Business in Vancouver's "How I Did It" feature asks business leaders to explain in their own words how they achieved a business goal in the face of significant entrepreneurial challenges. In this week's issue, Westport Innovations (TSX:WPT) CEO David Demers describes how his company, with a global workforce now approaching 1,000, used strategic partnerships and joint ventures to build a natural gas engine company that has no manufacturing plants of its own.
"I set the company up in 1996. UBC had developed combustion technologies and some patents around how you would make a natural gas engine work effectively. How you turn that into a business is what the company had to do, and that's how we came up with the partnering strategy.
"The challenge with any automotive business is scale. To build even a relatively modest engine plant is billions of dollars. There's just a real challenge to bootstrap yourself into that production capacity. It's virtually impossible. We felt that this [partnership approach] was the only real viable strategy. It may not apply to other companies.
"We don't expect the market for vehicles is going to grow. The debate we had was how much of it is going to be alternative fuels and – in our case – natural gas? It's a case of convincing partners that there's a market to make the small changes to their production facilities they need to make a natural gas product.
"The automotive centres these days are the U.S., Europe, India and China. That's why we have to have partnerships in all four areas.
"Our very first partnership was with BC Gas. We had to have somebody that could build infrastructure and refuelling stations. The second piece was to look for fleets that had an economic driver, and that tended to be buses. We that found bus fleets in southern California, like LA Metro or San Diego, were the first adopters.
"Then we needed to find someone who could build buses and the engines for buses, and that's how we ended up working with people like (engine manufacturer) Cummins Inc. (NYSE:CMI) and bus manufacturer) Newflyer. There was a joint venture struck in March of 2001 [with Cummins] – probably the bellwether for the kind of deals we've done since.
"We're a virtual engine company that doesn't own any plants or equipment, but we design engines that can be built on Cummins facilities without any big investment in new plants.
"If you look at the original Cummins-Westport joint venture, it's very profitable, very high growth, and it's not burdened by having a bunch of working capital or scale-up capital because we're just using the production facilities of Cummins.
"The biggest challenge in the automotive industry has always been [building] plans based on a very tight estimate of what the market's going to look like. And it's impossible to predict what the market penetration of a new product's going to be.
"With natural gas, we were looking from zero. We still have this problem with every partner. Because when you look at the past, sales are zero, and the obvious conclusion is that future sales are going to be zero – that's just the way people's minds work. So our biggest challenge has always been to create some credible market projection that's bigger than zero."
