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Conviron: Timing a demand pick up for environmental research products in the COVID-19 era

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Conviron is a world leader in the design, manufacture, and installation of plant growth chambers and rooms for plant science and biotechnology research. They are headquartered in Canada’s agro-capital, Winnipeg, and have physical operations in Surrey, BC. However, their reach is international, having a strong brand presence in the United States, UK, Australia and South East Asia.

Jason had an interview with John Proven, COO and President of Conviron. During the interview, John explained to Jason the history of the company and how their operations have changed throughout time. John detailed how COVID-19 has affected the company in different areas. In the interview, they talked about a disruption to Conviron’s supply chain. They also delved into how the company has seen a tepid 2020 when it comes to their products as R&D from both big pharma and academic institutions has slowed down but commercial horticulture has seen a pickup.

Furthermore, John and Jason examined the impact that the virus as it paused projects in their facilities and how it will change the working dynamics as they slowly return to work. They also discussed areas of improvement for government programs such as the wage subsidy and incentivizing the Canadian software and manufacturing industry.

POLICY ACTION RECOMMENDATIONS FOR THE PLANT SCIENCE SPACE

  • Incentivizing Canadian policies that bring manufacturing back to the country
  • Ensure a correct transition for businesses as the wage subsidy program unwinds
  • Improving risk management techniques to deal with supply chain disruption as it relates to specialized parts of Asian provenance
  • Increasing government support that encourages Canadian development of software to close the gap between the country and other nations as it relates to the investment in the IoT

BUSINESS SUMMARY

Headquarters: Winnipeg, Manitoba

Sector: Agriculture

Industry: Plant Science

Number of employees: 300

Government support programs/grants being used pre-COVID: None
Government support programs/grants being used post-COVID: Wage subsidy program

Core challenges post-COVID: Ensuring a correct and safe transition as people return back to work, timing a pick up in demand for their environmental control and plant growth research products,  finding a way to balance in-person trade show meetings with online interactions as it relates to high value consulting travel and capital intensive sale of products

INTERVIEW

Jason: Hi John. Thank you for taking the time to chat with me today. 

John: Hi Jason! Nice to talk to you. I was curious to meet you, definitely an interesting introduction.

Jason: Nice to meet you as well. And yes, absolutely. With this bike trip, I figured I would try to do as many things as possible at once and thought It would be very interesting to speak with other entrepreneurs as I travel around Canada to try and understand better how their businesses are doing through COVID-19. I  want to be able to collect as much information as I can with the intention of sharing some information with policymakers and provide suggestions for future policy responses. 

John: Ok great! 

Jason: To get started, I’d love to hear a little bit about your business and what you guys do. 

John: So we started back in 1964. The family founders and Richard Croft’s father, in particular, were in the commodity grain business, which is very common here in Western Canada. It started out as a commodity business that was trading internationally. Conviron became basically a venture-backed startup in 1964. Richard Croft’s father became sort of a founding chairman and president. He started out with a couple more people: one engineer and someone else that had experience in refrigeration technology. 

They created the first plant growth chamber, which is really an industrial refrigerator with the ability to simultaneously control the light, the temperature, and the humidity. And so the company was born and has been a private entity since then. It is majority-owned by the Croft family and more specifically, majority-owned by his son Steve Croft. 

My partner and CEO Steve have carried this legacy on and just continued to grow the business.  As you can see, we’ve been exporters for agriculture research purposes since our inception: we’re sellers to research institutes, universities, and colleges that are agricultural oriented. We are also sellers to other things are that equivalent to agriculture such as Canada’s sites, the USDA sites, Bratman Brazil, CSIRO in Australia, and so on.

When our story began,  we were almost solely focused on plant science and the research space. For a long time now, we have been developing crops such as canola using our Conviron equipment and many other forms of seed technologies that other crops use as input. Today we operate very much in a niche market. We’re not a large company as we are about 300 people. However, we would be the global leader in this specifically defined controlled environment for plant research.

Fast forward to today, we have Canadian operations here in Winnipeg and Surrey BC, where we have acquired ARGUS control business. In that segment, we control larger commercial facilities and that orients that specific type of research. There we deal with anything related to the controls and the automation of greenhouses and we’ve brought that business and technology into some of our larger growth spaces.  

One of the things that happened in our industry is that the large biotechs began to invest in research as the acquired spaces became larger and because of that, now they’re growing larger crop samples. This is to ensure that seed development is having the intended effect before they go to field trials. As a result,  we sell to many of the large and highly recognizable biotech public companies who are conducting their own primary research. The Argus has been a big part of that story. 

