Photo printing kiosk shoppers drug mart

Beaufort Solutions, Inc. 19

Beaufort Solutions, Inc. Deborah Walker, Memorial University of Newfoundland Dennis Hanlon, Memorial University of Newfoundland Donna Stapleton, Memorial University of Newfoundland

Copyright © 2015 by the Case Research Journal and by Deborah Walker, Dennis Hanlon, and Donna Stapleton. This case study was prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling of a managerial situation. An earlier version of the case was presented at the 2012 Administrative Sciences Association of Canada Case Tract in St. John’s, NL, Canada. The authors wish to thank Todd Hiscock, Beaufort’s CEO, for all his support in preparing this case.

On June 28, 2011, Todd Hiscock and Samy Mesbah sat together in Todd’s office on Quidi Vidi Road in St. John’s, Newfoundland and Labrador, Can-ada. Through the glass wall they could survey the entire office. The building was once a church, but they had renovated it with lime green walls, soaring ceilings, and modern furniture. Todd thought it was a perfect place to create technology when the company moved in a year ago.

Todd and Samy had worked together at Telepix Imaging Inc. (Telepix), and they had been technology pioneers in the digital imaging industry at a time when film cam- eras ruled. According to Todd, Samy was an inventor, an engineer, a computer guy, and a genius. Both men were now equal owners in Beaufort Solutions Inc. (Beaufort), the software solutions company they founded in 2003 with the mission “Turning pixels into profits.” Todd was chief executive officer (CEO), and Samy was chief tech- nology officer (CTO).

So far, profits were dismal. It seemed to Todd that every time the company turned a corner, something unexpected happened. For their years of operation, Beaufort had an accumulated deficit of $50,974 (Exhibit 1). Many times it had been difficult to meet payroll for their nine employees, even though Todd felt his exceptional team should be earning twice their current salaries. However, he was adamant that Beaufort would achieve financial stability soon. The year 2010 was the first time the company had hit a $1 million revenue target. This was primarily due to their new partnership with FujiFilm Canada (Fuji) and the sale of their Image2Print integrated software solution to Shoppers Drug Mart (Shoppers).

Of their recent success, Todd said: If you want to turn your digital pictures into prints or gifts at any Shoppers in Canada, either in-store through photo kiosks, or on the web at shoppersphoto.ca, our software makes it possible. That’s a huge success story for us! Based on that strength, we have an incredible opportunity to duplicate the service for other major retailers. On August 1, 2011, Beaufort is rolling out our web solution for Loblaws Superstores, one of the biggest retailers in the world (Exhibit 2). The Loblaws and Shoppers business alone could garner $2 million in annual royalty revenue quickly and with this cashflow we

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20 Case Research Journal • Volume 35 • Issue 2 • Spring 2015

will be 100 percent covered on monthly expenses in the very short term. Never in our history have we done that every single month. And, with Fuji as our partner it could mean many more lucrative opportunities for us with other large retailers like Walmart and Costco, not just in Canada, but internationally.

Beaufort was at a crossroads. Todd had strived for a balanced work life while his family was young, but now he was ready to “go big or go home.” As Samy explained:

At the beginning, only Todd had a young family. Most employees had time to work and finish things. Now, we are all being pulled in many directions. Everybody, except Todd, has really young kids, so it is difficult to work long hours and finish stuff. Just the same, employees who are really into what they do will finish at three in the morn- ing sometimes because they have the drive to finish a project and do it right. We all appreciate a flexible work environment.

Todd responded: True, when we began Beaufort, I made a conscious choice to create a lifestyle company, but now, at this exact moment, I’m struggling with what is best. We have network con- nections, reputation, intellectual property, a great team, and a credible partner with an international reputation. We have a lot of strength and substance in what we have col- lected around us. If we are smart about how we plug all that together into a plan, this could be a phenomenal growth success. Or, if we are smart with a couple of big deals now, we could have a phenomenal lifestyle company. Maybe not quite as flashy, but we could have a lot more fun. So, what do we want to be? I know that I have to protect our “secret sauce” which is Samy, Phil, Dave, and the team, but by September 2011, I want to have a clear vision for how much growth is best for our company. Whatever the decision, I’ll have to sell it to my team to make sure that we have consensus and pull together.

The DigiTal imaging markeT

The Photographic Imaging Revolution Digital photo imaging emerged as a disruptive technology in the early 1970s coinci- dent with the global “space race.” Pictures taken in space needed to be beamed back to earth where digital signals were decoded and the images were viewed. The resulting imaging technology paved the way for the unveiling of the first prototype still-video digital camera. As digital camera sensor imaging improved past four megapixels, con- sumer demand for digital cameras strengthened. The cost of owning a digital camera became affordable for many consumers. According to the U.S. Photo Marketing Asso- ciation (PMA) Market Research, in 2003 digital cameras began to outsell film cameras. By 2009, film cameras were nearly extinct.

