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Wisdom Exchange 2005 Report


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Innovation has been heralded as the path to 21st century success, but savvy business people know that great ideas do not automatically translate into great profits. The timely relevance of the 11th Annual Wisdom Exchange theme, “Return on Creativity: Leveraging the Power of Ideas,” drew CEOs of nearly 200 Ontario leading growth firms to the conference in downtown Toronto to find out how others have transformed the quicksilver of ideas into bankable gold.

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Wisdom Exchange 2005 Report

  3. 3. WISDOM EXCHANGE 2005 REPORTCONTENTSIdeas as an economic resource 4Introduction 5Uncorking the spirit of innovation, Paul Speck 6Capturing ideas in the box, Jayson Myers 8Tapping into creativity for fun and profit, Tom Wujec 10Doubt ignites creative solutions, Rob Guenette 12Down home values on the e-frontier, Gary Briggs 14Spinning a web to catch ideas, Anton Rabie 16Getting the Angels onside, Daniel Mothersill 18Creative sourcing...doing business in Asia 20 Moderator: Ian Portsmouth Panel: Michael Bryant, Shailesh Gandhi, Jim Holloway, Theodore Ling, Mohan Thadani and Daryl Yeo
  4. 4. W I S D O M E X C H A N G E 2 0 0 5 IDEAS AS AN ECONOMIC RESOURCE “The most valuable resource in the world today is an idea” Zeroing in on the theme of the 11th annual Wisdom Exchange, Return on Creativity…Leveraging the Power of Ideas, Ontario Minister of Economic Development and Trade Joseph Cordiano opened the event by noting that “Premier McGuinty has said that the most valuable resource in the world today is an idea. But even the best ideas are just raw materials. It takes all of us, working together, to develop those ideas into jobs and prosperity.” The search for insights on how to turn creative new ideas into profits brought together CEOs of some of Ontario’s leading growth firms for a two-day forum in downtown Toronto. Minister Cordiano was quick to acknowledge their business success and the contributions they make to the province. “You have embraced innovation and change and are leading the way in growth and job creation,” he said. “Our future economic success will depend on your ability to exploit the creative potential in your companies.” “The Ontario government wants to share this task with you,” he said. The Minister noted that Ontario has committed $1.8 million to support research and development, launched the Auto Strategy to help secure the future of Ontario’s automotive industry and established a new Small Business Agency to make it easier for innovative firms to thrive. “By working together,” he said, “industry and government can create a future in Ontario where people and innovation can prosper.”4
  5. 5. W I S D O M E X C H A N G E 2 0 0 5INTRODUCTIONInnovation has been heralded as the path to 21st century success, but savvy business people know that greatideas do not automatically translate into great profits. The timely relevance of the 11th Annual Wisdom Exchangetheme, “Return on Creativity: Leveraging the Power of Ideas,” drew CEOs of nearly 200 Ontario leading growthfirms to the conference in downtown Toronto to find out how others have transformed the quicksilver of ideasinto bankable gold.Paul Speck told the conference how his family built an international success based on what was once considereda radical idea: high quality Ontario wine.Economist Jason Myers described the current paradigm shift in manufacturing, which places higher long-termvalue on knowledge and creative energy than on the products a company ships out the door.Tom Wujec, from Toronto’s world-leading computer animation firm Alias, shared a little-known secret aboutfreeing the creative spirit within your company: it can be a lot of fun.TAXI Toronto’s Rob Guenette, whose company dreamed up ground-breaking advertising campaigns for Telus Mobility,Viagra and BMW-Mini, provided an insider’s view of the art and business of creating unconventional solutions.Gary Briggs revealed how eBay’s phenomenal growth has been driven by the creativity of its customers.Anton Rabie offered up the Spin Master model for finding product ideas, then separating the truly great ideasfrom the mountain of good ones.One workshop explored the tremendous potential offered by sourcing in Asia and the pitfalls that lie waiting forunwary entrepreneurs. Another session delved into the critical role Angel investors can play in successfully bringingan idea to the marketplace, and what Angels need to make it happen. A third session, led by improv artist,Rob Nickerson, tested the communication skills of the CEOs. Everyone left energized, if exhausted, by laughter!It was two days of insights, paradigm shifts, tales of victories and stories of disasters averted. Participants learnedas much from each other as they did from the considerable expertise of the keynote speakers and workshop leaders.At the end, they walked away with new perspectives on the power of ideas and how to profit by them. We inviteyou to explore in the following pages highlights from the conference. 5
