Each week, we seek expert advice to help a small or medium-sized business overcome a key issue.
For 15 years, Mike Riehm's Toronto-based Envirobond Products Corp. has been providing landscape contractors and homeowners with environmentally friendly alternatives to asphalt for paving and pathways. In the process, he's built a business with seven employees and $1.5-million in annual revenue.
The key to Mr. Riehm's business is psyllium, a plant native to India and best known as the key ingredient of Metamucil, the high-fibre dietary supplement. The husk that covers the plant's seeds can be ground into a powder that, when mixed with crushed stone or sand, fills the gaps between paving stones. It reduces erosion by rainfall and wind while controlling damage from weeds and insects.
"If you install the bricks for a patio, you need to fill the gaps in between them," explains Mr. Riehm. "If you just put regular sand in, it washes away. Our product has the psyllium powder blended with the sand, so when you water it, it locks the sand in place."
Mr. Riehm first became familiar with the plant's pathway potential when, having graduated from the University of Guelph with a degree in agricultural sciences, he was hired to travel to El Salvador to work on the remediation of a gold mine. "My job was to look for potential products to use to prevent erosion on the sides of the roads on the mining property," he recalls. One of the solutions he considered was a psyllium product.
It wasn't long before he patented Organic-Lock, a psyllium-based glue that forms the core of his two key products, EnviroSand and EnviroStone. "We're a product that became a company," Mr. Riehm says.
He began selling his products by the truckload at trade shows to contractors and landscape architects. But he ultimately decided to shift his focus from bulk sales to 50-pound bags after a landscape architect alerted him to its potential for the residential market.
Five years ago, Envirobond forged a distribution arrangement with Home Depot Canada. Sales there now amount to 40 per cent of Envirobond's revenue. The product is also sold through a dealer network throughout North America.
Today the product is being used in the pathway that will run from the Brooklyn Bridge to the Manhattan Bridge in New York City and at Disney's theme park in Shanghai, China, due to open in the first half of 2016.
The challenge for Envirobond is to flourish in an inherently seasonal marketplace. "When we're selling in the Northeast, Home Depot stops ordering from us in August," says Mr. Riehm. "The commercial market runs until October or maybe November and doesn't start up again until April or May."
This happens at the same time that the company needs to buy its raw materials for the coming year and be able to cover salaries. "We're hoping to get past seasonality being a factor."
One new model that Mr. Riehm is exploring is licensing the right to manufacture his products to interested third parties in western Canada, the U.S. and Germany and to focus Envirobond's efforts on marketing the products wherever they are sold, including by third parties.
"I've never been happy with making $1- to 2-million," says Mr. Riehm. "I've always wanted to make $100-million. I wouldn't be much of an entrepreneur if I didn't dream big.
"But you can't get to that just by doing what you're doing. You have to look at changes to your business model."
The Challenge: How can Envirobond overcome seasonality and improve its cash flow?
THE EXPERTS WEIGH IN
To overcome seasonality and improve your cash flow, one logical option seems to be to expand your business and go global. The new target markets could be other regions of the United States where the construction/landscaping season is not limited to summer months (California and Florida, for example), as well as other countries in Central and South America, Asia and Australia.
You can follow your current clients to penetrate those markets, or at least leverage your list of well-known clients. You can also consider diversifying your clientele by targeting new-home construction companies, although doing so may require establishing different sales channels.
You may explore other business models such as licensing, but make sure you understand where the profit lies in the value chain. If you believe that the value is in the proprietary technology and product (R&D, for example), you may benefit from licensing it to third parties and expediting the market expansion. But if your manufacturing process is simple, scalable and profitable, why let it go?
Jeffrey Tannenbaum, partner in private mid-market practice, Ernst & Young LLP, Toronto
Replicate your Home Depot distribution arrangement in Canada by striking a similar arrangement with a home improvement chain in the U.S.
If cash flow is your biggest concern, you could offer your commercial customers – it wouldn't work with retail ones – a discount if they purchased product during the winter months. It would reduce the overall margin but might solve the cash flow constraints. It might also introduce new customers who would be attracted by the lower price point.
Demian Trudeau, owner, Kick Gas Lawn Care Inc., Mississauga, Ont.
Envirobond could add a new product or service line suited to the winter months. For instance, in my business, a lot of people who want lawn care ask for an annual package that also covers snow removal. They pay with 12 monthly cheques, which evens out the cash flow. Of course, you need to invest in equipment that's different from lawnmowers, but one snowblower will pay for itself in two or three months.
THREE THINGS THE COMPANY COULD DO NOW
Study foreign markets
Going global (to warmer climes) would lengthen your selling season.
Leverage your clients
Use your most high-profile projects to penetrate new markets.
Offer discounts to your commercial clients if they buy during the winter months.
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Interviews have been edited and condensed.