“You may have a solid business plan with great analytics, but at the end of the day, people invest in people. You have to get your message across in a short amount of time why someone would want to invest in you,” says Geoff Hager, a direct descendant of Osage chief Big Elk. (Courtesy Big Elk)
Geoff Hager, founder of Big Elk Energy Systems, is a believer that all of life is built on relationships. Bank representatives and investors are a part of that.
“If you want someone to invest in you, you have to go all-in yourself,” said Hager, a direct descendant of Osage chief Big Elk.
Hager and his wife liquidated their retirement funds and put all their money on the line to start Big Elk, a pipeline equipment manufacturing company. “I went two years without a paycheck and one year without medical insurance,” he said, and he spent a lot of time praying he and his family would not become ill.
“That really spoke volumes to people. Even though what we had was a tiny fraction of what was needed to get the business off the ground, they knew how powerful that was,” Hager said.
Their leap of faith paid off. The 100-plus employee company has attained a whopping three-year growth of 3,152 percent, raking in $20.6 million in annual revenues last year. Hager hopes to increase that amount to $100 million in a few years.
Hager says Big Elk has a “go big or go home” strategy, and he means it literally. The carbon steel parts the firm manufactures in its 140,000-square-foot facility in Tulsa, Oklahoma, are as big as semi tractor-trailers. Big Elk manufactures parts for pipeline companies.
Speaking of relationships, Hager wanted to underscore why it’s paramount for stakeholders in his industry to consult tribes. Using an analogy, he compared pipelines to highways (he feels these are the safest ways to transport people and energy across land). No one would build a highway through tribal land without consulting the tribe on its sensitivities, he said. “I am opposed to pipeline infrastructure being laid anywhere that does damage to indigenous people,” he said.
Native Business spoke with Hager about obtaining more than $8 million in capital to launch Big Elk Energy Systems.
READ MORE: How to Launch a Native Energy Startup
1) When you came up with the idea for your business, what were your initial thoughts about how to capitalize it?
I’ll readily admit that while I had been in this line of work for several years prior to going in on my own and starting my own business, I would say that the financial piece of that was the one area that was a big void for me. As a part of conducting business, I had a decent rolodex of contacts for a variety of different roles such as operational sales, various technical and engineering type roles. What I didn’t have was a lot of financial contacts and particularly those involved in capital markets. Thinking back to that particular time period, I wasn’t sure how to capitalize it. I had one guy who I knew who was a church connection. He was an investment broker; he had sources of capital, and he would try to find good business ventures, and if he could get the two married, then he’d make a good commission off of the deal.
I started there, because I didn’t have anyone else. It worked theoretically. We got a funding contract put together. Unfortunately, that deal failed and I had to start over from scratch.
That was a really challenging time period. My best answer to this question is to say that I really didn’t have any solid initial thoughts about how to capitalize it. My only thought was to try to find someone I knew who worked in the capital markets and guide me in a way to get us off the ground. I went through a lot of bumps and bruises before getting there.
2) What difficulties did you encounter with raising capital to start your business?
The first one as I alluded to previously, the first contract I had in place ultimately fell through, and it took over nine months to get to that point. So in the process, I had actually secured with my own funds, and I didn’t come into this deal independently wealthy. My wife and I had been good stewards of our income, living below our means, but we didn’t have the kind of capital necessary to start our business. We needed between $8 to $10 million to start our business, and we didn’t have anywhere near that amount of money. So we had to raise capital.
We also knew that we would need a property, because the equipment we manufacture is very large. You have to have a large facility with large capacities. We found an ideal property, and I knew it was the right property for us. But in order to secure it, we had to put up $80,000 for earnest money. We had to do that with our own funds. We were already in a position of liquidating some retirement funds to make that happen.
Delay after delay after delay, ultimately, our initial funding contract for the business fell through. We had to walk on the property contract. My wife and I lost $140,000, which was almost everything that we had.
We had to start over. So this time, I went a different route. I went to a bank, trying to find a lender who would be willing to take some amount of risk, which is very difficult to find. Most banks are completely risk averse. We found a bank that would back us if we could bring some amount of private capital to the table. The end of that conversation was, if we could shoot for $3 or $2 million, they could make it happen. About two months later, we came back with $2.4 million in private capital from an assortment of different private investors, and then the bank lended us the rest of the funds that we needed. This all took place over nine months. Throughout that time period, you could find me in the fetal position in the corner, just hanging on for dear life. It was a very difficult time-period before when we eventually raised the capital to start the business.
3) Were you aware of any federal or Native American programs to help you finance your business, and did you feel that you had access to them? Did you take advantage of those programs?
I was made aware of the U.S. Small Business Administration (SBA) programs to help finance, and we did take advantage of that program. We did use an SBA 504 loan for some percentage, maybe 35 percent, of the property and equipment to get the business started. We also used a line of credit available to us through TEDC, the Tulsa Economic Development Commission. We also had a state program called a quality jobs program that we used.
4) Were you aware of any programs for Native entrepreneurs available in your community or through your tribe?
I don’t know that I was aware of any programs specific to Native entrepreneurs. When you’re starting a business in Oklahoma, you get the benefit, since the business resides on Indian land, you get more accelerated depreciation rates. That’s not a specific program per say.