ARGUS also introduced our business, back when we acquired it in 2013, to commercial horticulture: so plants that are grown for resale as opposed to those that are grown for research trials. They began their life in 84 focusing on floral crops that were grown in greenhouse glasshouses and then extended out into other forms of commercial horticulture for today. 

The cannabis industry and the pharmaceutical need for medicinal plants have been a big growth area as well. So overall, you might say that we create technologies for plant growing indoors. That’s our expertise. We do it in Winnipeg, Vancouver, and Surrey with an interest in manufacturing but we have the sales team and service teams throughout the US, the UK, and Australia. The rest of our global reach comes in the form of relationships with other distributors and resellers. 

Jason: Excellent, that is extremely interesting. It seems like you’ve been with your company for a while.  What attracted you to the industry?

John: In terms of my personal story, I had experience as an operator and business manager within the newspaper business.  My manufacturing related experience had to do more with printing and publishing so it is not a  direct hit as it relates to my current business. But at least it relates to the management of people, understanding processes in machinery and motion. After some time, I ended up in the venture capital space. The two of those things together largely equipped me to take a step into this business and industry. 

Certainly, we’re beyond being a venture at this point since we are a mature company. However, I knew Steve. Not particularly well but we certainly knew one another.

The company was experiencing growth back in 2010 and Steve was looking to expand and acquire some additional skills in the team. So I came to join him and he approached me back in August 2010. By the start of December, I was a team member here. I was particularly taken by the Conviron story. I was very interested in the support of what is agriculture, plants,  the feeding of the growing world population, the environmental aspects of it, and accompanying environmental research. All of those things really resonated with me. I also saw growth potential around that. My role is largely leadership-oriented and administrative and that was also my background so I’m quite happy to do it. 

Jason: I could definitely see the attraction in terms of what you are explaining and what it is that your company does It certainly seems like a very interesting niche space as well. Is there any particular reason that your group chose Winnipeg as the city to have their headquarters in?

John: I guess anyone that lives here and knows the place knows that it is as good as any other place to do business. We’ve had no issues attracting talent. I would say that with the acquisition, we are very distributed in the sense that we have tales consultation and at service support networks in other regions of the world. However, our core engineering is conducted here. This is our center of manufacturing on the combined business line where we control the environment side.

For ARGUS, it was already situated in the lower mainland. When we acquired the company, it was in lovely White Rock BC and we’ve moved it up north a bit from there. But it is still a great marketplace and geography for attracting talent on the technology side so we’ve really continued to invest in that region. We don’t see bringing them physically together. We don’t have a need for that because we can do all kinds of conversations online anyway. So overall, that segment is well suited for that geography, the talent pool is excellent there, so we’ll continue to have it there and collaborate from here. Why not Winnipeg right? 

Jason: Yeah!

John: We are traveling all the time anyway.

Jason: It seems very central for the business that you’re in and certainly in North America. Now, I would love to get a little bit of an understanding of how things were going with your business pre-COVID, during COVID and how you are coming out of it if that is the case.

John: Sure. It is interesting. So overall we’re holding our own. We will actually be expecting to have a decent year in 2020, albeit a bit of down from 2019. We’ve been on a very nice growth curve for a bit. I would say that something we’re seeing is that one of our historical core markets has been pretty tepid, if not flat. 

If you look at the academic base research, there is a lot of funding constraints in universities and that has affected us. Tepid is probably fair description: it’s been okay… but not a high time over there. Meanwhile, we’ve been experiencing growth and commercial horticulture area. There are lots of crops being grown indoors that once weren’t and that will just accelerate. 

Not only the cannabis crop, of course. But taking a look at it,  Canada was out front legislatively leading that in terms of regulation. And so that has allowed for growth in a way that is spreading proportionally with the medicinal market. So we were kind of ready to get into that space. It was not immediate, but it has certainly become a relevant piece of our business that has caused some growth. But it’s not firing on all cylinders and I think it’s it’s because of constrained funding. 

Similarly, we saw large-cap biotech businesses leading up demand for our products even into the present-day. However, their demand had fallen off for a bit from about 2012-13. And this was partly due to what was happening in the commodity markets and what was happening with all the merger dynamics. That M&A behavior was significant, so we were negatively impacted by it. It was just softer. You had a lot of them. Monsanto with Crop Science, Chem China with Syngenta, Down Dupont. Literally six of the world’s major biotechs and other companies at the same time going forth with mergers. These are all plants that we recovered and are pursuing continuously. So you could attribute some slow down to the neighbor and merger dynamics.

