Capital Now Vice President, Art Smith, gives us his best insight on 10 critical small business questions. Listen now!
Katie Milton: Welcome to Capital Now’s special leadership interview series. Today, we’re catching up with Art Smith. I would like to welcome our Capital Now listeners to 10 Small Business Questions with Art Smith. I would like to introduce myself. My name is Katie Milton, and I’m the head of special projects at Capital Now. I’m pleased that we have Art here with us today. Art, are you excited for your visit?
Art Smith: Yeah, no. It sounds like it’s going to be a lot of fun.
Katie Milton: It is. It is. Before we get into it, I’d like to give you a formal introduction so that our listeners have some context for our call. Art Smith has over 15 years of executive leadership experience in Canadian corporations. He has extensive industry experience in utilities, manufacturing, oil and gas, and technology, working for corporations like TransCanada, Northern Telecom, Cortex Business Solutions, and others. In his last executive role, he grew a small startup into an industry-leading, publicly traded technology service company in North America.
Throughout his career, Mr. Smith has been recognized for delivering business results by leading people, sales, delivery, technology, capital market, and operations. Is there anything that you want to add that outstanding bio, Art?
Art Smith: No, no. Thanks, Katie. Nope. I’m good. That’s just … it’s always hard to listen to your own bio, so let’s just move on to the questions.
Katie Milton: Excellent, excellent. The first question to get us started is: Finish the sentence, and what that is, is “If you really knew me, you would know” …
Art Smith: Oh, that I’m a really big sports fan.
Katie Milton: Oh, okay. Do you have a particular sport or team that’s your favorite?
Art Smith: I’d probably say I’ve got two sports. I watch a lot of football, and I watch a lot of hockey, and being from Saskatchewan, I tend to be a Roughrider fan. I’d probably call that more of an addiction than being a fan. When it comes to hockey, probably Montreal Canadiens and/or Calgary Flames fan, so.
Katie Milton: Fantastic.
Art Smith: Yeah.
Katie Milton: So, it sounds like you have a lot of team spirit, which will likely lend itself well to your leadership role at Capital Now, yes?
Art Smith: Yup, no, I really … throughout my life, I played lots of team sports and always enjoyed the aspect of working together with a group of people to accomplish a goal, and I also very much like the competitive nature of team sports.
Katie Milton: Excellent. Well, thank you for sharing a little bit of background with us. I’m going to take us into our first business question because I know that our listeners are going to be very excited to get your insights and feedback to the questions that we have prepared for today.
Our first question is: A growing business needs to be smart about its money. How should small businesses prioritize what to invest in or prioritize their growth investments?
Art Smith: That’s a great question. It’s challenging for any small business owner to look at those items because cash is always king, and sales are hard to come by. If I probably had to say, you know, where and how do you guide your investments, is number one, anything that generates revenue. Number two, anything that generates revenue. Number three, anything that generates revenue. You get down to number 10, you can talk about fixed costs and sustained costs in the business. The nice thing about, you know … or the challenge with running any small business is always to grow sales and to grow revenue, and you can always … and my whole career’s like that … I can always work an hour longer. It doesn’t cost any more. Right? The team can work always more. So, my basic view is I’d much prefer to see the company growing and investing and driving sales and operations working super hard to keep up with it than going the other way around, where you’ve over invested in operations and sales isn’t meeting its targets.
The reason being is, at the end of the day, then you have a huge cash burn, and you have to lay off people in sales and operations. So, I like a lean, lean organization working hard to track sales.
Katie Milton: Excellent response and a lot of very specific examples that I believe our listeners are going to be able to put in practice in their own businesses. That will bring us to number two, which says, how have you overcome personal challenges in your business, and what advice do you have for other business owners?
Art Smith: That’s going to ask … What do you mean by personal challenges, Katie?
Katie Milton: I would say, I think I would go with what your definition of personal challenges are. I don’t have a specific example in mind. Can you think of a time in your career that you overcame something that was difficult or maybe a little bit harder than you anticipated?