Certainly I would give the Oklahoma Chamber of Commerce credit. They helped us get assimilated to the resources they had. But there’s no funding related to that.
5) Did you feel like you had the appropriate amount of business and accounting training to provide you with an understanding of how to go about accessing capital?
That would be a resounding no. When we were first getting started, I reached out to a couple of different accounting firms, in hope that going with a larger firm, they would have collectively the expertise to help us go through the process of accessing capital. In that sense, I would say we had some success.
We use HoganTaylor LLP in Tulsa for our general finance and consulting services. They’ve been with us since the beginning. My answer for myself is a big no, but once I got them involved, they had expertise and helped quite a bit.
6) What avenue(s) did you ultimately use to fund your business, and knowing what you know now, what funding path would you recommend to other aspiring or emerging entrepreneurs?
Ultimately, we used a combination of traditional, senior debt along with private capital. Those two efforts combined allowed us to get off the ground. Furthermore, it was having an entity coming along side to help guide us on that path. Knowing what I know now, it’s such a different story now. Back then when I needed money, there was no one around. Now I’m surrounded by people who want to help, which is good.
It’s important to have a good banking relationship; that’s something that needs to be established up front. I’m a believer that all of life is built on relationships, and when it comes to funding your business, your bank is going to be central to that and certainly investors are going to be central to that. My recommendation is to make sure that those relationships are as strong as possible going into the request to fund your business. A lot of people just want to go with a big bank because of the size, and they think you might have access to capital. But it’s more important to have a bank that you can have a personal relationship with the people involved. Because when you’re starting a business, you’re going to go through some tough times, and you’re going to need some people to hang on with you through some difficult time periods. That only happens if they’ve bought into the dream and what it is that you’re doing.
We use Blue Sky Bank. When we started it was called Citizens Bank of Oklahoma, and now it’s called Blue Sky.
7) How did the process of raising capital to launch your business empower you as an entrepreneur?
When you’re starting a business that at launch takes several million dollars, and the only way that you can do that is completely through investment or a combination of investment and traditional debt, the first major test is: can you get other people to buy into your vision and dream, to the extent that they’re willing to put money behind you, when all you are is a piece of paper?
We had private investors that put down about $2.5 million, and a then bank that put down another $5 million, and all we were was an idea. I guess you could describe it as empowering, because people believe in you, and they’re willing to take a chance on you.
But I would also say, it’s not as if you have much time to think about that. Maybe a day. Then the next day, you need to put that money into action, and start working toward the return that you want to provide to all the people who made an investment in you.
It’s empowering on one hand, but it’s also overwhelming and intimidating on the other hand, because now you bare the capital responsibility to give your investors a return. That’s the yin-yang of recruiting investment at the start gate.
8) How has access to capital changed over the course of operating your business? What additional business strategies have you used to help fund your business?
Well when you’re first getting started, no one knows you, so primarily you’re trying to raise capital in your local market—unless you happen to be in a line of work prior to that where you know a lot of capital sources outside your reach, and I certainly wasn’t in that category.
So when we first started, I had to work with people we knew around here to make something happen. Over the course of time, as our businesses turn the corner and become profitable and successful in the sense that we’ve had some national notoriety—that positive attention has lead to lots of other entities being interested in us and wanting to help us from a financial standpoint. So I would say our access to capital is a lot greater than it was when we first started.
9) What would your advice be today for entrepreneurs who are just starting to seek funding for their businesses?
I would say, from a business strategy standpoint, because it takes months to build this type of equipment, it’s really hard to cash-flow the project. So, from a business strategy standpoint, we work very closely with our clients to get progressive payments at certain milestones throughout the project, so that we don’t end up cash-flow negative. I’d say, for the most part, our clients have been very willing to work with us on that. So the nice thing is, when we book a large job that might be over a million dollars, we can expect to get milestone payments from our customers that help with the cash-flow throughout the project.
I would say a couple of things. First, really work on refining your pitch, so to speak, so in a very short time period, you can describe what you’re wanting to do. A lot of people you’re going to for sources of capital, they get folks coming to them all the time for investment. You may have a solid business plan with great analytics, but at the end of the day, people invest in people. You have to get your message across in a short amount of time why someone would want to invest in you. If you want someone to invest in you, you have to be all-in yourself.
When we first getting started, myself and my wife had invested everything we had to get this started. That really spoke volumes to people. Even though what we had was a tiny fraction of what was needed to get the business off the ground… they knew how powerful that was.
Make sure you’re pursuing something that you’re able to put all you have into it, and make sure you communicate it effectively in a concise time period. It’s important to have your pitch ready to go, anywhere, anytime. You never know when bumping into the right person might make your dream come true. You can’t let the entrepreneurial vein turn off, you’ve got to keep it on.
10) What are some of the ways that Indian Country could improve its support for funding emerging entrepreneurs?
It would have been great, when I was getting started, if someone said, here’s a website that lists a variety of programs available to you depending on what line of business you’re getting into. I never had that. At the same time, I don’t know the best way that you can get to those emerging entrepreneurs, because the problem is they’re just that, they’re emerging.
If I were listing ways to improve support, it would be to make the messaging more visible to emerging entrepreneurs, but at the same time, I’m not sure how to do that.
READ MORE: Three Number Ones From Inc. Magazine for Big Elk Energy Systems