So that was starting to settle down and we started seeing spending go up again. Then COVID hit. What happened was that so many of the sites had to shut down physically and so the projects would go on pause. We have more things in the process and more things to store that we would like to at this time. We didn’t experience a complete shutdown of our facilities but we definitely saw situations where we had to stall or go back. Now we are going back to work. I would say that demand has been decent, where we know that the bottom has not gone up by any means. 

I think the systemic average underpinning, which is really the second part of the equation here, is positive in the long run to Conviron’s demand. This is because of environmental disruption, and plants being used as medicine. For example, tobacco is a plant being used for the propagation of vaccines. So clients doing that type of reasoning through their work is the source of demand in the long-term for the nature of our technology. 

Our strategy right now is really regarding the things that are happening in the meantime. How is the medium-term looking like for us?  Do we find ourselves experiencing strong demand in the 18 months from now? I think we are cautiously optimistic. It’s not bad.

Jason: Gotcha. I take from that that you have a commercial fortune 500 type of client base and a research customer base as well. Are you seeing similar types of capital expenditure constraints from both of those sides?

John:  Yes and for different reasons. On the research side of our business, I would say the spending tends to lead markets out in their recovery so we have to watch that timing and see if the investment will come on before all other aspects of the market strengthen again. Thankfully in a way, we can be a little bit counter to the market through some of that because of research. 

On the commercial horticulture side, which could be vegetable crops growing under glass virtually anywhere, we are seeing a different cycle and that segment has balanced out our business nicely. I think everybody’s just operating under an abundance of caution right now and holding cash so only those who need to are investing today. 

Jason: You mentioned that with COVID and the shutdowns there were some construction constraints around projects that were underway and they had to pause. Was that unfolded due to government guidelines for constructions? And have these projects restarted as construction resumed? 

John: Yeah.  I think provincially we have been a little bit more successful with COVID efforts. Businesses are beginning to reopen up. We have not been directly impacted by government  but  I would say by institutional or corporate decisions to allow personnel into their facilities or not. Some of the universities, for example, just shut right down. That affected any projects that might have been on campus wherever that may be. However, they have started to open up again depending on where you’re in the world.

Jason: I see. Are your customers global? How does your company diversify revenue from a global perspective? 

John: The answer to that would depend on the year since our business is very project-based. Canada is kind of 10 to 15 percent of our volume. The USA fills in the balance of let’s say the first 50 percent of our activity. Then you have the rest of the world after that. The two most important regions would be the UK and Western Europe and Australia and Southeast Asia. That’s where we have strength, brand presence, and our largest facilities. It’s also maybe where you have the greatest amount of investment in research that requires our form of equipment. So those areas represent 50% of our volume. As you can see,  we conduct half of our business outside of North America.

Jason: Have you noticed any significant differences between the markets in terms of COVID response or in terms of how you’ve been able to operate during this period of time?

John: The  United States is our most concerning area. It is not getting better quickly in many states. It’s concerning being half of our activity happens there. Other parts of the world have experienced a more effective COVID response compared to the United States so that’s too bad.

I would say that it is true that we view and interact with Australia almost as much as we do in Canada. Frankly, it is familiar and similar in many ways. We also find that the UK has been a really good market for us as much as we talk about Brexit and other situations. We found ourselves investing in a team in the UK and we have centers of strength there as well so we have been somewhat unaffected by that of this juncture. It is the US that we’re worried about for sure. 

Jason: So I’ve noticed with a lot of the businesses that our team works with and people that we have been talking with that they have kind of been COVID opportunistically to pivot or reposition. It has kind of forced this level of thought around the organization and how to approach problems where there was not necessarily an urgency to approach or just to see before. With Conviron, have there been any fundamental changes that you think you’d want to opportunistically make as part of this.

John: We are looking at the markets and thinking about how could be changing things operationally both from an inward and outward perspective. Outwardly, I had mentioned briefly a reference to the fight of pharmaceuticals and the world for a vaccine and other types of therapeutics. Plant matter is definitely relevant here and there are companies out there that use for example tobacco for the uptake of protein that ultimately becomes a property for the vaccines. We’re working with companies in that space and expect that to be supportive of demand. So we have started shifting attention to technologies that are relevant for them and supportive of their business. That has driven a certain amount of engineering effort. 

