Three years ago, West Michigan entrepreneur Garrick Pohl realized he needed to move his tech startup to a larger metropolitan market to prove the concept and to scale up its operations.
But now that Zipments Corp. has demonstrated that its mobile courier service is viable after operating in New York City and other major markets, he’s looking for a more affordable place to grow the company he started in Holland and launched in Grand Rapids four years ago.
That search led Pohl back to Grand Rapids, where he expects to move most of Zipments’ operations over the next year. When the move is complete, the majority of the same-day delivery service’s administrative positions — including sales, product development and customer service — will be based in Grand Rapids, Pohl told MiBiz in an exclusive interview.
He said the company’s decision to move back to West Michigan was largely a financial one.
“The Midwest is great … for launching very practical businesses,” said Pohl, the CEO and co-founder of Zipments. “(When) we looked around for places that had talent for selling business services, do you want to put a 100-person sales team in New York City or in WestMichigan? It just makes sense to find an affordable part of the country to build that out.”
With its product development team already in Grand Rapids, Zipments is now in the process of ramping up hiring for its customer service and inside sales teams, with six people currently working from an office in downtown Grand Rapids. The team could swell to as many as 30 people within the next 12 months, Pohl said, noting that the company plans to maintain a small operations team in each of its markets, including New York City, Chicago and San Francisco.
To support the company’s growth, Zipments has fetched more than $1 million from investors in an ongoing round of fundraising.
The raise is led by Grand Rapids-based Start Garden LLC, the $15 million pre-seed capital fund started by Amway scion Rick DeVos, which invested $100,000 in Zipments earlier this month.
Holland-based angel investment group Grand Angels and Huron River Ventures, which has offices in Grand Rapids and Ann Arbor, will also be co-investing with Start Garden. The amount of their investments was not disclosed.
Other previous investors, including Windquest Group — a Grand Rapids-based investment firm headed by Dick DeVos and his wife, Betsy — have also participated in the current round of fundraising, Pohl said.
Grand Angels has watched Pohl for nearly a decade since his involvement in a previous startup, President Jody Vanderwel told MiBiz. The organization has been impressed with his ability and integrity, she said.
The group was also drawn to the deal because it marked the first time that Grand Angels, Start Garden and Huron River Ventures have all gone in on an investment together, she said.
“We believe (the mobile courier) space is primed to take off,” Vanderwel said. “We also like the logistics model that Zipments has taken on.”
To date, Huron River Ventures has invested more than $500,000 in Zipments over two rounds of funding, making the company “one of the larger investments” in its portfolio, said Partner Tim Streit.
“We’re really excited about the company,” Streit said. “I think it’s a great example for other West Michigan entrepreneurs and investors.”
The latest round has provided Zipments with incremental capital after it closed on a $2.25 million round of funding last year that was led by New York-based FirstMark Capital and Huron River Ventures. In addition to Windquest Group, New York City Economic Development Corp. also participated in the round.
“I feel like the combination of both East Coast and Midwest money that we have gotten has really been an advantage for the company,” Pohl said. “On the East Coast, we definitely see a greater focus on taking a product or service and trying to scale it very quickly with a real focus on building awareness around it.”
But in the Midwest and specifically in West Michigan, entrepreneurs tend to have great ideas for companies that often have the possibility to sustain over a long time, Pohl said. However, the entrepreneurs tend to be less vocal in promoting themselves and their ideas
than many of their counterparts in startup hotbeds like New York City and Silicon Valley.
“Part of it is because we are from the Midwest. Our tendency is to remain quiet, focus on the business principles and let the market talk about us when the time comes,” Pohl said. “With the different investors that we have, I think there is a healthy combination of ‘focus on the business principles and the bottom line performance and top line growth.’”
A FOCUS ON VALUE CREATION
Mike Morin, who handles portfolio relations at Start Garden, agreed with Pohl’s assessment of the current startup landscape in West Michigan.
“We have a propensity to focus on value creation here, probably because we don’t have as sophisticated a pipeline for early stage funding,” Morin said.
However, recent studies point to some positive trends for Michigan startup companies like Zipments that are seeking to grow via early stage capital.
There were 23 venture capital firms based in Michigan last year, plus 10 that are based elsewhere but have a presence in the state, according to an annual research report from the Michigan Venture Capital Association. That’s up from 16 Michigan-based firms just five years ago.
The total amount of capital under management in Michigan last year reached $4.0 billion, including $1.65 billion from in-state firms — a 50 percent increase from five years ago, according to the report that MVCA released in May.
In the past, the association noted that while companies in Michigan tend to receive considerably less money than startups on either of the coasts, investors tend to average higher returns here.
“Capital efficiency is Michigan’s distinct competitive advantage to deliver superior venture returns,” the group wrote in its 2012 report.
As Zipments continues to find additional investors — Pohl expects the company will seek further rounds of capital as it grows — the management team plans to use its experience in New York City as a platform for growth.
The Big Apple offered Zipments the perfect setting to prove out its business concept that relies on mobile technology for businesses to schedule delivery service, Pohl said.
“Consumers want faster and easier delivery service,” Pohl said. “What that means really is that the mobile phone changed everything. (Customers) want push-of-a-button, Uber-like service where (they) can get anything delivered as quick as possible.”
The mobile-based delivery business has garnered national attention in recent months, including an August feature in New York Times Magazine that detailed the growth of specialty delivery services in which couriers transport items ranging from wine to caviar to medical marijuana.
“(V)enture capitalists joke that every other entrepreneur they meet pitches an ‘Uber for X,’ bringing goods and services on demand,” according to the report.
The mix of experiences in major metropolitan areas and small cities helped Zipments hone its technology and service delivery model, Pohl told MiBiz for a report last year. The New York exposure also helped the startup secure funding, he said at the time.
REFINING THE MODEL
As the idea matured in New York City, Zipments’ business model also evolved.
Initially, the company’s mobile crowdsourced logistics platform allowed businesses to post their delivery needs on the Zipments website or mobile app for a group of registered couriers to bid on the jobs. Deliveries were typically completed within hours of the posting at a cost that was less than the typical fees for two- or three-day shipping.
What the company learned during its on-the-ground experience in New York City was that couriers lacked an incentive to take jobs on days with inclement weather, for example. But the new business model allows Zipments’ customers to have greater assurances that their delivery needs will be met, Pohl said.
The mobile application allows customers to rate their experience with the couriers, which provides the company data on the contractors’ performance. A courier who makes deliveries on a snowy winter day, for instance, should get a higher rating, he said.
As a result of the pivot, the company today operates less as a technology firm as it focuses more on the logistics side of the operations, Pohl said.
Just as Zipments leveraged mobile technology to look at new ways of delivering traditional courier services, Pohl is aware that several other companies are looking at new forms of transportation that will quicken the delivery process and revolutionize logistics.
Case in point: During a segment on “60 Minutes” last December, Amazon CEO Jeff Bezos announced plans to deliver goods via drones directly to customers’ doorsteps.
But Pohl thinks there is plenty of opportunity for his company to continue growing for the foreseeable future.
“Both (Amazon’s drones and Google’s driverless cars) are technology disruptors,” Pohl said. “There’s all of these potential disruptors, but the way I look at it is that we don’t know the time horizon for any of those. The reality is that we’re going to be looking at scenarios where you’re going to have a network of businesses that will look for fulfillment of delivery in whatever shape that comes in.”