Innovation

Growth strategies: Thank goodness for the recession

Written by Rick Spence

No one is untouched by the downturn — not even Canada’s Fastest-Growing Companies. What sets them apart from many businesses is their stubborn faith in a brighter future, their desire to control their own destiny and their ability to find the silver lining in the darkest cloud. Here are the tactics and strategies they’ve adopted to repel the recession and get a head start on the recovery.

Amp up the marketing

As clients started trimming their purchases of corporate gifts from Markham, Ont.-based Capital Promotions (No. 129 on PROFIT’s 2009 list of Canada’s Fastest-Growing Companies) last fall, president Aaron Pollak realized that cutbacks and layoffs weren’t the solution, they would just leave employees stressed and overworked. To survive, “we had to grow the top line.” In one instance, Capital Promotions supplied gift bags containing chocolate-covered sunflower seeds, along with goodies from other sponsors, to 350 women attending a local ad-industry luncheon. Capital’s total costs were about $3,000, but thanks to rigorous follow up, says Pollak, “We probably opened up six new accounts. We’ve made the money back four times over already.”

Capital has also hired a new salesperson and is betting that its initial investment in on-the-job training will pay off. “There’s a lot of new business to be had,” says Pollak, “and no one else is asking for it.”

Bonus Tip: Share the pain

When the recession deepened, Pollak reached out to his suppliers for credit. “The more credit you can give us, the more business we can get for you,” Pollak promised. Once vendors realized that Capital was increasing its marketing spend, Pollak says, several agreed to more generous credit terms.

Diversify your dependencies

Toronto-based Infinium Group Inc.(No. 3) uses its own carefully calculated algorithms to trade millions of stocks, options and futures contracts every day. But it depends on a handful of investment dealers to execute those trades. When North American stock markets (and dealers) began melting down last year, co-CEOs Sergei Tchetvertnykh and Alan Grujic headed a six-week planning effort to make sure Infinium — which posted revenue of $65.6 million in 2008 — would survive the recessionary wreckage.

“The investment paid off awesomely for us,” says Tchetvertnykh. Infinium researched new broker-partners, so that if more blue-chips such as Merrill Lynch go the way of Lehman Brothers, Infinium now has backups who understand its trading needs. Infinium’s business-continuity plan also included increasing its R&D efforts to make sure its software continues to spot investment opportunities ahead of the competition, and it set a course for diversifying beyond the North American and London stock exchanges to bourses in Mexico, Brazil and Russia. Tchetvertnykh says the plan took $1 million worth of executive time, “but we’re much more resilient now than we used to be.”

Get back on track

Kevin Slough admits that his company’s rapid growth had left its staff run off their feet in recent years. Today’s energy industry slowdown means Calgary-based FilterBoxx Water & Environmental Corp. (No. 19) can catch its breath and get new people up to speed on the company’s corporate culture and the quality-control issues that may have been neglected in good times.

“My engineering group tripled in size [a year ago],” says Slough. At that pace, “getting people aligned becomes a bit of a challenge.” Now, there is more time to spend on training, both inside and outside, more time for weekly quality meetings to help recent hires understand the FilterBoxx way of doing things and more time to establish processes for developing, overseeing and communicating with staff.

Bonus Tip: Explore international opportunities

FilterBoxx is using downturn-based downtime to look into more export markets. It is starting to work with representatives in Asia and the Middle East to spread the word about its industrial water-treatment systems, and it’s also actively seeking U.S. reps. “I think the recession has let us lay the foundation for growth in the next few years,” says Slough.

Save clients money

Toronto-based Herjavec Group Inc.(No. 26) sells computer-security systems, mainly to big business and government clients; but these days, even those institutions are cutting back orders. CEO Robert Herjavec (who moonlights as an investor on CBC-TV’s Dragons’ Den) has developed a new solution to address customers’ cash concerns. He offers to save them money by taking over the management of their computer-security systems. “We don’t make a lot of money on it,” he says, but the arrangement lets his company save the sale, strengthen client relationships and earn long-term management fees.

