The burden of proof

Case Study
PV Labs Inc.
Hamilton
Five year revenue growth: 230%

Creating a game-changing invention is every tech entrepreneur’s dream. Some achieve it, only to struggle to find customers willing to buy it.

Ty Shattuck contended with that challenge when he launched PV Labs Inc. (No. 179 on this year’s PROFIT 200) in 2004. The Hamilton-based firm sells and leases turnkey surveillance systems, which include high-tech cameras, stabilized gimbals (which mount the cameras on vehicles) and software to process the data the cameras collect. These systems have a wide range of applications, from the sophisticated aerial shots you might see in a Hollywood flick to highly detailed security monitoring.

Buyers in several industries, including entertainment, defence and manufacturing, are interested: sales of the systems are up from $3.7 million in 2005 to $12.3 million last year. But getting over the initial market skepticism that greets most bold new products required a multi-stage effort, involving a collaborative approach to accessing cutting-edge research and a campaign to engage early adopters to help commercialize the systems, among other tactics.

Shattuck knew from the start that a conventional sales tack would be fruitless. Smaller Canadian firms face an uphill battle in penetrating the global technology market. Competitors abound, and potential customers often need to be educated about the new technology. Plus, bringing the next big thing to market requires deep pockets.

This last barrier was the first to fall. In 2004, Shattuck and his partners bought back the entertainment division of their previous company, imaging component maker Wescam, which they had sold in 2002. The move brought $2 million in annual operating capital into the new firm, which they called PV Labs.

From there, Shattuck set his sights on finding customers. From Day 1, he understood that the sweet spot for PV Labs’ technology are the lucrative security and military sectors,­ which are notoriously difficult to crack. So, Shattuck hired sales channel partners to help make inroads with these larger customers. These partners handled almost all of PV Labs’ sales—all while highlighting technology trends and offering critical customer feedback—until the firm began building its own sales force in 2006.

Of course, top-tier clients demand the newest, most sophisticated technologies; to ensure PV Labs could provide these, the firm struck working partnerships with a number of laboratories and universities, including researchers at the security-focused Lawrence Livermore National Laboratory in Livermore, Calif. “They proved the concepts from a pure physics technology perspective,” Shattuck recalls.

The next step was to test the innovations in the field. PV Labs was under no illusions that a huge and risk-averse organization such as the U.S. Department of Defense—a target client—would ever partner with it to test imaging solutions in the field. But, thanks to Shattuck’s knowledge of the film industry gained from prior work with Wescam, he knew that special effects-happy movie studios would be patient with PV Labs as it perfected the technology while helping to film complex aerial shots.

Using Wescam contacts and its sales channel partners, PV Labs was able to sell the surveillance technology to an impressive base of Hollywood studios, including Sony Pictures. From there, PV Labs created a working group with film and photography directors to discuss their technology visions and pain points, honing the product based on their feedback. “Because they were involved in the development of the technology, they were eager to try it out,” Shattuck says. “They became our early-adopter customers, which allowed us to move into other markets.”

This gradual approach exemplifies PV Labs’ go-to-market strategy. “We try to be very patient and try our products with firms that other companies wouldn’t find attractive as clients,” Shattuck says. “We seek out early adopters, both in the type of market and users—those who will be collaborative and friendly. Then we slowly move upstream.”

PV Labs finds these early adopters—its film clients are a prime example—by first targeting smaller companies or smaller divisions within large ones, that might have a need for its technology. It then uses its channel partners and other contacts to identify key decision-makers who might be willing to give the systems a test run. This creates reference customers that open doors to other, usually larger, clients.

Indeed, the company’s work in Hollywood generated serious buzz. That, along with some heavy networking, earned PV Labs contracts with Tier 1 aerospace and defence contractors—a mixed blessing. While the business was certainly welcome, these new customers were buying only imaging components, then reselling them as part of their own turnkey offerings. In essence, PV Labs was competing with its own clients.

Recognizing the folly of going head-to-head with industry heavyweights, PV Labs negotiated deals to sell its full imaging systems through the contractors to large military and security programs. In the meantime, it continued to slowly expand its client base in the entertainment realm.

While PV Labs has yet to get a meeting at the Pentagon, its step-by-step approach to commercialization has earned it the attention of defence departments elsewhere, including the U.K. Ministry of Defence. Shortly after PV Labs closed a deal with that military giant, the imaging provider used it as a chance to educate other potential customers on how the advanced systems work. For example, BBC Television interviewed PV Labs’ management shortly after the marquee contract. The firm has since incorporated the clip into all its sales pitches to build credibility with new customers.

“You need to harp on the fact that this isn’t a brand-new product that no one has ever used before, that it’s a proven product that we’re going to use in a bigger environment,” Shattuck says. “That’s how we overcome the resistance of the big fish not wanting to try something new.”

Ever-larger clients may be biting, but Shattuck knows that PV Labs must stay in the vanguard of innovation in order to thrive in the cutthroat tech world. To do so, the company collaborates on research with academic institutes including the University of Waterloo, Massachusetts Institute of Technology and Livermore Labs.

Typically, these partnerships involve PV Labs’ engineers accompanying researchers into the field to investigate new inventions as they become available. That close contact allows PV Labs to take note of hot new technological innovations, many of which larger firms don’t care to lease or purchase until they’ve been perfected. PV Labs then licenses the developments and incorporates them into its own turnkey systems. “Because we’re working with researchers, we’re right at the forefront, but we’re not funding [the research],” Shattuck explains.

The firm then works to get its updated systems into the hands of its early-adopter customers, putting them through the paces in real-world settings. Along the way, PV Labs’ engineers tinker with the systems, which helps minimize development time and costs before general release.

It helps that the company’s engineers are a satisfied bunch. PV Labs has a 98% employee-retention rate, which Shattuck attributes to a hierarchical approach. To avoid losing expertise in the lab as engineers move into management ranks, the firm instituted technical working groups that allow top talent to collaborate and make key product decisions with upper management—while still working at the product level. “It has proven very effective,” Shattuck says, “because it brings the tech leadership out of the lab into the imperfect reality of business, and it makes the business people understand why we’re going to fund one project versus another.”

Shattuck is confident PV Labs’ go-to-market approach will continue to fuel its growth for the foreseeable future, so long as management keeps up its cumulative approach to expansion. “Commercialization is a process in which you’ve got something you think is attractive,” he says. “But for it to work, you have to educate yourself on the market, and your customer on your offering. And it’s important that you never go after the big fish right away.”