Art Smith: Well, probably the biggest thing you face if you’re running a small business or any business where you climb up the career ladder to an executive or a senior role in an organization is, we’ll call it work-life balance. There is none, is probably the answer to it. Because, generally … you know, I appreciate that everybody likes to think about work-life balance and achieving it and things like that, but if you took the business owners across North America and the people who are driving the business forward whether it’s somebody driving Apple like Tim Cook or somebody driving a small business in Western Canada, you know, might be a vac track or welling thing … you know, your business is number one.
That sounds really hard when you’re married and you’ve got kids, but at the end of the day, the business owner’s bringing in the revenue that pays for everything else. It kind of comes down to a question. It might be great to go to your son’s hockey game, your daughter’s soccer game, or the Christmas recital, but at the same time, if that means you lose a million dollar contract or a 10 million dollar order that means everybody gets a Christmas bonus, which one do you go to. If you’re a disciplined business leader, you’re going to the one that’s going to make you the 10 million dollars and give everybody a Christmas bonus. And that says something about priorities and also self-sacrifice when you’re a business leader.
Katie Milton: And it sounds like that’s in alignment with the response that you gave to our first question about how to prioritize what to invest in and growth investments because I feel like this response is about the business owner’s time and how to choose where to invest that time, correct?
Art Smith: Mm-hmm (affirmative). Pretty much.
Katie Milton: Okay, excellent.
Art Smith: It’s aligned. Usually, most small business owners, or even business owners, right … If you look at anybody from the people who run General Electric and Google and so on down, those people wake up every day thinking about how to win and how to increase revenue and increase the size and the market dominance for those companies. Their second question might be how do we make it more operationally efficient, but that’s … you know, if I thought about, and it’s kind of humorous, your first top 10 priorities are on generating revenue, and priority 11 is about improving operational costs. That’s pretty much it. If you had a board minute, and you spent 55 minutes talking about growing you the business and five minutes on cost and compliance, that would probably be about right.
Katie Milton: Excellent examples. Great. Okay, so next up we have, what criteria should a business owner consider to determine whether a loan or a cash infusion would be a good decision to grow the size of the business?
Art Smith: Well, it comes down to managing your cash flow. Right? If they’re trying to grow the business, it means they have additional sales coming into the company where they need additional capacity to meet the additional sales demand. Taking on debt is by far cheaper than giving away equity in your company, if you can do that. Sometimes equity in your company is the easiest or the best way to do it, but a short-term loan, if you can work your way out of it, is by far the cheapest form of capital.
Katie Milton: Okay. Excellent.
Art Smith: Like, think about it, because your company when it’s small may be worth a million dollars, but when it’s large, it might be worth 100 million dollars, so you’re giving away a lot of potential when you give equity away, but when you’re actually taking a loan, if you can do that, then you don’t have to give that equity away.
Katie Milton: Yeah, excellent. It’s because the loan is basically pennies on the dollar.
Art Smith: Well, it may still be a million dollars, but it doesn’t turn into 100 million.
Katie Milton: Mm-hmm (affirmative). Mm-hmm (affirmative). Yup. Good example. Thank you for sharing. Okay. Next is what’s the best way for entrepreneurs to demonstrate that they’ve thought through the essential aspects of their business, especially the financials?
Art Smith: Well, probably the easiest way to do that is to be able to explain in an investor presentation how your business runs and what your financial performance has been over the past three years and do it in 15 slides or less.
Katie Milton: Excellent.
Art Smith: Because … and the reason for doing that is, if you go and compare your business to we’ll say the thousands or tens of thousands that exist on the public exchange, those people, who exist on the public market, have to explain their business in 15 minutes or less to a prospective investor or analyst and they have to talk about what problem they’re solving, what’s their revenue, what’s their financials, what’s their margins, what’s their overall balance sheet position, and all within 15 minutes, and it’s an oral presentation. So by accomplishing that and being able to deliver it, you really understand your business and you can articulate it.
Katie Milton: Yeah, okay. So, a 15 minute investor presentation is demonstrating that you know your business’s financials.
Art Smith: Yup, yup.
Katie Milton: Okay. Pretty simple. Okay. Are there a few rules of thumb you could share with us that would help a small business owner differentiate between good business borrowing or bad business borrowing?