Herjavec’s solution is uniquely suited to today’s sluggish economy. This service isn’t as profitable as the company’s regular line of work, and it has never had extra people to carry out the service. “We can do this only because it’s easier to get good people now,” says Herjavec. He expects sales this year to jump by 70% over 2008’s $25.9 million.

Invest in service

When the recession struck, Internet service provider TekSavvy Solutions Inc.(No. 27) was just starting to build for the future. The Chatham, Ont.-based company is adding new hardware that will increase its capacity by 30% and automate many processes now conducted by people. But instead of using that new capability to lay off staff, CEO Rocky Gaudrault made a pact with his 62 employees that will make TekSavvy a stronger competitor when growth returns. The winning pitch: if his staff commit to cross-training to become more skilled and flexible providers of customer service and tech support, no one will lose their job to automation.

Gaudrault says the deal will lower TekSavvy’s staffing costs over the long term and improve its service by training lower-cost customer service reps to help clients with simple technical problems, such as log-in glitches. “This will up the ante for the company, big-time,” says Gaudrault. “Who else has customer-service people who can handle technical issues?”

Champion industry innovation

Targray Technology International Inc.(No. 73) of Kirkland, Que., always has its eye on the future. When it saw demand slackening for its DVD-manufacturing components a few years ago, it moved quickly into a new growth area: parts for solar-energy systems. And last year, seeing recession on the horizon, it decided to move more money into product development, hoping to impress customers searching for innovative products to lower the cost per watt of solar power.

Working with suppliers and product developers, Targray has accelerated its product-development effort by 30%. As a result, although there are fewer customers in the market (banks have reduced credit to most solar producers), Targray is selling more products to those that are left. Besides reinforcing the company’s brand as an innovation champion, president and CEO Andrew Richardson sees another advantage to this strategy: the company remains strong enough to retain good people for the recovery. “We’ve been developing people for years to have them understand this market,” says Richardson. “The last thing we want to do is let them go.”

Go Green

At Toronto-based InterRent Real Estate Investment Trust (No. 31), which owns apartment buildings throughout southern Ontario, the downturn has provided an excuse to tighten up and go green. CEO Michael Newman says the company is becoming more aggressive about charging tenants for incidentals such as air conditioners and parking spots. It’s also investing in fast-payback “green” tools and equipment to reduce costs forever.

In one instance, InterRent is taking advantage of government incentives for installing energy-efficient light bulbs. Its other environmental initiatives include installing low-flush toilets, aerating faucets and anti-theft light fixtures, as well as making sure that windows and doorways are properly sealed. Newman says that InterRent — which generated revenue of $33.9 million in 2008 — is spending $2 million on its green program. But between the reduced energy use and government incentives, he says, “We’ll get that back within a year.”

Hire now

Belvedere Place Development Ltd. (No. 37) is a construction firm based in Kelowna, B.C., specializing in roads, bridges and site servicing — “Nothing that has a front door,” says president Kelsey Ramsden. She is using the recession as an opportunity to snatch up experienced tradespeople and equipment operators who had migrated away from construction during the oil boom. “Their skill, reliability and commitment make a world of difference,” she says.

When the economy turns, Ramsden hopes to keep these people on staff by emphasizing teamwork, professional development, safety training and joint decision-making. For instance, the company took time this winter to open up a discussion on reporting requirements, to ensure its key people got a say on what goes into the reports they have to write every day.

Bonus Tip: Buy second-hand

This past winter, Belvedere Place acquired $1.5 million worth of new trucks and construction vehicles by hitting the auction circuit in Western Canada (and, in one case, in Reno, Nev., where it snagged a road grader at 60% off). With paybacks now measuring about two years, says Ramsden, “We’re buying equipment we normally would rent.” Since she has been building relationships for several years with local credit unions and Canadian Western Bank, she says, financing hasn’t been a problem: “If you can get someone to lend to you, interest rates are ridiculously low.”

