Digital Agency Northern Ground Hatches Employee-owned Incubator

Northern Ground has spent the last three years designing and building websites, mobile apps, and marketing campaigns for clients ranging from local startups to international corporations. Now, the nine-person Milwaukee digital agency wants to create its own products.

Last week, Northern Ground announced it has formed an in-house, employee-owned incubator called Quarry that will develop and sell new software tools, games, social platforms, and other digital products. The team of developers, designers, and sales and marketing professionals has been brainstorming and starting to work on about 20 ideas for Quarry since February, and the first two products should be released this summer, says Ryan Janecek, Northern Ground’s co-founder and strategy leader.

Being a business services provider, Northern Ground is somewhat limited to working on what clients pay it to do, Janecek explains. While its employees enjoy that work, there was no formal structure in place that allowed them to unleash their own ideas and turn them into products. “We needed to create a mechanism to be able to do that,” he says.

The in-house incubator—sometimes called a research and development department or a “skunkworks” team—is a popular way for established companies to try and innovate from within. The concept usually involves cherry picking the most creative employees on staff and putting them to work for several months or years on R&D projects that use lean startup methods to develop new products or services that often solve a specific problem the company has encountered.

Companies with in-house incubators include tech giants like Microsoft (The Garage) and Google (Google X), as well as other digital agencies like Huge, which has an R&D division called Labs.

In Milwaukee, Johnson Controls and Direct Supply both have opened downtown innovation offices in recent years, where employees can work on projects away from the day-to-day operations at headquarters. And Milwaukee insurer Assurant Health launched Blue Bananas in 2012 to incubate services that make healthcare more affordable, but that division was shuttered last August. Assurant Health’s parent company announced this month that it will close the insurance business, resulting in the loss of about 1,200 jobs locally.

The Assurant Health example illustrates the difficulties of coaxing innovation within an existing, large enterprise—and the business realities that these in-house incubators face because they’re dependent on the parent company’s funding.

Ryan Janecek

Ryan Janecek

But Janecek thinks Northern Ground’s model for Quarry has several advantages that could help it succeed. For one, it’s using a small team that has experience launching products quickly, free from some of the bureaucratic constraints that an R&D group housed within the walls of a big corporation might face. “I think a challenge big companies have—we see it with our customers—the reason they hire us is we can be quick and agile,” Janecek says. “We don’t have any of that structure holding us back.”

Corporate incubators often pull employees from different departments and expect them to swiftly develop chemistry. “Here we are already a cohesive team that works together on products,” Janecek says. Those products include designing the touchscreen interface for GE Healthcare electrocardiogram machines and developing an e-commerce app for the medical device manufacturer. Other Northern Ground clients include Milwaukee pizza maker Palermo Villa, Milwaukee equity crowdfunding website CraftFund, and Hong Kong fashion designer Fiona Kotur.

Perhaps most importantly, Quarry is structured as a separate company owned by Northern Ground’s employees, so they have more incentive and will share in any financial windfalls from Quarry products, Janecek says. The majority of the incubator business is owned by Janecek and Northern Ground’s two other co-founders and owners, Jay Beckman and Matt Retzer. Northern Ground’s other six employees hold minority stakes in Quarry, and they will have opportunities for their equity shares to increase with performance, Janecek says. “The people that are working on the incubator own the company, own the product life cycle, own our destiny. I think it’s a lot more interesting than an internal group that has been slid over to a new product.”

Matt Cordio, who co-founded networking and support group Startup Milwaukee with Northern Ground software developer Tim Grove, thinks Quarry is a smart play. “It makes sense that these guys are doing it because they have the skills,” Cordio says. “Why not apply them to their own ideas?”

Products developed under the Quarry umbrella will each receive their own brand name, and there are several paths to market they could take. Those include generating revenue through paid or advertising-supported apps—money that would go straight into the pockets of Quarry employees. If a product starts to take off, it could be spun out as a separate company, lure venture capital investment, and perhaps be run by a Quarry employee, Janecek says.

Quarry’s development process is informal. The team pitches ideas while sitting around the conference table in Northern Ground’s 4,500-square foot office on the eighth floor of the Blatz Wash House complex. The group votes for the ones they want to pursue, then gets to work on doing a deeper market analysis and developing a prototype, Janecek says.

Retzer built the prototype for Quarry’s first app in about 45 minutes over his lunch break, and the whole process of moving it from idea to launch will probably take about … Next Page »

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Jeff Engel is a senior editor at Xconomy. Email: jengel@xconomy.com Follow @JeffEngelXcon

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