  6. 6. W I S D O M E X C H A N G E 2 0 0 5 U N C O R K I N G T H E S P I R I T O F I N N OVAT I O N Paul Speck They launched a family business in an industry that There were a few bumps along the road. In the late was devastated, at a time when the economy was ‘80s, the Niagara real estate market collapsed. The heading for collapse, and offered a product customers Free Trade Agreement opened up Ontario’s protected did not want. It’s safe to say that the Speck family wine market to products from all over the world. In learned a few hard lessons along the road to interna- 1989, the bank pulled the company’s line of credit. tional success. By the early ‘90s, the Canadian economy had dropped into one of the worst recessions in history, Paul Speck, President of Henry of Pelham Family inflation was high and interest rates had passed the Estate Winery and the first keynote speaker at the 15% mark. Eventually, the company found new 2005 Wisdom Exchange, uncorked the story of the financing through a merchant banker. “As tough as company’s growth from its beginning as the dream of that period was, it was good for us,” Speck said. “It his father in the mid-‘80s, to their current position as created great discipline within the company. It meant a successful player in the international wine busi- making sure that every investment was the best ness. “I think our early successes were rooted in the possible one. It meant being frugal, but taking risks fact that we really didn’t know what we were doing,” and throwing the dice when we had to. We also he admitted. “We took a lot of risks and a lot of learned that we had to way over-perform to stay chances. We planted European varieties that most in business, we had to really blow our customers of the Niagara vintners didn’t think would grow. We away, really ‘wow’ them, time and time again.” dared to price our wine over $10 a bottle when only the French or the Italians could do that in Ontario. VQA is born But we succeeded.” That, in itself, presented huge challenges. Ontario wines had a long-standing reputation for poor quality Lessons on the bumpy road and that had to be turned around if Henry of Pelham The learning curve was steep. They bottled their first and other Niagara vintners were to survive. Their vintage in 1988, producing 2,000 cases in their brand solution was to form the Vintners Quality Alliance new 5,000-square-foot building. Speck recalled looking (VQA), a made-in-Ontario appellation system. “Every at their first production run and thinking, “How am I fine wine region in the world has an appellation gonna sell this mountain of wine?” Today, Henry of system that governs ingredients and production Pelham bottles 80,000 cases of VQA wine annually. quality,” he explained. “We looked at systems around6
  7. 7. W I S D O M E X C H A N G E 2 0 0 5“I think the VQA is the single most important factor in the success of Ontario wines. It focused us as grape growers, as vintners, and it focused our customers on what quality wines were all about”the world and picked the best attributes for the VQA. If that sentiment sounds familiar, it should. It reflectsI think the VQA is the single most important factor in the same restless urge to try new ideas and takethe success of Ontario wines. It focused us as grape risks that has marked Henry of Pelham’s 20-yeargrowers, as vintners, and it focused our customers growth from inauspicious beginnings to being anon what quality wines were all about. It helped us get award-winning producer of fine wines. At Henry ofover the stigma.” The industry also pulled together Pelham, it seems that innovation is a tradition.through the Wine Council of Ontario to win displayspace in the LCBO and build a wine tourism industry,which now draws 750,000 people each year to theNiagara Wine Route.Build a culture of qualityIn addition to working with industry groups, Henryof Pelham pursued a series of company growthstrategies, creating unique, Niagara versions of popular “We had to really blowwines, rather than trying to imitate the taste of others.They worked hard to get their wines into high-end our customers away,restaurants, using that cachet as a form of third-party really ‘wow’ them, timeendorsement of their product quality, and avoided the“trap” of high volume - low margin production while and time again”focusing on premium wines to differentiate theirentire product line. The vintner also worked hard tobuild a culture of quality within the company. “Youhave to try things,” said Speck. “You have to allowpeople to make mistakes and learn from them.” 7
  8. 8. W I S D O M E X C H A N G E 2 0 0 5 C A P T U R I N G I D E A S I N T H E B OX Jason Myers “Manufacturing is not about products going out the “That has started to change. People talk about a door,” said Jason Myers, Chief Economist of the ‘productivity miracle’ in the United States. We’re Canadian Manufacturers and Exporters Association going to see a productivity miracle right here in and first plenary speaker at the Wisdom Exchange. Canada.” Manufacturing is becoming a larger share “Manufacturing today is about capturing knowledge of Canada’s GDP, growing at a rate of 7% a year. “By in the design, product quality and distribution that comparison,” he pointed out, “manufacturing in provide solutions of value to the customer.” It’s not China is growing at 8% annually.” About one-third of the bits of plastic and metal of the product in the box the Canadian growth rate can be attributed to our that create competitive value. It’s the quality of the exchange rate advantage, the study estimates. The ideas. “The challenge,” Myers said, “is to continuously rest has been gained by Canadian companies doing capitalize on that evolving knowledge in a business business differently. environment that is becoming more global.” “One of the most profound industry changes has Myers launched the day with that paradigm shift in been that competitiveness no longer resides solely thinking about manufacturing within a broad vision of within a company,” said Myers. The impact of purely future trends in the Canadian manufacturing industry. external events can be huge. A chart tracking He presented the results of a major study conducted Canadian manufacturing