Over the past dozen years, Canadian investors have had a new yardstick in their kit—a cold, hard assessment of the rate at which tech-intensive companies have grown their revenue. Those with impressive and consistent growth can be found on the Deloitte Technology Fast 50, an annual ranking that influences investors, potential partners, customers and even policy makers around the world.
Common strategic ground
The companies on the Fast 50 operate in sectors ranging from election and opinion polling to energy and managed IT services. But despite their diversity, they also share a couple of commonalities. Duncan Stewart, director of research for Deloitte Canada, sees two qualities that are almost universal.
First, ranking companies benefit from strong management teams. “Canada has always been good at producing a lot of tech companies that have interesting, fascinating, well-patented technology,” Stewart said. “But winning technology doesn’t win the race: it needs the right management team. That’s always been the case.”
And second, ranking companies have demonstrated a sound business model, one that allows the firm to enjoy rapid growth without bankrupting itself. “The companies that are winning this year are the ones that—by and large—have been able to grow and able to, at least to some extent, fund their own growth,” Stewart said.
“The thing that jumps out at me about these companies is that almost all of them, if the money tap were turned off tomorrow, they’d still be able to grow. Because their business model is, ‘I need to have somebody to pay for this.’”
Sound management strategies and a solid plan for funding growth: two concepts seemingly as old as the industrial revolution that still drive financial success.
Advice from the best
We asked six companies to let us in on the “special sauce” that has powered their success.
With one notable exception—Waterloo, Ont., tech giant Research in Motion—the companies on the Fast 50 list are not Canada’s largest, most established firms. They’re smaller, but finding ways to get bigger—even during the economic turbulence of the past year.
We know many of our readers are looking to do the same, so Backbone got in touch with six of the best and brightest of the companies that ranked on this year’s Deloitte Technology Fast 50. Here’s what they had to say about powering and managing growth.
CarProof www.carproof.com
London, Ont.
Rank: 4
Carving out virgin territory is key to the growth of CarProof, which compiles and sells used vehicle history reports for auto dealers and consumers. “Basically in Canada there was no report service before us that has access to the data that we have,” said CarProof president Paul Antony. “And we’re constantly trying to acquire more data to make our reports more robust.”
This includes three sources of data that are exclusive to CarProof reports. “I like to call them our ‘special sauce,’” Antony explains. “These create a big barrier to entry for anybody else.”
But beyond that, Antony said CarProof’s data sources create value for its customers. “It makes it easier for our customers to sell their vehicles because the more confidence a consumer has the more they’re apt to buy,” he said. “Even though we believe we have the best product around, we’re continually trying to make it better, which benefits our customers and—ultimately—ourselves.”
What’s Antony’s advice for other companies pursuing growth? “Always be innovative and focus less on your competition and more on yourselves.”
Vision Critical Inc. Vancouver
www.visioncritical.com
Rank: 6
Survey said: Embrace change. That’s the maxim at Vision Critical, a market research company that’s leveraging technology to rewrite the book on how research is collected and analyzed. “We’ve been willing to shake up how we structure things—from sales, to services, to how we think about technology,” said Andrew Reid, president, technology solutions at Vision Critical.
The result is unorthodox but successful: a market research technology company that has an equally strong research practice. “Business books talk about being either a products company or a services company,” Reid said. “We really have been able to be a hybrid.”
The result: Vision Critical has a broad base of clients, none accounting for more than four per cent of its revenue but many providing recurring revenue through monthly licensing fees.
Beyond this, walking both paths has enabled Vision Critical to change the way consumers interact with research and surveys, and the way researchers connect with people. “It means doing more with data and getting at insights that we just never could before. Instead of just asking attitudinal questions, we can get at behavioural-level data, which is very interesting,” Reid said. “We’ve really had a quest to change market research and bring it into the century we’re living in.”
ProSep Inc.Montreal
www.prosepinc.com
Rank: 1
Knowledge is power, or profits in this case. And for ProSep, that knowledge is coming from the company’s own clients. ProSep develops, manufactures and commercializes equipment and technology to treat and purify oil, gas and water for the energy sector, and its client list includes leaders in their sectors, so it only made sense for the company to partner with them to conduct R&D.
An important acquisition along with massive increases in capital expenditures by the oil and gas industry have driven ProSep’s growth over the past few years. But the industry is facing new challenges—the easy wells have been worked and new strikes are harder to extract, which means ProSep’s proprietary technology is paying off. “We are making a big bet that this industry will need better performing new technology in the future,” said president and CEO Jacques L. Drouin.
