Exhibit A-3 Early Pictorial
SketchEngineering Case Library
ECL208 A
Written by G.Kardos.
The assistance of Mr. John Smeaton is gratefully acknowledged.
© 1973 by G. Kardos, Carleton University, Ottawa, Canada.
Prepared with support from the Department of Industry, Trade & Commerce.
Published with support from the sponsors of the ASEE-Stanford Engineering Case Program:
E. I. du Pont de Nemours and Company
The General Electric Foundation
IBM
Olin Corporation Charitable Trust,
Union Carbide Corporation
.
John Smeaton had been chief engineer at Hus-ski Ltd., a Montreal manufacturer of recreation snowmobiles (Exhibit A-1), when Bolens of Wisconsin, a division of Food Machinery Corporation, purchased the company. The new management soon required that John undertake not only the development of new vehicles but the additional duties of General Manager and Plant Manager. Because of this John hired Fred Fassbender, who had worked with him in a previous enterprise, to join him as chief inspector. John and Fred formed a successful design and management team for Hus-ski.
In spite of the satisfactory operation of the Hus-ski plant in Montreal, Bolens closed it down in order to consolidate their product lines. The Bolens plant was manufacturing lawn tractors in the winter with slack periods in the summer. The Montreal Hus-ski plant producing snowmobiles was operating on the opposite cycle. The snowmobile manufacturing was therefore moved to Bolens in Port Washington, Wisconsin. It made good business sense but was disappointing to the people in Montreal.
Bolens was without snowmobile design experience at Port Washington and John Smeaton was asked to join the engineering staff in the U. S. The thought of moving to the U. S. had no appeal for John. Instead, he and Fred Fassbender decided to start a consulting firm which they called Carleton Products Consultants Ltd. Knowing that Bolens didn't have any snowmobile know-how, they proposed doing the snowmobile design and development for them.
The snowmobile development contract with Bolens became the backbone of their business. The terms of the contract required that Carleton Products Consultants Ltd. would, over a period of three years, develop snowmobiles for Bolens and at the same time train selected Bolens engineers. This work was lucrative but of finite durations
Carleton Product Consultants Ltd. was located at Arnprior, Ont., a short distance from Ottawa where Fred Fassbender owned a farm. -When incorporated in 1968, there were four people in the company. By 1970, approximately 16 people were involved. This growth had been largely due to the work carried out for Bolens. There were other customers of course but most of these contracts were small, in the order of $5,000 to $10,000 each. Fred and John had hoped that they would build up sufficient additional clientele in the first three years to give continuity to their operation, but the individual contracts were too small. In John's view, "You just can't hire and fire skilled people like we have on a casual basis. We had to have something with a little continuity. This meant manufacturing."
John Smeaton graduated in 1949 in mechanical engineering from the University of Toronto. He had always been interested in building and designing mechanical things. His academic performance had not been outstanding probably because as he remarked, "The more I learned at school the further I seemed to be getting from the mechanical things I loved."
Before joining Hus-ski, John had worked for the Ford Motor Co. of Canada, The Canadian Army Vehicle Development Establishment in Ottawa, and for John Gower, the inventor of the first six wheeled ATV (All Terrain Vehicle), the Jigger. He had also taken a flyer at his own business, "Pengor", an unsuccessful attempt to manufacture and market a recreational ATV, the Penguin. John speaks fondly of these experiences and feels they were all important in his development as an engineer, designer, and entrepreneur.
Fred Fassbender came to Canada in 1953 from Germany. In Germany he had studied as an agricultural technician. Fred, after working at a number of jobs in Canada, eventually bought his own farm near Arnprior. In 1964, Fred worked for John at Pengor and eventually rejoined him at Hus-ski.
The two men, over the years, had worked out a mutually compatible arrangement. Each has been able to pursue his own interests within their joint venture. John likes to design, invent and make things; Fred prefers to deal with customers, to do field service work and to look after the administrative side of the business.
With the Bolens contract coming to an end, John and Fred decided that if they were to continue in business they had better get into manufacturing something which would provide a cash flow and thus continuous employment for the staff.