Digital camera images were immediately displayed on the camera screen to be viewed and then saved or deleted. Thousands of images could be stored on a single small memory device; however, many photos were left unprinted. According to the 2009 PMA U.S. Consumer Photo Buying Report, the average household made about 300 prints per year. Approximately 60 percent of camera owners printed digital photos and 40 percent of camera owners chose not to print their digital photos. Many con- sumers downloaded and stored their hundreds of photos on their home computers and often printed their photos on home printers.

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Beaufort Solutions, Inc. 21

Research by PMA Market Research showed total photo print volumes in the U.S. were declining (Figure 1). It projected the number of digital prints in the U.S. would grow to 13.9 billion by 2010. At approximately one-tenth the size of the American market, Canada’s digital print volume would be 1.39 billion. At an average price of $0.10 per print, the total value of the digital print market in the U.S. would be $1.39 billion. If royalties on prints were $0.02 per print then the total value of royalties for the American consumer digital print business would be approximately $280 million.

Online and retail photo printing services were expected to remain fairly flat over the period 2009 to 2012 (Figure 2). While the total print market was shrinking, it was projected that the main source of growth for retailers would be share gains made against home printing methods.

Figure 1: U.S. Consumer Prints—Market Size

Prints Made by U.S. Cosumers

Note: Digital prints include prints from received images and camera phone prints.

Source: PMA Marketing Research

Figure 2: U.S. Consumer Prints—Market Share for Retailers

Percent of Total Prints

Notes:

Includes prints from received images and camera prints. *Includes orders placed online and mailed back to consumers, as well as orders consumers picked up

at the store.

Source: PMA Marketing Research

Digital prints Traditional prints

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22 Case Research Journal • Volume 35 • Issue 2 • Spring 2015

Demand for Photo Publishing Given that total print volumes were shrinking, retailers were offering more photo pub- lishing products to boost demand. The PMA Marketing Research group referred to “photo publishing” as the portfolio of custom photo products offered by retailers such as photo books, cards, key chains, mugs, calendars, and so on. PMA reported that photo publishing in 2009 represented 35 percent of the total digital photo printing revenue, up from 24 percent in 2005.

InfoTrends, a leading worldwide market research consulting firm for the digital imaging industry, reported that the U.S. market for photo publishing doubled from $1.1 billion in 2009 to $2.2 billion in 2010. Furthermore, 83 percent of photo mer- chandise buyers had received photo merchandise from someone else, and 90 percent of buyers would buy again in the next twelve months. The typical photo merchandise buyer was under the age of thirty-four, family oriented, and had children living at home.

The impressive growth rate for photo merchandise could be attributed to many factors. Photo products were viewed as emotional, affordable, meaningful gifts. Mem- ories were likely regarded as recession proof by family memory keepers, so retailers offered more products from which consumers could choose. Photo gifts could also be substituted for traditional greeting cards, a market worth billions of dollars annually in North America.

Competition for Photo Prints According to PMA’s Photo Industry 2010: Review and Forecast, increased camera sales no longer guaranteed increased print volumes because of consumers’ high sensitivity to photo print pricing. Other image display and sharing solutions were competing with photo prints. Competition included social networking sites as well as cheaper digital frames, laptops, HDTVs, and netbooks, all of which had increased in popularity.

With internet usage growth, users began relying upon online social media sites such as Facebook, Flickr, and Picasa for their remarkable storage and organizational capacity of personal photos. InfoTrends reported that at the end of 2011, the global estimated number of Facebook users would be 700 million and users would have uploaded a total of 100 billion photos, thereby making Facebook the biggest photo sharing website in the world. Facebook provided consumers with more access to pho- tos of family and friends. The average Facebook user had 345 friends and 282 photos, giving access to 97,000 photos of family and friends that were indexed, tagged, and preorganized. Users could easily access pictures through Facebook for printing or for creating specialized photo merchandise.

Proliferation of Camera Phones By 2010, camera phones had become the next principal source of change in the digital imaging market. According to PMA Market Research in 2009, camera phones were used by more than half of all American households. They predicted that the camera phone would replace the single-purpose digital camera by 2014 when sensors in cam- era phones would average between 8 and 12 megapixels. At that point, camera phones would have the capacity to take pictures of sufficient quality to enlarge, print, and be used for photo gifts.