shipments over the past two by the Canadian Manufacturers and Exporters, decades shows dips at expected points -- following 20/20: Building Our Vision of the Future. The study the 9/11 terrorist attacks and during the 2003 power examined the challenges facing the industry, looked blackout in southern Ontario -- but there was also a at how manufacturing was changing and peered into noticeable downturn in 1998 when the GM plant in the future to discern what Canadian manufacturing Lansing Michigan was shut down during a labour will look like in five to ten years. It also reviewed dispute. “The shutdown of that one Michigan plant Canadian and international manufacturing data over rippled through the Canadian industry,” Myers the past 20 years. The review team met with more observed. “The competitiveness of a manufacturing than 900 senior manufacturing executives and held operation is now connected across borders and more 33 community meetings from coast to coast involving often on a global scale.” more than 2,500 manufacturers and stakeholders. Global players are changing rapidly The Canadian productivity “miracle” “The business model for today and tomorrow is Many of the trends identified in the 20/20 study global,” he suggested, “with global channels for were positive, “a somewhat surprising result,” Myers sourcing and manufacturing, but the players in that admitted, “to come from traditionally doom-and-gloom model are changing as well,” he warned. “Today, economists. Three years ago at the Wisdom Exchange China is part of the manufacturing supply chain; I spoke about the ‘productivity gap’,” he recalled. tomorrow, it will be a technology leader.” This8
  9. 9. W I S D O M E X C H A N G E 2 0 0 5“While Canada is not perceived as a global player, that may not be a bad thing”industry restructuring on a global scale will continue. to see that the cost of R&D was not high on the list,”Business success will depend on companies adapting Myers noted. In fact, it barely made the top the challenges and opportunities of competitors,partners and customers around the world. Despite these challenges, Canadian manufacturers have proven that they can innovate, adapt and thrive.Global access to knowledge and new technologies More Canadian businesses are becoming globalwill create new and more exacting customer players. Between 1989 and 2004, the stock ofexpectations. Continuous innovation and mastery Canadian direct investment in other countriesof global value chains will become preconditions for increased by 388%. In 2004, the stock of Canadiancompetitiveness. The foundation for competitive direct investment in other countries was $438,439success lies in how effectively and efficiently a million, or roughly 36% of Canada’s GDP. Bycompany can exploit the knowledge needed to deliver comparison, the stock of U.S. direct investment insolutions that customers value. That creativity and other countries amounted to only 16% of their GDP.knowledge resides in every facet of the manufacturingprocess, from R&D through production systems, “While Canada is not perceived as a global player,distribution and financing. that may not be a bad thing,” said Myers. “Flying below the radar may be the best way to make money. Twenty years ago, when NAFTA came in, economists 20/20 Study: predicted the end of Canadian wine, furniture and Top 5 commercialization constraints autos. Just look at those industries now.” • Finding customers • Lack of internal resources • Competition “Manufacturing today • Availability of skilled personnel is all about capturing • Product design knowledge in the design, product qualityInnovate, adapt, thriveA range of global competitiveness challenges were and distribution thatidentified by industry executives and ranked in the20/20 study. When it came to innovation barriers provide solutions ofand commercialization constraints, “it was interesting value to the customer” 9
  10. 10. W I S D O M E X C H A N G E 2 0 0 5 TA P P I N G I N TO C R E AT I V I T Y F O R F U N A N D P R O F I T Tom Wujec For sheer breath-taking imagination, few innovations Alias, used to see counterfeit products six months can top the computer-generated 3-D special effects after a new product was released. Today, the of Hollywood blockbusters like Stars Wars, Lord of the counterfeits are out one month before the official Rings or The Matrix. While millions of people around release date. “Quite simply,” he said, “if you don’t the world have seen those films, few people outside keep up, you are out of the game.” “Besides,” he the business know that the software that allows the continued, “innovating is a way to enjoy the game designer’s creativity to emerge full-blown on the giant and it’s more fun to be a market leader.” screen is the product of a Toronto company called Alias. Their software, Maya, has been used in every Where many companies stumble, and where Alias has film nominated for an Oscar in special effects for the succeeded, is in harnessing innovation on a continuing past ten years. In fact, Alias itself received an Oscar basis and making it profitable. “The old approach to in 2003, for its contribution to the film arts. But Maya innovation,” Wujec explained, “was a linear process is much more than a tool to make monsters jump out where a product was conceived, designed, built of hyperspace. Every car in the world today is and marketed. The problem was that it created silos designed using Alias technology, as are products within the company.” The Alias approach has similar ranging from BlackBerry to Nike. beginning and end points but the development phase involves constant feedback loops between the stages Alias creates tools that can