A new take on old traditions is helping to stabilize emerging Canadian companies
Plotting a path for the New Economy
A new take on old traditions is helping to stabilize emerging Canadian companies
The Canadian corporate landscape has been reshaped by the recession and global markets. While large companies have shrunk and changed the way they operate, a number of new companies have emerged. They depend more on technology and they organize workers in small teams, eliminating traditional hierarchy. Still, young companies are discovering the need to adapt many qualities of conventional corporations. Two examples show how the New and Old Economy management styles have converged:
Marrying clout with capital
Wanda Dorosz has come a long way from her days as a high-school teacher. But as president and chief executive officer of Quorum Growth Inc., Dorosz calls on many of the same skills. And there is still a slight aura of chalk dust when the teacher, turned tax lawyer and CEO, describes the “discipline” that her management holding company brings to its investment portfolio of 15 young ventures. At a time when a host of new knowledge-based, valueadded companies are rising from the rubble of the recession, Dorosz advocates a continued emphasis on traditional corporate values and controls. Quorum’s investment extends beyond providing the capital to expand—its team of eight seasoned executives offers guidance with financial systems, marketing, plotting a strategic course and, where necessary, recruiting senior managers. “We have a high student-teacher ratio,” notes Dorosz. ‘We aren’t passive investors, we’re interactive partners.”
Over the course of the recession, many long-established Canadian companies have suddenly discovered that their organizational structure is unwieldy and inappropriate for rapidly shifting, global markets. As a result of the agonies endured by those corporations and their employees, the managers at many small, so-called New Economy companies are now deliberately trying to avoid the same mistakes by organizing into flexible teams and dispensing with formal titles and chains of command. But Dorosz insists that the absence of a basic, co-ordinated infrastructure can be fatal to growing companies, especially those that are keen to crack international markets. “Solid infrastructure frees you up to be flexible and to focus on more important things,” she says. “In today’s competitive markets you need to respond fast and to do that you need good management systems in place.”
Another part of Quorum’s role as an “interactive investor,” is to help emerging companies keep a balanced perspective on their rapidly growing operations. Especially in cases where an independent entrepreneur is running a company, long-term planning may be eclipsed by more personal priorities. Michael Levinhagen, a professor at the University of Western Ontario’s business school, says that entrepreneurs “are often obsessed with their own ideas and ingenuity.” He adds that “they all think that they are unique and have no competition—so they miss the point of strategy, marketing and planning.”
When Quorum made its initial investment in Minicom Data Corp. of Markham, Ont., the company, which provides software services for real estate, property and asset management, and construction industries, needed both capital and perspective. It had invested a large sum of money in an unsuccessful expansion into the United States market, its financial controls were inadequate and the technology increasingly dated. According to Michael Diamond, Minicom’s chief executive officer, the company also tended to emphasize technology and research and development (R&D) instead of marketing and sales. “In a small company it’s easy to get too insular—it’s such a small, supportive cocoon,” says Diamond. “Feedback from knowledgeable outsiders can be a very valuable reality check.”
Since Quorum arrived on the scene in 1989, Minicom has carefully focused its R and D. Financial controls have been significantly improved and monthly board meetings have been introduced. Quorum also has helped the company to establish a toehold in Asian markets through its own network of contacts and it has provided the financial references required to attract some major clients such as Royal Bank Realty Inc., Royal LePage Real Estate Management Services, George Weston Ltd. and Confederation Life Insurance Co.
Unlike conventional venture capital firms, however, Quorum will not invest in start-ups or unproven technology. Instead, it invests in increments of $5 million over a period of three to five years. A company in which it invests usually has more than $10 million in annual sales and a proven record of growth. Typically, the company should also combine two distinct specialities such as medicine and computer technology. To appeal to Quorum, it must also have a market share of at least 15 per cent, with the potential for significant export sales, and it must be headquartered in Canada. Dorosz says that Quorum has no plans to expand far beyond its current holdings because after that point “the wheels fall off’ and it’s tougher to give “quality time” to companies.
Although Quorum started life as a private investment fund, it went public in 1992 through a $30-million stock issue. Currently, it has investments in 15 companies across Canada ranging from custom software designers to a Calgarybased environmental services company and a power generator manufacturer. The asset value of those holdings is pegged at about $80 million.
Frequently, the company in which it invests has grown too fast or is in a period of transition. Among the experts on retainer from Quorum’s board of directors are Peter Lougheed, former premier of Alberta; Ted Medland, former chairman of Wood Gundy Inc.; John Yarnell, a venture capitalist; and David Rattee, a former executive at Central Capital Corp. and director of Derlan Industries Ltd.
Despite Quorum’s pedigreed advisers and carefully plotted investment strategy, Dorosz’s toughest teaching assignment lies ahead: she must educate the Canadian investment community about her hybrid company and convince it that an old-style management firm with diversified holdings has a role to play in Canada’s restructured New Economy. In recent years, investors have shunned such complex conglomerate companies in favor of so-called pure plays, which focus on one core business.
But even though Dorosz concedes that “no tidy label quite fits” Quorum—which makes the stock difficult for most investors to understand—she says that she is convinced that there is a need for new public companies in Canada that reflect a new economic reality. ‘The core Canadian companies are gone or are no longer growing,” says Dorosz. “As savings and pension funds mount, they end up chasing their tail in the market.” Furthermore, at a time when many companies are saddled with cumbersome debt loads, Quorum is debt free and has almost $30 million in cash reserves.
Nevertheless, despite the current strength of Canada’s stock market, Quorum’s shares still trade below their issue price of $8.50 a share. And while Ira Gluskin, an investment counsellor with Gluskin, Sheff & Associates in Toronto, is optimistic about Quorum’s prospects, he warns that the stock market’s grasp of such New Economy hybrid entities will take time. “A conservative investor doesn’t want high-tech and an aggressive investor doesn’t want such a staid approach to high-tech,” says Gluskin. “Quorum falls between the cracks in the market.” Still, if Wanda Dorosz has her way, Canadian investors will eventually learn their lesson.
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