Star Navigation Systems Group Ltd. has been in business for 11 years, raised $25-million in financing – and made almost no sales.
Yet its founder and chief executive officer, Viraf Kapadia, is still hanging in.
"Good things are happening," Mr. Kapadia insists. "If not, then it hasn't been worth 11 years of hell."
What's behind Mr. Kapadia's enthusiasm?
His company has developed what he calls a new "black box," the Inflight Safety Monitoring System (STAR-ISMS), which tracks problems on airplanes in real time, sending out faster alerts in greater numbers than the system currently available on carriers.
He hopes the device will one day replace the black box. But it hasn't happened yet.
Since 2008, Star has sold just 34 "light" versions of his unit to a helicopter company, generating total sales of $793,000.
That's a paltry amount for a company that's been in business for more than a decade. And he's still waiting for his dream customers – the airlines – to buy in.
Star Navigation has come close: One STAR-ISMS device is now being tested for free on a Pakistani airline. The company nearly had a big breakthrough in 2005, when an India-based airline placed a $9-million order, but problems in the country's airline industry scuttled the deal.
With so little to show on its order books, why would a company stay in business for so long?
Simple, Mr. Kapadia says. "I believe in my product."
The length of time Star Navigation has been without significant sales is unusual, says Matthew McGrath, president and CEO of P2P Financial Inc., a web-based company that helps pair investors with start-ups via its website. But a "pre-revenue stage" is something almost all companies go through, he notes.
Some businesses do go five or more years without seeing a dime's worth of sales – mostly biotech and clean-tech companies, says Chris Arsenault, a principal at Montreal-based venture capital firm iNovia Capital.
Sheer determination, some stubbornness and a belief that all the hard work will pay off in the end is why many companies keep going – in some cases long after they should have called it quits, Mr. Arsenault says.
Chris Sukornyk, founder and CEO of Chango Inc., a Toronto-based web display advertising company that started in 2008 and was in the pre-revenue stage for a year and a half, says entrepreneurs are driven by a gut feeling.
"As a founder, you believe in a product and just have to see it all the way through," he says. "You hear so many stories of founders that get laughed out of investor pitches, only to turn their company into a $100-million-a-year business."
It's also what entices investors to buy into a no-revenue or low-revenue operation, Mr. McGrath says.
"Investors invest for future earnings. It would be those future prospects that would keep a company like Star Navigation operating," he says.
For most businesses, the pre-revenue stage is exciting, when ideas turn into tangibles, but it's also fraught with second-guessing and uncertainty. "There are a lot of dark days," Mr. McGrath says.
Mr. Kapadia, who employs 18 people, has had a few of those "What am I doing?" moments – "I've cried on some people's shoulders," he says. But he says he's survived his no-revenue and low-revenue years by "believing in my product."
The STAR-ISMS device tracks, in real-time, problems on an airplane. If something malfunctions – for example, an engine stops working, or if there's a low-level alert, such as an unusual fuel reading – data gets transmitted to various people at the airline. While planes can do some of this now, the STAR-ISMS, Mr. Kapadia says, reports more alerts than what's available to airlines today.
In addition, planes usually transmit location positions anywhere between one and 10 minutes during a flight. His device can send location data as fast as once a second.
The technology, Mr. Kapadia insists, will make airplanes safer. He believes the 2009 Air France 447 plane crash might have been prevented if his technology was on board. Because the in-flight system sends more data during a flight, it's possible someone would have known earlier that something was wrong, he believes. The speedier location transmission could also have helped people on the ground find the plane faster; it took several hours to locate the downed airliner.
"Our equipment is pro-active; the black box is reactive," Mr. Kapadia says.
Star Navigation has been able to stay airborne thanks to numerous investors who've bought into the company to the tune of $25-million.
That doesn't include the $2.5-million Mr. Kapadia, an accountant by training, put up himself when the business first started.
Needing more money, Star Navigation listed on the TSX Venture Exchange in August, 2002. About once a year, Star Navigation issues stock via private placement to accredited investors – high-net-worth Canadians who buy shares directly from the company. About 2,000 investors are now on board; Mr. Kapadia now owns just 4 per cent of the company.
Because Star Navigation has been without significant sales for so long, he makes sure to tell investors not to plow their life savings into the company.
"People are made aware that this is a risky thing," he says. "If this is money they need for their kids' education, don't come near us."
When no or low revenues are coming in, keeping investors informed is one of the most important jobs for a CEO, Mr. McGrath says.
When Mr. Sukornyk's company was in the pre-revenue stage, he says he had to have regular contact and progress reports with the four venture capital firms that bought into his business. "We'd have a call with them at least once a month and have frequent board meetings," he says.
"There's way more interaction in the pre-revenue stage and even up until a few million dollars in revenue," Mr. Arsenault adds.
Star Navigation releases a corporate update every quarter and holds an annual general meeting every year.
Mr. McGrath says companies in the pre-revenue stage need also to set up clear milestones, and tell investors when they reach them. Examples of milestones could include receiving patents, a prototype design and market testing, Mr. McGrath says.
Mr. Kapadia says Star Navigation has hit a number of milestones over the years, receiving its first patent in 2002, building its first functional device in 2004, and, most recently, it signed a deal in June with Paris-based Astrium Services to market its product in Europe.
The deal may be just what the company needs to finally start seeing real sales: Astrium's parent company, the European Aeronautic Defence and Space Co., owns Airbus.
Mr. Kapadia hopes Astrium's connection to the aviation giant will help to finally get his product into planes – something he thinks hasn't happened at least partially because airlines are notorious for resisting change.
"It took about 10 years before airlines started ordering the 787 plane," he says. And, he points out, the black box has been an airplane staple for 50 years, so it's tough to make airlines understand that there could be something better on the market.
Mr. Arsenault says even that may not be enough. "Even if its technology will revolutionize air travel, it doesn't matter if nobody is buying," he says. "It could be a good product, but the market may not be ready to pay for it."
But Mr. Kapadia is not giving up. If anything, he says, the fact that he's been in business this long proves he's onto something.
Investors, he says, "are buying into a product which is patented and has huge potential," noting none of them "has said they want their money back."
As for himself, "I have so much patience. I never think negative. I believe that our product will work and we'll have more complementary and new products come out."
"Believe it or not, after 11 years, the wow factor hasn't gone. Put me in front of 20 people, I could guarantee you that after I talk to them they'll say, 'Wow, you can do that?'
"How come no one has bought it? It takes time."