“We’ve been successful in selling some of these new products in the past couple of years and that has created some awareness of ProSep in the market.” And that means ProSep’s customers are enlisting the company to develop new technology to address specific situations. “I can say now that 100 per cent of our R&D is made in partnership with oil and gas producers.”
Dominion Voting Systems Toronto
www.dominionvoting.com
Rank: 2
Dominion Voting, a full-service provider of elections solutions, has an almost unique challenge: its clients enjoy a monopoly. That means if it wins a contract from a provincial government, it can’t typically sell more services in the same area. Once Dominion achieved success on its home turf, it looked around for expansion opportunities, and that meant expanding its geographic reach.
“Our products, five years ago, did not address some of the needs of the international market,” said president and CEO John Poulos.
And although “customer-focused” is an oft-overused marketing term, Poulos said it really is the secret behind the company’s success. Even with expansion, keeping current customers happy is central, especially when they are the company’s best marketing tool when seeking new business. “When we were expanding our footprint fairly quickly over the last couple of years, the one aspect we were not willing to give up on was the focus on our customer, no matter how small or how long the customer has been with us,” he said. “We’re only as good as our last engagement. We try actively to use all of our customers as references for any upcoming proposal or bid.”
Beyond that, Poulos advocates investing in new technology, even in recessionary times. Dominion Voting now offers a full suite of technology-enabled equipment and services for all aspects of an election: from compiling a list of eligible voters and recording when they have voted, to counting votes at polling stations or a central processing centre, to remote voting technologies that take the booth to the voter. “Nobody else in our industry was really doing that,” he said. “It was thought we were coming into a slump and our competitors were a little gun-shy of investing in technology innovation. But we did it anyway and it turned out to be a very important thing.”
Level Platforms Inc. Ottawa
www.levelplatforms.com
Rank:3
Recruiting partners has not only enabled Level Platforms to level the playing field but also to become a key global supplier to service providers that remotely monitor and manage IT needs for companies.
CEO Peter Sandiford said the company’s strategy is two-fold. “The first is to sell direct to the small service providers. We have successfully recruited 3,000 of those over the last five years and we continue that activity,” he said. “At the same time, over the last year or so we have spun up another group which is selling to large corporations.”
Those large partners include Ingram Micro in North America and Acer in Europe, the Middle East and Africa. “What we’re doing from a strategic point of view is figuring out how we grow this to a truly global operation without needing to open up branch offices everywhere,” Sandiford explains.
But the company’s growth required doing more than simply licensing more software to more partners. It required support as well, such as training to ensure that users could make the most of the capabilities of Level Platform’s solutions. “The core issue was to reach out to this group,” Sandiford said, “and make sure that we help them successfully adopt the technology. We have to sell them the product and the services—training and so on—that allows them to transition their business.”
WellPoint Systems Calgary
www.wellpointsystems.com
Rank: 28
A well thought-out and aggressive acquisitions strategy has powered revenue growth at WellPoint Systems, which helps firms in the energy sector—primarily oil and gas companies—collect and analyze data to improve business decisions.
“We acquired three companies that increased our revenue quite substantially—in fact, they tripled the size of the company within about a three-year period,” said president and CEO Rick Slack. “Now, we’re going through more of a sustaining phase where we wish to take advantage of the acquisitions we’ve made, integrate them very tightly and improve our operational efficiency across the board.”
While complementary technology was a driver behind each acquisition, that alone was not sufficient. “In the end it’s the people that make the difference,” Slack said. “We’re looking at new talent that we might gain through the acquisition and how that might impact our future growth as well as how we leverage the existing talent that we have on board.”
At the same time, it’s important not to stretch the company too thin. “I think in these turbulent times the number one thing to remember is that cash is king,” Slack said. “Companies need to pursue their growth strategies. But they also need to ensure they’re managing their business efficiently so they have enough cash to continue to operate.”
Why a Fast 50?
For a dozen years now, the Deloitte Technology Fast 50 has recognized Canada’s fastest-growing technology companies. “There’s a real challenge, when trying to predict the next big thing, to actually look at two equally possible yet unproved stories. Just going by potential is hard to do,” Deloitte Canada’s Duncan Stewart said, explaining why the program ranks companies on their actual revenue growth.
