Innovation

Podcast 53 Transcript: PROFIT 100 Part 2

Written by Ian Portsmouth

Ian Portsmouth: Welcome to the Business Coach Podcast, an advice-oriented series that tackles the top issues and opportunities facing Canada’s small businesses. I’m your host, Ian Portsmouth, the Editor of PROFIT Magazine and we’ve developed this podcast in cooperation with BMO Bank of Montreal.

Over the past five years, Canada’s fastest growing companies recorded revenue growth rates ranging from 323% to more than 8,000%.  We’ll learn more about how they achieved such phenomenal growth in this, the second of two episodes dedicated to a conversation with the leaders of three of Canada’s fastest growing companies, and they are Randy Litchfield, he’s the president and co-founder of Inbox Marketer, an email marketing company based in Guelph, Ontario. Inbox Marketer achieved 2008 sales of $3.4 million and ranked 98th on this year’s Profit 100 with five-year growth of 902%. Boaz Schilmover is President of Arte Roofing and Construction. Based in Calgary, Arte provides roofing and waterproofing services to commercial and residential clients. The company placed 170th on the 2009 Profit 100 with five-year revenue growth of 422%. It generated revenue of $6.6 million in its most recent fiscal year. And, finally, Kevin North is the president and CEO of Dyadem International, a developer of risk management software used in the process and manufacturing industries. Based in Richmond Hill, Ontario, Dyadem recorded sales of $14.7 million in 2008, an increase of 357% from 2003 and that performance earned Diadem 192nd place among Canada’s fastest growing companies. To all three of you, a warm welcome to the Business Coach Podcast, again.

Guests: Thank you, thank you, thank you.

Ian Portsmouth: So, we talked about your start ups, we talked about your original vision, we talked about the recession in the last episode. Let’s talk about some of the best practices that you’ve used to grow. So, we all know that there has been a bit of a labour shortage for the past three to five years. That’s lightening up a little bit now thanks to the recession, but I do want to ask you. How have you managed to find and keep and motivate the really good people that companies need to grow? Randy, let’s start with you.

Randy Litchfield: Well, I guess we use something we refer to as seven degrees of separation. So, we try to hire people that we know in some way. So either an employee in the company knows them or, you know. I mean it doesn’t always work but we try to do that. For example, we’ve hired from clients, people we got to know that way. They wanted a career change; it was okay with our customer so then they came here. So in terms of recruiting we try to use familiarity that way. We also look for specific skills like direct marketing skills and analytical skills and so forth. On the retention part, we’re firm believers in profit sharing, and that’s something I’ve learned at PROFIT Magazine, just, you know, writing as many stories as I did. So every employee in this company either earns, in addition to a very competitive salary, they earn additional compensation either through sales commission or through a profit-sharing plan. So there is a monthly cheque that goes to everybody in months of profitability, and we’ve had very few months that were not profitable. And so that puts everybody on the same page. The way we position that is that your salary pays you for nine to five and the performance compensation is going above and beyond and really focusing on customer service and being available for the client. And we make those things optional. We don’t insist that people belong to a profit-sharing plan. It’s their choice.

Ian Portsmouth: Boaz, how have you managed to find and retain good people over the past few years?

Boaz Shilmover: We work in a relatively small industry so everybody knows each other, so we basically had to focus on the individuals that were working within our organization, and by doing so, word of mouth would spread of the type of organization that we are and would start to attract other individuals. So just to touch up on that on retention, you could split our organization into two between the field personnel and the office project management personnel. On the field personnel side, we’ve spent a significant amount of money on training as it pertains to both safety and the trade-specific training. So there’s programs through the Northern Alberta Institute of Technology that provides a three-year apprenticeship program, which we enrol all of our employees into that program, carry the cost of that and touch up their unemployment benefits while they are on course for a month period to assist them with their living allowance. Word of mouth gets out on that and other trades at that level, they hear about our company, and they want to end up coming to work in an organization that’s going to invest in its people. On the project management end of things, it’s the same idea where we believe in sending individuals to as much training as possible, whether it’s industry specific or management specific, whatever the case may be. And that in itself, as well, gets out to the industry that shows that this is an organization that believes in its people and is really only as good as its people and its skills.

