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a Brand New Ball Game

When following the small business playbook just doesn’t work

You start your business with a home-run idea. But when you finally get to the plate it seems you’re constantly dealing with curves, brush-backs and bean balls. Unexpected complications are an unavoidable part of small business. Whether it’s dealing with theft, location issues, branding, regulation or unexpected changes to your business plan, winning is often a matter of adjusting your stance. Here are five knuckleballs that can come at a small enterprise.

The Steal

Back before the franchising and the Cupcake Girls reality TV series, Heather White and Lori Joyce were just budding entrepreneurs with a single shop on Denman Street. They opened the first Cupcakes in 2002 with a small staff. One employee—a single mother whose teenage daughter also worked at Cupcakes—had worked her way up from the bakery to an administration position. “We had her doing our banking and general bookkeeping,” Joyce says. “She was working directly beside me. It was a personal relationship—we went out of our way to help her. Every Christmas we’d all contribute to a gift basket for her.”

“When you’re a retail startup, cash is king,” Joyce says. “Every day relied on cash and making bank deposits.”

When discrepancies began turning up, suspicion fell on other employees—at least one was let go. “She was the one who reported the shortages,” Joyce says. “She would have been part of those conversations.”

But she was skimming. “When she didn’t get caught, it got bigger. Over six months she stole $7,500.”

Eventually the woman confessed. “She said she took overages and intended to pay it back,” Joyce says. “But no one noticed and so she thought, ‘I got away with it.’”

Kalpna Solanki, CEO and founder of FX Foods, still doesn’t know who’s been stealing her product. Her company, FX Foods, makes Marvin’s Marvelous Naturals, a line of gluten- and nut-free crackers, cookies and granola. About 25 per cent of her approximately $500,000 annual revenue is international, and one of her best overseas clients is Cold Storage, the large Singapore grocery chain. On two occasions shipments to Cold Storage have not arrived intact. “Each level of a pallet has 16 cases of product,” she says. “The top two layers of each pallet were gone. We don’t know where it disappeared along the way.

“We’re looking at options for securing the shipment better. We’re looking at switching shipping companies. But they’re the same company we use for shipping to Mexico and the Emirates as well as to Singapore, and it’s only the Singapore shipments that have been affected.

“We take photos and we do a count when the driver picks up, so we know the product has been shipped,” Solanki says. “But tracing it along the way is not possible.”

Having failed to determine the source of the theft, Solanki is faced with the difficult decision of whether to cut their losses by dropping the client. “They are really good customers, but we have to decide whether it’s worth it.”

As for Cupcakes, now with 11 locations and projected 2014 revenues of $5.5 million, they have changed the way they do business. One employee will never have that much control again. “I blamed myself for not having systems in place,” Joyce says. “So it became a two-person job. [Employees handling cash] are directed now to our controller. It’s now a direct relationship between the controller and the signing authority. And just being more organized. If you’re only reviewing it weekly and not daily, it’s easy to get away with. It was an eye-opener.”

The Change-Up

Lauren Mote and Jonathan Chovancek recently sold their 2008 Honda Element. It was a bridge-burning moment for the owners of Bittered Sling, a line of flavoured extracts used in cocktails and recipes. Like many young entrepreneurs they had launched themselves in one direction, only to find themselves eventually running an entirely different business. Making the adjustment was not simply a matter of recognizing the opportunity, but of having the courage to abandon a lucrative enterprise to focus elsewhere.

Just a few years ago the couple had been working a flourishing catering business out of that Honda truck, as well as operating a pop-up restaurant in the Olympic Village. “By the end of 2012,” Chovancek recalls, “we had over $400,000 in sales.”

In the meantime, while working as a bartender at The Refinery on Granville Street, Mote had created a line of cocktail bitters. Her intention was to fill a crying need in the Canadian market for the kind of extracts top American bartenders had long depended upon. Mote’s products proved hugely popular with bartenders. Ann Tuennerman, founder of the American festival Tales of the Cocktail, told the couple that the popular event was coming to Vancouver in February 2012 and that their bitters would be featured. “We said, ‘Oh! OK,’” Mote recalls. “So that was the impetus for us to get rolling on Bittered Sling.” The products generated sales of $50,000 in 2012.

