Innovation

Seize the day!

Written by Jim McElgunn

Roger Hardy’s make-or-break moment came three years ago. His industry of online sales of contact lenses was consolidating with stunning speed, transforming it from a 1,000-company free-for-all in 2001 to today’s dominance by just three giants. With booming revenue that had already reached $31 million, Hardy faced an enticing opportunity to sell his firm at what would surely be a high price.

But he made a different choice: to eat rather than be eaten. “I didn’t want to be consolidated,” says Hardy, president and CEO of Vancouver-based Coastalcontacts.com. “Why not become a global brand instead?”

He has done just that, adopting an aggressive acquisition strategy and innovative customer service to build his company into the biggest online seller of contact lenses in Europe and the second-biggest in the world. The firm’s total shipments have topped 100 million lenses. And its 2006 sales of $81 million were up a blistering 2,901% from five years ago, enough to place No. 18 on this year’s PROFIT 100 ranking of Canada’s Fastest-Growing Companies.

Hardy knew Coastalcontacts.com had to bulk up fast to avoid getting squeezed out. Since 2004, it has considered about 10 acquisitions and executed four of them. And if you think its experience is irrelevant in other sectors that lack such rich buyout opportunities, Hardy disagrees: “In most industries, there are those kinds of possibilities.”

Of course, it’s not enough to spot the opportunity to achieve critical mass via acquisitions; you have to make the right acquisitions. Hardy says that his criteria for green-lighting deals include a like-minded vision with the potential acquiree’s executive team, a collaborative mindset, a good corporate-culture fit and the chance to learn from each other.

In his $18.5-million purchase of Lensway AB in 2004, Hardy’s new Stockholm-based partners shared his business mission to offer consumers a convenient way to buy high-quality lenses, a teamwork-centred management style and a culture he describes as “hard-working, over-educated and socially conscious.” The deal also let the Swedes learn from the Canadians’ 100% online-sales model, and the Canadians learn from the Swedes’ expertise in direct marketing. It has proven a smash hit, with European sales tripling since 2004. Canada’s homegrown contact-lens powerhouse has since made acquisitions in Japan, Singapore and the Netherlands, and has $30 million on hand for further deals as it drives to become No. 1 worldwide.

Coastalcontacts.com has several times had to face a question that confronts all growing businesses: should we pursue this opportunity? How you respond to that question can be decisive to your firm’s fortunes. The phenomenal average revenue growth of the PROFIT 100—2,095% over the past five years—shows how skillfully they’ve done so. And their combined 2006 sales of $11.5 billion haven’t come at the expense of profitability. Not only are 78% of the PROFIT 100 in the black, but their bottom lines have improved massively, from a weighted average net loss of 10.9% in 2001 to a net profit of 10.4% in 2006.

The firms achieving these results operate in a dizzying array of sectors. The 2007 PROFIT 100 boasts companies in debt collection, energy production, junk removal and GPS tracking. You’ll find retailers, marketing agencies, software developers, Web-hosting services and IT consultants on the list. And if you thought Canadian manufacturing is a sunset business, then consider the producers of mattresses, clothing and furniture, each of which can lay claim to being one of Canada’s Fastest-Growing Companies. The fastest of them all: Edmonton-based Rentcash Inc., which is doing brisk business in the crowded field of short-term consumer loans. Founded in 2000 by rent-to-own specialist Gord Reykdal, Rentcash notched 2006 sales of $154 million—up 33,700% from 2001—and offers further proof that you can build a great business in just about any industry.

The PROFIT 100 companies’ dexterity at evaluating and acting on opportunity holds lessons for all entrepreneurs hoping to emulate their success. Pareto Corp. (No. 23), for example, grew 2,469% over five years, to $51 million in 2006, in part because of its clear-sighted analysis of which opportunities are worth pursuing. Kerry Shapansky, president and CEO of the Toronto-based marketing services provider, says Pareto concluded early on that it’s in the business of selling its core capabilities: services that are profitable, easily replicable and scaleable. It’s adept at producing top-notch point-of-purchase materials for its retail clients, such as L’Oréal displays customized to each of 1,000 Shoppers Drug Mart stores. Pareto knows how to recruit and train field-marketing teams efficiently, and how to execute complicated in-store promotions, incentive programs, direct marketing and loyalty programs profitably. It’s not hard to find people with the skills required for this kind of work, and Pareto knows how to teach them fast to meet its standards.