unleash the power of the of design/build, field testing, clarification and then imagination and push the boundaries of innovation. back to the design stage for more tinkering before Tom Wujec, Fellow and Principal Consultant at Alias, final release of the product. spoke during the Wisdom Exchange plenary about how companies can tap into creativity and turn it into Creativity as a fluid process cash. “The basic rules of business haven’t changed Wujec described the Alias process to foster creativity in hundreds of years,” he began, “but the business as ‘very fluid’, permitting the give and take of ideas environment has.” The need for continuous innovation and possibilities. “We don’t have it formally mapped is greater than ever before, driven by globalization, out,” he said. “That just seems to be the way it the pace of technological change and the increase works. Imagine it to be something like fly-fishing,” in information available to consumers. he suggested. “The process begins with a set of design principles such as simplicity, elegance and The pressure to innovate flow. Of these principles, the most important for an Rampant counterfeiting is putting even more pressure organization to develop is ‘flow’.” on the drive for constant innovation. Nike, a client of10
  11. 11. W I S D O M E X C H A N G E 2 0 0 5“Quite simply, if you don’t keep up, you are out of the game” point comes every time at 18 months.” The story Conditions that help create flow isn’t working, or a character doesn’t fit properly. The whole project looks like it should be scrapped. • Time “The way they get through the crisis is to take the whole team away for a weekend of improv. The key,” • Freedom to pursue ideas he added, “is to encourage innovation, pay attention to • Conversation with other innovators what’s blocking it and measure the results by making the innovation process visible within the organization.” • Clearly defined goals Wujec concluded by urging conference participants to connect to the power of the imagination. “At its“Curiously enough,” he said, “budgets do not block best,” he said, “imagination can change the world.”flow. The budgeting process, if you’re constantlybeing asked to justify this or that, can be a killer,but the setting of limits is not usually a problem.”What blocks the flow of imagination? Stress. Conflict.Fear. Rules.Innovation can be predictable“Above all,” he suggested, “organizations can culti- “Innovating is a wayvate creativity by encouraging passion, curiosity and to enjoy the game andthe ability to enjoy ambiguity.” it’s more fun to beWhat they have learned at Alias, and what Wujechas experienced by helping Fortune 500 companies a market leader”introduce innovation practices, is that the innovationprocess can be predictable to some degree. Forexample, one of their clients is Pixar, producers ofanimated feature films such as Toy Story, FindingNemo and The Incredibles. “Product developmenttakes them about 18 months,” said Wujec. “A crisis 11
  12. 12. W I S D O M E X C H A N G E 2 0 0 5 D O U BT I G N I T E S C R E AT I V E S O L U T I O N S Rob Guenette Rob Guenette’s ideas are judged by the harshest norms. Be wary of patterns. Disbelieve the traditional critics in the world: couch potatoes with TV remote ways of solving problems. Doubt even what the controls. client tells you.” Guenette’s company, TAXI Toronto, makes television Ferreting out assumptions and doubting the traditional commercials based on ideas designed to engage the led TAXI to create its breakthrough television campaign viewer. If they don’t work, the ‘click’ of the remote is for Viagra. “Pfizer is a great client,” said Guenette. really the sound of a lot of advertiser’s money being “When they briefed us for the project, they told us flushed down the toilet. Fortunately for TAXI’s clients, that erectile dysfunction is a very sensitive subject. the firm consistently creates ads that break The advertising approach had to be serious; it had to through the clutter and maximize the impact of those have physician endorsements; there were tons of very expensive 30 seconds of television time. Enough rules and regulations about what we could say.” so, that TAXI, founded in Montreal in 1992 and having Back at the agency, the creative team started the grown to include offices in Toronto and New York, search for a solution. “We began by doubting that was named by Strategy Magazine as the Canadian the standard, serious message would really work,” advertising agency of the year for 2001, 2002 and he recalled. “We ended up with middle-aged men 2003. Their work for Viagra, Telus Mobility, BMW- skipping down the street to the music of ‘Good MINI, Nike and Molson has kept viewers’ fingers off Morning’ from Singing in the Rain. The reason the the remote and built TAXI’s reputation as the ‘go-to’ spots worked was that they took this really serious agency for successful, outside-the-box thinking. subject and opened it up, made it human, personable and funny.” Be wary of patterns TAXI Toronto’s President Rob Guenette shared Doubt is like cholesterol his thoughts on the art and business of creating It was this same approach that sparked the develop- unconventional solutions at the Wisdom Exchange ment of memorable campaigns for Telus Mobility plenary session. “Doubt the conventional, create the (what do lizards and chameleons have to do with cell exceptional,” he revealed, is TAXI’s six-word mantra phones?) and the BMW-MINI. “With the Mini, size for beginning the search for breakthrough ideas. was the obvious product differentiator but we wanted “Never assume anything,” he said. “Assumption is to avoid focusing on a shot of a red Mini on an the killer of creativity. Be suspicious of industry open road,” he said. “Instead, we focused on three12