Chovancek had suggested adjusting the Bittered Sling catalogue to include more culinary-friendly offerings. The result was a line of products that ranged from Malagasy Chocolate Bitters to Shanghai Rhubarb Extract to Denman BBQ Sauce, among many others. The couple eventually signed an exclusive worldwide deal with gourmet product distributor Qualifirst International. “We now had the ability to get our bitters into other markets,” Chovancek says. In 2013, Bittered Sling generated sales of $320,000 while their catering business had shrunk to 20 per cent of revenues. “We made the decision to completely change directions,” says Chovancek. Shifting gears, they developed long-term relationships with their distillers and warehousing in the Okanagan, hired a communications director and expanded their office and production facilities. “We also spent a ton of money, time and energy developing events around the world focused on bitters, cocktails, food and hospitality,” says Mote.

Such adjustments are common in the annals of small business. Arran and Ratana Stephens, co-owners of Nature’s Path, are a classic example. The couple started with a Kitsilano vegetarian restaurant back in 1967 before founding Lifestream to sell organic food products. Bad partnerships led them to sell their interest in Lifestream in the early ’80s, but even when Arran launched Nature’s Path in 1985 the course corrections were not over. He initially intended to focus on frozen sprouted bread products. “The problem we ran into was the limited availability of retail freezer space,” Arran says. So he began to think about creating more shelf-stable products. Today Nature’s Path is North America’s largest organic cereal brand.

While Mote and Chovancek have yet to reach those lofty heights, they’re on their way. Projected 2014 sales for Bittered Sling are just over $400,000, and the line recently took home three gold and two silver medals at the 2014 International Review of Spirits competition in Chicago. Selling the truck, however, was as clear a sign as any that the business transition is complete. “It was almost like lighting catering on fire,” Mote says. “We’re never doing catering again.”

Playing for the Title

In October 2013, Traci Myles and Melissa Harris got together to launch a new wedding planning company. Thinking about the entire process of wedding planning from blueprints to realization led them to what seemed the perfect name for their new business: The Wedding Architects. Off they went to Small Business BC to register the name—and then trouble. It turned out that using the word “architects” required permission from the Architectural Institute of B.C. “We waited for months,” Myles recalls, “contacting them every two weeks or so.”

Finally came the verdict: permission denied. AIBC believed that the name could lead to confusion. “As if people might think our company built wedding structures, like churches,” Myles says, “or maybe gazebos.”

Myles and Harris hired a lawyer to appeal the case to the AIBC. “We researched other businesses that use the word, like ‘landscape architects.’”

A letter of appeal was sent to the AIBC. Eventually the organization reversed itself. The Wedding Architects were free to start building their business. “If it had required a court case we wouldn’t have proceeded,” Myles says. “But for a couple thousand dollars it was well worth it.”

A name can also become a handicap for an established business. The North Shore Credit Union had been doing business under that name since 1941. But, by 2013, the company’s business and its business plan had shifted. “The name just didn’t match the business anymore,” says CEO Chris Catliff. “Seventy-four per cent of our business is not on the North Shore.”

Catharine Downes, assistant vice-president of marketing, says the public image of credit unions as small, community-based organizations had also become a handicap. “Our business model involves sophisticated wealth management and financial planning, highly personalized services with a boutique flavour,” she says. “That doesn’t fit credit unions in the public mind. The North Shore name was loved by locals, but it was a barrier for potential clients elsewhere.”

The idea for a rebranding was first discussed at least 10 years ago. Any new name would have to clear legal and regulatory hurdles, be trademark-able and available in a variety of domain names. The company held focus groups with clients and prospective clients—the second group being key. The list was narrowed to five names and another 10 focus groups were conducted. “Blue Shore Financial came out number one in every group,” Downes says.