Move fast to cash in on recovery

For Calgary-based S.i. Systems Ltd. (No. 165), the recession has provided a golden opportunity to stock up on key talent for the company’s next big push. S.i. supplies IT contractors and permanent staff to clients across Canada; president and CEO Derek Bullen says the next big battleground will be the Toronto area, where the company has just added 15 new salespeople — a 50% increase. Since S.i. takes nine months to get new hires up to speed (three months training and six months to meet clients), Bullen’s timing is quite precise: “Our goal is to have them trained and ready to go by 2010,” he says.”We want to meet the clients before the market turns around. When the economy gets better, it gets better much faster than people expect.”

Bonus Tip: Guarantee results

S.i. has become a $153-million-a-year company, thanks to its commitment to customer service. Bullen says it was the first company in its industry to offer clients a money-back guarantee: if your contractor isn’t working out after a month, S.i. refunds your fee. The company is now actively preparing to enter the market for financial professionals, where it will offer a precedent-setting six-month guarantee: your placement fee returned if the new employee doesn’t work out. In today’s timid buying markets, he says, “This will be a game-changer.”

Use data as a weapon

Recession hasn’t buffaloed Carmen Creek Gourmet Meats (No. 2), a Calgary-based bison-meat processor. By using a weekly “gross margin sheet” that pinpoints the yield, cost and revenue from each animal processed, husband and wife team Kelly Long and Pieter Spinder always knows how much Carmen Creek is making on each part of every carcass — giving them the insight they need to adjust prices fast, an advantage that’s more important than ever in a downturn. “Most of our competitors don’t find out how much they made until the end of the quarter or the year,” says Long. “We need to know every week.”

Such attention to detail has helped the company’s revenue grow from less than $200,000 in 2003 to $17 million in 2008 — giving it the leverage to expand and diversify. Its acquisition of rival Grande Prairie Bison Co. in February, 2008, has helped Carmen Creek tap the growing European market, to which it now sends 10,000 kilograms of meat by air every week. Since Europeans tend to prefer chewier cuts of meat, this market-expansion strategy helps Carmen Creek get the highest possible price for every part of the animal, as well as geographical diversity that should pay off as global markets slowly strengthen.

Offer a better solution

Few companies stop doing business in a recession — they just become more selective. In Guelph, Ont., Inbox Marketer Inc. (No. 98) president Randall Litchfield says big clients looking for more efficient marketing communications are approaching his e-mail marketing company. Last year, he says, business spending on direct mail fell for the first time in 30 years as companies recognized the cost savings and efficiency of e-mail marketing. As Litchfield notes, you can gauge the success of an e-mail offer in 48 hours, versus six weeks for direct mail. “Over half of our clients have increased their spending this year,” he says. “In some cases, this recession has actually helped us. All of a sudden, companies are accelerating their plans, and now they want to meet right away instead of three months from now.” To get the word out, Inbox presents educational seminars to potential clients through the Canadian Marketing Association. It also focuses on building customer loyalty, which has proved useful when some clients used the recession to reduce the number of suppliers they deal with. (Litchfield, a former journalist, is the founding editor of the PROFIT 100. His story on PROFIT 100 practices he has applied to Inbox Marketer can be seen here.)

Invest in inventory

Armament Technology Inc. (No. 91) is a Halifax -based specialist in rifle scopes and other sighting instruments for military and police forces. Although the recession hasn’t hit this sector hard, president Andrew Webber says, many of his competitors have been cutting inventory levels recently. Because Webber has a surplus of cash in the business, he has responded by increasing inventories to ensure his clients fast service. “To be successful in this business,” he says, “you have to figure out what everyone else is doing, and then turn around and do the opposite.”

With today’s low returns on bank deposits and money-market funds, Webber says, stocking up on product is a wise move: “Inventory is something I can turn into cash as soon as the market wants it.” With inventory levels 40% higher than a year ago, Webber wants his clients to know he can supply product right away — they don’t have to wait months while other suppliers order from the factory. “When our customers want something, they want it fast,” he explains. His innovation is also strengthening relationships with suppliers: “Some appreciate the extra business, and are willing to supply product at a lower cost.”

Originally appeared on PROFITguide.com