In contrast, its non-core capabilities require highly specialized teams that you can’t replicate and scale up overnight. What these teams offer clients—such as designing customized online portals so Shoppers outlets can order in-store materials from Pareto—is crucial. But, says Shapansky, “you have to use your non-core capabilities as an enabler to sell your core capabilities,” because selling the former on their own would knock your business off course.

Pareto has the discipline to steer clear of opportunities that seem tantalizing but would distract from focusing on core capabilities. It pulled out of two promotional sectors, gas cards and movie passes, after it found they were eating up too many non-core capabilities of high-level management talent and technical expertise in return for thin margins. This tough call pumped up Pareto’s bottom line. And, by freeing up scarce non-core capabilities, it positioned the company for another big revenue jump, this one far more profitable.

Pareto’s disciplined approach paid off in 2002, when the then-upstart set out to gain instant credibility by winning a contract from Shoppers. Rather than staff up to convince Shoppers it could handle the demanding assignment, Pareto protected its cash flow with a reverse Field of Dreams philosophy: build it if they come. Shapansky’s company knew it could quickly recruit and mould the teams it needed to deliver exceptional service to Shoppers. The retailer agreed and awarded a multi-year contract, since renewed.

Another success story, Charny, Que.-based DuProprio.com/ByTheOwner.com (No. 90), offers a different lesson in responding to opportunity: decide fast, then get on with it. The for-sale-by-owner real estate website, with five-year revenue growth of 656%, to $2.3 million in 2006, says it is No. 1 in Canada in its market segment for traffic and sales. Yet Nicolas Bouchard, the firm’s CEO, says his family didn’t even craft a business plan when the firm saw the opportunity in 1997: “We did no research on the market—none at all.” Even last year, when it considered expanding beyond its flourishing Quebec and Ontario base into B.C., it didn’t conduct a thorough analysis. Instead, Bouchard met with his brother and sister over a family dinner, at which they decided to plunge in.

Yet the conclusion here isn’t just that you should move fast before someone else does. You also need to have the right stuff. DuProprio.com’s daring was rooted in a deep knowledge of the real estate industry. Although Bouchard was just 21 when the firm launched, he and his siblings had grown up in the business (their father was a long-time agent), and he had started buying houses when he was 15. Like most fast-growth companies, DuProprio.com succeeded not by inventing something new but by refining an existing offering. Bouchard knew that for-sale-by-owner websites were taking off stateside, so he didn’t see the need for hard proof that they could succeed in Canada.

By the time of the family dinner, DuProprio.com had nine years under its belt of learning by doing what worked on the Web, plus a crack in-house team of graphic designers and programmers delivering continuous improvements to its site. Unlike in Alberta, where DuProprio.com figured it was too late to overtake the two established players, the B.C. market was still up for grabs. So, right after the dinner, Bouchard and his sister Mary, the Quebec sales manager, flew to B.C. to spend a month knocking on the doors of people running for-sale-by-owner ads in newspapers or online classifieds. Their pitch was compelling: for about $400 you could list on a site whose polished, user-friendly design drew 150,000 unique visitors per week. You could tap into a network of services such as real estate law, appraisals and inspections. And you could test it for a limited time for free—but only if you signed up today. Thanks to this energetic sales push and a partnership with a local for-sale-by-owner service, DuProprio.com is closing in fast on becoming No. 1 in B.C.

The PROFIT 100’s prowess at responding to opportunities is far from the only source of their remarkable success. The companies honoured in this package have followed divergent strategies. One key for Rutter Inc. (No. 3; see profile on page 60) is a focus on the unsexy yet vital art of cost control. Intense competition in the marine-technologies sector is depressing prices for its black box for ships, the voyage data recorder (VDR). Ian Robbins, the St. John’s, Nfld.-based firm’s director of R&D, focuses his team of 12 engineers on cutting costs, and says, “The secret is to keep them as close to the customers’ requirements as possible, while keeping them away from the salespeople.” Little things add up: instead of insulating the VDR’s internal computer from shipboard vibrations, Rutter now protects just the hard drive, saving $60 a unit. “I’m amazed at how ingenious some of the guys have been in attacking costs,” says Rutter’s CEO Donald Clarke, who thinks other CEOs should challenge their people to find new ways to save.