  13. 13. W I S D O M E X C H A N G E 2 0 0 5“Doubt the conventional, create the exceptional, never assume anything — assumption is the killer of creativity”principle product attributes — fun, legacy andperformance -- an injected attitude that would appealto potential buyers.” Top 3 tips to improve creativity • Recognize creativity as a business tool, not a frill “We risked offending • Imbue creativity into the fabric of people, which is not your organization, not just in one or two departments a very Canadian thing • Look for creative solutions that are to do, but we were able simple, human and emotional to reach people as well”The TAXI approach to finding creative solutions isapplicable to other industries, he believes. “When youtackle a problem, begin with doubt.” But, he admits,“doubt is like cholesterol: there’s good doubt andthere’s bad doubt. Being suspicious of the traditionalapproach doesn’t mean you should ignore conven-tions. But part of the creative process is to riskmaking mistakes. Pfizer had the courage to go withthe Viagra ads and were very successful,” he pointedout. “We risked offending people, which is not a veryCanadian thing to do, but we were able to reachpeople as well.” Guenette summed up hispresentation by offering tips for companies thatwant to improve creativity within their organizations. 13
  14. 14. W I S D O M E X C H A N G E 2 0 0 5 D OW N H O M E VA L U E S O N T H E e - F R O N T I E R Gary Briggs In the sprawling, lawless Wild West frontier of the customer is a respected member of a community Internet, eBay struck gold by building their business whose opinions drive the company. To illustrate how on small-town community values. Launched ten years far eBay takes this approach, Briggs related how the ago in the U.S. and five years ago in Canada, eBay is company developed its corporate values: a set of the world’s largest online marketplace for the sale shared values is one of the hallmarks of any of goods and services. While many of its community. Early in the development of eBay, back contemporaries ended up buried in e-commerce when the Internet was the epitome of the Wild West, Boot Hill, eBay has become a global phenomenon potential users were hesitant to register because with 100 million registered users. they had no reason to trust the other party in a transaction. eBay management recognized the need Gary Briggs, Vice-President and Country Manager of to build that trust among users. One suggestion was eBay Canada, gave the Wisdom Exchange audience a to create a set of community values that everyone behind-the-scenes perspective on how the company could buy into. But how could they craft a set of handled its incredibly rapid customer-driven growth. values that would resonate with users of all ages, On any given day, millions of items are up for sale from all backgrounds, located in countries around the on eBay: used cars, clothes, trading cards, antique world? Let the users decide, was the answer. “There dolls -- the list is virtually endless. Surveys show that were no executive strategy sessions, no whiteboards,” people spend more time on eBay than any other said Briggs. “We just asked the customers.” The online site, making it the most popular shopping result was a set of values that resemble what you destination on the Internet. More than 4 million might have learned in kindergarten: people worldwide make their living from buying and • We believe people are basically good. selling stuff through eBay. “What we do is enable • We believe everyone has something to economic opportunity for people around the world,” contribute. said Briggs, “like Nan from Saskatchewan who makes • We believe that an honest, open environment really great jam. Nan paid off the mortgage on her can bring out the best in people. farm by selling jam over eBay.” • We recognize and respect everyone as a unique individual. Let the users decide • We encourage you to treat others the way you Customer-focus has become a popular touchstone for want to be treated. business growth strategies during the past few years, Posted prominently on their website, these eBay but few companies have dared to take that concept community values are simple, straightforward and as far as eBay. There, the customer is not king; the even idealistic, but by displaying them for all to see14
  15. 15. W I S D O M E X C H A N G E 2 0 0 5“You have to acknowledge that the customer is in charge”and encouraging buyers and sellers to honourthem, the values helped build trust within the online Some principles of eBay’s successcommunity. “You have to acknowledge that thecustomer is in charge,” said Briggs. “That means you • Listen to the communityhave to make yourself vulnerable to your customer.” • Supply follows demandeBay has grown by facilitating the creativity andpassions of its customers. It has boomed by making • Keep a level playing fieldthe process as simple, easy-to-use and comfortable • Focus on people, not walletsas possible. The eBay website has an open, friendlyfeel to it. Online tutorials give new users step-by-step • Enable, don’t directguidance through the buying and selling process.Discussion groups abound on a wide variety oftopics. A feedback forum encourages buyers to During the boom, many investors scoffedpublicly rate individual sellers after each transaction, at eBay’s profit potential. By tapping into people’swhich creates an instantly available reputation check creativity and letting the customers shape theon the vendors for future customers. It is a vibrant business, eBay has not only proven the nay-sayersworldwide community that simply did not exist wrong, it has given them a place where they mightten years ago. finally be able to get rid of some of their worthless share certificates.High tech twist on a very old businessLike many pioneers, eBay learned some lessons thatBriggs distilled as principles underlying the company’ssuccess. These are simple principles with a quaint,idealistic air about them, but they cut to the heart ofwhat is, in essence, a high-tech twist on a very old “You have to makeand very simple business: connecting buyers andsellers in an open marketplace. “It’s a very efficient yourself vulnerablebusiness model,” said Briggs. “We have no inventories, to your customer”no warehouses filled with products.” 15