Picking the name was just the beginning. Thousands of documents, legal agreements, stationery, brochures and signs needed changing, in addition to the company’s online presence. And a strategy was needed for how the change would take place—gradual or sudden? The company chose the latter. “We wanted to do it as cleanly as possible,” Downes says.

Which still required a lot of advance work. Employees were briefed, then in May 2013, clients were informed of the coming change and told why it was happening. “That way even if they don’t like the new name, at least they’ve been given an explanation.”

The actual change happened in September 2013. Downes says there’s been no customer confusion. “Anecdotally the response has been positive,” she says. Blue Shore—which last year had $3.1 billion in assets under administration—was a featured sponsor of the 2014 Sun Run and has advertised extensively to establish its new brand. Total cost of the rebranding is hard to estimate, Downes says, because some of the costs of replacing supplies (stationery, business cards, brochures) would have been incurred anyway. “But we can confirm the cost of the new name was at least several million dollars.”

Has the new name meant new business? “We don’t have numbers yet,” Downes says. But the company is growing. “We know it certainly hasn’t hurt.”

Home Field Advantage

In 2007, Christina Platt moved from Vancouver’s South Main district to the Cowichan Valley seeking rustic charm—deer in the fields, hawks wheeling in the sky. “I wanted chickens in the yard,” she says. “I was always taking pictures of the deer.”

The owner of Bamboletta Dolls still loves the Cowichan Valley, but it’s a little less romantic now. “The hawks grab my chickens,” she says, “and I’m always chasing those damn deer out of the garden.”

Platt has also discovered the main problem with being located in a semi-rural area of Vancouver Island: skilled-labour shortages.

Bamboletta employs 34 people to create hand-sewn dolls. Eight of her employees have the skill level required to make the clothing. “I could use 10 or 12 skilled sewers with sergers [specialized sewing machines used to finish clothing],” she says. “I can’t get the numbers I need.”

Bamboletta produces about 80 handcrafted natural-fibre dolls, ranging in price from $130 to $250, every week—and sells out fast. But Platt would like to branch out into complementary sets of children’s clothing. “If I’d stayed in Vancouver I’d have access to so much more—fabrics, factory operations, the right people. It would be a lot easier.”

Platt is also casting a wary eye at Canada Post. With 90 per cent of her business outside Canada, she relies on them for pickup and delivery. “We’re not sure if that is going to change,” she says. “Using couriers makes brokerage and customs issues more complicated.”

Pamela Baxter lives on the North Shore, where she runs Cascadia Gluten-Free, making granola and cookies. Her location issues do not involve employees—she’s the entire company—but finding proper facilities. Unlike Solanki’s Marvin’s Marvelous line, Baxter uses nuts. And unlike Solanki, her operation is too small to permit a commercial kitchen—she must use a shared facility. “I need a production kitchen that allows nuts, but not gluten,” she says; it’s essential she can assure customers that no cross-contamination is possible. When she runs out of product she must wait her turn at the kitchen. “I’m out of cookies at the moment,” Baxter says. “I have to wait for my slot.”

As for Platt, she still feels the pluses outweigh the minuses in the Cowichan Valley. “If I had stayed in Vancouver it would be a little easier,” she says, “but I’d have a completely different kind of company. I wanted to hire stay-at-home moms and that’s what I’ve been able to do. I’ve been able to forge my own path—my locale has made the business what it is.”

Hey Ump!

Say this for Kalpna Solanki: the owner of Marvin’s Marvelous has dealt with every change-up and bean ball and keeps on swinging. In addition to theft and a change of products, her company, FX Foods, was the victim of a disputed call that could have thrown them right out of the game.

Pick up a package of Marvin’s Marvelous Naturals Pumpkin Seed Cranberry Granola and read the label: “Marvelous as a breakfast cereal with vanilla yogurt and fresh fruit.” Seems simple enough. But the wording is specific, and with good reason. An earlier version of the slogan cost FX Foods approximately $20,000 and a lot of work.