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Beaufort Solutions, Inc. 23

BeauforT: hisTory anD organizaTion

Before Beaufort: Telepix and Gretag Todd Hiscock had been chasing and closing deals since he graduated with a business degree from Memorial University of Newfoundland. He had started working with IBM’s internet division in Toronto in 1990. Now, at forty-two, Todd was a family man with four children aged seven to sixteen. Just after his first child was born, Todd moved to St. John’s with IBM to be closer to family. He recalled:

When I had the opportunity to come back to St. John’s, I looked at it from a family per- spective. I remember my boss’ reaction. I was looking for a little more balance, and she said that I was “nuts” and a bit young to be looking for a work-life balance. I definitely was going against the grain, not wanting to be that downtown, hard-core corporate guy. As it turned out, going to work for IBM in St. John’s was the right choice. I had free rein to run the IBM Newfoundland division the way I wanted.

Todd got into the digital imaging world after a chance meeting in 1998 with the CEO of Telepix. With a staff of twenty employees in St. John’s, Telepix was devel- oping digital imaging kiosk software to enable consumers to manipulate and print their digital photos in “photo booths.” Todd was intrigued and immediately saw an IBM opportunity to supply Telepix’s burgeoning equipment infrastructure. Todd remembered:

I just got really interested in the Telepix business case. The internet bubble was at its peak, and the CEO had a business plan that involved changing an industry which hadn’t changed in the last hundred years. Kodak invented photography and that was it. Yet, in a very short time, that industry got blown up. Digital changed everything, and to me that was really exciting. We got a chance to create new things. It was so new back then that a lot of Telepix’s ideas were way ahead of the market. The bad news was that the industry just wasn’t ready. But Telepix had a vision. It was changing the photography world.

With an IBM equipment deal in place, Telepix attracted the attention of Gre- tag Imaging Holding AG (Gretag), a multi-national photo equipment manufacturer headquartered in Switzerland. Gretag subsequently purchased Telepix in October 1999, making Telepix its R&D arm in St. John’s and making millionaires of Telepix’s original owners.

Telepix subsequently made Todd an offer he couldn’t refuse; and, in 2000, Todd started working with them in a senior sales capacity. Todd recalled, “From a personal perspective, Telepix was pushing all my hot buttons: entrepreneurship, new technol- ogy, travel, and a global business perspective. It was very cool how technology was disrupting old industries and building new ones. I craved this excitement and left IBM to join Telepix.”

Funded by Gretag, Telepix quickly ballooned to 150 employees. The software development team alone was comprised of more than forty computer engineers. Todd quickly moved up in the ranks of Telepix and Gretag. He became CEO of Telepix within a few months due to the departure of the original entrepreneur. The company also promoted him to the seven-person executive management team at Gretag as the vice president of Digital Imaging Solutions worldwide. Todd remembered the chal- lenges of those early days:

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24 Case Research Journal • Volume 35 • Issue 2 • Spring 2015

The first thing I did, from my IBM training perspective, was to develop the architecture. The Telepix software developers had never worked in a structured, large professional team environment. They were doing quite brilliant work, but it wasn’t polished. It wasn’t corporate ready because there was no plan. So, I did a little diagram. And we still follow most of that architecture even today, ten years later. This is what the employees keep telling me anyway! But, when I did that little architecture, it was the start of a vision. We had 150 people working on web things, kiosk things, consumer software things, as well as new ideas for the websites. Some ideas made sense, some didn’t.

I don’t think anyone at Gretag really understood what Telepix was doing. There was just so much activity. As long as the activity was going on and the share price for Gretag was going up, people were happy. But when the internet bubble started to break shortly after I started, I suddenly had to focus on making money and reducing costs.

Todd appealed to Gretag’s CEO to implement a solutions-based approach to the business. In September 2002, Telepix showcased and proved its software expertise at Photokina, the world’s largest tradeshow for the photographic and digital imag- ing industries. But it was too late. Gretag went from boom to bust when their main customer, Kodak, stopped purchasing Gretag’s digital minilab photo processing equip- ment. Quality issues with Gretag’s minilabs also racked up massive downtime penalties for the company. With that, Telepix painfully contracted from 150 to forty employees. Todd recalled:

When the internet bubble burst and affected Gretag, my priority wasn’t so much to succeed in the digital imaging space as it was to protect my people in St. John’s. We went from 150 people to eighty people to forty people. We just kept paring back. As we got smaller and smaller, we saw where the sweet spots were in terms of productivity. When Gretag finally collapsed, Telepix was the most profitable entity inside the whole Gretag federation.

Gretag declared bankruptcy in December 2002 and Telepix closed its doors shortly afterward. They walked away from Telepix, and I could have walked away with the remaining cash. However, I couldn’t have lived with myself if I had done that. Instead, I treated all of the employees fairly and provided them with as much severance pay as possible. That’s the kind of culture I’ve brought to Beaufort.

