Innovation

Go big or go home

Written by Rick Spence

To make it onto the PROFIT HOT 50 ranking, you have to have a bigger vision than most firms. You have to wow customers with better products or faster service. And you have to grab unexpected opportunities, whether you’re ready for them or not.

How do you build an organization like this? Yiddish has a unique, untranslatable term for it: chutzpah. They don’t teach chutzpah in business school, but a federal court in the Northern District of Illinois recently defined it as “brass, impudence, shameless audacity.” It’s the ability to create a vision, then push the boundaries of conventional wisdom and behaviour in order to achieve it.

Whether the HOT 50 are raising financing in an uninterested world, negotiating acquisitions when they can barely afford it or selling innovations to people who don’t like change, these firms represent a new generation of chutzpah. Here, following the court’s definition, are three HOT 50 companies loaded with chutzpah — and willing to share their growth tactics.

Brass: Doing buyouts when you’re only a baby

When you’re just starting out in business, and you have more confidence than cash, it takes brass — solid brass — to pull off two strategic acquisitions.

Andrew Watson, president of Kamloops, B.C.-based Voda Computer Systems Ltd. (No. 41 on the 2005 PROFIT HOT 50), admits the company was punching above its weight when it acquired two companies before its second birthday. But he says both deals offered unique growth opportunities. And, besides, he managed to negotiate some sweet deals.

Watson, a veteran computer salesman, pooled his skills with the tech savvy of computer technician Mark Zienowicz in 2001 to form Voda, a systems integrator with a difference. Their goal: to offer businesses in the B.C. Interior the latest systems and big-city service. By partnering with technology vendors such as HP, Cisco and Microsoft, and investing in employee training, Voda now supplies systems and networks to local governments and businesses such as the Interior Health Authority, Highland Valley Copper and Pollard Banknote. Last year, revenue reached $8.2 million, up 144% from $3.4 million two years earlier.

The key to Voda’s success lies in its first 18 months, when many companies struggle to win clients. Here’s where chutzpah helped Watson and Zienowicz expand their scope and boost sales by more than 60% — at the cost of a few easy monthly payments.

Opportunity No. 1 surfaced in Grand Forks, B.C., a lumbering centre on the U.S. border where an entrepreneur running a $250,000-a-year computer-services company wanted to sell. Her three-person business, Jenix Networks, had a long-term maintenance contract with a major lumber mill. “We knew it would give us a huge boost over the long term,” says Watson. But Voda didn’t have the cash to buy the firm outright.

Confirming that the company had good people and a solid reputation, Watson made the best offer he could. It was structured as a low lump sum followed by monthly payments for three years — an amount Voda could afford because both Watson and Zienowicz were taking below-market paycheques to help the business start off right. To Watson’s delight, the seller accepted. Three years later, says Watson “the deal has paid off big time.” Voda has benefited from ongoing growth at the lumber mill, as well as by adding new clients and reducing overhead.

Then a second opportunity arose. With Voda making waves in the Kamloops computer market, one struggling local rival, Business World Computer Centre, lost the will to compete. When the owner offered to let Voda buy the $1-million-a-year business, Watson scrutinized the company and crunched the numbers.

“You have to look and see if it makes business sense,” he says. “Will it bring value to your organization? Will the clients follow?” His investigation revealed the company had already laid off its poorer performers, and that clients worshipped the four people who were left. He also had Voda’s accountant review Business World’s books and assets. Finding, for instance, that its inventory of computer equipment was worth much less than book value emboldened Watson to offer less than the seller was asking.

In the end, Watson admits, “we made him a fairly low offer.” Again, the bid involved a down payment — about 15% of the total — and monthly payments for two years. After some back and forth, the seller agreed.

Watson promoted the deal in the media, through ads and press releases. “We spent a few grand, but it created a lot of excitement,” he says. “The phones never stopped ringing; we wanted to pull them out.” Voda gained lucrative new contracts, a bigger building and new staff who seemed happy to go with a winner. In fact, a former Business World employee is now one of Voda’s two minority shareholders.

Best of all, both deals helped Voda evolve from a hardware seller into a service provider. “By combining all three companies, we were able to provide complete solutions, service and hardware, to the clients of all of them,” says Watson. “We were able to exponentially increase revenue without having to increase our customer base.”

Other competitors have approached Voda about similar buyouts. But Watson says Voda can wait: “What I would rather do is hit hard, decimate them and then buy them out for less.”