  16. 16. W I S D O M E X C H A N G E 2 0 0 5 S P I N N I N G A W E B TO C ATC H I D E A S Anton Rabie When your best customers have the attention span those target countries so they are actually on the of a six-year old, developing new products that are ground sniffing out new products every day. bright and shiny and do really cool things is a life-or- death struggle. That’s the challenge faced every day Secondly, since you never really know where the next by the amazingly successful Canadian toy company, great idea will come from, you need to encourage Spin Master. Unless you have young kids at home, people to come forward with them. At Spin Master, you may not have heard of Spin Master or their employees are rewarded with a monthly contest for best-selling Air Hogs and Mighty Beanz, but those the best new idea. “And in that spirit,” he told the toys captured the hearts and minds of enough crowd, “if any of you have a great idea for a new toy, six-year olds to turn a company that started ten I’d love to hear about it. I’ll be around this afternoon. years ago with $10,000 into one of the largest toy Come tell me about it.” companies in Canadian history with worldwide Thirdly, think about how you treat people with revenues of more than $100 million. Along the way, ideas. Spin Master actively builds relationships with it has become one of Canada’s 50 Best Managed inventors. They treat inventors with respect, paying Companies -- for three years running -- and expanded them high royalty rates and taking them its brand to launch lines of kids furniture, room decor on all-expense-paid retreats. “The result,” he said, and outdoor products. “was that inventors come to us first,” making Spin Master President and co-founder Anton Rabie Spin Master a magnet for toy innovations. captured the attention of the Wisdom Exchange Finally, simply ask your customers. “It’s gotten to participants with his insights into how to find and the point now,” he said, “that when I walk into a qualify great ideas. “It’s not rocket science,” he customer’s office, they know the first thing out of reassured the crowd. my mouth will be, ‘What have you seen lately that has Where do ideas come from? really surprised you?’ If it catches their attention, it’s “First,” he suggested, “find out, based on history, worth looking into.” what part of the world generates the best new ideas Picking winners in your industry.” In the toy business, he revealed, the Sorting the wheat from the chaff, the good ideas best ideas for new toys come from the U.S., Japan from the truly great ones, calls for a different but and Germany. To catch those ideas when they are equally simple process, said Rabie. “An idea is only first emerging, Spin Master sends people to live in16
  17. 17. W I S D O M E X C H A N G E 2 0 0 5“An idea is only as good as it plays in the marketplace and you need to stay up-to-date”as good as it plays in the marketplace and you need toy becomes hot. Rapid manufacturing, sales andto stay up-to-date. We go to every consumer trade distribution are keys to in the world and I walk retail almost every day.People say I am obsessed with walking retail.” Spin Master has been a roaring success but, likeThat in-depth understanding of the marketplace pro- every company, it has made mistakes and learnedvides a foundation of knowledge and, hopefully, from them. “Our three biggest mistakes,” Rabieanswers to a series of key questions. confided, “have been people, People, PEOPLE. I spend a lot of my time deciding who shouldn’t be on the bus, who should be, and whether they are sitting in the right seat.” Key questions to qualify great ideas “Learn from your mistakes” and “know your market” • Is this product truly, recognizably may seem to be childishly simple ideas to drive a different? successful global company, but sometimes truths do come from the mouths of children or, at least in this • Can it be Number 1 or Number 2 in case, a kid’s toy maker. its space? • Can we develop and build key drivers within the organization to make it work? • Can we get it to market fast enough? “We go to every consumer trade show in the worldFor toy manufacturers, speed to market is critical, and I walk retail almostpartly because of the short attention span of thecustomers. Perhaps more importantly, speed to every day”market is the best defense against one of the biggestheadaches in the industry: counterfeiting. Knock-offproducts can start appearing almost as soon as a 17