As a member of the Gretag executive team, Todd fought to salvage Telepix’s intel- lectual property. Todd said:

In terms of my personal working life, my mantra is “There is always opportunity in chaos. When things are really a mess you have your best opportunity.” And, I think I demonstrated that through the Telepix acquisition, growth, and demise. I always tried for a calm, focused approach. It’s good to ask questions, get people to buy into the mis- sion, and strive for a team focus. I asked people to step up and they did. The Gretag situation was rotten and not of our doing. However, it let me take Telepix into Beaufort Solutions, start going forward and move on. I didn’t try to get into the digital imaging business, I fell into it. With the chaos all around, I saw the opportunities, seized them, and brought us to where we are today.

The Beginning Todd incorporated Beaufort in February 2003 (Exhibit 3). However, the business transition wasn’t easy. Thanks to Todd’s persistence, Beaufort had inherited Telepix’s extensive intellectual property; however, it was without employees, a sales force, and a financing entity. Telepix employees had scattered, and many worked for Beaufort’s

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Beaufort Solutions, Inc. 25

competitors. For example, at PNI Digital Media (PNI), one of Beaufort’s main Cana- dian competitors, many top executives were former Telepix or Gretag employees. The Telepix experience had shaped Todd’s and Samy’s view as to how Beaufort should operate. Todd explained:

When Beaufort first started up, we said, “What do we do? Do we go look for $10 mil- lion in financing and pump this thing really big and blow it out? Sometimes I wish we had done that. But, we said no. We had worked for big companies all our careers and that gave us all kinds of pain and heartache. My family was young. We wanted to be more diligent and take a less aggressive, more focussed business approach that depended on highly skilled people enjoying life. Our conscious choice was to grow a “lifestyle” company.

Samy also voiced his opinion: We did the fifty people; we did the 100 people at Telepix. I also did some consulting work for Xerox. You realize how slow things move through the layers of bureaucracy. Plus, you know you get a big company mentality. That means a lot of the day in meet- ings, and then you get some work done. In a small company you avoid that. Also in a large company with many developers you have to make sure all the work meshes and are done right. If you tell twenty people to do something in code, I’m sure all twenty will do it differently and two of them will do it well. In a smaller company there are not as many of us, so we can generally agree on an approach and you can trust them to get it right.

Along with Todd and Samy, three other key Telepix employees signed on with Beaufort. Todd and Samy gave them a small ownership share in lieu of salary for the first three months of operation. Together, employees still held less than 10 percent of the company’s shares. Of the original employees, Phil Van Ulden became Samy’s invaluable software development partner, and Dave Somers became Beaufort’s project management guru.

Over the years, Beaufort remained small, retaining all five original employees, and adding four technical employees along the way. There was no formal structure; instead, almost everyone reported to Todd (Figure 3). As a small high tech company, Beaufort’s key assets tended to consist of people, intellectual property, and receivables. Cash was often in short supply and few other assets were available to pledge in support of long term borrowing.

Figure 3: Beaufort Organization Chart

Todd Hiscock CEO

Samy Mesbah CTO

Phil Van Ulden Sr. Developer

Dave Somers Project Manager

Joanne Moores Office Manager

Ted Rogers Project Manager

Rob Reynolds Sr. Web

Programmer

Chris Whittick Web Programmer

Mike Hancock QA Specialist

Source: Company information

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26 Case Research Journal • Volume 35 • Issue 2 • Spring 2015

Todd immediately focused on the sales opportunities left from the Gretag days. In 2004, Beaufort set its sights on Olympus as its go-to-market strategy. Olympus had previously negotiated with Gretag for the placement of photo kiosks in Office Max and Office Depot stores in the United States. Todd convinced the Japanese owners of Olympus to take a chance on Beaufort:

Olympus was trying to sell printers and wanted a photo kiosk program to increase demand. We redesigned the kiosk hardware and redeveloped the software in line with my little architecture. The beauty of the situation was that Olympus paid a huge up- front premium for software licenses. We put everything into Olympus: they did the sales and marketing, we developed the software, and they paid for the works.

It worked quite well for about a year and a half. We installed 450 kiosks, so with six people we were doing very well. From a developer perspective, Samy and Phil, two brilliant individuals, did far more Image2Print development in a year than dozens of developers did in the previous four years at Telepix.

My mottos are “hire bright, hire talent” and “one brilliant person can do the work of ten junior or average people.” We still see that today. The stuff Samy and Phil are pull- ing off here is tremendous. With good management, the right person will have output far superior to that of a group. With Olympus paying all of our funds, our excellent team built some great software. We did a lot of innovative things. That is exactly the same model we have today with Fuji.

The relationship with Olympus was cut short however, because in 2005 Olympus made a decision to exit the printer business. Literally overnight, Beaufort lost its main customer. It would be two years before Beaufort would find a replacement; in the interim, it subsisted on small contracts.

