TitleCo-Founder, President, & CEO
CompanyNOWaccount Network

Lara O’Connor Hodgson thought she’d found the entrepreneurial dream while running Nourish, the successful startup she launched in 2009. But it was Nourish’s very success that triggered Hodgson’s next and even more successful venture, NOWaccount Network Corporation (NOW Corp).

NOW Corp’s flagship offering, NOWaccount, is a fast-growing revenue accelerator system that provides small businesses immediate access to the capital that is inevitably tied up in outstanding receivables – currently small businesses in the U.S. hold more than $1.2 trillion in trade credit for their business and government customers. While running Nourish, which sold a patented line of spill-proof purified water for infants and toddlers, Hodgson grew increasingly frustrated with the difficulties of getting paid in a timely fashion by the large companies she needed as clients to grow her business.

Nourish was off to a phenomenal start, getting featured in major magazines without any marketing push. The product was a hit with grateful young mothers and the buzz grew quickly. When Nourish received its first big order from Whole Foods, Hodgson’s team celebrated. But “it was that very success that almost put us out of business,” she recalled. Selling to small boutiques had been simple. Those stores paid immediately with a check or credit card. The large companies, on the other hand, paid anywhere from 30 to 90 days after receiving a bill. Hodgson had to scramble to keep up with the growing demand, not wanting to strap the young company with debt that might hinder future access to capital that would be needed for tooling and not wanting to raise equity that required her to give away half the business.

“This just doesn’t make sense to me,” she moaned. “The reality is we were growing to death.”

She thought to herself, “I’m not a banker. Why in the world is the very thing I worked so hard for, which was to get large orders from large companies and grow my business; why is that going to be what kills me? I’m basically stuck being a bank to my customers.” It seemed patently inefficient; the small businesses with a high cost of capital essentially funding the big players with all the cash.

While many entrepreneurs might have been sunk by the conundrum, Hodgson, an aerospace engineer by training, saw something broken and decided to find a way to fix it. She, along with her co-founder John Hayes, who years earlier had founded Peachtree Accounting Software, created her own solution by founding NOW Corp in 2010. The concept is simple: A small business with a bill out to any business or government entity can put the invoice on their NOWaccount and get paid immediately for a flat 2.5% merchant fee, which is akin to accepting a credit card for payment but at atypically lower fee. NOWaccount is not a loan or debt, it is simply a revenue accelerator like a merchant service, and it’s largely invisible to the small business’ customer.

Taking a non-traditional route, Hodgson eschewed the venture capital option and raised $3 million from angel investors and friends and family. It may have resulted in a slower growth curve but it gave Hodgson more control. And Hodgson enjoys having that type of control.

Born in upstate NY and raised in Atlanta, Hodgson was the product of a strong, protective family with solid values and a Catholic school experience characterized by high levels of achievement. Not only did Hodgson excel as a student—she was valedictorian of her high school class—but she was a stellar athlete, a track star who earned an athletic scholarship to Georgia Tech. She majored in aerospace engineering at Georgia Tech, one of just five women in the program, and during her senior year in 1993, was named by USA Today as one of the top 20 students in the U.S.

Juggling life as a mother, wife and CEO is not easy and Hodgson is clear about her priorities. She put Nourish on extended hold and made peace with the intense pressures of trying to balance personal and work life.

“I don’t balance it,” she declared. “Balance is the wrong goal. Everyone debates whether you can have it all or not. But balance conjures up an image of a see-saw. If it is balanced, the children are hanging in the air and nobody is having any fun. If it is balanced, everything is average and I have no desire to be an average mom, wife or CEO.”

NOWaccount is an unusual business model.

The fuel of our engine is debt. We have very large lines of credit – to purchase assets from small businesses. We’ve essentially recreated the intermediary – we’re borrowing, we’re not lending. We don’t lend to small businesses; we buy their assets. So it’s an off balance sheet transaction that actually strengthens their balance sheet. We’ve patented the mechanism, which allows us to take the risk. Instead of financial institutions making 100 small business loans, they lend to us and we buy the assets from those companies. The dollars get into the hands of small businesses in a faster, safer and more cost-effective manner. They get cash and lower their risk. We’re a service business.

How has all this progressed?

We spent the first 16 to 18 months in product development, filing patents and trademarks, putting the connections in place. Then we put the business model out there and started selling it for proof of concept. Now, we are in rapid scale mode. In 2014, we grew 3X and in 2015, we’re on par to do that again.

How many small businesses are you working with?

One hundred and fifty small businesses. Up to now we didn’t let our head of marketing do any talking. It was all viral. They just signed up while she was silent. Now we’re letting her talk.

What are your biggest concerns?

The human capital side of growing quickly. We’ve validated the model and you want to grow by hiring. I prioritize mindset over skillset, which is easy to say and not so easy to do. How do you build a quality team when you are scaling so quickly? How do you grow and maintain a culture of innovation, collaboration and creativity but also put structure in place?

That seems pretty common to growing startups.

Yes, and it’s less about finding the right folks and more about how to bring them in. Since we are service oriented, it’s about innovation and intellectual property. We’re enabling a whole category and we can’t hire anyone who’s done this before because it hasn’t been done before.

How do you embrace the growth?

Some of the opportunities ahead of us are so large – we just launched a program with a major transit authority aimed at helping their small and disadvantages suppliers grow and we are in the final stages of launching a similar program with a Fortune 50 consumer products company. We have opportunities to partner with large enterprises and financial institutions to bring NOWaccount to market—and that’s always scary for small businesses because partnerships between large and small companies don’t always go so well. You get eaten. We struggle with this constantly. We don’t want to pass up great opportunities. So how do you go into working relationships with large enterprises without getting eaten? The key is to remain confidently authentic. We don’t pretend that we are something we are not but we also don’t alter our offering at the whim of a large partner.

What about governance?

We had an interesting experience where we were approached by a VC. This group came to us and wanted to put in equity. We didn’t need the money, but we listened to see what else they could bring to the table. At the end of the day, we thought about what our board meetings would feel like. How would this change how we make decisions? Would the capital at that stage help us make better decisions or cause us to do things we would not otherwise. When you start to expand and develop the board, how does it change the pattern of decision-making? The truth is, if you can fund your own growth, you’re golden. As the business grows, it should use a variety of sources. The key is the right source at the right time for the right use.

How did your HBS experience impact your career?

The two things I gained the most from HBS were 1) an ability to assess risk and creatively think about ways to manage it. Risk doesn’t scare me. Risk represents opportunity. And 2) the people. HBS is what it is because of who is there. From day one, I’ve never hesitated to reach out to classmates and professors and people I’ve known from HBS. I ask them to look at my business model and shoot every possible hole in it they can find. If I can make it bulletproof for those guys, then I’m relatively confident I have something there. NOWaccount wouldn’t be here today if I hadn’t gone to HBS.

www.linkedin.com/pub/lara-hodgson/6/16/b32