  18. 18. W I S D O M E X C H A N G E 2 0 0 5 GETTING THE ANGELS ONSIDE Daniel Mothersill Ideas, it used to be said, were a dime a dozen. In our Enter the Angel investors. “Angel is second-stage innovation-obsessed, knowledge-based economy, money,” says Mothersill. “We come in before the VCs what is an idea worth today? but after the owners have maxed out their credit cards, mortgaged their homes and sold their kids for “The net sum value of an idea is zero…unless you medical research.” can commercialize it,” says Daniel Mothersill, President of the National Angel Organization and Emerging companies with innovative products are presenter at a workshop on Angel investing tips for the wellspring of Canada’s future wealth. If they can both entrepreneurs and potential investors. “We commercialize their product successfully, they will don’t need more innovation,” he contends. “We’ve join the ranks of small and medium-sized enterprises got barrels full of it.” University research labs have (SMEs) that generate some 85% of Canada’s GDP. hundreds of new technologies sitting on the shelf The launch of an overwhelming number of gathering dust and hundreds more small companies SMEs have depended upon capital invested by are trying desperately to get their innovative products Angel investors. to market. The problem is not a shortage of ideas; it’s a shortage of the entrepreneurial early-stage funding “But there is a crisis in commercialization,” says needed to commercialize them, to bring the ideas to Mothersill. “There’s a gap of an estimated $5 billion market and make money. annually between needs of emerging companies and financing available through Angel investors. We need Angel cash and first growth to encourage more people to become Angel investors, The first steps in moving innovative products and we need to encourage the development of local Angel technologies out of the labs are usually taken by the groups and we need to better reward Angel investors researchers themselves. They come up with the idea. for the risks they are taking.” They envision a big market for it. They start a company and develop a workable prototype. Up to this point, Lessons from an Angel they’ve been drawing on a combination of government Mothersill is the first to acknowledge that Angel funding and money they’ve raised from family and investing is high risk. As an Angel investor, “I got friends. However, researchers need more cash to killed on a browser technology,” he admits. On take it to the next level, to develop full-scale technol- another investment, he learned a different but ogy demonstrations, detailed commercialization plans equally painful lesson: “After you give someone and market-ready products. They go to the venture a cheque for $250,000, you would think they would capitalists, who typically say, “Great idea. Call us at least return your phone calls.” when you get lead financing.”18
  19. 19. W I S D O M E X C H A N G E 2 0 0 5“The net sum value of an idea is zero...unless you can commercialize it” Tips for potential investors and entrepreneurs hoping to raise Angel money • Know the risks. Out of every ten invest-“The days of passive Angel investing are over,” he ments, two will be write-offs, six will dosays. Investors need to be willing to contribute not okay with help and two will be home runs.just money but also their business savvy to helpemerging companies succeed. Mothersill offered a • Be prepared to get personally involved.number of tips to potential investors and entrepre- One strategy is for the pool of Angelneurs hoping to raise Angel money. investors to form an advisory board to the company and meet with managementIf the fit is right, the numbers are right, the timing is a minimum of once a month to go over profit-and-loss statements and check theright and the product is great, Angel investors can progress against marketing milestones.reap rich rewards. To encourage more privateinvestors to step forward and help fill the $5 billion • Invest in things you understand. “I see aannual funding gap, Mothersill and the National Angel couple of hundred ideas a year,” he says.Organization want the federal and provincial ”They probably include some great prod-governments to help mitigate the risk by providing a ucts in the biotech area but, if I don’t30 percent Innovation and Productivity Tax Credit. understand it, I can’t help commercialize“What we’re proposing is similar to what is offered it effectively.”in B.C. and what has been in place in the U.K. forten years,” he says. “SMEs are the lifeblood of our • About 60% of investment decisions areeconomy and our communities. Angel investors play made on management strengths, not science. Most new companies will nota critical role in their success. There are sound achieve their objectives without seriouspublic policy reasons to use incentives to encourage entrepreneurial input.Angel investors to invest in commercializinginnovative products.” • What’s the exit strategy? As an investor, the company is not a lifetime investment.Now there’s an idea with a net sum value far greater A common exit strategy is to go public orthan zero — if he can make it fly. sell the company within three to five years. • Finally, ask yourself, “Is this someone I want to do business with? Have a beer with?” If you’re going to be working with the company for a few years, make sure the fit is right. 19