“It used to read: ‘Marvelous with vanilla yogurt and fresh fruit,’” says FX Foods owner Solanki. Then in 2012 the company was audited by the Canada Revenue Agency. “They said, ‘You don’t have the word ‘breakfast’ on this label,’” Solanki says. “I said, ‘Well, it’s granola. That’s breakfast cereal.’”

The CRA disagreed. If it doesn’t say “breakfast,” Solanki was told, it’s a snack. And snacks, unlike breakfast, are GST (and at the time HST) eligible. Solanki was assessed back taxes of about $5,000 (her distributor Left Coast Naturals was hit harder, close to $70,000). Recalling and repackaging all her granola lines cost an estimated $10,000 to $15,000.

Protesting tax decisions is a strategy with a notoriously low success rate. But sometimes a company, or even an entire industry, reaches the conclusion that battling government regulation is worth the effort. The B.C. government’s new recycling protocol, involving a newly created entity called Multi Material BC (MMBC), has inspired that kind of response from a range of small businesses in B.C.

New provincial regulations have turned recycling over to the MMBC, which will collect fees from provincial businesses to pay for curbside recycling programs. Exemptions to the program are set at below $1 million in sales or one tonne of shipped packaging and printed paper.

Eatmore Sprouts and Greens Ltd., located in the Comox Valley, is an organic produce company that’s been owned by Carmen and Glenn Wakeling since 1996. They grow, package and ship organic produce to wholesalers in B.C. and across Western Canada. They’re not big, but they’re big enough to fall under the new MMBC. As of May 2014, companies like Eatmore must pay for the expected costs of recycling their packaging, and the mechanism created to execute the plan is causing considerable unrest in the business community.

“We’re happy to be a part of it,” Carmen says of the recycling plan. “Somebody has to take responsibility. But we’d like to see the law adjusted to consider more factors. We’re dealing with the same requirements as the multinationals, with about 1/200th of the sales.”

Regulation is a fact of business life. But when the stakes are sufficiently high small businesses can band together for lobbying purposes. A coalition of small business organizations, including the B.C. Yukon Community Newspapers Organization, the B.C. Agriculture Council and the B.C. Bottle and Recycling Depot Association, have created Rethink It B.C. to pressure the provincial government to change the law. The group claims MMBC will make small B.C. businesses uncompetitive with neighbours in Alberta and Washington State, levy onerous fees and penalties, and create a new monopoly with an inherent conflict of interest. According to the organization’s website: “The program run is by Ontario-based Canadian Stewardship Services Agency (CSSA) and governed by multinational corporations including Walmart, Procter and Gamble, Coca-Cola and Unilever. As governors of a program where they are the largest producers or importers of printed paper or packaging (PPP), companies like Walmart will be in effect governing themselves, creating a conflict of interest.”

Regardless of how the MMBC battle turns out, the Wakelings understand that prospective small business people can always expect to carry a higher relative burden than their giant competitors. “Whether it’s bar codes, food safety or recycling, it’s easier to swallow for the large producer,” Carmen points out. “Small producers have the same regulations but larger costs.”

Not all regulatory changes have added burdens to small business. They can open up new fields of opportunity. Lauren Mote and Jonathan Chovancek’s Bittered Sling product line was only made possible by regulatory changes. Until 2010, it had been illegal in B.C. to take a spirit out of the bottle, infuse it with other flavours and sell it as an “adjusted product.” When the B.C. Liquor Board finally changed those rules, it cleared the way for the couple’s move from their catering business to the sale of Bittered Sling Extracts.

As a former public health inspector, FX Foods’ Solanki does not have a problem with most government health and safety regulation. But there are still areas that irk her. “My main concern is with labelling requirements,” she says. “Imported foods don’t have the same requirements as Canadian products, and I think that’s unfair. I have no issues with the requirements—just have a level playing field.”

And then play ball. ■