Each week, we seek out expert advice to help a small or medium-sized company overcome a key issue.
Brothers Dwayne and Kevin Job have endured many ups and downs in the 25 years they have co-owned and operated System Fencing Ltd., a Rockwood, Ont.-based business closely tied to the horse-racing industry.
But they say they have never encountered a bigger threat to their business – one of the largest suppliers of horse-related equipment and paraphernalia in Canada – than when the Ontario government announced earlier this year that it would end the Slots at Racetracks program next March.
Under a slot machine revenue-sharing program with provincial racetracks made 15 years ago, a portion of slots proceeds was funnelled to racetracks and prize money for races. Over the years, some smaller tracks came to depend heavily on slots money as wagering revenue declined.
The announcement of the end of the slots program has already started to pinch the industry. Three racetracks have shut down and the province's breeding industry is already feeling the pain. Given the prospect of smaller purses, buyers haven't been willing to shell out premium prices for horses, whose value has dropped. That has left breeders with less money to spend at businesses such as System Fencing, which manufactures and sells everything from custom-built stalls, fences and round pens, to tack, boots, gifts and farrier supplies. System Fencing sells across Canada from its online catalogue.
System Fencing has already seen revenue plunge on the harness-racing side of its business – which makes up about 40 per cent of sales – by about 15 per cent in the past four or five months. The Job brothers worry that the worst is yet to come. They believe the racing side could be cut by more than half, and over all, business could slide 20 per cent to 25 per cent. While government and industry leaders are in talks to determine whether there will be some form of provincial aid, it would likely be nowhere near the $345-million the slots program provided.
All of this has the co-owners of System Fencing wondering how to keep their business going, including whether they should make the tough decision to lay off up to 15 of their current staff of 35, many with very specialized experience and training.
"It's tougher and tougher right now. There's not a lot of margin," Dwayne Job says. "Do you start scaling down now? Or do you keep the status quo?
"We'd lose some good people if we had to lay some off. Do we keep all of the people and hope that we can keep building the industry going forward?"
THE CHALLENGE: In the midst of uncertainty over the future of Ontario's horse-racing industry, how should the company best move forward with its business? Should it begin laying off employees or is there a way it can keep them on board?
THE EXPERTS WEIGH IN
Warren Coughlin, certified business coach at ActionCOACH, Toronto
This is a very significant challenge. … Given the high degree of uncertainty, they should operate on the assumption that the domestic Ontario market in horse racing won't be there. Hope is not a strategy. They need to build a strategy based on what is likely to be available.
The question of what they should do with their work force is one part of their survival and, ultimately, growth strategy. I'm not one who rapidly advocates staff cuts as a solution to business problems. However, the failure to let some people go soon, in these circumstances, could mean having to let everyone go later.
They have two options: Sell their current products into new markets. The challenge will be to penetrate those markets where they have no or little market presence. Their work is clearly good enough that they will be looked at. The question is whether the distance to send their product prices them out of the market. If they choose this strategy, they have to sell and market hard, fast and persistently.
[Second], change their target market and change their offerings. Their craftsmanship sets them above most others. Can they take that craftsmanship to non-equine environments: farms, large residential, recreational properties. This means rebranding, revising the product offerings.
The path to recovered profitability under these strategies will probably mean a lot of idle hands for a time, with unnecessarily high costs. If they lay off some of their people … [and] if either the government changes its mind and the market here resurges, or if their new strategy starts to pay off quickly, they'll be in a position to confidently rehire those folks from a position of strength.
Be completely candid with the team. Don't try to sugarcoat it. Treat them well, help them find other work where possible. Explain the circumstances as clearly as possible.
Brian Babcock, president of Babcock Business Strategies, St. Catharines, Ont.
My advice … would be to live locally and think globally. Where in other parts of North America, if not the world, can their product be shipped? Explore markets where they have particular skills and expertise that other manufacturers might not have. Look for wealthier nations that are able to support horse racing. I say Dubai off the top of my head but I think horse racing is going to be popular in New York State [which now has slots and purses are soaring]. Those markets aren't all that far away. These are short trips, by freight.
Because of their skill levels, the engineering component and the specialized nature of designing the product, they don't have the threat of losing their work to offshore companies. If they find ways to support the customers they have and develop new customers in different places, I think they'll come out of it quite okay, probably without any employee casualties.
Josie Graham, chief executive officer of the Canadian Innovation Centre, Waterloo, Ont.,
The best advice I can give them is that they need to pivot. That's the buzzword these days. They need to look at what they have today, figure out what their core strengths are, and figure out how they could apply it to another industry or another sector of the agriculture industry. They may need to reduce some staff, but maybe they can look at the strengths of the people they have and put their talents to other uses.
THREE THINGS THE COMPANY COULD DO NOW
Find new markets
Search out new geographic markets, where horse racing remains strong, or other kinds of customers that could use the company's products.
Change the business to create new offerings that could arise from their skilled labour force and craftsmanship.
Do temporary layoffs
If the market resurges or a new strategy pays off, they could think of rehiring staff with specialized training and experience already under their belts.
Facing a challenge? If your company could use expert help, please contact us at firstname.lastname@example.org
Join The Globe's Small Business LinkedIn group to network with other entrepreneurs and to discuss topical issues: http://linkd.in/jWWdzT
Our free weekly small-business newsletter is now available. Every Friday a team of editors selects the top picks from our blog posts, features, multimedia and columnists, and delivers them to your inbox.