Impudence: Showing your elders how to do things right

“Our competition has been asleep at the wheel for 50 years,” declares Geoff Moss, president of Poptech Ltd. (No. 42), a Toronto-based company that makes point-of-purchase displays such as the near-life-sized James Bond you might see shilling DVDs in your local video store. “We were the first company to take the blinkers off with in-store corrugated point-of-purchase [displays].”

Moss doesn’t mean to sound impudent; it just comes with experience. He and co-founder David Minister, Poptech’s CEO, admit they became innovators almost by accident. Unable to break into the market with conventional point-of-purchase displays, they were forced to come up with a better product than their older, established competitors. But in doing so, they proved there is nothing more powerful than two people looking for a better idea — and actually listening to their customers.

Moss and Minister were slogging it out in corporate giftware (mostly baseball caps and T-shirts), fighting a losing battle against foreign imports, when Moss’s dad suggested they look at the point-of-purchase business. It’s a recession proof industry: marketers are always competing to display their gum, sunglasses, chocolate bars or videos close to the cash registers in drugstores, video stores and supermarkets, because an estimated 70% of retail sales are impulse buys. Plus, displays and promotions change so fast that foreign imports are not a concern.

Moss and Minister formed Poptech in March 2001 to tap this promising market. But they quickly found most distributors were happy with their existing suppliers. To compete, they needed something better. Listening between the lines, they discovered that marketers weren’t entirely happy with existing point-of-purchase displays, which are normally shipped flat and assembled in-store by retail employees. They were too hard to assemble; wedging tab A into slot B just took too long. According to one industry source, 90% of corrugated displays are put together incorrectly. Couldn’t somebody, one prospect begged, create displays that just pop open?

For six months of long nights relieved only by beer and pizza, Moss and Minister worked on a pop-up design. Eventually, using precut tabs and rubber bands, they developed a product that assembles itself. Pick up a folded display, give it a flick — and snap! — the rubber bands pull the tabs into place and erect a life-sized display before your eyes. Better still, these designs enable displays to be folded into smaller sizes, saving on shipping costs. When the client who asked for a pop-up first saw the results, says Moss, “he couldn’t believe his eyes.”

Today, Poptech has 10 world patents (some of them pending) on its display technologies. Its clients include KFC, Alliance Atlantis, Gatorade, Nestlé and Nintendo. In 2004, Poptech generated sales of $3.3 million, up from $1.3 million in 2002.

Why was the point-of-purchase industry “sleeping” so long? “They never thought anything was broken,” says Moss. P-O-P suppliers tend to sell creativity in terms of designs on cardboard, not the design of the cardboard. Buyers weren’t demanding better products, so it took motivated newcomers to devise them. As Minister readily admits, “they weren’t buying our stuff, so we had to change it.”

But innovators can never rest on their laurels. When Moss and Minister tried to pitch Wrigley’s, a buyer refused to see them, saying he neither wanted nor needed more suppliers. Some people might have taken that as a “No,” but Poptech persevered, pleading to be heard for just five minutes. Minister offers this lesson from the school of door knocks: “If you press hard enough, you may piss them off, but nine times out of 10 you’ll get in front of them.”

When they finally got in front of Wrigley’s, the buyer challenged them to find a way to cut costs by squeezing more point-of-purchase displays onto a skid. Poptech’s brain trust went to work on new ways to fold cardboard. Two weeks later Moss and Minister were back, demonstrating a new packaging system that would reduce Wrigley’s costs by 30%. The client asked for 10,000 units — and went on to order many more.

Moss has also learned how short-sighted some buyers can be. When they brought in a blank pop-up display, many prospects would say, “What’s that got to do with my product?” Moss would have to say, “Imagine that’s your toothpaste standing there.” Now Poptech doesn’t rely on prospects’ imaginations; instead, it invests in each sales call, printing custom prototypes for each prospect it visits that display the company’s own products bigger than life. It’s extra work, admits Moss, “but it’s paid for itself time and time again.”

So far, the company is pouring most of its revenue back into research and development. “There’s a lot more opportunity to innovate,” says Moss. “We haven’t invented our best yet.”

Clearly, Poptech is not running short of chutzpah. It is taking calls from companies around the world hoping to license its unique technology. By this time next year, Poptech expects to be collecting royalties from the U.S., U.K and Brazil. With licensing, says Minister, “we could be 10 times the size we’re sitting at today.”

