How did PROFIT HOT 50 firms do so well agains such steep odds? By Adopting these key strategies early on.
Essential #1: Focus on building your credibility
Somen Mondal knew he had to do something drastic to get his Toronto-based software company, N4 Systems Inc. (No. 31 on the 2010 PROFIT HOT 50), off the ground. In the early days, N4 had just one customer. Big companies were hesitant to hire a startup that didn't have a solid customer base. So, Mondal offered free software and support to a high-profile prospect in exchange for the best reference the client could honestly give—which meant the client had to accept calls from anyone inquiring about N4 and discussing N4 with peers at every opportunity. The ploy worked, and N4 gained five new customers based on that one client's referrals alone. "He was over the top in supporting us," says Mondal.
N4's founder soon went a step further. Knowing that Microsoft produces case studies on companies that leverage Microsoft technology (N4's Field ID paperless inspection software runs on Windows Mobile), Mondal asked the software giant to write about N4. "It was just a matter of asking," recalls Mondal, who wound up with a case study touting N4 as a mobile-inspection software expert. Even better, Microsoft did all the work and covered all the costs.
Gary Mauris knew it would be tough to lure consumers away from big-name competitors and persuade them to acquire a mortgage through his nascent brokerage, Port Coquitlam, B.C.-based Dominion Lending Centres Inc. (No. 46). What better way to look like a player than by advertising on television?
From Day 1, Mauris required each of Dominion's agents to contribute $150 per month to a marketing fund that enabled him to run commercials during the evening news and hockey games—right alongside spots from the big banks. It created the impression that Dominion was larger than it was and capable of holding its own against heavyweight competitors. "That gave us massive credibility," Mauris marvels. Four-and-a-half years later, he has 2,000 brokers across Canada, all contributing to his ad fund.
Essential #2: Take advantage of existing relationships
"The easiest way to get business is through people you know," says Tracey Bochner, president of Toronto-based Paradigm Public Relations Inc. (No. 6). When she and co-founder Mike Abbass launched their practice, they worked their personal networks aggressively, meeting with former colleagues and even clients of their previous employers. "We found out we knew a lot more [useful] people than we thought," says Bochner, including providers of complementary services who would recommend Paradigm.
The firm's founders also sent targeted letters to a group of contacts. Within a month, they'd received one reply from a promotions-company employee requesting a proposal for one of his clients: the razor brand Schick. Paradigm won the gig, thanks in part to the glowing reference from Abbass's contact, whom Schick trusted. "That allowed us to skip a few steps overnight," says Bochner. "We anticipated we'd spend our first year or so working on smaller projects, but because of Mike's connection we landed a big client right away."
Bochner also took a client with her when she left her former employer, APEX Public Relations, itself a PROFIT HOT 50 alumnus. She had been managing the Jamieson Laboratories account for eight years, and the client wanted to continue working with her. To avoid burning bridges, Bochner received APEX's permission first. "That was hugely important," she says. "I wouldn't have done it without their blessing."
When Bryan Romanesky launched Calgary-based urban planner CITYTREND (No. 48), his former employer referred projects it couldn't handle to him. But relations turned sour as CITYTREND grew and the two firms began to compete head to head. At that point, Romanesky worked the relationships he had with complementary businesses that could share referrals, such as engineering firms and property developers. He went out for a lot of lunches to ensure his contacts knew he was in business for himself. "You have to sell yourself more as a person," says Romanesky. "That opens the door more than the business solution."
Paul Quenneville's business, Markham, Ont.-based GT Global Telecom Networks Corp. (No. 2) was built entirely on his connections. After being packaged out of a long-time job at Bell Canada, Quenneville used his connections to set up a company that does for Bell exactly what he'd done there as an employee: take business-to-business sales and service calls. Bell was happy to use Quenneville's services as a contractor, which was cheaper than paying a unionized salary. He now has 30 employees, all former Bell workers who know how to navigate the telco's internal procedures.
Essential #3: Add value in a well-defined niche
When Matt Cook found himself searching for a new sales job, he discovered that most recruiters aren't good at recruiting salespeople. "They didn't ask me any questions related to my skills," he recalls. That experience became the inspiration for SalesForce Search Ltd. (No. 4), a Toronto-based recruiter specializing in salespeople. Focusing on a narrow niche has helped the firm become an expert in its area—allowing it to charge a premium for its services. "We have a Fortune 500 client with dozens of recruiting vendors," says Cook, "and we [attract] the highest fee of all of them."
Clients have asked Cook to find candidates beyond the sales department for them, but Cook remains committed to his niche. "We probably leave a lot of money on the table," he says. "A lot of companies, especially in the early stages, see opportunities and take them. But by doing that, they're diluting their value. You build credibility by staying focused on your niche." Indeed, Cook believes the moment SalesForce Search strays from its specialty is the moment it can't charge a premium, offer a clear value proposition or attract passionate employees.
The success of Calgary-based True North Mortgage Inc. (No. 44) should remind all entrepreneurs that you don't need to create a revolutionary new product to attract the attention of potential customers. In fact, too much innovation can be a drag on your business. "With a complete game-changer, you can't grow because you can't educate people fast enough," says Dan Eisner, True North's CEO. What's more, added value can derive from sources other than a product's inherent attributes, such as the method in which it is delivered.
That's exactly what makes True North different from its competitors and, for some consumers, more appealing as well. Unlike most independent mortgage brokerages, True North operates out of retail storefronts. This uncommon approach to distribution stems from Eisner's belief that people are wary of acquiring mortgages from brokers who work out of home offices, which is the industry norm. "I sensed a distrust," he says. Setting up retail locations in high-traffic areas makes the brokers visible and accessible; many clients can pop in over lunch to work with brokers face to face, rather than transacting with a home-based broker over the phone.
