Nicole Verkindt founded OMX – which stands for Offset Market Exchange – in Jan. 2011. OMX is a Toronto-based company that provides software to help government contractors manage their offsets.
When contractors sell products to the Canadian government, they need to spend the value of the purchase price on goods and services based in Canada. For example, for the government to buy $150-million in aircraft upgrades from Boeing, the aviation company would have to promise to spend $150-million on buying Canadian goods and services over a specified time period. This $150-million is called the ‘offset.’ The largest government contractors in the world, such as BAE systems and Lockheed Martin, are the companies that need to manage the most offsets, and so they are OMX’s primary target market.
But how can a small, new Canadian technology company attract the attention of international giants and gain their business?
Ms. Verkindt grew up in the aerospace industry: her parents owned a company that made a specialized type of high-tech coating used to confuse radar. When that company was sold to a U.S. firm, Ms. Verkindt was looking for an opportunity to exploit her knowledge of the industry. She knew that the offsets market had great potential.
Government contractors have difficulty finding Canadian firms to fulfill the offset and supply the technology they need, and great Canadian firms have difficulty getting noticed by multinational contractors. Government contractors also need manage their offsets – over a period of 5 to 15 years – to ensure compliance.
Ms. Verkindt describes the market as “huge, but opaque.” She says that “government contractors rely on a specialized consulting industry and much of the data is spread over hundreds of files with limited search capabilities. My objective was to bring clarity to the market, by helping government contractors and technology-based firms find each other and by tracking and monitoring compliance for the contractors.”
Ms. Verkindt decided to spend the first year figuring out what large government contractors wanted in an offset management system. Armed with $1-million from friends and family, angel investors and government grants, she and her chief technical officer Timothy Quinn designed a software platform. They preloaded the platform with a database of information about technology-based Canadian firms which provided free-of-charge visibility to those firms.
“We got an enormous uptake from the suppliers,” she recalls. “Thousands of companies were calling us.” However, despite interest from government contractors, it was a complex sale involving people throughout each company, and closing the sale was nearly impossible.
“We thought we’d build it and everyone would use it, but that didn’t happen.” She now laughs at her early missteps. “We focused a huge portion of our resources on trade shows – big mistake! Business development people go to trade shows, but not so much the people who need suppliers.”
She also learned that she’s not just selling technology. “We’re selling a behaviour change. We’re providing a tool that streamlines an entire process, and so it takes time for the contractors to understand the benefits of this and change deeply ingrained habits.”
Ms. Verkindt realized that she had made a mistake in using a scattershot approach to sales – talking to everyone, rather than focusing on getting one early credible customer. So she backtracked and set her sights on signing up General Atomics, a California-based company that provides research, development and consulting services to the nuclear industry.
“General Atomics was a great fit for us. They’re highly innovative, entrepreneurial and willing to change. They’re small for a defense company, with 7,000 employees rather than the 120,000 employees of a company like Lockheed Martin. They were positioning themselves to sell remotely piloted aircraft to the Canadian government, and, with their operations primarily in California, they wanted to find innovative technology partners in Canada early on in the process to show their commitment to Canada.”
Even though General Atomics was well-suited to the OMX platform, and was the first government contractor to adopt it, the process took time. Once she had found an internal champion, Ms. Verkindt realized that she had to help that individual.
“OMX is a small company, and when I need something from a co-worker, I can just yell across the room. Most people don’t realize that the multinationals are so huge that even the employees need help in navigating the internal network. I would call people and say “John says this” or “Don confirms that you have the budget but wants to see that. I learned how to help them connect the dots internally.”
In any government contractor, a large and diverse network of employees is involved in offsets: the sales people who commit to them, the program managers and engineers who are looking for specific technologies and need to assess possible suppliers, the procurement people who manage supply contracts, and the accounting, auditing and regulatory people who manage the money and monitor compliance. The recognition that large companies need help in managing this internal network was a turning point for OMX, and they built collaboration functionality into the software platform.
The collaboration piece of the OMX product was pivotal in signing up the two largest companies in the industry – Lockheed Martin and BAE (British Aerospace). Although at present there are only Canadian suppliers on the platform, there is a strong potential for international growth. Over 48 countries have offset policies and OMX plans to add suppliers from other countries, starting with the Netherlands, Australia and India.
“Once a contractor is effectively using our system to manage Canadian offsets, it will be simple for them to use the same system for managing the offsets for other countries,” notes Ms. Verkindt.
OMX now has six of the largest government contractors as paying customers, and revenue streams from these contractors, suppliers, professional service firms and government users. She adds that results are so promising that the company recently completed a Series A round to continue the enhancement of their platform.
Becky Reuber is a professor of strategic management in the Rotman School of Management of the University of Toronto.
This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Report on Small Business website.