Global Report

How a niche computer-fan startup became a global player

CoolIT used foreign clients to scale up

Server towers at a data centre

(Arctic Images/Getty)

For serious gamers, the problem was frustratingly familiar. As graphics became ever more sophisticated and data-intensive, desktop computers not only struggled with the processing demands, they tended to overheat and slow down because their on-board fans couldn’t keep the drives cool enough.

A trio of serious gamers, Brydon Gierl, Sandy Scott and Jason Myers, figured they could use liquid coolant systems to give their systems a performance jolt. When they came up with a solution, in 2001, they launched CoolIT Systems Inc. to develop a commercial application that could be sold to other gamers.

But what began as a niche and nerdy solution for a highly specialized user group has grown into a thoroughly international company whose technology now extends well beyond the world of desktop gaming.

The Calgary-based company, (which ranks 34th on the PROFIT 500 and recorded $19.4 million in revenues in 2013), has no major customers in Canada, which accounts for only 5% of sales. Over the past 18 months, adds CEO Geoff Lyon, the company has forged into a promising new vertical: selling systems designed to work with the high-capacity computing needs of enterprise servers and data centres used by organizations such as oil and gas companies, universities and bio-medical researchers. (Of the founders, only Gierl, the vice-president of manufacturing, has continued with the firm, although the other two continue to own equity.)

Like many tech firms, CoolIT had invented a highly specialized product before the market was ready for it. For several years, the company—which has financial backing from two venture capital outfits, Montreal’s Inovia and New York-based Chart Venture Partners—sustained itself on a “trickle” of orders from early adopters in the gaming world.

The firm’s big financial break occurred in 2010, when the company’s shipments leapt abruptly, from about 1,000 to 1,500 per month to ten times that volume. Today, CoolIT is moving about 40,000 to 55,000 units each month. As Lyon says, it’s the old story of an overnight success that was a dozen years in the making.

At the time, CoolIT was selling through specialty computer equipment retail outlets in the U.S., in regions like Silicon Valley, Austin, Texas, and the New York-New Jersey area. “The penetration we could get there was great, and we had great brand recognition,” says Lyon. But, he adds, the company found itself up against more dominant brands that could leverage their whole product mix to dominate those retail channels.

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So instead of risking a growth trajectory, CoolIT’s management team decided to make an audacious move: the company approached its most dominant competitor, a California firm called Corsair, and offered to produce white label liquid cooling systems that could be distributed as part of the larger firm’s product mix.

Corsair makes power supplies, specialized keyboards and headsets for people who use high-performance computers. But the company’s product mix didn’t include a liquid cooling system of the sort CoolIT had developed. Lyon approached the firm and they presented the product. Corsair, he pointed out, would “win twice”—first, by putting an innovative product on the market, and second, by eliminating a competing brand. The company said yes.

That partnership boosted sales and extended CoolIT’s reach into Europe and Asia, both of which have helped drive the company’s growth (the company now does contract manufacturing in China). But the Corsair relationship, and the profits which flowed from it, also allowed CoolIT to focus on product innovation, engineering and manufacturing.

The company, Lyon says, has turned its attention to establishing partnerships with the major computer equipment OEMs—multi-national giants like Dell, IBM and Cisco—as well as systems integrators, whose clients include large organizations with extensive server farms or data centres.

The systems integrators, says Lyon, have proven to be a more straightforward distribution channel: those firms are highly specialized and look for the most practical solutions for their clients. “They move very quickly with the next generation of technology.”

The OEMs, he concedes, have been a more difficult market to crack. While computers of all sizes require cooling systems, acceptance of the liquid cooling technology continues to be somewhat controversial, even though data centres and server farms spend huge sums on the energy required to run fan-based cooling technologies meant to keep the equipment from over-heating.

“The OEMs take their time,” says Lyon, noting that they do more extensive testing and have much more rigorous expectations of their parts suppliers, which are expected to be able to hold their own in a just-in-time supply chain. “There are people inside the OEMs who are hell bent on making it happen and others who are against [using liquid cooling].”

While Lyon concedes that targeting the OEMs is a “gamble,” he looks back at the company’s history in particular—and the growth trajectory of so many upstart tech firms that were a bit ahead of their time—and reckons that a breakthrough will materialize eventually, as it did with the lucrative Corsair partnerships. As he concedes, “It takes patience.”