Eisner secured retail space in high-traffic areas, such as Calgary's busy downtown Plus-15 network of above-ground walkways and Toronto's underground PATH system. He modelled True North's branches after Flight Centre outlets, which he feels have a look that says fast, efficient and inexpensive. Each location is within walking distance of major bank branches, and equipped with LCD screens displaying True North's rates.
"People walk in and ask, "Why is your [posted] rate lower than mine?'" says Eisner. "I don't look at my rent as rent. I look at it as a marketing expense."
Essential #4: Ensure your business is scalable
Finding the right office space has been a challenge for Paradigm PR. The young company outgrew its first space within six months, after expanding much faster than anticipated. "We were cozy," recalls Bochner. "We had someone working out of the boardroom."
Although she wasn't able to gauge her office needs accurately at first, Bochner was meticulous about ensuring that Paradigm was scalable in other areas. "We said we would spend money where it mattered, and not where it didn't," she says. That translated into an office furnished by Ikea, but very sophisticated IT and accounting software typically used by much larger companies, with such features as automated billing and the capacity to generate client-history reports. "We wanted to avoid the pain of conversion," she says. "We're definitely seeing a significant return on investment. We're faster, more reliable and our systems are almost never down."
Why just launch in one market when you can launch in two? That was the rationale behind Nancy Peterson's decision to set up shop in Boston very shortly after launching her online contractor review business, HomeStars (No. 25), in Toronto. "We wanted to demonstrate success in more than one market," Peterson recalls. "But we really didn't have enough money to develop two markets properly." The Boston business floundered, and took resources away from the more promising Toronto operation. Peterson quickly switched gears, put Boston on hold and got to work nailing down best practices in Toronto.
With the benefit of hindsight, Peterson realized that the key to long-term success would be to build slowly but surely, and to fine-tune her model in one market before expanding into another. She pulled out of Boston 2½ years ago, and Peterson has since launched into several Canadian markets. "We focused on building a scalable product," she says.
A big factor in scalability is HR. Peterson has fine-tuned her people practices, establishing a recruitment process to help recruit people who can meet tomorrow's needs, not just today's urgent demands. She often hires people on a part-time basis to test them for fit, and she does extensive interviews and reference checks. Peterson also gives staff the support they need to thrive, including morning scrums on Skype with the Toronto head office. Using a telecommuting model from the outset has allowed HomeStars to expand into new markets without expensive office space.
Essential #5: Hire, retain and motivate good employees
"Your platform for growth is people," says Karl Gartly, director at Calgary-based Deco Windshield Repair Inc. (No. 37). His HOT 50 peers couldn't agree more. When asked to rate the importance of common contributors to startup growth on a scale of 1 to 10, the leaders of Canada's Emerging Growth Companies gave recruiting and retaining good people a 9.3—tops among the 19 factors queried.
Successful startup entrepreneurs such as Gartly and his partner, CEO Matt Horne, know that growth-oriented companies can't thrive on the hearts, minds and sweat of their founders alone. That's especially the case with Deco, which grew from 52 to 92 locations across Western Canada in the past year alone. To attract the personnel required to support that kind of growth, Deco created a business model it calls a "better business opportunity than a franchise." The firm's business is seasonal, with temporary locations set up each April through October—a good match for post-secondary students, who crave seasonal employment.
Deco markets its management positions as ideal business-training opportunities, since the location managers get to help with a range of business activities, including recruiting, advertising, payroll and accounting. Their salaries are tied to the amount of revenue their locations generate, and the autonomy they can exercise is comparable to that of a franchise owner—without all the overhead and setup costs. "We've been able to capitalize on a group of people that are undercapitalized," explains Gartly.
In addition to postings in university and college job centres, Deco relies heavily on a formalized referrals program to attract quality candidates. Involving managers in the recruitment process helps, too. Gartly trains them in how to run an effective booth at university job fairs. "With a student face in the booth, it becomes a peer-to-peer interaction," he says.
Deco fosters a playful culture, with four company-wide events each year, including a Facebook photo scavenger hunt in which managers and employees post photos to Deco's Facebook page. This work environment is coupled with competitive pay that sees both the windshield technicians and managers earn a percentage of their location's revenue. Each location typically has one technician, while managers can oversee anywhere from one to six locations.
Deco's year-over-year employee retention is 60% to 70%, impressive for a seasonal business catering to college kids. But the founders know better than to rest on their HR laurels: "The minute you stop paying attention to people is when the decline starts to happen."
N4's Mondal would agree with that sentiment. Competition for skilled software developers is fierce, so he focuses on fostering an enjoyable work environment to attract and retain top talent.
In a category like software development, a company is only as good as its developers; it can't grow without skilled professionals who can produce innovative software that runs smoothly. So, Mondal decided to borrow a retention strategy from Google and establish what are known as Free Fridays, which allow developers to spend every other Friday on professional-development activities, which can range from attending webinars to spending time on personal software pursuits.
"It doesn't have to be 100% work-related, but it does have to deal with programming," says Mondal. Some staff retreat to N4's "development cave," which is equipped with a blackboard for easier sharing of ideas. N4 developers have used this time to experiment with building new applications for the iPhone or iPad, which helps them build their skill sets while satisfying their creative urges. "What I can tell you is the quality of code has increased," says Mondal. "There have been fewer bugs in our software." Of course, better product makes for happier clients and higher growth potential—which are what every startup needs.