Case study: Confronting scaleup challenges at an innovative Alberta company

Brett Darichuk had ordered more than $2.5 million worth of custom manufacturing equipment, after his growing family-owned and operated company landed federal funding and a long-term contract to supply an Alberta oil and gas firm with a composite pipeline connector. The equipment had all been built and was just about to ship when Darichuk got a phone call. The oil and gas company had just been bought by another firm, which abruptly cancelled the contract.

“It took us about four years to get ourselves back on even keel again,” says Darichuk, general manager of Alta Injection Molding (AIM) in Airdrie, just north of Calgary. “We did all the due diligence, but we just got blindsided.”

Being blindsided is just one among many challenges that Canadian firms face in scaling up.

AIM is a full-service injection molding company that uses engineered, cutting-edge resins to make a range of products – from thin-wall plastic to bulletproof composites – for clients. In the last 15 years, the company grew from seven employees to a high of 63. But with increased production efficiency and investment in automation and robotics, AIM was able to reduce its skilled workforce and payroll to the current 30 employees. AIM’s revenue ranges from $12 million to $16 million per year, Darichuk says.

Darichuk says that SME’s constantly face a too-much or too-little dilemma: either there’s not enough business to keep up with cash flow and amass capital to grow, or there’s so much business the company takes on too much and can’t deliver. Smaller companies may lack capital to purchase equipment required for a big contract or, so they can cover expansion costs, they need to set terms that are unattractive to potential customers, he says. “Growing too fast is always a big risk.”

AIM and its clients use the federal government’s SR&ED tax credit program and several other federal and provincial innovation programs. But it would help SMEs scale up if SR&ED allowed companies to purchase equipment not just for R&D purposes but for commercial production, Darichuk says. “What’s the point of buying a piece of equipment if you’re just going to test it and aren’t allowed to touch it again?” Also, he adds: “We see the bureaucracy of government. Sometimes it takes so long that a company can’t wait all these times for approval at all these different points.”

Costs of materials and labour a challenge

Managing costs is also demanding. Over the last year, the cost of resins and other materials AIM uses and imports from the U.S., Germany, Japan and other countries has jumped 40%. However, the company has adjusted its prices by only 4%, to keep clients onboard. “That means our gross margin drops dramatically to even things out,” Darichuk says.

Another challenge is the cost of skilled labour in Alberta, especially when competing for project bids against Asian companies paying their employees much lower wages. AIM has the advantage of being a controlled goods manufacturer approved by International Traffic in Arms Regulations, which enables the company to do military and national security projects for Canada and the U.S., as well as conduct research on classified advanced materials. “Our big advantage is that the IP of the client’s item is held in the building,” Darichuk says. You take that file and send it off to China you might save 15% (on production) but there’s a big risk of IP loss.”

To stay innovative, AIM partners with post-secondary institutions on joint ventures. The company also has started recycling its composite materials waste, and has applied for federal clean tech funding to help support clients in recycling their used materials and products.

Darichuk says the company sees about 400 to 500 innovators per year, from individual entrepreneurs and startups to SMEs and large corporations, who bring myriad product ideas to AIM for potential design, engineering and production. Only some are willing to spend the money, time and energy to assess whether an idea is feasible and then take it to a commercial product, Darichuk says. “We learn from the mistakes of other people and ourselves, to try to keep improving and see the red flags as they come.”

R$