The CEO and founder of StarFish Medical has an apt illustration for his business strategy. Scott Phillips was a rock climber and he scaled peaks using well-timed and careful moves, and studying what lay ahead. Compare that to someone who suddenly realizes they’re on a treacherous rock wall, with a 1,000-foot drop, having climbed without considering the landscape. “It would be utterly debilitating,” says Phillips, who started StarFish over 23 years ago.
Be financially conservative and prepare for ups and downs. “You never know what’s around the corner. I like to operate with a mix of being bold and keeping an eye out — optimistic readiness,” says Phillips.
StarFish is one of North America’s largest medical consultancies. “We sell to companies that hope to sell to hospitals,” he says. “Our business is heavily influenced by the investment environment.” Last year was a gold star year. StarFish added 30 per cent more staff; there are now 140 employees in Victoria and 60 in Toronto.
But keeping with his temperate credo, Phillips won’t be hiring more staff in 2023, unless it’s a select few. Working in his favour is that more people are seeking jobs. Last summer, he got five applicants for one job. In January, another posting drew 100.
Because StarFish relies on investor-funded companies, it’s now courting companies that have solid investment/funding behind them. Competition from about five other North American companies, in a diminished market, means StarFish will spend more to generate sales. Accordingly, the marketing budget won’t be reduced.
Important to Phillips is a happy staff. StarFish achieves that by helping employees grow in their careers. In 2021, it earned Waterstone Human Capital’s award for Most Admired Corporate Culture.
Because StarFish isn’t carrying debt and has, as Phillips quips, “a lot of dry powder,” StarFish has the capacity to do things. “Industry benchmarks are not that relevant,” he says. But particulars of clients and venture capital metrics inform where StarFish will spread its tentacles. Companies that have debt or overextended lines of credit may need support. StarFish, with its savings, is open to partnerships. Phillips notes, “When the economy is tight, opportunities come by. If you run conservatively, like we do, you have a buffer.”
Derek Lai, a licensed solvency trustee and partner at Crowe MacKay & Company in Vancouver, buttresses Phillips’s philosophy. While the phrase is somewhat hackneyed, “cash is king,” remains on the money. “Businesses need to be focused on cash. You can generate a lot of revenue, but it may not result in a lot of cash,” Lai says. Even seemingly successful companies can falter. Problems can surface if a business has 50 employees who are paid every two weeks and customers who enjoy Net 30 payment terms.
Lai has also run into businesses when personal lines of credit are relied upon to stay solvent. “You need to know when you’ll run out of money.” He advises doing a weekly cash flow projection that shows actual expenditures. A solid profit margin would be 20 per cent and when that level drops, a business can be prepared if it has consistent cash flow statements. Businesses need to be “organic” and adjust quickly.
Pandemic effects on business, along with inflation and rising interest rates, continue to play out and not in a good way. Many businesses were struggling before COVID. Some disappeared. Some survived, thanks to government aid, but are now in trouble. Suffering sectors include cannabis retailers, transportation companies, hospitality/restaurant businesses and heavy construction, Lai says. “You always want to be proactive,” he adds. “It may be hard to accept that your business is struggling. When you’re not doing well, plan for that.”
Gardening Is No Bed of Roses
Which is what Gwen Fisher, a popular Sooke entrepreneur, is doing. In 2006, she opened Pure Elements, an esthetics/hair salon in a converted ocean-view home. She followed that with the launch of The Artisan’s Garden in 2016, a gardening, gift and coffee bar business on the lower level. But in January 2022, she closed the salon due to staffing challenges and expanded the garden/gift business and coffee bar.
Staffing remains foremost for Fisher. “I’ve had to take very hard steps for 2023, meeting with four wonderful garden staff to let them know the business is now having to be seasonal. I overstaffed our garden centre last year and am struggling because of it,” Fisher says.
For 2023, her four staff were laid off until March and then their hours were reduced, with the hope that more hours will be added when garden season picks up in May.
She was aware that staffing expenses should be around 45 per cent of costs, but Fisher was always over 50 per cent. That’s because she treated staff like family, with weekend retreats and strong support during personal upheavals. As well, the province’s mandated paid sick days have proven costly. “What I’ve learned is that I’m a socialist running a business in a capitalist world,” she says.
Fisher admits she’s had to re-evaluate all of her business practices. No longer will she order from larger suppliers, who demand minimum orders. Instead she’ll buy from three family-owned wholesalers as well as local artisans.
And while The Artisan’s Garden has loyal customers, Fisher says visitors to the Sooke area need to be enticed to visit not just her business, but all of the shops in the area, making it a destination experience. Unfortunately, there hasn’t been cooperation on that front.
“Any small business is only months away from going under. Bankruptcy has never been an option for me, so I have to do as my mom used to say, ‘One foot in front of the other and keep going,’ ” Fisher says.