Those wishing to be ranked must have been in business for at least five years and report at least $5,000,000 in revenues in their most recent year. Deloitte then conducts interviews with potential Fast 50 companies to assess each firm’s competitive advantages; size, growth and market attractiveness; management effectiveness and organization; and financial performance.
Admittedly, any such list will include a few companies that have enjoyed impressive growth almost by accident. But Stewart said most will have achieved this growth through a winning combination of rock-solid technology and an airtight business plan. “We’re going to capture a lot of really important companies (on this list).”
And bring them benefits, such as the attention of private and institutional investors looking for companies in which to invest. It’s also good for a firm’s international profile, because Deloitte runs a similar program in the United States and in other countries around the world.
Stewart said international re-cognition could make it easier for a Canadian company to secure a partnership deal offshore. “It’s no longer just a company in the land of beavers, hockey players and maple syrup,” he points out. “It’s a company with the Deloitte imprimatur stamped on its letterhead.”
More on The Deloitte Technology Fast 50™
Spotlighting Canada’s future
By John Ruffolo and Duncan Stewart, Deloitte Canada
The 2009 Deloitte Technology Fast 50 offers both accolades and warnings
Deloitte’s Technology Fast 50 roster provides more than accolades for the winners or interesting reading for venture capitalists and investors. As Canada’s premier awards program for innovative and expanding organizations, the Fast 50 list is an indicator of Canada’s ability to compete globally.
In 2009, the Fast 50 list is also a wake-up call.
Winning economies of the 21st century will be those that excel at innovation. Canada can no longer rely on resource extraction, agriculture and manufacturing for success: the future belongs to new technologies.
How are we doing in this important arena? The news isn’t encouraging: our national stock exchange index has only five technology companies on the big board, representing three per cent of the total value. Ten years ago there were four times as many, and they represented a much bigger portion. Although that was during the tech bubble, even in 1990 the TSX had more than twice as many big tech companies as we have today.
There is a real danger that our innovation sector is shrinking below the critical mass needed to survive and thrive. Not because we have too few start-ups, but because they aren’t growing into large organizations capable of funding the necessary R&D and clusters of supporting companies around them. With one exception, this year’s Fast 50 winners are young “up-and-comers,” although they can grow into the giant tech companies so crucial to the health of Canada’s technology sector. With the right support, they may become the next generation of big-spending, forward thinking global champions—the RIMs of the future. And we need them badly: in the last few years Canada has lost several large companies to financial difficulties or to foreign acquisition.
Strong growth, more diversity
That’s why the Deloitte Technology Fast 50 program is so important. It shines the light on strong contenders. There are some positive signs, even in the middle of the worst recession in 70 years. The cutoff for the 50th spot rose from 240 per cent five-year revenue growth last year to 312 per cent this year.
Additionally, there is tremendous regional and sectoral diversity: winners are widely dispersed across Canada, representing hardware, software, telecom and emerging sectors like clean technology. Some might be pleased that the top 10 winners are becoming more diverse: instead of having a handful of the “usual suspects” of telecom and enterprise software winners, this year sees companies from 10 very different, and perhaps somewhat niche, addressable markets. However, this variegated winners list may not provide the critical mass from which future centres of excellence (and industrial bases) may emerge.
But the Fast 50 list also serves to highlight troubling indicators. The growth rate of the top finisher in the Fast 50 moves up and down year-to-year and isn’t that meaningful, but the average growth rate of the top five is important. That top five average has plummeted from 22,150 per cent in 2007, to 15,500 per cent last year and 9,400 per cent this year.
More concerning, the average growth rate of all 50 companies is less than 2,000 per cent today, compared to 2,400 per cent last year and 3,700 per cent two years ago. Our fast growers—who deserve congratulations for their ability to prosper in a punishing economy—are not able to generate the spectacular growth of previous years.
Can it be blamed entirely on the recession? We think not. Early stage Canadian tech companies have suffered from a chronic inability to access capital, but even worse than that has been the lack of a national vision of Canada’s innovation strategy. This year’s Fast 50 winners list seems to suggest that without that vision, even the best of our growth companies aren’t growing as fast as they could, or as fast as we need them to.
To bolster our own competitiveness, Canadian industrial associations and governments must do more to help start-up tech companies and encourage the mid-sized companies that the Fast 50 measures. Only then will we produce more technology titans that will drive our economy into the future.
John Ruffolo is National Leader, Technology, Media & Telecommunications and Duncan Stewart is the Director of Deloitte Canada TMT Research.
The Deloitte Technology Fast 50™ - 2009 (PDF-700KB)