Innovations@Work 2010 winners

Written by Jim McElgunn

Sensor Wireless Inc., Charlottetown, Food-damage sensors

Many CEOs struggle to explain in plain language what their company does. Not Wayd McNally.

“If you buy a bag of potatoes, peel them and some of them have black spots on them, we can prevent that,” says the president and CEO of Charlottetown-based Sensor Wireless Inc.”Or if you buy a bottle of liquor and the neck is chipped, we can prevent that, too.”

McNally’s firm developed advanced sensors to achieve these simple ends. And it’s now rolling out a new sensor system that promises to transform food safety and longevity monitoring.

Food and beverage producers buy Sensor’s first-generation type of sensors to transmit data to handheld devices that quickly pinpoint where their production processes are likeliest to damage produce or bottles. The firm’s client list is full of heavy hitters such as Del Monte, McCain Foods, Coors, Nestlé and Coca-Cola.

The seeds for this business were sown when McNally was an agricultural consultant in 1997. A PEI farmer hired him to spot where a potato harvester was bouncing the crop so hard it bruised, and McNally found that simply inspecting the harvester was slow and unreliable. So, he packed sensors like those used in crash-test dummies into a potato-shaped rubber device he threw into the harvester. As it bounced around, it streamed data about impacts to a Palm handheld, and the Smart Spud was born.

Rival wireless systems yield a data tsunami that can take days to analyze. McNally’s breakthrough was devising a”peak data circuit” that transmits a miniscule fraction of the data collected: only those points when the impact exceeds a damage threshold. This tiny data flow permits real-time analysis — a trick no one else has copied.

Since founding Sensor in 2002, McNally has sold Smart Spuds worldwide. He has also branched out: the Crackless Egg reduces eggshell fractures, the Produce QC avoids damage to fruit and Agent QC reduces fractures in glass-bottle production and beverage filling. McNally says buyers of his sensor kits typically slash damage rates by 50%, so his clients are happy to pay US$5,000 to US$50,000 per kit. That yields plump margins of at least 65%.

McNally initially built a modest business. Then he spotted a vast opportunity to extend his sensors past the production line to every step in the supply chain, prolonging shelf life and enhancing food safety. To do so, Sensor developed Active Wireless Sensor (AWS) technology that gathers data from up to hundreds of sensors at the firm’s back end and combines it with GPS data into a Google Maps display on a website. This will allow, say, a Dole quality-assurance specialist to pinpoint in real time the sources of bruising that can lead to disease as pineapples are packed in Costa Rica or trucked across the U.S.

From 2004 to 2009, Sensor devoted 90% of its resources to R&D to develop the AWS system as well as sensors that track other variables, such as ethylene emitted by rotting apples. Moncton, N.B.-based Technology Venture Corp. (TVC) largely funded this effort with a $1.6-million venture-capital investment. McNally traces this investment to the credibility and exposure that Sensor received as a winner of a 2005 Manning Innovation Award for new products.

The five years of R&D gave McNally some bruises of his own:”If I had to do it all over again, the first person I’d hire would be an experienced project manager.” He admits that not having a project manager delayed completion of AWS by a year, driving costs way up.

Still, AWS is market-ready now, and Sensor is about to launch a big sales and marketing push funded by a new financing round from TVC that’s set to close this May. McNally forecasts that his company’s revenue, now $1 million, will soar to $8 million to $12 million by 2015. He’ll still sell his original type of sensors, which generate only one-off revenue because clients don’t need his firm to analyze the data. But the main growth will come from twin revenue streams as clients buy truckloads of AWS sensors and pay monthly or quarterly fees to access data from Sensor’s servers and various tiers of analysis.

One of AWS’s chief uses will be monitoring food safety and shelf life. This summer, California Polytechnic State University will wrap up a project for the U.S. Department of Agriculture using Sensor devices to gauge how temperature and humidity variations in leafy greens being trucked to market affect spoilage and the growth of E. coli and listeria. And the Safeway and SuperValu grocery chains will partner with Sensor next year as Cal Poly tests multitudes of devices in store fridges, freezers and storage areas. McNally says AWS can reduce spoilage waste by 50% and slash rates of foodborne pathogens.

And he has his eye on other sectors.”We see our business as monitoring the condition of assets,” says McNally.”And we see opportunities to do that for power companies, automakers and pharmaceutical companies.”

