Email Print

peoplePeople

Nick Kozak to The Star
Case Studies
Posted: July 16, 2012
by Steve Kupferman

Zipfy is a hit, but Oakville’s Great Circle Works needs talent for next big toy

VITAL STATS
Contact:
info@greatcircleworks.com
Type of Company:
Toys and sporting goods
Mission Statement:
Number of Employees:
4.5
History:
With only five years in business, they reached almost $4million in sales last year

 Mark Cahsens didn’t see it coming. He’d founded Invisible Hand, a 12-employee e-commerce startup, in 1999. Two years later, the tech bubble burst.

He opted to sell the company rather than face an increasingly bleak business outlook. The experience convinced him to leave the startup game, for the time being.

In 2007, when he founded a new company, Great Circle Works, he resolved to go about things very differently. He’d peddle consumer goods instead of software. And, critically, he’d hire the smallest number of staff he possibly could.

Now, with just four full-time employees (including Cahsens), Great Circle Works is lean—almost ascetically so. Its low overhead gives it plenty of flexibility, but Cahsens is strained. He’s the company’s one and only full-time ideas person, and the business depends on great ideas to fuel sales. As it stands, only one idea has caught fire so far, and although it’s bringing in plenty of cash, one-product companies rarely stay alive for long.

“That’s the main pressure I’m feeling right now,” he said, “trying to find the next hit.”

The Oakville, Ontario-based company started when Cahsens, at the suggestion of a friend, began working with some consultants to develop Zipfy, a type of compact plastic sled with a long, black steering handle for easy maneuverability. The sleds are only 21 inches long, but can accommodate an adult weighing as many as 250 pounds. Cahsens figures he’s made about a million of them to date.

And yet, even though Zipfy has been a success, Great Circle Works is still not hiring.

The company had about four million dollars in sales last year, said Cahsens—which works out to one million per full-time employee. And Zipfy has enough buyers that its medium-term future seems secure: the sleds are sold by several major retail chains, including Canadian Tire, Costco, and Target. The company has developed a few new products (a spherical puzzle-like toy called Oblo, an inexpensive commuter bike named Tütsl), but Zipfy still accounts for about 80 per cent of its business.

Cahsens has been averse to adding to his company’s headcount since day one. When he founded Great Circle Works with startup capital out of his own pocket, he avoided taking on any employees until he’d already secured a 10,000-unit order from Canadian Tire.

“They really liked the product,” Cahsens said. “It was unique, in a category that doesn’t often see that much innovation.”

With the proceeds, Cahsens was able to buy production molds for Zipfy—a substantial investment. He spent the money, he said, “with confidence that I had already broken even.”

In 2007, as the fledgling company grew, Cahsens finally brought on a single full-timer. But that was the only hire, with the exception of a few temporary workers who helped promote Zipfy at trade shows. Only in 2011 did Cahsens relent. He added two more full-time positions to help with sales, marketing, and fulfillment.

The company is able to operate with a skeleton crew thanks to outsourcing. A facility in Buffalo molds the sled, contractors handle warehousing and shipping. Even design is partially outsourced—Cahsens works with freelance inventors, and pays them royalties.

Yuval Deutsch, a professor of policy and entrepreneurial studies at York University’s Schulich School of Business, thinks outsourcing can help a fledgling company.

“Especially for small firms,” he says, “they don’t have economies of scale in-house.”

Great Circle Works doesn’t actually own anything but office equipment, production molds, intellectual property—and its good name with customers. Sales and marketing are the only operations completed entirely in-house.

In situations like these, Deutsch sees potential for danger.

“The other side of the coin,” he says, “is that when you have your company, and you’re able to get assets which are unique and valuable—and, importantly, very difficult to imitate—you can get a competitive advantage.”

Great Circle Works doesn’t have that advantage.

“This company, if they outsource absolutely everything, doesn’t have any unique trait,” he says “If they can purchase the service from outside, any company can purchase the service from outside.”

In other words, Cahsens is banking on the distinctiveness of his proprietary designs. They’re all he’s got.

Still, staying lean allows the company to meet the demands of its clientele without incurring a lot of financial risk. If Great Circle Works owned its production facilities, it would have to run them throughout the year in order to make a return on its investment. Contracting means Cahsens can produce a year’s worth of goods in about two months, without having to sink huge amounts of money into capital.

Outsourcing also helps the company deal with a yearly order surge before the Christmas season. When Cahsens needs more product, he orders more product, and rents more warehouse space. When things are slow, he cuts back on production and storage.

But, as sales continue to grow, expansion may become a necessity. It’s especially obvious during that pre-Christmas rush, when orders pour in and his staff is overwhelmed.

But even with new products making inroads, Cahsens is always looking for more efficiencies, especially if they might allow him to put off new hires.

“Lately I’m even thinking about working remotely,” he says.

Sometimes, evidently, even an office is too much.

EXPERT VIEWS

As Interviewed by:

Cahsens’ current business model is risky. He's largely dependent on a single successful product, and his clients are well-capitalized, powerful companies. He probably can't fight them if they ask for a price drop or decide to start selling knockoffs. Plus, it sounds like Cahsens is doing everything at the company. If something happens and he’s temporarily or permanently unable to work, that's the end of the business. And his cash flow is probably very seasonal — I understand why he wants to avoid the fixed costs of bringing in more staff. So he should try something different. He can use social media and the company’s network of designers to connect with developers across the globe — ask them to generate potential product ideas. That way he has to pay only for the ones he wants to use, and can tie compensation to receivables related to that product. It's a great way to generate ideas, and if Cahsens uses it he may be able to diversify the product line without spending a lot of capital on an in-house design team.

by Peter Conrod

Zipfy’s are a very seasonal product—I can see why the company would want to stay lean, even though this probably causes problems in the Christmas season. Part of the solution may be to make staff more productive, and the company can do this through mobile technology. Things like mobile LTE hotspots, which deliver high-speed internet through cell phone towers, can let an entire team securely connect all their devices to review marketing plans and sales figures, or manage partner relationships on the go. Plus, the connection is secure, so there's no worry about broadcasting confidential information over public Wifi. And, on the ideas side of things, I think this company is popular enough that its founder could let fans do some of the work. He could hold a contest to generate interest, and offer customers a Great Circle Works app online or through a QR code on product packaging. This, combined with social media sites like Twitter and Facebook, could become a powerful tool for crowdsourcing that can help generate ideas for new products directly from the company's core target market.

by Tisha Rattos

Cahsens is possibly putting more constraints on himself than needed, and he could be holding himself back from faster growth. But deciding when to invest in more people is a balancing act, so he needs to decide what his goals are. If he wants to maximise revenue, diversify the product line and distinguish his company in the market, there are lots of ways he can do so while keeping costs down. Internships and strategic partnerships are effective and inexpensive, and Cahsens could also hire contractors and consultants as needed. And, if he does, he should establish metrics to measure the success and ensure the investment pays off. A remote workforce is another option. It can save a good chunk of capital—and also attract a broader set of talent—but Cahsens will still need a space where people can brainstorm and generate ideas. So, instead of losing the office completely, he should consider investing in shared space with other companies where he has low-cost access to boardrooms and workstations when needed. It’s easy to be isolated when you’re the only ideas person, and that’s the last thing he wants.

by Tara Talbot
Showing  3 comments