With their backgrounds, it seemed a natural to consider building some form of snowmobile. There were approximately 110 firms already marketing recreational vehicles. Fred and John decided the market would soon be saturated and it would not be wise to attempt to compete in an orthodox way. Besides, to successfully market a recreational vehicle, a system of dealerships had to be set up with all the accompanying headaches. They looked for a specialty snowmobile in which they would have an advantage with their design skills, in which they would not have to rely on a system of dealerships, and in which the larger manufacturers, such as Bombardier, could not compete.
Snowmobile racing had become a continent wide sport. They considered designing and building a racing snowmobile equivalent to a sophisticated sports car. The snowmobiles used for racing were no more than souped-up versions of standard production vehicles. According to John, "Even today, there is no equivalent to the 'Lotus' in snowmobiles. There could be. Our idea was to create something for the 'cream' market, .at a high price and low production rate for those people who could afford and would be willing to pay for performance. We knew we couldn't compete with Bombardier or Arctic Cat in what they do. On the other hand, they can't do justice to sophisticated low production specialty units. They just don't think that way."
The other alternative considered and the one finally adopted was a commercial working vehicle. During the development of the Hus-ski snowmobiles, Fred had been to the Arctic on various occasions for testing. There he had noted a need, but not yet a demand, for a small sturdy vehicle, roughly the snowmobile equivalent of the pick-up truck. Bombardier was making very heavy industrial machines weighing 3500 lbs. and costing $6500 plus they were also producing the small recreational snowmobiles. Nobody was making or selling a small general purpose work vehicle.
Exhibit A-3 Early Pictorial Sketch
John describes how they went about establishing the vehicle requirements. "First we did a product survey. We sent out questionnaires (Exhibit A-2 , Page 1, Page 2) to potential customers, such as Bell Canada, Ontario Hydro, raining companies and government departments. This questionnaire was supplemented by many personal calls by Fred. The results were good. Out of 50 questionnaires, we received 29 replies. When we put it all together there was almost unanimous agreement on what was wanted. The questionnaire of course, had to be intelligently drawn up to bring out the important specifications.
"What we wanted was a snowmobile with a flat bed capable of carrying more than 500 lbs.
The
vehicle could have a top speed of 20 mph. Durability was paramount. Everyone was insistent
that the vehicle must be more durable and reliable than existing recreation snowmobiles. The
physical layout was consistently specified as a flat bed, side by side seating, twin tracks and twin
skis for steering. The expected range was 80-100 miles. They also wanted to be able to fit and
carry the vehicle on the back of a pick-up truck. Finally, the price had to be less than $2,300."
Exhibit A-3 Early Pictorial
Sketch
Starting with these requirements, John prepared perspective sketches of possible designs. Fred took the best of these (Exhibit A-3) to various customers around the country. From their reactions, the discussions and his sense of the market, Fred made an estimate of the potential market for the vehicle. The total North American market for a snowmobile of the type they proposed could be about 4000 units a year.
This reflects the division of labor between Fred and John. John carried the responsibility for the design and production of the units. Fred did the marketing and evaluation of feedback from the customers. It was Fred who decided whether a customer complaint was to be handled by additional design effort or by additional customer education.
John took the most favored configuration and proceeded to design the vehicle they decided to call the "Snotruk".
Exhibit A-4 Sketch Layout
He approached the design of the Snotruk in a straightforward manner. His first sketches had given the basic concept and showed what the vehicle would look like. He developed these further by making a 1/16th scale sketch, using the 95 percentile Arctic clothed man to establish proportion (Exhibit A-4). This gave him an overall feel for what the vehicle was about. When he was satisfied with this, he made his first formal drawing, a 1/10th scale drawing (Exhibit A-5). This scaled drawing was used to make his weight calculations and to determine weight distribution.
Exhibit A-5 Scale Drawing
From the beginning it was assumed that a large number of the components would be purchased proprietary items. Of course, the chassis would be fabricated. The use of proprietary parts permitted rapid decision to be made on layout.
Weight distribution is an important factor in snowmobile design. "If you have too much weight on the skis and not enough on the track, you'll not have sufficient traction, but if you have too much weight on the track and not enough on the skis you won't be able to steer the vehicle."
From the scaled drawing came the final pictorial sketch which looked very much like the finished design (Exhibit A-6).
