MARSTON CONTROL DEVICES LTD 2015 CASE STUDY Overview In 2005, John Marston founded Marston Control Devices Ltd. (MCD) to design, manufacture, and market a specialized control component (Sensorpro) which was connected to industrial robots. The control component consists of a sealed unit housing sophisticated micro-controllers, which send control instructions to the robot and receive feedback on positioning, velocity and acceleration at the various robotic joints. The Sensorpro units were sold to robot manufacturers for installation onto their industrial robots. The manufacturers, in turn, sold their product to large industrial automation systems companies who developed productivity manufacturing solutions for multi-national companies like Celestica in Canada and Solectron, Flextronics and Honeywell in the USA. Commentary Marston, a computer engineer by training, had graduated from the University of Southern California (USC) with a doctorate in Robotics. After academia, he completed various assignments, including a brief involvement with the team that successfully developed the Canadian space-arm used on the United States NASA space shuttle. Upon relocating to Ontario for family reasons, he decided to put down some roots and formed his own manufacturing company to develop and market an innovative new robotic control component Over the next four years the company achieved steady revenue and earnings growth until 2009, when cash flow challenges and increasing competition culminated with MCDs bankers threatening to cancel operating credit facilities. Although John and Ann Marston were able to inject some additional cash into the company, it was not enough. Fortunately, Anns brother, Mike Smith, offered to inject $50K cash in exchange for a minority interest in the company. A mechanical engineer, Mike had joined the company in 2006 as operations manager and was enthusiastic about MCDs future. John accepted his brother-in-laws offer, and Mike became a 20 % owner. The balance of the shares (80%) were owned by John and Ann. Marston was an enigmatic individual, somewhat of a loner, and controlled his company with an iron hand. He was involved in virtually every aspect of the business design, production, sales, and finance. 2 He had left previous employers in California to start the firm because he had difficulty working as a team player, always wanting to be involved in the total project, not just a part of it. Over the years, he had begun to achieve his goals of financial independence and was slowly picking up business skills as the company expanded. He recently made the following comments to a business associate: I have been successful over the ten years primarily due to the high quality and unique design features of my product. As a result, Sensorpro commands a welldeserved premium price of 10 15% over the competition. Our average unit price is US $12,000 which represents anywhere from 15% to 20% of the price of an industrial robot. Since there is a limited market here in Canada most robots are imported 90% of my market is in the United States. Competition was continuing to increase as United States robot manufacturers had adopted a backward integration strategy and were developing their own control devices. A high profile example was Adept Technology, which had become a global leader in the manufacture, marketing and innovation of robots as well as control component products http://www.adept.com/products/controls Despite a downturn in economic activity during 2008 recession, the Japanese were now posing a threat, steadily moving into the United States domestic market. One Japanese competitor firm recently obtained an order for 15 control devices on which we had bid. I was surprised at their lower price point but I still do not think they can match our unique design and performance. I have resolved not to get into price-cutting! This is a rapidly changing industry, and who knows what I will have to do in the future. There are only about eight firms mine, three in Japan, three in the United States, and one in Europe, which produce similar control devices although the number of competitors may increase substantially over the next couple of years.