We have also talked about the scaling of things when I mentioned that the biotech sector was buying larger rooms. These are now on a mammoth scale relative to our historical norm of microclimates that were at the center of the company originally. So the same engineering

mindset, same discipline, same measurement supply, they all have to be scaled up. That has changed how we must engineer and then deploy.

It also shifts our business from the manufacturing of completed things to the manufacturing of things that can be assembled. It changes the supply chain that goes with that as well. So we have become a little bit more construction-oriented. We’re finding a heavier shift having to have personnel on that and the rental project management and structural erection of things, interfacing a chemical construction. A little different than supplying a growth chamber that you can just plug into a building’s systems. So our business has changed that way and it’s required for us to attract a certain amount of talent around project management and more construction disciplines. 

Inwardly, like everybody else, I think we’re grappling with how do we address markets and clients and keep close lead generation. How do we change all those things when we can’t go to events physically. This weekend coming out, for example, we would all have been at a big show in Columbus, Ohio called Cultivate where all the big growers come together and it’s a pretty important weekend. There are many of those types of events. The trade show environment has changed. 

So we are definitely changing things when it comes to how do we get in front of clients. That comes with shifting our traditional marketing strategies and taking more things online at an accelerated rate. Of course, a lot more of these kinds of meetings are happening online. I think that’s pretty common and you’d hear that a lot in the industry. But what replaces human interaction at trade shows for the sellers of industrial equipment and technologies? We’ve got to adapt at getting in front of clients in other ways through electronic mediums. 

Jason: Yeah, that certainly been a common theme in our interviews: a shift to digital and the impact from the lack of trade shows. Do you see those kinds of in-person events as a critical element to the business? Do you think they will return or do you think it will shift to a permanent digital structure? 

John: I think it will kind of shift in proportion. I think where we’ve seen multiple trips to explain our technology, they may be reduced to a certain extent but not eliminated. And I also think that it’ll be more acceptable to interact this way. Online tools are also so much better… you can actually accomplish things. But ours is a very consultative process.

We are talking also about the sale of pretty high-value capital equipment. So we need to understand the client thoroughly and understand their sites very well and it’s very difficult to know that completely without dropping in, walking the floor, seeing the infrastructure that they have, and so on. Pictures will only take you so far. 

But for us, it’ll probably just mean a shift to more online activity for specific things and a reduction of travel but not an elimination thereof. Trade shows are tricky again because we need to consult in-depth and have discussions. It’s hard to accomplish that without getting in front of people and sitting across the table with them.

Jason: The Canadian government has provided a fair number of support programs for businesses to try and stimulate the economy and help them through this shutdown. Were you able to take advantage of any of those programs? Do you have any suggestions on what would help your industry or your organization specifically in the roll-out of future projects and how those could be better structured? 

John: The government response, at least as it relates to our experience, was very good. It was pretty swift. Yes, there were complexities. But we did avail ourselves of the wage subsidy for part of this period of time. As I said earlier, we had experienced a good growth step into 2019 and in comparison this year we were off. As the disruption happened, we couldn’t access sites and so on so the subsidy was very helpful and we were able to retain full employment throughout.  Certainly, nothing negative there other than the complexity of the math just like looking at any grant program or taxation structure. We always wish for it to be simpler but it was not bad, it was welcomed. 

As a taxpayer, as a fiscally conservative business person, and an accountant, it leads me to worry a bit about what it all means. We’ve exhausted as much money as we have. From our own business point of view, of course, we’re sellers to those who are in many cases themselves government-supported. So what does it mean for the budgets of those projects and does it have a direct impact? So we’ve kind of gone left pocket, right pocket here again. 

We worry about the unwinding of the programs and getting back to it. I think that our business and our industry is going forward with relative confidence and we think that we will be fine and that the demand will pick up, it’s really just a matter of timing. But you do worry about big systemic shifts in other sectors, of course, such as hospitality and air travel. Those were really hammered. So complimentary government programs for those industries would have been important. 

I do think that this should be supportive of manufacturing in Canada in the long term. Partly because of the disruption to supply chain and the real worry about so many of us who procured things from afar that for various reasons we couldn’t keep acquiring throughout the disruption. That balance of risk and risk management compels us to bring things closer to home. That independence could be very positive to our economy honestly as we gear up. So some government policy that supports manufacturing in the country makes sense to me. 

Jason: Perfect. A broad supply chain has been a challenge for many businesses. I agree that having manufacturing a little bit closer to home could be helpful in times like these. Did you guys experience any specific challenges in terms of delivery of equipment?

