Fayetteville's CapSpire Targets Pricing Risks, Aims for Efficiency

by Chris Bahn  on Monday, May. 13, 2013 12:00 am  

Jeff Hardcastle is co-founder of Fayetteville firm capSpire, which works to lessen risks associated with commodities pricing. (Photo by Ryan Miller)

A ping-pong table is likely the first thing a visitor to capSpire’s Fayetteville headquarters will notice. It is regulation sized — 9 feet long, 5 feet wide — and occupies a good portion of the entryway, making it hard to miss.

Inside the company meeting room, a Legos replica of “Star Wars” character R2-D2 serves as a conference table centerpiece. Wearing jeans, while not mandated by company dress code, is clearly the preference for capSpire employees.

It is a unique working environment. And it serves as an example of the “find a better way” philosophy that has guided capSpire in the four years since Jeff Hardcastle and Mike Scharf founded the firm, which does commodities risk management consulting and software development.

An office doesn’t have to be boring or restrictive to be productive. There’s a better way to work. Likewise, they figure a company doesn’t have to accept losing money on commodity pricing simply because it’s the cost of doing business.

What capSpire aims to do through consulting, and in some cases through its own software development, is identify how to minimize the risk and overspending affecting companies that depend on commodities. Simply put, capSpire helps its clients figure out “a better way.”

“Our customers are always working to improve their business processes around the commodity markets, and we engage with them to streamline those inefficiencies,” Hardcastle said. “We have the experience and knowledge to assist organizations in solving complex problems. The core of our DNA is the concept of always challenging the status quo and working with our customers to bring innovative solutions to the market.”

A willingness to buck the norm is why Hardcastle hardly bats an eye if a ping-pong match breaks out during the workday. It’s the same attitude that led him and Scharf, both industrial engineering majors, to leave established jobs in 2009 and form capSpire, a company that now has 31 employees divided among offices in four states. And it’s why the company continues to look for risk-management consulting opportunities outside of energy companies.

Initially, capSpire was formed to operate in the energy industry. Much of the firm’s business is still in that area, which is why Tulsa and Houston now have offices. Both cities are hubs for energy companies and a natural fit for a company that specializes in consulting on matters of crude oil, natural gas, refined products, natural gas liquids, coal, iron ore, agriculture and freight.

Now the company is turning its attention to consumer packaged goods companies and the auto industry.

A breakdown of employees includes 12 in Arkansas and 10 in Oklahoma with seven more in Texas and one in Michigan. An additional four hires are joining the firm in June and two start later this month.

Within three years the company plans to add 30 jobs in Oklahoma as part of that state’s 21st Century Quality Jobs Program. According to a report in the Tulsa World, the program could generate about $4.7 million in payroll tax rebates for capSpire.

By mastering the commodities risk management software used by energy companies, capSpire found a consulting niche. That opened up doors into other areas of consulting and eventually led to the development of Gravitate, software aimed at streamlining communication between wholesale commodity marketers and their clients.

Through relationships built with energy companies, other consulting opportunities have opened up, including an 18-month project with ConAgra. Hardcastle and Scharf are hopeful a dip of the toe in the consumer packaged goods market will become a full-fledged dive as the company works toward a $10 million revenue projection for 2014.

“In the last decade, consumer packaged goods companies have been focused on decomposing their price risk,” Hardcastle said. “It requires taking a finished product and breaking it down to the raw materials that are assembled to create it. This gives them an accurate view of what the raw materials costs are and allows them to implement hedging programs to lock in prices for their customers. In a high-volume, low-margin business, this transparency is critical to maximize profits.”

Consumer packaged goods companies often deal with increased prices for raw materials used in a finished product. Consider the purchase price of poultry used in a TV dinner for an easy example of a problem capSpire would try to solve. A company buying chickens isn’t just paying for the chicken. Included in the price are costs incurred in getting the chicken ready to sell. Growers pay for feed. They have energy costs. All of that goes into determining the price of the chicken.

What capSpire is trying to do is help companies identify those hidden costs and the factors that can lead to spikes.

“We can help a company decompose a finished product like chicken into corn, soybean meal and energy, which allows them to go to the financial market and execute hedges to lock in their buy price,” Scharf said. “So regardless of what the market does, their commodity prices are fixed.”

By developing cost forecasts for raw materials, manufacturing and transportation and warehousing, capSpire can help a company improve its profit margin. It can take up to 30 days for companies to make those evaluations with their existing software, Scharf said. What capSpire has done is turn that month-long process into one that can take less than an hour.

This is not where Hardcastle and Scharf saw the company going when they founded it. But they see opportunities developing beyond the energy companies that have traditionally used risk management resources.

“When we started the company we were primarily focused on energy organizations,” Scharf said. “The market continues to evolve to include both consumer packaged goods companies and auto manufacturers because they recognize the importance of understanding their commodity price risk.”

 

 

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