“Or,” Moss corrects him impudently, “we could be much bigger than that.”

Shameless audacity: Reviving a vanished era

When Lady Eaton and Jacques Carlu designed the elegant Seventh Floor of Eaton’s College Street department store in Toronto 75 years ago, they brought to it all the daring and exuberance you’d expect from a famed French architect and Canada’s most famous business family. But when the College Street location closed three decades ago, so too did the famed Eaton Auditorium and the posh reception and dining rooms. While the rest of the building was turned into offices or temporary retail stalls, the Seventh Floor, designed in the sleek Art Moderne style of the great ocean liners, was left dark and decaying.

Who had the audacity to return the Seventh Floor to its 1930s glory? Two 30-something entrepreneurs, who succeeded partly because they didn’t know how hard it would be — and partly because their high expectations wouldn’t allow them to compromise, whether it came to raising capital or setting the loftiest operating standards.

Event planner Jeffry Roick, partymeister for Toronto’s rich and famous, learned of the once-famed Seventh Floor only by happenstance. Struck by the existence of a unique event venue, frozen in time like a fly in amber, he arranged a visit through landlord Great-West Life. Roick fell in love with the streamlined architecture, the glass fountain and life-sized murals. Teaming up with longtime friend Mark Robert, a senior lease negotiator with Cadillac Fairview Corp., Roick founded The Carlu Corp. (No. 20) and resolved to reopen the Seventh Floor as Toronto’s premier event facility.

But it would take millions. Since Roick had co-ordinated Toronto events for Virgin Airlines, he and Robert asked British billionaire Richard Branson to finance The Carlu Corp. — and, much to the pair’s delight, Branson agreed. But he pulled out after Virgin cancelled its Toronto expansion in the wake of September 11th. Refusing to let their dreams die, Roick and Robert started calling on dozens of the city’s wealthiest families, practically going door to door.

Thinking about it later, Robert (pronounced Ro-bear) realizes how crazy they’d been to expect Rosedale millionaires to invest in their dream, often sight unseen. Nonetheless, with the help of retired investment dealer Latham Burns, whose enthusiastic backing energized other investors, they raised most of the money they needed: $4 million. They also acquired supplies worth another $1.5 million by offering “sponsorships” to companies willing to donate paint, flooring and even pianos. (Donors received special credit in printed promotions and on-premise displays.) On May 1, 2003, the partners relaunched the posh and polished Seventh Floor, now dubbed The Carlu, with what was called the party of the decade by international guests and media.

But Roick’s and Robert’s work wasn’t done. They knew The Carlu’s service had to be as consistently stunning as the landmark itself. “We set up this business to be an industry leader,” explains Robert. “We didn’t want to be flying by the seat of our pants.” The pair used their own experience — and tapped the brains of colleagues throughout the hospitality industry — to develop a 100-page policy manual. It covers every aspect of operations, from the look of sales proposals to the right way to answer the phone. “It’s the most comprehensive in the industry,” says Robert. “And we continuously fine-tune it so we have the best practices nailed down.”

To execute their plans, they carefully screened their 11 full-time employees and 100 part-timers for creativity, commitment to service and willingness to learn new things. “We wanted to put ourselves in an international league, and have trained our staff accordingly,” says Roick. “We give our people a lot of freedom, but they also have to accept accountability.”

Within weeks of its splashy opening, The Carlu was the place to be and be seen. Dubbed the chic-est place in Canada to have a wedding (expect to pay $200 per guest), the Carlu now hosts 400 events a year, ranging from annual meetings, conferences and high-end trade shows to cocktail parties, glittering dinners with guests such as Prince Philip and Colin Powell, and concerts featuring stars such as Matt Dusk and Diana Krall. “We’re more than a venue,” says Roick, with just a hint of audacity, “we’re an attraction.” The numbers back him up. In its last fiscal year, Carlu Corp.’s revenue reached $6.5 million, up 351% in two years.

Although Robert and Roick have a 30-year lease on the property, they are already looking to the future, eyeing other opportunities. From taking over underperforming venues to renovating other landmark buildings, “there are a lot of things we could do,” says Roick. “It could be more of a real estate play, a synergistic hospitality deal or some sort of event-supplies company. But probably the easiest would be some sort of third-party management.”

Of chutzpah like that, Lady Eaton would have been proud.

Originally appeared on PROFITguide.com
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