  20. 20. W I S D O M E X C H A N G E 2 0 0 5 CREATIVE SOURCING...DOING BUSINESS IN ASIA If a Canadian company has helped turn the tide on the persistent and was to crack open a headline-making issue of counterfeiting and theft fortune cookie for advice of intellectual property in Asia. Michael Bryant, on doing business in Asia, CEO and Managing Director of Matrex Company, the message would be had first-hand experience with that problem when double-edged: “Great he began selling his road repair technology in opportunity. Be wary.” China. “Our standing joke was that by the time we flew back from a sales mission and got off the plane, The company would get our prospect had already gone onto the Canadian Moderator the same advice from patent website, cracked our formula and knew more Ian Portsmouth, Editor, the panel of experts about our product than we did.” PROFIT: Your Guide to Business Success assembled at the Wisdom Exchange for a lively and “The IP situation is improving,” Baker & McKenzie’s candid discussion of the opportunities and the issues Jim Holloway noted. “Chinese anti-counterfeiting laws that companies need to understand before outsourcing are now actually tougher than the Canadian laws. or building new markets in China and India. Moderator The big issue today is enforcement.” Also from Ian Portsmouth, Editor of PROFIT magazine, launched Baker & McKenzie, Theo Ling said, “China has made the session by giving the panelists a word association commitments to the WTO and it knows the world is test for the phrase “opportunities in Asia.” The watching, but it will take a few years to train their response was immediate: “awesome,” “immense,” judges on the implications and expectations of the “dramatic” and “getting better but still risky.” The legal issues involved with international trade.” latter, of course, came from the lawyers. IP protection critical The dynamics have changed The panel’s advice was that the prudent business Much of the discussion focused on China, where owner should go to great lengths to protect the there has been a dramatic increase in the amount company’s IP assets before doing business in China of activities by Canadian companies. The panelists or India, particularly if the relationship is outsourcing agreed that doing business there has changed rather than exporting. Over the past few years, com- significantly in the past few years and will continue panies have become quite creative in protecting their to evolve quickly. “The dynamics have changed,” assets. Sharp Electronics, for example, takes a ‘black said Mohan Thadani, President and CEO of Gram box’ approach to outsourcing their manufacturing to Precision Inc., whose company sources industrial China. They simply keep a key piece of the technology digital scales in China. “Sourcing via the Internet is at home in Japan. Bryant revealed that Matrex simply great and there are a lot more smaller companies doesn’t patent its technology unless it can’t hide it who are willing to deal in smaller volumes. You no any other way. And if they do have to patent it, longer have to order by the container load.” about 30% of their R&D effort goes into planting red herrings in their formulae so that anyone trying Another fundamental change is that Asian companies to crack them would waste huge amounts of time are no longer content to be suppliers. They are looking and money. “To avoid the IP issue altogether,” at world markets for their own products and coming suggested Deloitte’s Shailesh Gandhi, “Canadian to North America to compete head-to-head for market companies can set up their own operations in share. As they develop products for global markets, China. It’s much easier than it once was to own Chinese companies find they have their own your own assets.” Intellectual Property (IP) they need to protect, which20
  21. 21. W I S D O M E X C H A N G E 2 0 0 5 But while China is changing rapidly, the importance Moderator Ian Portsmouth ended the workshop by of personal relationships remains critical to business asking each panelist for their advice in a nutshell for success. “We’ve found that the best approach is Canadian companies contemplating business in Asia. through representation,” said Bryant. “In China, everything is about relationships: families, cousins Bryant: Relationships are important. Let people and friends. For anyone thinking about doing busi- see you as contributing to the community, not just ness over there, I recommend building a connection as an exporter there to make a profit. with someone who has great relationships in the Ling: Have good peripheral vision and a good long- market you are after.” Thadani took this advice one term vision that includes your implementation, step further by urging companies to treat their maintenance and exit strategies. Chinese counterparts as equals in a mutually profitable business arrangement. “Make sure you Holloway: Make sure you practice good legal know how they are making their money on the deal,” hygiene before going into Asia. Spend the money he suggested, “because they are going to do it upfront to make sure you have protected yourself. and, if you don’t know how, it may be by cutting corners at your expense. You need to have a strong Yeo: Asia offers a huge opportunity but don’t be relationship with a degree of trust to give you the blindsided by it. Be mindful of the impact it can leverage to fix problems.” have on your business back home. The panelists agreed that, above all, you don’t want Gandhi: Outsourcing is not a short-term decision. to get involved in litigation in Asia. In China it can be Do your homework and make sure your objectives horrendously expensive. As one panelist put it, “If are clear because, once you go into it, you’re going you thought Canadian lawyers were expensive, wait to be stuck with it for a while. ‘til you get a bill from Beijing.” In India, the problem is time. It may take years and years and years for a Thadani: Go in building trust, but be wary. case to wind its way through the courts. Despite these dire warnings, the panel was unanimous in its agreement that Asia offers tremendous potential.Panelists Mohan Thadani Shailesh Gandhi Daryl Yeo Jim Holloway Theodore Ling Michael Bryant President and CEO Senior Manager Vice-President Partner Partner CEO and Gram Precision Inc. Deloitte Global Trade Baker & McKenzie LLP Baker & McKenzie LLP Managing Director RBC Financial Group Matrex Company 21
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