A Reputation Earned In 2007, Walmart Canada tested Beaufort’s expertise when it hosted a “Store of the Future” competition to determine the best vendor for their photo kiosk busi- ness. Walmart invited four vendors to participate: Fuji, Hewlett Packard, Kodak, and Noritsu America Corporation (Noritsu). With more than 58,000 equipment installa- tions in more than 180 countries, Noritsu had been at the forefront of innovation in the photo industry for nearly six decades; it was the first to bring automated, continu- ous processing, and quality photo printing equipment to the worldwide market.

Introduced through a mutual contact, Noritsu contracted with Beaufort to supply the software portion of the Walmart kiosk program. It was an exciting time for Beau- fort, Todd recalled:

We were all given space in Walmart stores in Toronto area where we installed our prod- ucts. Our store was in Brampton. Fuji’s marketing displays were incredible but their technology was bad. Hewlett Packard never participated, and Kodak just threw its old products at it. Our innovative stuff stood out. We created a new DVD product. We created unique calendars, gifts, and promotions. Our solution was incredibly cool, and we demonstrated that we were very strong systems integrators. We really got the atten- tion of Kodak and Fuji. In Canada, I had relationships right to the top with Noritsu.

Although Beaufort established itself in the Store of the Future test, Walmart did not ultimately choose Noritsu as its Canadian photo kiosk provider. Noritsu next set its sights on Shoppers Drug Mart, whose photo kiosk solution was being provided at the time by Lucidiom Inc. (Lucidiom), a U.S.-based competitor to Beaufort.

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Beaufort Solutions, Inc. 27

However, the U.S. economic meltdown in 2009 caused huge problems for Noritsu. To shore up their American business and on the advice of their hired turnaround specialist in the U.S., Noritsu surprised Beaufort by purchasing Lucidiom, the first business acquisition in Noritsu’s history. With that development, Beaufort lost another substantial customer. During a final dinner with Noritsu executives, Noritsu gave Todd some advice: call Fuji.

A Fuji Partnership Todd recalled how quickly he and Fuji negotiated a deal:

At nine o’clock on a Friday night, I called Fuji’s VP. I said “You’ve got a problem and I’ve got a problem and we both have an opportunity at Shoppers Drug Mart. Can we meet?” The next day we had an Agreement in Principle. We agreed that Shoppers Drug Mart was going to be the first deal of choice.

Fuji had some serious technology issues, and we had some serious marketing and sales issues. Talk about partnership! A successful partnership is a merger on strengths, and the strengths Beaufort brought to the table complemented Fuji’s strengths. The great fit explains why things are working so well.

By June 2010, Fuji had completed its due diligence work on Beaufort and there was a close working relationship. Fuji signed a deal with Shoppers Drug Mart and Beaufort replaced all of Lucidiom’s kiosk software in the 1800 photo kiosks located in Shop- pers Drug Mart stores across Canada. With this work completed, Fuji and Beaufort were asked to integrate the photo website, shoppersphoto.ca, with their photo kiosk program. Todd understood that this was the missing piece to integrate fully Beaufort’s software products. He jumped at the opportunity to develop the website. This was new territory, as Beaufort had never before built a hosted photo website capable of taking orders, processing workflows, and incorporating web commerce solutions. Todd said of that success:

On November 13, 2010, we launched our photo website for Shoppers Drug Mart, one of Canada’s top retailers, and it was going very well. We had to figure out hosting, build the software, do the contracting, do all kinds of processes, and we had to automate products flowing through the website to Fuji’s central lab for production and store ful- fillment. There were a ton of issues, but we delivered! Our work on the Shoppers Drug Mart project let us prove ourselves.

In January 2011, Beaufort and Fuji set their sights on a much larger Canadian retailer, Loblaws Superstores (Exhibit 2). Loblaws’ web photo business at photolab.ca was being provided by PNI, but Fuji had heard that the supermarket chain was inter- ested in new providers. Fuji and Beaufort quickly offered a “Store of the Future” demo for Loblaws. Todd recalled:

Fuji’s strategy is to follow on from Shoppers and to do the same thing with Loblaws on a much bigger scale. They have a smaller number of locations than Shoppers but are much more established in the photo business. After we launched the Shoppers’ website I said, “It looks like we have Loblaws now, too.” Rob, our senior web programmer, was going to quit. The poor guy was stressed beyond belief. He had worked around the clock for Shoppers. He said, “Todd, I can’t do it again.” But, he did.

We actually have a structured plan this time. I admit that we did the Shoppers project by the seat of our pants, but it succeeded because of a lot of commitment from our staff. When we developed the Shoppers’ website, we were under huge time pressures

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28 Case Research Journal • Volume 35 • Issue 2 • Spring 2015

and it was our first time. We just had to get it done. Now we’re building on that expe- rience by adding tools that allow a retailer to create and add content itself. As we’re improving our software for Loblaws, Shoppers receives upgrades as well. A successful Loblaws will launch us into places beyond our reach a year ago.

