Then there’s Espial: the 50-person Ottawa firm that – like many others – also underwent a review of strategic alternatives in 2011, but decided not to proceed with a sale. In November, the company said it would be in the shareholders’ interest to remain independent.
Fast-forward four months to the end of the firm’s fiscal year, and the company had set a new high for annual revenues: $14.7 million, up 10 per cent from $13.3 million in 2010. Although Espial posted a $200,000 loss, it was an 83-per-cent improvement from its loss of $1.2 million the year before.
Local observers say Espial’s strength lies in the way the founders have pivoted the business model multiple times since 1997. That faith in nimbleness is what inspired the founders to stick it out with the business instead of seeking a payday, they say, despite the firm’s poor financial performance and stock price slide.
Espial’s focus today concerns helping providers in telecommunications and hospitality, as well as cable multiple-system operators, to deliver television and video content on demand. The firm’s products include Internet protocol middleware and traffic management, television set-top boxes with video on demand and pay-per-view platforms, time-shift television, and others.
But the company was founded by Jaison Dolvane, Kumanan Yogaratnam and Allan Wille with a very different focus: software for Internet appliances that could connect table-top devices – including tablets, which was a very prescient application in the late 1990s – to the web.
Espial received a US$100-million takeover offer in 2000, but the founders turned it down as the offer was in shares of a firm called Liberate. There was no way of knowing what the value of the shares would be when they were allowed to cash out, the founders reasoned at the time. Around the same time, the market crashed.
“When the technology bubble burst, we had created this wherewithal to connect and consume content over the Internet, which included video, in some cases, even though this was pre-broadband,” says Mr. Dolvane, Espial’s CEO.
The company then searched for a market for connected TV that could keep the company going, even while it appeared “the world was collapsing.” What the company needed was a client with the means to buy the idea, and a captive audience. It hit upon hotels. Within a few years, Espial had 90 per cent of the marketplace among four- and five-star hotel chains, Mr. Dolvane says.
By the time that market became saturated, broadband was far more common among consumers, opening up the possibility of selling IPTV to them and then, when the satellite and cable providers began to catch up, connected TV products.
The firm went public in June 2007, but in the markets it has only seen its shares go down. It quickly hit a peak of $9 a few weeks after its initial public offering. By the end of 2007, shares traded at $3. The price has slowly slid since then, and as of May shares were trading around 50 cents each.
“It wasn’t easy – lots of ups and downs. We’ve certainly had to control our expenses and reduce expenses, and when we needed to we raised some financing along the years,” Mr. Dolvane says.
“We had to be conscious about our expenses ... while still trying to innovate. It always is difficult when you’ve got to keep the trains running while waiting for the next generation.”
Despite posting a modest loss in its most recent quarter, the bottom line is improving for the Ottawa company. It has been plagued by red ink despite entering the emerging market of consumer on-demand television at what observers say is the right time.
“Most of the time, people think that you start with this idea, and it won’t ever change. It never does (stay the same),” says Macadamian CEO Fred Boulanger, who worked in the same department of Corel as Espial’s Mr. Dolvane in the 1990s.
“As you get to understand what’s going on in the marketplace, you get to understand what people are going to pay for, and you evolve towards that.”
Espial’s largest threat, besides its balance sheet, is the emergence of similar technologies overseas, particularly in cheaper manufacturing centres such as China, notes Bruce Firestone, a broker, serial entrepreneur and founder of startup incubator Exploriem.org.
“For companies based in Ottawa – Espial is one of them, Ross Video is another – you have to have products that have a significant amount of intellectual property in them to be viable on the international stage,” he says.
“If you’re in a space that becomes commoditized, and the Chinese jump in, or some of the other emerging powers jump in, you have to add more value and more intellectual property.”
Mr. Dolvane says he feels the market is right, but there is a question of how to achieve size and scale among millions of television sets and consumers.
Part of the strategy involves getting into emerging or unconventional markets. Although the company typically releases few details about customer contracts, in 2011 it noted an expansion in Russia (a new Moscow-based office) as well as an agreement to provide IPTV products for Vodafone Iceland.
“How do we gain further scale, and how do we establish a leadership position in the market?” Mr. Dolvane asks.
“I still think we have a long ways to go. We need to figure out how to build it.”
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