Coming Back From the Brink

How two HOT 50 companies abandoned their initial model and turned their failing ventures into growth stars

Written by Deborah Aarts

There’s an entrepreneurial stereotype that holds that in order to succeed, you must be an iconoclast: tune out the naysayers and hold fast to your vision, like Steve Jobs or Richard Branson did. This is an inspiring narrative. The trouble is, Jobs and Branson are exceptions, as CEO Jamie Clarke’s experience in transforming (No. 39 on the 2013 PROFIT HOT 50 ranking of Canada’s Top New Growth Companies) taught him. “Most people accept the propaganda of €˜You can do anything you set your mind to—don’t let anyone talk you out of it,'” he says. “It spells the end for a lot of entrepreneurs.”

Paltry Etail Sales? Follow your customers

Joanna Duong loved The 4-Hour Workweek by Tim Ferriss. So much so that the book, which explains how to be super-efficient, inspired her to start the apparel company now known as Henkaa Inc. (No. 15 on the 2013 HOT 50) as a side project to her day job as a real estate agent.

Duong came up with a design for a convertible dress, had a few hundred manufactured and put up a simple website. “Then they sat in my basement,” she laughs. So, she amped up promotion and exhibited at a few trade shows, leading to her first big uptick in sales. As new orders came in, Duong decided to stop treating Henkaa as a part-time operation and start thinking much bigger: “I took a step back and thought, €˜How am I going to do this?'” The answer, she discovered, was in letting her biggest fans—her customers—steer her.

This came easily to the naturally curious and chatty Duong. Whenever she encountered clients—at trade shows, on the phone or online—she’d ask what they wanted from their shopping experience. The most common theme? Buyers wanted to touch and feel the dresses. So overwhelming was this feedback that it prompted Duong to move into retail—first by renting shelf space at a store, then by sharing a shop and, most recently, by opening an independent storefront. Feedback from clients also prompted Duong to add accessories and to launch an in-home sales arm, à la Tupperware.

Henkaa’s growth suggests that revamping your business model based on client feedback can work wonders. “If you listen to your customers genuinely, closely and intently,” says Duong, “they’ll always tell you what they like and don’t like—and that will tell you what to do.”

Inefficient Distribution? Follow the numbers

The last thing most entrepreneurs want to do during startup is comb through the balance sheet. But doing so gave Corey Berman and Michelle Boigon the clarity they needed to shift their fledgling business in a new—and much more profitable—direction.

The co-founders of Toronto-based Koru Distribution (No. 47 on the 2013 HOT 50) started the firm in 2009 with the intent of selling eco-friendly products for use in school fundraising programs. Children and environmentalism seemed like a natural fit, but the Koru partners soon found that while the company was generating revenue, it wasn’t doing so very efficiently. Selling to schools meant connecting with, educating and pitching individual PTAs—without any continuity, as the decision-makers changed every year.

To ease the burden, Koru started distributing the same products to retailers, which tended to stay consistent and order merchandise more often. The effect on Koru’s finances was instant: higher revenue without any change in the firm’s input costs. For Berman, whose background is in accounting and finance, it was a no-brainer: selling to schools had to go.

Four years later, the company is fully a retail distributor—it doesn’t earn a dime from fundraising programs. “We redirected our energy to focus on what was working and put our efforts into where the dollars came from,” Berman explains. When your numbers are accurate and you’re diligent about tracking where cash comes from, it becomes easy to identify the need for change, he says. As an added bonus, says Berman, this numbers-first approach made it easier to distance himself emotionally from Koru’s initial model.

For more successful transformations, read The Art of the Pivot

View the 2013 PROFIT HOT 50 ranking of Canada’s Top New Growth Companies

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