Todd described some of the integration proposed for Loblaws: Customers have many different sources of images such as an online storage account, a camera phone, or a camera card. Our approach with Loblaws is to offer a product everywhere and to access every image everywhere. A great example is their in-store photo studio. Our idea is that a mother can walk into a Loblaws store in downtown Vancouver and get her kids’ pictures taken. Five minutes later, the children’s grand- mother can walk into a Loblaw’s store in St. John’s to print off the pictures. A premium portrait studio setting developed instantly! The customer would also have a code to go online at home or use a smartphone application to get those images anywhere in the world in order to order prints or gifts. That’s the integration that we bring to the table.

Right now we are engaged with the Loblaws marketing group in a three-way partner- ship with Fuji, which is refreshing. Loblaws is promoting us on the entire back cover of their non-food flyer! The cool part is that we are blowing away some really well established competition in the market place. We are building a custom solution for customers, giving them our full attention. They love that. So, customer service is going to win it. The biggest difference in our customer service, of course, is that Fuji is there as Loblaws’ marketing partner, driving those promotions. That is a huge value-add for the retailers. It’s also huge business for Fuji as their photo and gift fulfillment labs are kept busy with the demand.

The good news is we are being very responsive, but the better news is that we are build- ing our platform to be technically more responsive. The scary part is that we knocked off PNI’s website for Shoppers within three months, so the barriers to entry are low. Who says we can’t get knocked off in three months? The way we prevent that is by hav- ing the full integrated package. It’s not just the html script, it’s putting the whole thing together, the process, the support, the design, the marketing. That’s how we are getting PNI’s customers. PNI’s website shows that their revenues were $26 million last year, and $6 million of that business was from Canada. They have at least 120 employees, and that’s a huge payroll commitment.

Beaufort was on schedule to deliver the Loblaws photolab.ca website on August 1, 2011. If all went well, Todd was optimistic about the future possibilities with Fuji USA.

Fuji will be very successful if the Loblaws project goes according to plan. We are tied to Fuji’s future tightly. If they’re successful, we’re successful. We are trying to do a few things to diversify but we are in with Fuji in a big way. Once we deliver, Fuji USA will be calling. They are already spending a lot of time talking to us about our full turnkey solution with the photo studio, the photo lab, and the website software products inte- gration. It’s a very appealing thing for Fuji USA. There are probably ten big retailers in the U.S. that they could target. Any one of those could be a one to three million dollar deal for us, and we haven’t even tapped into the huge UK market yet. We can be suc- cessful with the right retail customers and our partner, Fuji.

Products Beaufort focused solely on the consumer photo space by providing four software prod- uct offerings for digital print retailers:

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Beaufort Solutions, Inc. 29

Kiosk: Beaufort’s Image2Print software product was robust consumer imaging software designed to drive the latest generation of digital photo kiosks. It was a touch screen, PC-based application that enabled customers to create an array of quality photo products simply by following the steps on the screen. Photo kiosks were the traditional, self-service photo booths that consumers could use inside a retail store to obtain digital prints or gifts, such as photo books, calendars, cards, and mugs.

Web: Beaufort’s online photo website software products were used to service digi- tal photo printing needs outside a retail store. For example, customers ordered photographic prints on the internet for mail delivery or pick up in a store.

Event: Beaufort’s photo studio/event photography software products were used to capture digital images in real-time at various events or venues such as portrait studios, ski hills or cruise ships. The resulting images and/or gifts were offered for sale on-the-spot to consumers.

Integrated Solution: Beaufort also offered the delivery of one large integrated solution, containing elements of all three of the other categories, generally for big-box retailers who catered to the full spectrum of customer photo printing and publishing needs. All products were white-labelled for ease of customization to the retailer’s brand.

Todd firmly believed that hands-on, in-store experience, and understanding each product category from a consumer perspective were the keys to business success. More- over, an excellent reputation in delivering the first three products facilitated growth in delivering large integrated solutions for retail clients.

Culture and Human Resources When faced with the prospect of growing a bigger business and potentially losing that small company feel, Todd had definite views:

I realized I wanted to run my own business and be more in control of different things when I started Beaufort. I was looking for something to accommodate my lifestyle. Everybody tries to find a job or career that accommodates their lifestyle. At the end of the day, I’m here for my family. We will need to be more disciplined in terms of what we are working on and how we are working, and right now I have more energy to do that since my kids are older. At my stage in life, I want to make more money. After all the work I’ve put into this place, it should be easier money. So I’m totally financially motivated to make a ton more money myself. My goal here is to see everybody make more than double what they are making right now. I think we will get there. Everybody here is supportive, and they deserve to share in the profits of the company through a profit-sharing plan or a bonus structure which we could never do before. We need more big deals with Fuji, and then I think we will start to see this thing go. I don’t know about selling this place. If we sold now we wouldn’t get back the effort we put into it, and we would not be able to duplicate the work environment that we all want and need.

