Steve Kroft runs the kind of company that is on Canada's endangered species list. Winnipeg-based Conviron is a mid-sized manufacturer with a high-value-added product that is the world leader in its niche. The product line consists of environmentally controlled chambers used for plant research, and exports account for 90 per cent of sales. The family company – whose official name is Controlled Environments Ltd. – has been export-driven since it was established 49 years ago. As Steve Kroft explains it, the high Canadian dollar has only made it stronger.
Where do your exports go?
The United States is our biggest market [with about 45 per cent of sales], but this year 45 per cent will be outside North America. India is big for us, as well as Australia, Brazil and China. One big factor is food shortages and places like China and India are where the biggest food challenges exist. Australia went through a decade of drought and our equipment is used there to develop drought-resistant crops.
The equipment is generally used in agricultural research where scientists [in companies and research bodies] are trying to develop the biotech side – creating seeds for greater yields and other traits. A lot of the university work is ecological research – for example, what is the effect of rising CO2 on plants?
We are the only company that goes stem to stern in products – from small incubators to large "rooms" – and is also international.
Aren't your roots in the Winnipeg grain trade?
My grandfather was in the grain business [as a partner in McCabe Grain of Winnipeg]. My father Richard graduated from law school, joined the company, and was charged with looking for other investments. He came across a couple of guys in a garage with an idea to convert a refrigerator to a plant-growth chamber. My dad convinced my grandfather and his partners to lend these guys $30,000 in 1964. In time, the investors ended up with this little company.
So was international business in your genes?
We were exporting almost from the very beginning. We had products in all the provinces of China by the end of the 1970s, and a pretty elaborate network of international distributors.
Now, we're a small company globally, but we have big-company issues and opportunities. We sell in four currencies; we deal with governments around the world; there are logistics involved with selling. We are producing a line of products in China, an entry-level product.
Where are you in size?
This year we will be closing in on sales of $50-million. There has been a lot of growth recently. In 1997, when I joined the firm, we did about $13-million. We were a very good, profitable, slow and steady Manitoba company. But we've been a little more forward-leaning and more creative in the last number of years.
What is driving that?
The absolute focus in the world is on agricultural research. When I talk to researchers worldwide, I often say, 'I hear we are going to be running out of food by 2050 – that's not really true, is it?' They look at me and say 'It is a possibility.' But the work they are doing is mind-boggling and the amount of production out of every acre has increased significantly in the past five years because of science.
In China, there are still 600 million people living on farms and if you can't put food in their bellies, Tiananmen Square is not going to be a pleasant place. So there is a lot of political pressure. And it is not just about more people, but the changing socio-economic platform. You have a middle class that used to be on a rice-based diet but now they are looking at a protein-based diet. There is a lot more chicken being consumed and what do chickens eat? And cattle? We know there is not more land being created. So the magic is to generate more yield out of every acre.
But aren't you a lawyer, not an engineer?
I was never programmed to go into the family business. I practised civil litigation for five years and hit a certain stage. I was driving home from the lake and said to my wife, 'I'm not sure if I want to practise law.' It was just when ag-biotech was starting to take off. My father [then president] and I started to talk, and we agreed we needed a more-strategic vision. I said I'd like to give it a shot. I came in and I wanted to attend every training session I could. But then, 18 months after I joined, my dad was appointed to the Senate.
When you were named president, how was your timing?
For five years, everything was great but then the dollar started to move up and it had a big impact. It was a good learning experience. We went through a period when we focused on productivity improvements, like every other Canadian exporter that had been hiding behind a 65-cent U.S. dollar. It made us a better company. Our margins today are higher than when the dollar was at 65 cents. We innovated internally and in our products. When you are a world leader, you get paid for innovation – and we are doing that today.
During the dollar's fast rise, were there hard choices for the work force?
We gutted our way through it and, being a private company, we could do that. But in one year, 2003, the dollar had a 25-per-cent appreciation against the U.S. currency. It takes time to adjust to that. The challenge is we can't go out and hire a designer for plant-growth chambers off the street. So to let go a whole bunch of people is a huge risk. We made that case to lenders and we had great support.
So you didn't have to slash your work force?
We did not gut our work force – although we didn't hire a lot of new people and we had to make some changes. For first time in 15 years, we lost money and when I gave the annual state-of-the-company address to our employees, I walked through Currency 101 and its impact. I said we had to go through a couple of hard years, but we would be a better company. A lot of companies didn't make it, but we got pretty smart.
What keeps you awake at night now?
Being the biggest player in a niche market is a blessing and a curse. It is wonderful to have 60- to 80-per-cent market share in North America. But it is also nice to have 2 per cent and want to get to 4 per cent – it is a little bit easier. The pie in our industry has definitely increased, and the complexity of equipment has increased, which plays to our strengths. But to become a $100-million or $200-million company, we need to look at other opportunities. What keeps me up at night is not fearing but wondering.
And where are the opportunities?
Our core competence is designing controlled environments. We happened to focus on agriculture and plant growth, but controlled environments are needed in other industries. People come to us to test protective clothing for first responders, or for applications in pharmaceuticals and chemical storage, and we do a very good job. We haven't marketed yet in those kinds of areas, but they are where we can make a contribution.
Do you get a sense of the impact of your company?
In Canada, our equipment played a key role in the development of canola. But I was also told that one of the most commonly used golf course turfs was developed with our equipment. That's great – but it doesn't really change my handicap.
Title President and CEO, Controlled Environments Ltd., Winnipeg.
Personal Born in Winnipeg; 45 years old.
Education BA, University of Manitoba; law degree from UBC.
Practised law with Winnipeg firm Fillmore Riley until 1997.
Joined Conviron, a company owned by the Kroft family.
Became president and CEO in 1998.
In 2006, bought majority control of Conviron.