Exhibit A-6 Finished Pictorial
Sketch
Cost estimates were made from the layout without completing detail design. The cost estimates wake based on the cost of the purchased components and the labor costs for the items to be fabricated. Fred made some projections as to the size of plant and support staff that would be needed and established an overhead. Starting with a desired selling price of $2500, he determined the production rate necessary to break even.
The break even production rate turned out to be 150-200 units a year. The decision to go ahead with the venture was taken at this point. "We knew we couldn't hope to sell anywhere near the potential 4,000 units. It would require a major marketing effort, with dealerships all over the continent. We didn't have the necessary marketing skills and probably couldn't acquire them in time. But it did seem to us that we could safely make, sell and service 200 units a year from our home base. Being first in a market we hoped we could quickly reach this sales rate and maintain it long enough to become established. We decided to go ahead and put our money into it.
"If we're successful, we expect that we will have competition. Competition will be free advertising for us. Besides, people should have at least two units to choose from. Since we only need to build 200 a year to break even, we're not depending on an exclusive market. We won't even mind being the underdog in terms of volume sales, in fact, in some cases it's an advantage. our market strategy is to give outstanding service to a limited number of customers."
Once the decision was made to proceed and the cost established, Fred and John were faced with the problem of how to raise the additional funds to undertake the development. They had started the project in March 1970. By September they had the market survey completed and the first prototype running. Before they could go any further they needed additional funding.
A hew company, Nortrac Mfg. Ltd., was founded to undertake the development, manufacturing, and marketing of the Snotruk. There were several reasons for using a new firm. Carleton Products Consultants Ltd. had developed an image and reputation as a design-research oriented organization. This might prejudice customers who are looking for a reliable working tool. The new company would be able to raise additional money for the development of the Snotruk without committing control of Carleton Products Consultants Ltd. or its assets.
As well, the new firm allowed John and Fred to offer stock options to selected employees. Finally, it was felt that a DREE (Department of Regional Economic Expansion) grant could be received for establishing the new manufacturing company in the Arnprior area.
"The major entrepreneurial problem is to find the capital. You soon find yourself tailoring the job to the capital available which isn't always the most economical" said John. "We couldn't have done the development without the PAIT and DREE grants. Our total starting costs including tooling, setting up the plant etc., came to about $125,000. The grants covered about half of this; some money was raised from local business men but a good part of it was in the form of personal loans by Fred and myself, some as cash and some as time without pay. This is also part of entrepreneurial activity: from time to time you don't take home any pay. We put in 4 or 5 months without pay, which was tough. It can be demoralizing because you are not sure whether it will pay off in the end. We had a couple of good people with us who were receiving stock in lieu of pay, who couldn't stick with it and dropped out. We couldn't blame them."
Before the first prototype was complete, John and Fred applied for a PAIT grant. PAIT (Program for the Advancement of Industrial Technology) is a program of the Canadian government administered by the Department of Industry, Trade and Commerce. Its objective is, through shared costs (usually 50%), to encourage industrial growth and production in Canada by supporting the development of new or improved products and processes for commercial markets. Under the terms of the grant, Nortrac had to demonstrate that they could raise 50% of the projected development cost of $90,000. This they did by selling shares and obtaining personal loans. The application was made in September and was approved in December. By the time the first grant payments were received, $60,000 had already been spent. For this, John had to draw on his reputation. "As long as you are straight with people, if you tell them what the risks are and if you tell them what the prospects are, they will usually back you. If things go wrong, they may not love you but they will usually be prepared to deal with you again." With this approach, Nortrac was able to get extensions from its suppliers through the difficult .periods.
Thus, the newly incorporated company, Nortrac Manufacturing Ltd., undertook the
development,
manufacturing and sales of the Snotruk. John and Fred were committed.
EXHIBIT A-1 Snowmobiles
EXHIBIT A-2 (Page 1) (Page 2) Survey for "Snotruk"
EXHIBIT A-3 Early Pictorial Sketch
EXHIBIT A-4 Sketch Layout
EXHIBIT A-5 Scale Drawing
EXHIBIT A-6 Final Pictorial Sketch
ECL 208B THE SNOTRUK (B) next