Global Report

The key to quick global expansion is being where your customers are

Location, location and open source programmers helped Appnovation expand

(David Kracht/Getty)

(David Kracht/Getty)

When Appnovation Technologies founder Arnold Leung graduated from the University of British Columbia’s commerce program in the late 2000s, he knew he wanted to work in the information technology sector and soon set up a software systems integration shop in Vancouver, a city that’s home to a burgeoning network of code writers.

But it didn’t take long for Leung and his partners to stumble across what looked to be a mammoth opportunity: There was, he realized, an enormous craving for IT specialists who knew how to develop and manage web platforms that relied on so-called open-source software based on Linux—a non-propriety operating system beloved by Microsoft-loathing tech geeks the world over.

Yet the interest wasn’t merely an eruption of enthusiasm from the nerd world. In the late 2000s, explains Leung, the U.S. federal government began standardizing its extensive network of websites using an open-source software platform known as Drupal. Hundreds of state and local governments were quick to follow. Seeing the trend, Leung hustled to hire young programmers versed in Drupal and other open-source software systems, such as Alfresco and MuleSoft, that are designed to work on mobile devices or with big-data applications. “Open source is still fairly niche, so we could go in and be experts,” Leung notes. “Over time, we’ve added more and more technologies.”

Almost from the get-go, Appnovation’s customers were predominantly from the U.S., where the use of open source software is much more established, especially in the public sector (Canadian governments have been slow to adopt these technologies). Appnovation, which ranked 70th on the 2014 PROFIT 500, with revenues in the $12 million to $16 million range, earned its revenues by charging its clients subscription fees to develop and manage a range of open source applications.

With so much interest coming from U.S. customers, including private sector firms, Leung decided to press the accelerator, and established a sales and marketing office close to the Atlanta headquarters of one of its key partners, Alfresco, which offers document management solutions based on open source technology.

Leung soon moved to establish sales and marketing operations in a range of other U.S. cities, including Boston, New York and San Francisco. (While the software work is mainly done in Vancouver, each office employs programmers who can provide on-site technical support.) The location decisions were highly tactical: “We were following our customers and seeing where our revenues were coming from.”

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Yet Appnovation has also hustled to take advantage of one of the quirks of the open-source programmer world. Despite the burgeoning demand for software engineers who know how to work in that specialized environment, Leung observes that most of the firms Appnovation competes with tend to be smaller, local operations, and content to remain that way. “There aren’t many firms interested in global expansion and rapid growth,” he says. “Most firms want to stay small and that has allowed us to grow very quickly.”

The lion’s share of the business, however, is in the U.S., and Leung isn’t racing to expand elsewhere because he believes there’s still a lot of unmet demand south of the border. Indeed, the open source field is still so new that demand for these kinds of programming services remains unpredictable outside the U.S. and the U.K., where Appnovation recently established an R&D operation.

To further consolidate Appnovation’s market position, Leung two years ago introduced a loss-leader product that’s meant to make the company’s relationships with its customers that much stickier. The software, known as “osCaddie,” allows users to stitch together a range of seemingly incompatible open-source applications, which are developed in bits and pieces by independent programmers and therefore tend not to be designed to work together. Leung says Appnovation doesn’t sell osCaddie: it is still primarily a service-based systems integrator.

Still, the company in the past year has moved to set up two large development/R&D facilities, in Cardiff, Wales and Saint John, N.B.—an acknowledgment that Appnovation’s rapid growth trajectory will require the development of new open source solutions, like osCaddie, as well as working with established ones. The Wales R&D operation, Leung adds, may evolve into a full sales and marketing operation geared at the emerging European market and a broadening global base. “We want to eventually go public, in five or six years.”