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Decision Makers

From Nova Scotia to NASA: Canadian company's repertoire includes space experiments

Protocase Inc. also makes servers and metal enclosures for a variety of industries

A Protocase staffer welds a custom order.

The series: We look at decision makers among Canada's growth-oriented and mid-sized companies who took successful action in a competitive global digital economy.

Doug Milburn wasn't looking to venture into space when he co-founded Protocase Inc. 17 years ago, but having successfully made the journey from Nova Scotia to NASA, the now 140-person company's horizons reach beyond the sky.

And it's not just the American space agency that Protocase counts among its clients, but also many others in the aerospace industry.

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"The list of the top-10 aerospace companies, we work on nine of them," Mr. Milburn says.

For instance, the company has made components for experiments that have been taken into outer space.

But it didn't start with such cosmic ambitions.

Having started out alongside fellow founder Steve Lilley in making custom sheet-metal electronic enclosures for engineers and researchers, the pair eventually expanded into making brackets and fixtures, and then machining parts.

However, the business took a dramatic turn in 2009, when one of the company's clients, Backblaze, a California-based data storage provider, posted a blog about how to build cheap, large-capacity storage servers.

When Mr. Milburn read the blog, he noted that while Protocase had the sheet metal and enclosures, more components were needed to bring the project to fruition, such as computer parts. But he also realized that, despite the step-by-step guide Backblaze provided in its blog post, many customers lacked the time and know-how to put servers together themselves. That's when Protocase decided to take the plunge.

"It looked like a difficult business to me, but we took that step and we said we'll take a chance, customers are asking for it and so why don't we do it," he says. "So we did it and the world didn't end."

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About the company’s branching out to servers, Protocase’s co-founder Doug Milburn says: ‘It looked like a difficult business to me, but we took that step and we said we’ll take a chance, customers are asking for it and so why don’t we do it.’

While he says the company already had a lot of the skills required to build servers in-house, they hired others with various skill sets to round out the group. At that point, though, the company was building someone else's design, and that design ran into problems when it encountered the world of video, complete with 4K, 8K and the explosion in file size.

"We looked at this and said [the Backblaze] design is wonderful, but for the people who are coming to buy from us, they need a higher level of speed and reliability and they can sacrifice the absolute lowest cost," Mr. Milburn says.

So he and his team went back to the drawing board and came up with a technology called direct-wired architecture in 2015. While it came with a higher price point, its performance could provide vastly improved data download speeds of 5GB a second, compared with 200MB per second with the previous design.

A Protocase Project Orthrus Custom PC by Designer Lukasz Dyjakon.

That result saw the launch of a spinoff company, called 45 Drives, of which Protocase is the parent company.

And while the sheet-metal business is still going strong, according to Mr. Milburn, the server industry is poised to supplant it.

"Our core business in metal, it grows at 20-30 per cent every year and it continues to do that. The server business is growing at a much faster rate," he says. "At the way things are going, [this year] the server business will be larger."

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For any company looking to take the plunge and move in a new, unfamiliar direction, experts say you only have to look at some of the biggest players in the technology space for inspiration.

"Where they've been the most successful is where they've been able to have a hugely disruptive impact," says Michael Heric, a New York-based partner for global management firm Bain and Co.

"For example, Apple and iPhone in the consumer space, or Amazon with Amazon Web Services in cloud computing around business to business. So I think it's quite common."

Mr. Heric says that data servers is a sector where there has been tremendous disruption in recent years, but he does caution that any company looking to expand into a different area of expertise needs to consider a number of factors. These can range from different processes and a different funding model to a different set of talent and incentives.

"If you don't adapt those capabilities, then you could get into a situation where it's less likely for you to be successful," he says.

Another key part of any successful transition is focus. A platform technology may have many different verticals, or areas, it can touch, such as an artificial intelligence engine that has applications for both fintech and biotechnology, that have potential for being broken out into multiple companies. But it can be important to scale that back, particularly in a situation where money is not unlimited.

Bryan Watson, a partner at Toronto-based Flow Ventures: ‘You’re an entrepreneur with a 10-person team. You can’t boil the ocean, so pick one or two’ areas to focus on.

"One of the things we often tell our entrepreneurs is basically focus," says Bryan Watson, a partner at Toronto-based Flow Ventures. "You might be able to take on this vertical, this vertical and this vertical, but you're an entrepreneur with a 10-person team. You can't boil the ocean, so pick one or two."

For companies that go the route of spinning out a separate company from the legacy firm, some experts espouse the philosophy of "burning the boats," attributed to conquerors who used the strategy throughout history to create a situation where there is no turning back and winning is the only option.

Sanjay Dhar, managing director at consultancy firm Accenture in Toronto: ‘I’m of the mindset that you absolutely, 100 per cent have to set up a separate organization … If you have resources that are part-time or people who have mixed responsibilities, you can never make a real go at starting a business.

Sanjay Dhar, managing director at consultancy firm Accenture in Toronto, is of the opinion that commitment is key when spinning out a company from the legacy firm. He has seen the repeated failures of others where there is no all-out commitment to success with the new venture, where the option to redeploy within the original company exists.

"I'm of the mindset that you absolutely, 100 per cent have to set up a separate organization," he says. "If you have resources that are part-time or people who have mixed responsibilities, you can never make a real go at starting a business."

As an example, he mentions the development of Accenture Interactive, an offshoot business that Accenture set up some years ago to capitalize on the digital environment that was going to be key for the business's fortunes into the future. Digital work now accounts for more than 50 per cent of Accenture's revenues.

"You've got to make sure that you've got a standalone organization and the people that are part of that organization, their path to success is through what they do within that standalone organization," he says.


Spinoff Tips

When it comes to transitioning a business in a new direction, either by creating a new department within the original company, or spinning off an entirely new venture, here are the top four things to bear in mind, according to Michael Heric, a partner with Bain and Co. in New York City.

1. The company must really understand the unique competitive advantage that it brings. Just chasing a high-growth market does not necessarily create a sustainable business model.

2. Be sure to have end-to-end processes that is tuned to the new business, as opposed to being tuned to the existing business, whether it be research and development, go-to-market operations, support, general and administrative expenses, and so on.

3. Ensure there is a deep appreciation for the economics of that new business. The profit and loss around a new business might look very different from an existing business.

4. Manage differently for attraction and retention in the new business. An existing business that is more of a mature market in technology, for example, is not as high growth, so companies tend to manage for profitability. In a new business, on the other hand, that is higher growth, reaching profitability may take longer, which requires different ways of rewarding and motivating employees.


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