School tech sector provides lucrative lessons in overhauling business plans

Every week Techvibes republishes an article from Business in Vancouver. This article was originally published in issue #1093 – October 5 – 11, 2010.

Faronics Corp. looks nothing like it did in 2001.

In that year, the Vancouver company, which was founded in 1996, switched from being a maker of hardware to being a developer and vendor of software. During the transition, Faronics, which recorded $4 million in revenue in 2001, retained and retrained every one of its 22 employees.

Nearly a decade later, and following a major merger in 2003, the company is reporting $18 million in annual revenue on sales of a suite of software products used largely in schools to manage, secure and monitor networks of computers and workstations.

Faronics ranks 17th on Business in Vancouver’s list of biggest software companies in B.C. this year.

BIV caught up with Vik Khanna, the company’s senior vice-president and COO, as Faronics looks to package its workstation management software suite for the corporate sector – a market the company will be tackling in the next 18 to 24 months.

How has Faronics evolved from when it was founded in 1996?

We started off basically as a white-box computer manufacturer and an importer of notebooks from Taiwan. We were wholesaling computers, modems, peripherals and other computer parts to businesses, consumers and school districts. One of the local businesses that we sold to was a software company. They came to us in August 1999 and said, ‘Here’s a software product – show it to some of your school district clients.’ Within an hour, we said forget about showing it and helping you out – give us the rights to sell it. They gave us the rights for Canada. And we did very, very well in sales and then got the rights to sell in the U.S. Then we merged the two companies into Faronics in May 2003. Along the way in November 2001, we cold-turkey quit hardware and became solely a software company.

The challenge in that transition was that we had to retrain every person. Our employees shined through it, and they grew with the company.

Why did you stop selling hardware?

The decision there was margins and profitability. We saw that the 7% profit hardware business that we were putting so much effort into was not anywhere as lucrative as the software business – which is the closest kind of business you can get to printing money, because when you print a software licence, it’s akin to printing money.

What’s your market penetration like today?

We position ourselves very close to security, but we call it system control. What you get through system control is awesome defacto security. We today own the public access market – which is anywhere where there is a computer used by multiple people. The biggest markets [are] schools, universities, libraries and colleges.

In Canada, over 75% of the education sector is a customer in some capacity, and in the U.S. we’re approaching 50% of the education sector. We’ve also diversified into power management, where we are the No. 3 player in the education sector. We have well over half a million licences deployed for our power-saving technology. The competition in terms of our patented deep-freeze technology [which protects workstation configurations from accidental or malicious damage] is fairly non-existent. We are by far the dominant player.

How was Faronics affected by the recession?

We were selling more product during the downturn, but our revenue remained flat. That was primarily due to the appreciation of the Canadian dollar. Our market is a little resilient in that it’s so heavily focused on public institutions, which did not feel the downturn as heavily as corporations did.

What’s next?

This July, we launched our own anti-virus product. We have a road map to combine this anti-virus product with our anti-executable product [which protects workstations from unwanted software by preventing unauthorized executables from running or installing] and our deep-freeze product. We call that the Faronics layered security approach. For us to grow Faronics, we need to really keep what we have going – the great stories, testimonials, great revenue – in our core education market, but also create the need in the corporate small- and medium-sized business market for this solution.