Each week, we seek expert advice to help a small or medium-sized business overcome a key issue.
Three years ago, engineer and paddling enthusiast Guillaume Leblanc bought a kayak from Mid-Canada Fiberglass Ltd. Smitten by the Ontario-based company, he decided to invest in it and help push the 53-year-old brand into Quebec.
But by the time he walked into Mid-Canada's factory the company was crumbling, beleaguered by the recession and a shrinking interest in paddle sports. The bank was liquidating assets while hungry competitors circled, hoping to pounce on the moulds for the Scott, Bluewater and Impex designs that had once made the heritage brand one of the largest canoe manufacturers in North America.
Mr. Leblanc contacted his old friend Jean-Daniel Petit and asked him to help revive the company. "I was working at [ad agency] Sid Lee," Mr. Petit said. The two hadn't spoken in 15 years, but he jumped in to help his old friend.
By the winter of 2014 they had developed a business plan and dragged the moulds and remains of Mid-Canada across the provincial border to Rouyn-Noranda, Que. With no marketing budget, just Mr. Petit's advertising acumen, they gave the firm a new moniker, Abitibi and Co., and used social media to reintroduce it to consumers.
In a few months they had presold 300 craft and by September of 2015 had earned $900,000. By this September, Abitibi, which has 20 employees, is on track to double the sales of its two lines of canoes, which retail for $1,000 to $5,000, and its kayaks, which go for $2,000 and up.
"We'd love to get to 1,500 units a year," says Mr. Petit.
Thus far, they have presold their boats through about 20 select dealers to keep order volumes in line with their limited capacity. But with the United States recreational market rebounding and the low Canadian dollar making their product cheaper, the founders think it's time to boost the U.S. share of their business to a third of sales, up from the current 10 per cent.
"There is a really good paddling community in the north U.S. – the East is a perfect playground for the types of kayaks we do," he says.
The fluctuating loonie is making planning difficult, however. "How do we manage that?" Mr. Petit asks.
"How do we make sure we don't recreate the same thing that happened [to Mid-Canada] by building a huge customer base in the U.S. then losing that customer base overnight?"
The Challenge: How can Abitibi and Co. best diversify into the U.S.?
THE EXPERTS WEIGH IN
Brad Poulos, lean startup strategist and lecturer on entrepreneurship, Ted Rogers School of Management, Ryerson University, Toronto
I think they've got to look at getting some larger U.S. dealers; it's often almost as much work to look after a small one as it is to look after a large one. I'd go after someone like Dick's Sporting Goods, Bass Pro Shops or Cabela's, maybe also Costco. Somebody like that might drive all the growth they could possibly handle. The less obvious one would be Amazon; there's a lot of expensive stuff sold on Amazon.
But working with a big supplier means reinforcing it with proper support – going to trade shows, putting some money in the channel for sales incentives, etc. After all, it's a push product; they're not big enough to create market pull, so they're going to be relying on the dealers for that in the U.S.
Fraser Johnson, Leenders Supply Chain Management Association Chair, Ivey Business School, University of Western Ontario, London, Ont.
One thing they need to be mindful of is how to manage the seasonality of the business; they need to be appropriately financed to deal with seasonal swings. Expansion into the U.S. also raises a red flag for me: exchange rate risk. The dollar can swing dramatically over a relatively short period of time, so they've got to make sure their cost structure is in line to be able to be competitive from a costs and margin standpoint.
To do so they should model what the profitability of their business is at an 80-cent dollar, a 90-cent dollar and at parity. What I like about the expansion into the U.S. is if you're selling in places like California and Florida that can help address seasonality. But if they can profitably grow in the Canadian market, that is a less risky proposition for them.
Stig Larsson, co-founder of Level Six, a maker of paddling apparel, gear and stand-up paddleboards, Ottawa
The issue we find with big products like this is shipping. Yeah, you might have very attractive price lists, but by the time that canoe arrives at the store, all of a sudden they've got an astronomical shipping bill and the customer will never become a repeat customer. Maybe Abitibi should have a free-shipping price list, where the price is inflated slightly in order to incorporate shipping costs.
Then they could streamline those shipping operations by using some cross-border people in New York state. The key to building those relationships is reaching out to people who are in the industry, who shipped similar products, and find the companies that they used. Get a U.S. bank account so someone in Maine isn't trying to figure out how to transfer money into Canadian funds.
They should also create a warranty policy that is very straightforward – you want to reduce all that hassle and second-guessing. Make it easy; if it's even remotely confusing for them, they're just going to go out and buy an American-made product instead.
THREE THINGS THE COMPANY COULD DO NOW
Create a "free shipping" price list
Inflate prices to include shipping and take the risk away from consumers in the U.S.
Form partnerships south of the border
Find suppliers and distributors with strong supply-chain networks.
Model several U.S.-Canadian dollar scenarios
Look at cost structure and profitability when the dollar is at 80 cents, 90 cents and parity.
Interviews have been edited and condensed.
Follow Report on Small Business on Twitter at @globesmallbiz.