When Cash Is King
An invaluable resource in her steps forward has been the Business Development Bank of Canada (BDC). Beth Fisher (no relation to Gwen) is a BDC senior business advisor, CPA and CMA. She says there are two key areas where businesses must be vigilant.
First, a company must review and improve its financial management processes. Second, examine productivity, seek efficiencies and eliminate waste.
With 30 years of experience as a CPA, Beth Fisher says a company’s financial statements are paramount. “One of the most common mistakes is that they’re not up-to-date. If they’re not, you can’t make timely decisions,” she says. Financial statements should include plans to deal with best- and worst-case scenarios, and budgets for both. And the process should include all staff, because they know what’s happening on the front lines.
And as Lai notes, cash management is crucial. “Focus on cash first,” Beth Fisher says. A 13-week rolling cash flow forecast provides a handle on actual inflow and outflow. If there’s a cash crunch, don’t wait for the bank to call. “Be proactive and contact your lenders,” she says. They’ll appreciate the heads-up and are often more accommodating. “Work with lenders on how to keep moving forward,” she adds.
Regarding productivity, hiring high-quality staff is a start. “A top employee can do the job of one and a half people,” Beth Fisher notes. And take advantage of government grants or opportunities to introduce more technology into the business.
Booking for Conservative Growth
To compete with the big box stores, it’s a given that pricing won’t be a starter. “Compete to be unique,” Beth Fisher advises. And better service is the reward for higher prices. Munro’s Books, celebrating its 60th anniversary in 2023, exemplifies the unique and better-service philosophy. The idea that people will dedicate spending to needs, not wants, in tough money times, hasn’t hit the storied bookstore. And the pandemic didn’t sicken sales as stay-at-homes snapped up puzzles, cookbooks, gardening tomes and the classics. “We got through COVID a lot better than we thought,” says Munro’s managing partner Jessica Walker. “My worst fears have not come to pass.”
Walker has been in the bookselling business for over 35 years and has worked at Munro’s since 2000. She has weathered economic ups and downs, technological advances, online incursions and even weather disruptions. But like Phillips, Walker is cautious. “I’m fairly conservative,” she says of her management practices. “I’m a fan of continual, small adjustments.”
Customers have asked if Munro’s will expand to Vancouver, but Walker has resisted. Besides overextending, she feels the business will become something it isn’t. Munro’s is not a chain store; it’s a destination bookstore with bookish employees.
“Staff are in-between being a retailer and a librarian,” Walker says of the roughly 30 employees. One staff member has been there 50 years; a couple have worked there for over 30 years. Their expertise is invaluable. “If you’ve invested in training, it’s good to keep them,” she says. “It’s important to carry them through the quiet times.”
Bookselling is one of the few industries where prices are printed on the product. “In theory, we can charge what we want, but it’s not a good look,” Walker says. Meanwhile, costs like shipping have gone through the roof.
Amid costs that cannot be controlled, Walker is planning for a level 2023, without major cuts and no grand spending. In 2022, significant renovations were done in the store, and Walker acknowledges that it’s important to invest in the future. Because so much book business work depends on computers, a new server was purchased this year. Technology has had a large impact on Munro’s. Pre-computer, when books were received, each one had to be checked off by hand. Today, a whole box can be quickly scanned. Online sales represent 10 per cent of business and are handled efficiently each morning. Ordering books online means Munro’s buyers can work from home. “It’s a strategic use of staff,” Walker says.
Cause for Optimism: Diversity
Greg Ibbott is a senior vice-president at MNP, specializing in insolvency and corporate recovery. Knowing who are your key employees is important and if giving a big raise isn’t possible, remote work may quell employee demands.
But businesses in all sectors continue to grapple with staff shortages, inflation, pandemic outfall and cash-strapped customers. Since January, there’s been a growing number of calls around restructuring and bankruptcy. Government aid and the deferral of loans and source deductions delayed the inevitable financial woes, Ibbott says.
“Even profitable businesses can run out of cash. Businesses need to understand the peaks and valleys and plan for the valleys,” he adds. A rainy day fund is a good idea. Building good relationships with suppliers is another. The value of effective, honest communication cannot be overstated.
And there’s one counterintuitive move businesses can make. “Now is the time to raise prices, if required,” Ibbott says. Why? Daily news stories trumpet the increasing cost of everything from eggs to used cars. Because consumers have been conditioned to price hikes, a reasonable increase probably won’t get a lot of pushback.
Cutting expenses should also be considered. Businesses get in the rut of doing what they did the year before, Ibbott says. It may be time to examine if a cost is necessary or if a lower-priced supplier exists. “It’s good to bring front line staff in who see efficiencies where managers don’t.”
Entrepreneurs can’t be experts in all aspects of their businesses and often go with their gut feelings. Financial statements may not be top of mind so bringing in other voices is beneficial.
And while there are significantly more challenges across all sectors in 2023, Ibbott remains upbeat. “B.C. is pretty stable. There’s a lot of diversity. No one’s expecting a harsh recession,” he predicts. “We’re operating in a diverse province.”