If you looked at this from a purely business perspective, there are people out there who say we should be merciless when it comes to the pursuit of capital. We definitely have what it takes to be out there trying to grow big and make millions, but some individu- als here really may not buy into that level of growth and the changes that would be

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30 Case Research Journal • Volume 35 • Issue 2 • Spring 2015

required. While we understand high growth plans, and investment, we have also been quite happy being the lifestyle entity that we are at the moment.

It’s nice to sit and talk about growth options, but the company is shaped around the individuals working here. As we move into a new growth phase, it may be tougher to keep our flexibility. That said, our core values have to be present and how we interpret them and live by them will be important. I think we have a very strong base. Our decision making is decentralized because we employ very competent people. I’m very confident and secure that the people I have hired know what they are doing as I have always hired the best and brightest talent. I don’t need to look over their shoulders. If anyone starts to waver, I’m there to give them a gentle tug to get them back on track. When we work towards the same goal and pull together, we always succeed.

Our key to long-term success is keeping costs down. My primary job is to ensure the cash flow so everyone gets their paycheques, and to grow that cash pool in order to achieve company stability. Lately we’ve been hiring contractors to do some very spe- cific short-term things. I don’t hire experts with the intent to let them go in a year. If an individual is hired as part of our team, I want that employee for the long term. It would be easy with all the government funding programs out there to hire for the sake of hiring, but I don’t believe in that. Our business strategy is long-term sustainability.

Samy also had definite opinions about Beaufort’s growth and culture: Unfortunately, in a small business like ours employees just react to current challenges and work on immediate problems. There isn’t a lot of time to think about the big pic- ture or sit back and say “I’ve got this idea, I’ve got that idea.” More likely somebody says “Can you fix this problem?” and that’s what we do. Our current customer frequently wants new things and we end up doing that. But we have so much capability. At Tel- epix, I had more time to actually come up with ideas and alternative ways to do things. I would love to have time now to think about how we could apply our knowledge to the oil and gas industry. My brother-in-law who works for a drilling company told me it literally costs months and millions of dollars of effort to solve issues that they don’t have the proper imaging techniques to find. To free up my time it would certainly require that we hire more people.

We worked with some great people at Telepix. We would hire them again in an instant because we know the quality of their work, what they do, how well they do it, how they approach things, and so on. It really is a small technology world in terms of knowing each other. That would mean pulling people away from other companies. There would have to be a pretty good business case to do that and good money behind it. We’ve got a list of people we know would be assets, but we won’t be growing for the sake of grow- ing. It would have to be hiring for a particular opportunity.

I think that people who sell their companies probably don’t get the value to match all the effort they put in. The selling price is too low for the blood, sweat, and tears it took to build the business. It would be nice to continue being a successful company instead of trying to get the company bought. For a lot of businesses, the end game is just to sell so the owners make money as quickly as they can and avoid litigation.

Everybody at Beaufort pretty much loves what they do, despite the ups and downs. We wouldn’t still be doing this work if we didn’t love what we’re doing. It would be nice to be filthy rich but that is not the most important thing in life. The rich people I know are not any happier than other folks, and their success can come at the cost of family or good mental health. We have been focusing on whatever brings in the money, but at some point we want to be comfortable enough to focus on what will bring in the future money. We’ve got lots of ideas and it would be nice to pursue them; we plan to

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Beaufort Solutions, Inc. 31

do a bunch of things that no other company is actually doing yet. It seems to me that Fuji would market our innovations if we were to come up with revolutionary ideas and products. If we were to start something new, Fuji would market it aggressively and that would lead to major success.

The Decision

Todd loved the chase, the pitch, the close of a sale. In fact, he excelled at it. Samy, on the other hand, was happiest when his creative mind was being challenged. He abhorred meetings, management structures, and planning sessions. Samy loved the fact that at Beaufort plans could still be made by “shouting out the door” rather than having to gather everyone together for a meeting. At this stage of his life with a young family at home, Samy preferred to be very selective on the projects Beaufort accepted. He understood that if the company experienced high growth it would require operat- ing internationally. As Samy stated, “Operating in many countries will increase the complexity of implementation almost exponentially, as the firm begins to deal with different cultures and languages.”

Todd believed growth was necessary and that without change, there might not even be a corporate future. He was confident Beaufort could easily reach $5 million in annual revenues with Fuji as its partner, few other changes, and no more than twenty employees. Fuji was aggressively conquering the competition in Canada, and this part- nership would mean many more lucrative opportunities for Beaufort. The Beaufort team was already adding Image2Print mobile applications for cell phones as well as Facebook connectivity to its integrated solution.