MetaFLO Technologies Inc., Toronto, liquid waste management

Developing a technology that licks a key problem for potential clients and cuts their costs is a good start. But you still won’t get far without the right business model.

The founders of MetaFLO Technologies Inc. learned that the hard way. Roger Woods and Doug Pullman knew that they and other horizontal directional drilling operators (HDD projects include drilling for oil wells and gas pipelines) generate vast volumes of liquid waste, as do many manufacturers. The partners also knew the usual way of preparing this waste for landfill was pricey and none too green. So, they devised a groundbreaking method of doing so and in 2003 launched Surface to Surface Waste Management to market it to the environmental services companies (ESCs) that waste producers hire to get rid of the stuff.

Yet, after five years, their business was going broke. Its 17 investors therefore renamed it, recruited a new president and CEO, and told him to pretty much start over. Since taking the helm at the Toronto-based firm last August, Andrew McNabb, who hails from the waste-management sector, has implemented a new business model that, he says, has MetaFLO on track to grow dramatically and shake up the industry.

In the standard disposal method, an ESC trucks liquid waste to a transfer station, which rolls it in a bulking agent such as sawdust so it can be trucked to a landfill. The waste still leaks, so the ESC has to tidy up the resulting mess with $300-per-hour vacuum trucks — lots of them, because the bulking agent adds so much volume. And the waste remains unstable enough there’s a risk it will leach out of the landfill.”If you take an oily, sloppy mess and roll it around in sawdust and drop it in a landfill, that’s acceptable today,” says McNabb. But, in reality, he adds,”It’s horrible.”

MetaFLO’s alternative process uses a mixer that blends clay and polymers into the waste so efficiently it adds as little as 2% to the weight.”The conventional method takes three trucks for every one ours does,” says McNabb. MetaFLO’s blend renders the waste dry and stable, and seals toxic substances such as benzene inside. An ESC brings a mixer on scheduled visits to a drill site or factory to process the waste there. McNabb says MetaFLO typically charges $50,000-plus to buy a mobile mixer unit and $750,000 per year for the clay and polymers. Since the treatment means the waste no longer leaks, $75-per-hour dump trucks can take the waste straight to a landfill.

So, why didn’t this new method gain traction? McNabb says MetaFLO spread itself too thin, chasing six vertical markets and signing overseas clients it lacked the resources to service. It now targets just three verticals, all closer to home: manufacturers and HDD drillers in Ontario, and oil-and-gas drillers in Alberta.

McNabb has also fixed what he calls the firm’s biggest misstep: having MetaFLO’s supplier of clay and lab services handle sales, marketing and after-sale support. The founders wanted to tap into the far larger supplier’s experience in these areas, but the supplier didn’t put many resources into the initiative — which, for it, was a sideline.

McNabb brought these functions in-house, launched a sales flurry (“I’ve spoken to every waste company in Canada”) and reinvented the firm’s website to play up case studies from the three verticals. In just a month, the site drew 10 serious inquiries. McNabb says the key to landing sales is MetaFLO’s eye-opening field test on a prospect’s waste stream, which prospects readily agree to see because they know that regulators are stepping up enforcement.

MetaFLO’s revenue was just $200,000 in the year ending March 31, 2010. But McNabb recently signed two sizable deals and has 30 prospects in its sales funnel. He forecasts sales of $2.5 million in fiscal 2011 and $8.9 million the year after.

He’s so bullish due in part to”a perfect storm” of helpful trends: rising fuel and landfill costs, and a mindset shift as governments and waste producers such as utilities seek sustainable and cost-efficient disposal methods. McNabb says ESCs see that MetaFLO can protect their clients against the liability risk of wastes leaching out of landfills.”Union Gas prefers a standard protocol rather than leaving it up to individual contractors how to dispose of waste,” says McNabb.

For now, MetaFLO has no direct rivals.”But once our system becomes commercially accepted as the method, there’s no way we’ll be alone,” says McNabb. So, he’s racing to build a big lead, aiming for”fairly universal penetration across Canada and fairly significant penetration in the U.S by 2013.”

He’s also eyeing other niches, such as liquid waste in oil-sands tailings ponds.”We’ve already had interest from Fort McMurray, but the big challenge would be scaling up,” says McNabb.”One company alone has 750 million cubic metres of tailings, so you wouldn’t deal with that with a 20-cubic-metres-per-hour unit.”

