A split decision

Written by Andy Holloway

Nataliya Hearn knows a thing or two about letting go. The founder, president and CEO of Element 21 Sports Company (No. 71 on the 2009 W100) emigrated to Canada at age 11, gave up tenure as a professor at the University of Windsor to concentrate on a fledgling sports-equipment business and ceded full ownership of her idea by taking the company public in 2002. She also lost a golf ball in 2006 when a Russian cosmonaut whacked it off the International Space Station using an Element 21 club. What’s more: she’ll probably have to give up even more control if her Toronto-based company is to hit the big time.

Element 21’s golf clubs could revolutionize the sport. They’re made with scandium, a super light and strong Space-Age metal that is difficult to shape, but promises better distance and accuracy than titanium clubs — at around the same price for end-users. Element 21 also manufactures other sports equipment from scandium; its Carrot Stix line of fishing rods can be found in more than 1,800 outdoors stores, including giant Bass Pro Shops. Element 21’s innovative products and effective niche-marketing ploys are two reasons why it is the second fastest-growing firm on the W100, with three-year revenue growth of 1,918%.

Still, although Hearn is sitting on a potential gold mine, she must face a classic entrepreneurial dilemma. She can build slowly, hoping for a breakthrough — but at the risk of being overtaken by a competitor or running out of cash. Or she can make nice with at least one of the giant manufacturers that dominate the golf industry — Callaway, TaylorMade, Ping — which would turn her company into a supplier rather than a competitor, thus giving up the chance to be one of golf’s big brands.

Hearn is leaning strongly toward the partnership route. It’s arguably the more promising option for the 13-employee company — a mere minnow in the sporting-goods world. The fishing-equipment industry alone sells about US$4.8 billion worth of equipment a year, according to Acorn Research, a U.S. equity research firm. Element 21 has managed to gain a foothold in that business — courtesy of some niche marketing tactics, including sponsoring the only U.S. collegiate fishing event at the national level, the College Bass National Championship; serving as the title sponsor of the Professional Angler Association Tournament Series; and equipping fishing TV hosts such as Henry Waszczuk on Fishing the Flats. But it’s proving tougher to do in the global US$4-billion-plus golf-club industry, even with publicity stunts such as sending a golf ball into permanent orbit around the Earth.

“The fishing industry is where golf was 20 years ago,” Hearn says. Back then, there were many smaller golf manufacturers, and retailers and pro shops were independent. Today, golf is dominated by a handful of brand names on both the manufacturing and retail sides, and pro shops generally sell on consignment. It’s tough for any newcomer to get noticed — particularly a small Canadian company run by a business neophyte.

What’s worse, no matter how superior the product, the general public still needs to be convinced, usually through marketing and player endorsements — hard to come by for fledgling companies with smaller marketing budgets and limited access to top players. For instance, top touring pro Vijay Singh is one of 40 PGA players who have used Element 21’s scandium-based clubs, but the company can’t exploit this potential marketing gold mine because he and the other players already have endorsement contracts with major golf manufacturers.

A partnership would solve many of these problems. “All those guys, like Titleist and Callaway, become your customers, so you’re not competing with them,” says Hearn. “You’re not competing with their marketing dollars; you’re not competing with the Tiger Woods of the world. You are a components supplier, and [the big brands] can create a new marketing campaign around your material.”

Still, for now, crafting a partnership is proving difficult. The major OEMs are testing Element 21’s products, and Hearn is hopeful some will sign on, but none has to this point. Hearn says the decline in spending caused by the economic slump has affected the golf industry, forcing companies to focus on selling their existing products.

But Hearn isn’t giving up — especially considering what she gave up to run Element 21. While most professors spend years, even decades, trying to achieve tenure, for Hearn, the world of academia simply wasn’t challenging enough: “I knew exactly how my next 20 years at university would go — and that predictability was the downfall.” Hearn, who likes hanging out at the beach, rollerblading and drawing when not working, is also the mother of three boys. “The work I do is for me and them,” she says.

Most important, she’s intensely committed to seeing her ideas come to fruition, and she is, at heart, more interested in science than money. “I’m an engineer, so getting an idea into reality is probably more important than making money,” she says. “Collecting money for the company is the lubricant for survival, but I’d share an idea with the right people to make sure the next step happens.”

As for being overtaken by a competitor with its sights set on scandium, Hearn has a few tricks in her bag. Her company controls patents for a family of scandium-alloy materials, meaning others would have to find a different way to use the fickle metal. Impurities in the material easily ruin the process of forming a golf-club shaft, which is a 25-step process. Any mistake is costly, since you can’t make small batches of scandium alloy to run tests, says Hearn. Her company has also trademarked “Scandium Emc” for its line of clubs, giving it a head start on any potential competitors. “We’re the face of scandium,” she says. That said, another company could use the word “scandium” in its marketing because basic chemical elements cannot be trademarked.

Golf and fishing aren’t the only plays Hearn can make, either. Element 21 is targeting other sports markets, such as hockey, baseball and cycling. It’s also targeting apparel, for which it already has a line of thermal raingear that features a thin layer of scandium-alloy material for insulation. To move into these other arenas, Element 21 might look at a merger or acquisition to give it more heft and a better chance of making it onto a major exchange such as the AMEX or NASDAQ boards.

But if a golf-industry competitor ever does figure scandium out, Hearn believes Element 21 will continue without skipping a beat: “As an engineering and materials company, we have enough on our plate that if something falls off, I’m not afraid that it’s the end of my life.”

Originally appeared on PROFITguide.com