John: Yeah we did. We do procure certain things from China. In our business lighting and electronics are a big part, much of which is of Asian design. Light balance, LED lighting systems, all sorts of things, and pieces of that part of the supply chain were disrupted. So we did experience longer delivery times.

You know, we were able to mitigate to a point… but overall we had some real tenuous moments in our supply. 

Jason: I imagine a lot of the components you source are probably very fairly specific or unique to your industry. Are there options today that exist for you for sourcing in Canada or North America? If so, are there things that could be done to help kind of encourage or entice local purchasing that the government could perhaps support?

John: Yeah, so in a sense, we are pretty dependent on supply chain when you think about what creates control environment, refrigeration systems, and the basics of moving air fans, pumps, and compressors. But if you get into sensor technologies that are measuring things including the software related to data analytics, that is an area of opportunity that Canada as a whole has not kept up with so far.  There are other countries that have really invested in this. Take a look at what happens in the Netherlands for example and how important indoor growing is to them. So they’re investing in that form of technology. In Asia, there is a lot of investment in terms of the supply of sensor technologies. 

The Internet of things is a big area, not only for us but for building systems beyond growth chambers. I am talking about human-occupied spaces and other test facilities, the list goes on and on. I would regard Canada’s engine there to be excellent but we haven’t necessarily really invested there to be at the forefront to be able to keep up. Granted, there are pockets of it but not enough. So at Conviron, we’ve had to go to other parts of the world for some of that former technology. 

Imaging systems, capturing data of the plant and it’s growth phases to the environmental conditions of the crop inputs… that correlation is the pursuit that our industry is after and trying to optimize. Minimizing crop inputs, saving water consumption, saving nutrients consumption and all those sorts of things to optimize the plant growth outcomes with the same energy takes a lot of data so it’s a big opportunity for our industry to get that right and I think Canada can do that.

So we are actually pursuing some of that ourselves and we do have some government support in fact for our program but I think Canada can really jump on that whole element of indoor agricultural growing. 

Jason: Absolutely.  So we keep hearing how this is an unprecedented time and no one could have predicted this. Pandemics are a one in one hundred plus years kind of thing. However, if you could go back and speak to yourself a year ago and convince John that this virus was coming, what are some of the things that you would have done to prepare differently?

John: Yeah, great question. As an organization, we were very fortunate to be able to respond well into the credit of good IT infrastructure. It allowed people to get remote quickly and still function as a business and we had the blessings of an ordered book that allowed us to continue to build things. 

So we took it very seriously and I and I can’t be anything but pleased with how it went and how it has gone thus far. So thus far we’ve been pretty successful at the transition. 

When you think about having people at home and working remotely, I think as a leader I might have been more open to that than I was at the beggining. I certainly am more open to it than I was. Our development teams and software development teams where were clamoring to do so. There was a different kind of situation on the West Coast compared to the one in Winnipeg. Here, it’s no hardship to get to the office and community. In the Vancouver mindset, it’s a big ordeal. And so we probably would have allowed and encouraged more home office and more distributed teams earlier. 

Maybe we wouldn’t have made some investments in our physical property in our office space. We were doing the catback side of our world in capital spending setting up to accommodate more people and combinate some growth only to end up with a building that is now barely 50% occupied by office personnel. In that sense, I may have not done the investment.

Jason: Have you thought about how you foresee the post COVID work from home policy? That has been a topic of conversation for many executives and for us as well.

John: It’s hardly written but certainly been articulated and repeated off for the team that we expect most of the people here some of the time. That’s the broad answer and we’ve left it to individual departments to define what roles must be here and what roles should work from home. There are some that are very obvious of course that must be in the physical facility, for example, those that are building things and those that are supporting the manufacturing and the facility itself. 

But it’s almost a cultural view, which is to say that we think people need to interact some of the time, live and in person. And I’ll tell you what I’ve said to the team here which is that, envision being a new team member, having never met the people you are supposed to work with. It works to a point but it’s pretty hard to forge some relations. The spontaneous dialogue is great as this has been done so far mostly online but it’s not a complete replacement for getting together. Of course, as people will start coming back we will be enforcing social distancing guidelines. So we’re not rushing back. And we may frankly find ourselves not pushing it much further than that.  

Jason:  That’s all I have for kind of queued up questions. Thank you so much for taking the time to speak with me today John.

John: Thank you as well! Have a safe rest of your trip!

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