Blue-Zone Technologies Ltd., Concord, Ont., anesthetic waste gas capture

The problem might come as a shock to you, but hospital operating rooms (ORs) are significant polluters. So significant that Dusanka Filipovic launched a business she believes will generate annual revenue of $157 million by 2015 by eliminating the harmful emissions that result from the use of standard anesthetic gases.

Patients absorb less than 5% of these toxic gases, and ORs vent the rest into the atmosphere. The heavy molecules linger in nearby areas, posing health hazards — and potential legal liability — because the gases can harm the liver, kidneys and pancreas and induce spontaneous abortions. What’s more, the anesthetics are greenhouse gases thousands of times as harmful as CO2. Filipovic says the ORs in an average hospital do as much damage per year as the operation of 400 vehicles.

Filipovic has a solution to this problem no rival is close to matching. She forecasts that by 2015, half of North America’s 54,000 ORs will each pay $150 per month for her service. And that’s just one of the three revenue streams Blue-Zone Technologies Ltd., her Concord, Ont.-based firm, will boast.

Blue-Zone offers hospitals a way to score PR points as eco good guys, complete with proof via monthly reports on the CO2-equivalent of emissions avoided. By 2012, hospitals will see their net cost for the service fall to zero as they receive a share of the proceeds from recycled gas sales, plus payments from agencies that buy carbon-offset credits on behalf of Canadian corporations participating in a voluntary program to become carbon-neutral.

“I’m really proud to be part of something that puts new technology to good use,” says Filipovic.”We’re solving a major global problem that has rarely been recognized, let alone addressed.”

Filipovic, a chemical engineer, learned about OR emissions after running an ad in Nature magazine in the early 1990s announcing a technology she had co-invented at medical-gas firm Praxair Canada to filter medical and industrial gases. Arthur Scott, head of anesthesiology at Toronto General Hospital, saw the ad and suggested using the filters to capture excess anesthetic gases. Filipovic bought the rights to the technology from Praxair, then, in 1999, founded Blue-Zone to pursue this idea.

Like a vaporizer, an OR’s anesthesia machine turns a liquid into an inhalable vapour. The 95%-plus of these gases the patient doesn’t absorb stay inside the machine until they’re vented via a special pipe out the hospital’s roof. Blue-Zone’s service, branded Deltasorb, adds a filtering device to the machine to capture in a canister any of the three gases ORs use.”It’s like a lobster trap that captures lobsters but lets fish go,” says Filipovic. Blue-Zone collects the canisters weekly. Its plant separates the cocktail into individual gases, then purifies and liquifies them so they can be reused.

Blue-Zone took a decade to get this technology to the commercialization stage last year. Beta-testing alone in 200 ORs took four years. Filipovic funded the long development process with $5 million in total from various private investors and another $5 million from assorted government programs.

Central to reaching commercialization were tight partnerships with key players. Since the beginning, Filipovic has worked closely with anesthesiologists (“They’re the ones who understand the problem and welcome solutions to it”) and the University Health Network, which runs seven Toronto hospitals and has led the way in testing and advocating for Deltasorb. Filipovic has won over hospital boards by showing how Blue-Zone can help with their mandate to go greener. Her advisory board, packed with what she calls”world-class talents” in hospital administration and regulation, has also bolstered her case.

Although revenue in the year ended March 31, 2010, was just $100,000, several developments now unfolding have Blue-Zone poised for dazzling growth. Filipovic is in talks with anesthetic-gas manufacturers and big pharmaceutical firms keen to enter the field about supplying them reconstituted anesthetics at a price well below making them from scratch. Blue-Zone will give each hospital a slice — tentatively, 20% — from these sales. The Ontario government has just okayed a $3-million forgiveable loan to ramp up Blue-Zone’s pilot plant to commercial scale. And Filipovic is close to a venture-capital deal to fund expansion into two major U.S. hospital chains. Next up: landing distribution deals with makers of anesthetics, other medical gases and gas machines.

Although Blue-Zone is a long way from $157 million in sales, Filipovic insists this forecast is conservative. It excludes the 10% to 15% annual growth in anesthetic usage as hospitals carry out more and longer operations on aging boomers, and the likelihood that regulators will require hospitals to stop emitting this pollution now that a method to do so exists. Above all, the huge firms she’ll partner with have the resources to deploy Deltasorb rapidly and are keen to differentiate themselves: “This will open the doors to them of every hospital, because every hospital needs this.”

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