the purpose of conducting research and development for the U.S. military, innovation continued well after the war and at a rapid pace.

Likewise, consumer product companies began establishing and relocating teams to Northwest Arkansas in the mid 90s that consisted of their most talented employees in order to support the growing needs of what was fast becoming their most important customer.

Both customers (the Pentagon and Walmart) created hyper competitive environments that forced their suppliers to constantly innovate in order to keep and grow their businesses, while priming the pump and making it possible for new industries to emerge.

However, while the Bay Area continued to ‘boom’ well beyond an early focus on military-oriented research and development, Northwest Arkansas has yet to see an expansion of similar magnitude.

There is good news. Even though Bentonville as “Vendorville” (a term coined by Cameron Smith) has gotten most of the attention in the last 20 years, anyone paying attention can see that there is a revolution taking place. Things are happening, and the community at large is beginning to move further and further away from being focused solely on taking care of one big customer. Instead, people and organizations are leveraging what they have learned and experienced and are applying it to problems and opportunities in other contexts.

A future boom in the region is just ahead and it will likely manifest itself in 4 ways:

The Locals Break Out I have used my friend Michael Stern to make this illustration many times. Michael had a big idea that would eventually evolve from music previewing kiosks in 1992 into the first in-store television network of its kind. He put all his money and effort into selling the concept to Walmart’s then head of Merchandising, Lee Scott. Once PRN (Premier Retail Networks) was in Walmart, getting meetings with many other retailers in the country – and eventually the world – became much easier.

We are already seeing this first wave taking place, with several product and service oriented companies (like our own 8th & Walton) that were established here. The leaders of these businesses are capitalizing on their individual experience working with and for the largest, most respected and most emulated retailer in the world, as well as with the companies that sell products to her, in order to gain the attention of and access to new customers in other parts of the world.

In the years ahead, more and more new businesses will be founded by some of the area’s top talent, people who have gained their experience working for Walmart and her top supplier teams.  As these local startups grow and expand, people hired to staff these teams will eventually break away, as Silicon Valley’s own “Traitorous Eight” did, to drive innovation in new areas and create the same ripple effect in terms of industry creation that we’ve seen in Silicon Valley.

Much Invented Here With more retailing and consumer product marketing expertise concentrated in Northwest Arkansas than anywhere else in the world, it stands to reason that the area would eventually become to consumer product innovation what Silicon Valley is to information technology innovation.

8th & Walton is a Bentonville-based supplier education company that has spent the past 7 years working with companies which, in most cases, are already selling products to Walmart. Earlier this year, we introduced a new workshop series called Selling to the Masses, where early stage consumer product companies can learn the basics about launching new products and find the tools and resources they need to get started selling those products to any of the country’s major retailers.

Like Y Combinator in San Francisco (which focuses on information technology startups), we also created a Consumer Product Innovation Lab, where these early stage companies can compete for funding, as well as a chance to work one-on-one with any of the more than 50 mentors that are already associated with the organization.

In just a couple of months, more than 400 people have attended one of our workshops, scores of early stage companies have submitted applications for the Lab and we’ve taken equity positions in 2 that are incredibly exciting.

Based on what we’re seeing, it is more than reasonable to assume that of the 30,000 consumer products that go to market each year, an increasing number will start here and stay here, putting more of the region’s top talent to work and creating opportunities for new businesses to come along that will provide them a wide range of services.

Retailers Will Come Many have no doubt heard about E-Mart, a South Korean retailer once owned by Walmart, opening a procurement office in Bentonville in order to be close to a highly concentrated group of consumer product companies from whom they could buy. However, most might not know that another publicly traded U.S. retailer recently considered relocating their entire operation to Northwest Arkansas in order to be close not only to “Vendorville,” but also to the area’s deep retailing talent pool.

For retailers that sell any or all of the same merchandise categories as Walmart, it would be to their advantage to have some sort of presence in Northwest Arkansas. Even if they did not go to the extreme of relocating their entire operation, it makes a great deal of sense for them to station a buying team in one of the few places in the world where they can sit down with PepsiCo in the morning, have lunch with Disney, and spend an afternoon with Clorox.  At the very least, supplier teams should expect and prepare for more and more drop-ins by retailers other than Walmart who see in Northwest Arkansas a destination where they can get a lot of business done in a short amount of time.  We should also expect the composition of the 1,300 or so supplier teams that have a presence here today to change in order to accomodate a multi-account focus.

Investors Will Flock The high profile sales of two local start-ups (Thompson Murray to Saatchi X in 2004 and Rockfish to WPP in 2011) and several recently funded (including Acumen Brands, Red Clay and TTAG), officially put Northwest Arkansas on the map as a legitimate destination for venture funding.

With so much domain knowledge in the areas of retailing and consumer product marketing concentrated in the region comes increased access to investors who understand the businesses being incubated and accelerated here today. Because so many people in this area have done so well financially over the past 40 years (especially during the 80s and 90s, when Walmart stock split 8 times), and with so many reasons one might choose not to invest in real estate or the stock market right now, immense amounts of cash lie idle on the sidelines as people look for promising new enterprises in which to invest.

A number of funds have been created in the last couple of years (including Gravity Ventures), making it easier for qualified investors to get involved in some of the area’s early stage companies.

As more success stories are told, more attention will be drawn to Northwest Arkansas, and more capital will be invested by individuals and institutions from outside the area.

A Bright Future Few people will ever have an opportunity to be a part of the same type of transformation that we are about to witness in our own backyard.

While it is impossible to know exactly where we will take the future, there is no question that big things are already happening.  Rest assured that more and faster and different change is coming.

Because we have not seen anything yet.

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  1. Pingback: Will Northwest Arkansas ramp up? « Ozarks Law & Economy

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