They should also never let up on innovation, and not just in products. In 2004, Coastalcontacts.com’s European operation introduced Invoice Me Later (IML), a program through which customers are invoiced upon receiving satisfactory goods rather than being required to pay up front. Consumers nervous about ordering online from an un-familiar company are reassured to see the seller assume the risk. And this risk is less than you’d think: 98.6% of customers pay up. Hardy says IML has boosted his return on marketing investment by 30%. Coastalcontacts.com has since adopted the practice in North America, though after it got stiffed repeatedly it stopped extending credit to anyone ordering from Miami Beach’s South Beach district—as counter-intuitive as that seems.

No matter what industry a company is in, every one faces the same challenge: making a potential customer feel comfortable enough to buy from them. They share a long list of other challenges, too. One is the growing labour shortage. The PROFIT 100 have responded with HR tools such as formal performance appraisals (used by 90 companies), internal or external training programs (89) and bonuses tied to performance (86). Another challenge is finding capital to finance growth. Two sources, founders’ own capital and Canadian banks, were each used by 76 companies. Other widely used sources included leasing (60), friends or relatives (35), public stock issues (28) and private investors (25). Still another challenge is using technology to grow the business. The PROFIT 100 are a tech-forward lot: most use remote-access software (81), custom-made software (71), CRM software (66) and instant messaging (66), and large minorities use VOIP (35), ERP software (25) or have a wiki (17).

Most of these firms have clinched a place on the rankings only after solving the challenge of how to sell abroad. The 78 exporters mustered $5 billion in foreign sales last year, 55% of their revenue. Of these, 75 sold to the U.S., 38 to the U.K., 36 to other Western European countries and 24 to Australia.

The pacesetter was Research in Motion Ltd. (No. 65), with 2006 exports of US$2.8 billion. Its world-beating BlackBerry, which has landed RIM on the PROFIT 100 seven times, was only possible thanks to the formidable intellectual firepower the firm has assembled in Waterloo, Ont. Since its founding in 1984, says co-CEO Mike Lazaridis, RIM has scoured university graduate departments to recruit the best up-and-coming researchers before anyone else finds them, one year hiring virtually the entire graduating radio-frequency class at McMaster University. RIM equips these first-rate minds with the latest tools, so they can deliver the endless stream of innovations needed to stay on top in a ferociously competitive sector.

But you don’t have to match the BlackBerry to sell abroad. For example, Rapid Snack Inc. (No. 92) found the formula for export success by mixing smart product innovation with a keen understanding of prospective customers. That led the Lasalle, Que.-based sweet-treats maker to produce the world’s first kosher marshmallow. If that sounds a bit odd, think about the edge it gave Rapid Snack in Israel. And it’s just one of the 40 niche products developed by a firm that knows that the best opportunity for growth lies in giving clients exactly what they want.

HOW WE FOUND THEM

The main source of candidates for the PROFIT 100 was a self-nominating ballot published in PROFIT, L’actualité and on PROFITguide.com, plus mailings to previous entrants, qualifying public companies and prospects identified through the media and other public sources. Calls for entries also ran in Canadian Business, Maclean’s and PROFIT‘s two e-newsletters, PROFIT-Xtra and PROFIT Xchange. Finally, the organizations thanked on page 109 publicized the nomination drive directly to their members or customers.

Companies were ranked by five-year revenue growth; qualifying companies’ revenue was verified through financial statements, and their chief executives were interviewed by PROFIT. The information in this issue and at PROFITguide.com is the only data PROFIT will release on the PROFIT 100.

PROFIT would like to thank PROFIT 100 interviewers Jaclyn Law, Aude Marcoux, Jennifer O’Connor, Laura Pratt and Susanne Ruder for their energy and enthusiasm. And special thanks to PROFIT 100 research associate Heather Chan for her diligent and skilful work on this complex project.

Originally appeared on PROFITguide.com
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