Ian Portsmouth: And that kind of level of engagement and trust is critical. Kevin, what about you? How have you kept your employees around?

Kevin North: Well, our situation is similar to Randy’s and I’ll speak about the recruitment aspect first and that we did do something that was important. We actually, as a management team, profiled all of the departments and what we call the pillars of the departments and the pillars of the overall organization, and we looked at how they actually came into the organization and looking at those trends. And we found that over 80% of the people that were the most successful individuals from a matrix and attitude and our overall sort of performance summary point of view, they were all found by referrals. So they were people that we already knew or somebody else knew in the organization. So we really wanted to encourage that as a mechanism for recruitment and so we created a program called “You are the Connection,” which was a reward system for the employees here who would bring in their own friends and associates when a position was posted. On a retention side, I mean I think the number one rule for us, which has been the most effective, has been disclosure. You know, disclose, disclose, disclose, and we really want to make sure that we tell the company what we’re doing at all times and although we’re a private company, we operate as a public company and that we have regular town hall meetings that I think go well beyond the disclosure of normal data. We disclose full financial data, you know, profits, revenues, you know, everything that you would like to know as an investor we share with our employees so that there’s no surprises, you know, when a quarter ends or when a quarter begins. And we also have a profit-share program much like Randy’s company, and we make sure that when the company benefits everybody benefits. And like a lot of high tech companies, we also have a stock options program that the employees benefit from as well, and they can actually have some, as we say, skin in the game. So those are just a few mechanisms that we use.

Ian Portsmouth: Now, most growth entrepreneurs have a challenge with financing. Where have each of you found the capital to grow your companies, and could you recommend any specific sources that you have encountered? Kevin, let’s go with you first.

Kevin North: Sure. Well, first of all we raised money at a much better time back in 2007 from a company that labels themselves an alternative investment firm. You know they’re not a VC; they’re not a private equity firm. They really operate more like, almost like a hedge fund to some extent, but they won’t call themselves a hedge fund. And, you know, from our point of view, we raised as much money as we could at that time knowing that there was some trouble brewing ahead, and we were getting valuations that were very, very high and valuations that I don’t think any company could get in today’s market. So my rule of thumb was if the valuations were attractive enough and we were sort of pre-recession, I wanted to have, you know, if I needed a little bit of money, I wanted to take that much more so that I could, you know, weather any storm that was pending. You know, now it’s obviously a much different time and a lot of companies, I would actually give them different advice. I would say, you know, only raise money now if you really, truly need money because you’re not going to get the valuations that you were getting even, you know, two years ago, and everyone’s looking at the public markets as benchmarks and typically you’re going to get beaten up. And I think unless your company is running and trending profitably, for the most part, you’re going to have a lot of difficulty, you now, especially as a start-up company or a company that is really in need of financing. I think it’s a very difficult time, and from my experience and talking to the VC community, anyways, they’re not very tolerant right now of companies that are not profitable. So my advice to companies right now is look at your expense side, look at your capital assets, your human assets and make sure you can become profitable quicker than anything well prior to, you know, trying to go and raise that first dime.  And if you are in a position of need, I would recommend, with the valuations as they are right now, to raise the minimum not the maximum.

Ian Portsmouth: Boaz, you are in an industry far removed from venture capitalists and initial public offerings. How have you financed the growth of Arte?

Boaz Shilmover: That is true. Unfortunately our industry is usually not a target of private equity and so forth. When we first started, it was really through personal credit cards and personal loans and support from our vendors to extend our accounts payables, which act in a sense as a virtual line of credit. But the one recommendation I can give is that as you grow your business, focus on the bottom line and your cash position and the ratios. Get to understand the language of accounting. By doing so, you’ll be able to actually approach a bank down the road and show that you’ve been able to prudently build a value within your business that they’re prepared to support. And we were able to find that support through credit unions here in Calgary, so more of a personal relationship. Once they see that you are financially sound and you’ve got the right processes in place, they are prepared to work with you, get to know your business and understand what it is that you’re looking for and why they’re prepared to provide it.

Ian Portsmouth: Randy, how have you financed Inbox Marketer?

