Vanguard Magazine

t teChnology WATCH Failure to diversify your investment portfolio is risky, failure to diversify in the defence industry can be suicide 36 FEBRUARY/MARCH 2016 www.vanguardcanada.com finDing innovation in other sectors the case for Diversification anD nicole verkindt is the founder and president of OMX. She is a Board Member of the Canadian Commercial Corporation and was recently appointed to the Board of the Peter Munk School of Global Affairs. a rguably the biggest mistake that I have made in my career to date has been, as director of business development at my small, family-owned defence manufactur- ing business, was not to diversify the com- pany. Not being diversified in any sector or in- vestment portfolio is often cited as a risky endeavor, but in the cyclical defence sec- tor, it can be suicide. In our experience, with the United States entering two major conflicts in Iraq and Afghanistan, we invested heavily up- front in additional fixed costs, in order to meet huge spikes in demand for our tech- nology from the US Department of De- fense. It took them years to calibrate, and it was almost too late when they realized they had significantly over-purchased off of our IDIQ umbrella agreement. Orders quickly dried up, leaving our small manufacturing business with signifi- cant overheads (we were up to five factories and over 250,000 square feet at the time) without much hope of revenue coming in the door. We were diversified slightly, but our major focus was on defence. We did sell various components to the automotive sector (usually really low margin, and it only ever made sense if it meant covering some machine downtime). Irrational customers and timing Once, we got a call from a unique archi- tectural company that had seen our 3D signature management nets and wanted to put them on the roofs of some unique buildings in Greece. Of course, they had to be white, he didn't care much for in- frared/night vision reflectance, but he admitted that he would never have found our unique materials and designs from his generic material supplier sources. We had after all, unique technology that only came about because of research initiated from the government and the defence sector. Defence is cyclical. Studies have shown however, that it tends to be inversely cycli- cal with the economy, which makes it, for a lot of SMEs, a good "2nd business" to be in. Our customers in the defence sector (governments or government contractors) tend to make irrational consumers and the timing of their purchases don't necessarily line up perfectly with supply and demand, yet are a reaction of a set of complex fac- tors and series of events that all need to occur before a procurement, including ac- tual end user demand, which is often many years before the procurement. I happen to love working in this indus- try. I find it fascinating living at the inter- section between government and business, and revel in the complexities and details surrounding every procurement. We often get a front row seat at OMX as we assist government contractors (by them using our software tools) in team- ing with Canadian partners, sourcing from Canadian suppliers and then tracking and generating data analytics on the impacts their particular solutions could have on the Canadian economy. But it doesn't matter how much you love an industry, any busi- ness, particularly if you are small, should seriously think about diversification. how to mitigate risks I believe, that not only is diversification an important risk mitigator for long term sur- vival, but that it is truly an opportunity to drive innovation across sectors. Sometimes innovation is just connecting the dots and applying something innovative from one application to another. For instance, take OMX's B2B RFP en- gine model. Quite frankly, we found the

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