But Todd was reluctant to limit his opportunities. FujiFilm USA was calling Todd weekly and was anxious to demo Image2Print. He believed that with the right infrastructure and the right plan, Beaufort could even achieve $50 million in annual revenues within five years with no more than 200 employees. As Todd surmised:

It comes right back to a question of scale. Should I go get financing and hire people quickly and focus on a bunch of things, or should I sit back and take a slow pace as we have been doing? To scale the business to a $5 million company is not a stretch, but with the credibility of our partner, the credibility technically of our team, and our network connections in the financial world, I think we can hit a much higher growth target.

Todd knew there were many opportunities out there, but he had to be realistic and sensitive to his team when deciding how much growth was right and at what pace. At the moment, he knew everyone had their hands full keeping up with the demands of Shoppers and Loblaws.

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32 Case Research Journal • Volume 35 • Issue 2 • Spring 2015

Exhibit 1: Financials

Beaufort Solutions Inc. Income Statements - Unaudited For the Years Ended December 31 CAD$ 2007 2008 2009 2010

REVENUES 381,209$ 441,299$ 732,919$ 1,032,523$

EXPENSES Advertising & Promotions 14,093 5,375 8,083 13,392 Bad Debts 132 - - - Communications 24,612 11,720 14,826 16,731 Depreciation 4,301 3,047 2,614 6,303 Foreign Exchange Loss (Gain) 1,094 16,325 (1,487) 3,065 Insurance 11,484 12,583 11,528 12,103 Interest & Bank Charges 5,190 8,387 23,042 18,571 Occupancy Costs 56,783 56,988 60,225 67,821 Of f ice Supplies 11,044 3,334 3,475 10,238 Prof essional Fees 10,399 11,704 33,125 18,471 Repairs and Maintenance 2,188 9,676 2,066 50 Salaries and Benef its 300,415 392,257 380,083 627,680 Sof tware Licenses and Tools 6,076 13,217 12,752 32,203 Travel and Entertainment 63,735 103,016 69,520 97,070

511,546 647,629 619,852 923,698

Earnings (Loss) Bef ore Income Taxes (Recovery) (130,337) (206,330) 113,067 108,825

Income Taxes (Recovery) (16,415) (1,625) - 1,462

NET EARNINGS (LOSS) (113,922)$ (204,705)$ 113,067$ 107,363$

(Def icit) Retained Earnings, beginning of year 47,223$ (66,699)$ (271,404)$ (158,337)$

Net Earnings (Loss) (113,922) (204,705) 113,067 107,363

(Def icit) Retained Earnings, end of year (66,699)$ (271,404)$ (158,337)$ (50,974)$

Source: Company information.

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Beaufort Solutions, Inc. 33

Exhibit 2: Top Global Retailers 2009

Source: Top 250 Global Retailers 2009, Global Powers of Retailing 2011, Deloitte Touche Tohmatsu Limited (DTTL).

Exhibit 3: Timeline

Year Event

1998 Todd Hiscock meets Telepix CEO.

1999 Gretag buys Telepix.

2000 Todd begins working for Telepix.

2001 Todd is promoted to CEO at Telepix and VP at Gretag.

2002 Gretag declares bankruptcy. Telepix closes.

2003 Beaufort Solutions is incorporated and inherits Telepix IP.

2004 Beaufort works with Olympus.

2005 Olympus exits the printer business and Beaufort loses Olympus as a customer.

2006 Beaufort develops photo event software for SharpShooter.

2007 Beaufort proves themselves in the Walmart Store of the Future Test.

2008 Beaufort works with Noritsu.

2009 Noritsu buys Licidiom and Beaufort loses Noritsu as a customer.

2010 Beaufort partners with Fuji and wins Shoppers kiosk business.

2011 Shoppers’ website completed. Loblaws website to go live by August 1.

Source: Case information.

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34 Case Research Journal • Volume 35 • Issue 2 • Spring 2015

references

Deloitte LLP. (2011). Leaving Home: Global Powers of Retailing 2011, London: Deloitte Global Services Limited.

Infotrends. ( 2011). U.S. Consumer Photo Prints Market Forecast 2010–2015. Wey- mouth, MA: David Haueter.

PMA International. (2010). U.S. Photo Industry 2010 Review and Forecast. Jackson, MI: PMA Marketing Research Department.

For the exclusive use of B. Poursoltani, 2020.

This document is authorized for use only by Bahareh Poursoltani in BUSI 641 Summer Case 3 taught by ALEXANDER SAKHAROV, Higher School of Economics from Sep 2020 to Oct 2020