Randy Litchfield: Well, we’re boring in that regard because we bootstrapped this business from day one and I’ve always done that, and when I started a business in the 90’s and it was an opposite approach. The first thing I did was went and raised VC money on the strength of a compelling business plan and, you know, I mean that’s great, but what you end up with are partners that you don’t really know how well you’re going to get along with them over the longer term. So that story turned out very well. But all the time you’re spending raising money you could be doing other things to build the business. So I have a feeling that in most start-up situations, people raise more money than they actually need. So this time we took an opposite tact. We bootstrapped everything. We lived within our means. Because we’re a knowledge business, I mean, we have an advantage because we don’t have to go out and buy printing presses or robots to build cars or what have you. So our primary investment is in people. The dividend is we have complete control. We own all our business. We have no debt, and that’s what I would advise entrepreneurs to do, any start-up entrepreneur to do is to bootstrap as long as possible and wait until you have the most value you can possibly build in your business before you start talking to investors.

Ian Portsmouth: Thanks for that advice. Kevin, what would your best advice for other entrepreneurs be? Those entrepreneurs who’d like to be Profit 100 companies one day?

Kevin North: You know, I’ve given this same advice to other entrepreneurs, and I think, especially right now, I think there’s got to be a focus, and it’s more of an opportune time, anyways, to look at the people side of things before, you know, spending, you know, three to six months building out this articulate business plan. I think, you know, my emphasis would be on looking at building out at least the top-level management team and bringing in the people that can really help you execute. Because from my experience, I mean, if I look at Dyadem and Dyadem’s growth, it was no coincidence that our growth really became accelerated the moment that we looked at the top level of our organization and started departmentalizing, bringing in sort of the best of breed on the executive level because go back a few years ago it was, you know, everybody in the company reporting to me, which was truly not scalable. Obviously that was not the intention to keep it that way, but if I look at how we catapulted our growth, it was when I brought in the “A players” so to speak. One of my friends in Boston said a few years ago that the problem with hiring A players is, you actually don’t know what an A player looks like until you actually work with one, and so you’ll think you have an A player when in reality you have a B player and then the moment that you get your first A player on board you’ll never settle for anything less. And I was fortunate that I was able to get a couple of A players early on that really helped catapult the business. So, coming back to your original question, really focus on the human beings. Really get your upper management team built out properly. Doesn’t mean throwing a position everywhere, but bringing in the right people for, you know, in our industry certainly I had to get the right technology person, the right finance and operations person and somebody to really help me execute the business.

Ian Portsmouth: Thanks. And Boaz, so what would your best advice to Canada’s entrepreneurs be?

Boaz Shilmover: I would actually start looking at industries that are, first of all, poorly managed overall and aren’t necessarily that attractive but something that may attract you. The reason I say that is if you can go into that type of industry and optimize your business, you’re going to start to grow in leaps and bounds over your competition. I’m convinced through my experience that there’s tens of thousands of individuals out there working in industries where they feel that there is no real opportunity and excitement of growth. Mine would be one of them. And if you can provide that level of operation where people can succeed and you can unleash them, the energy level that you’re going to unleash in these people is going to allow you to achieve things far, far beyond what you could have imagined.

Ian Portsmouth: That’s great advice, Boaz.  To you, Randy and Kevin, thanks for joining the Business Coach Podcast.

Boaz Shilmover: You’re welcome.

Randy Litchfield: Thank you.

Kevin North: Thank you.

Ian Portsmouth: Randy Litchfield is President and co-founder of Inbox Marketer and email marketing company based in Guelph, Ontario. It placed 98th on the Profit 100 ranking of Canada’s fastest growing companies in 2009. Boaz Schilmover is president of Calgary based Arte Roofing and Construction. It ranked 170th among Canada’s fastest growing companies this year. And Kevin North is President and CEO of Dyadem International, which is headquartered in Richmond Hill, Ontario, and finished 192nd among the 2009 ranking of Canada’s fastest growing companies. That’s it for another episode of the Business Coach Podcast. You’ll find part one of this two-part series at bmo.com, profitguide.com and iTunes. Those are the places to visit to find all of our archived episodes, as well.

If you have any comments or suggestions about the podcasts, please send them to me at ian.portsmouth@profit.rogers.com.

Until next time, I’m Ian Portsmouth, the editor of PROFIT Magazine, wishing you continued success.

Originally appeared on PROFITguide.com