Art Smith: That’s an interesting question. I have to admit it stumps me. Let’s go onto the next question and come back to that one.
Katie Milton: Okay. Many small businesses start out as either family-run, or business owners hire family members eventually for a variety of reasons. What’s your advice on what to do when you have to lay off or fire a family member and how can you do that and maintain peace?
Art Smith: Actually, I’d probably tell you you can’t. So, don’t try. Like, at the end of the day, if you fire an employee, or your fire an employee who happens to be your family member, more than likely, that relationship is going to be damaged. So, you can do multiple things to try to mitigate that damage, but you will never absolutely mitigate that problem. So I would probably suggest go into that relationship knowing that that relationship will probably have a bad outcome. The way you can actually mitigate it with inside a company if you have enough size is you never have that family member report to you directly, nor monitor their performance directly, and then you recuse yourself from any hiring or firing decisions because you’re obviously conflicted or biased. Right?
Katie Milton: Very good advice. Very good advice. I think that’s really helpful. Okay. Was there any deal that you regret investing in, even if you made some money, and why?
Art Smith: I’d probably say no. I really don’t have any of those, and it’s not that I haven’t lost money on investing. It’s probably because I have a belief that you can make any decision you want, good or bad, as long as you’re willing to accept the consequences of that decision. So, if you go in and you buy something that’s risky, you should assume that you’re burning your money in a barrel. And if it turns out that you didn’t, excellent. But if you put your money in there and you burned it, okay. Just be prudent about how much of your overall assets you put in that barrel and burnt.
Don’t talk yourself into a great idea. Right? There’s tons of great investments out there in the public markets that generate good returns on your investment over the long period, and investing is never a short … The shorter the term on the investment, with a higher yield, we’ll think of it as a spectrum from making pretty much a good return of 4 or 5% in the public markets with good solid things with low rest towards Vegas.
So, at the far end of the investment spectrum is Vegas. Right? If you think, oh, I can flip my money and make 100% gain in 30 days. Well, you’re playing in Vegas, and we all know who wins in Vegas. It’s the house. So.
Katie Milton: Yeah, so it sounds like you haven’t had any regrets in the investments that you’ve made in the past because you’ve successfully managed your expectations by having a proper perspective. Yes?
Art Smith: Yeah, that’s a fair way to put it.
Katie Milton: Okay.
Art Smith: Otherwise, I think you would just become so distraught with your own activity and regrets, you would lead yourself to some really bad outcomes.
Katie Milton: Yeah, I think I would agree. Good. Yeah. Excellent. Okay, so, how can a mentor help a small business owner and do you or did you have a mentor?
Art Smith: Basically, a mentor can help a small business person by providing them with experience and objectivity, even bias. One of the key things or the key challenges of somebody who runs a company or sits very high in a company is they actually have nobody that they can talk to at the water cooler, we’ll say. Right? You know, if you think about it, you’re working in a company, you can always talk to your colleagues, your people in other departments when you’re having a bad day or you need some external advice or perspective on things. When you’re president of a company, you’re running a company, you’re, you know, I hate to say it, you’re judge, jury, and executioner all at the same time.
So you can’t … It’s very hard for you to actually have a conversation with anybody on the team about anybody else without biasing that relationship. Right. So, having an external mentor or coach or confidant is not a bad person. It works really good in companies that have set up, we’ll call it a board. Typically, the chairman and the CEO have a very close working relationship and are open to the idea of running ideas back and forth amongst one another, and that’s a good working relationship to have.
Katie Milton: Excellent. Good examples and good insight. Okay. How do you deal with exiting your business when you have a business partner who isn’t ready?
Art Smith: That’s an interesting question. I’m not sure you can without it becoming very acrimonious.
Katie Milton: Mm-hmm (affirmative).
Art Smith: Right? I’m sure there’s tons of mechanical ways to do it, but it’s going to cost, it’s going to chafe that relationship in a big way.
Katie Milton: Okay. So the best way is just to prepare for chafing?
Art Smith: Pretty much.
Katie Milton: Okay.
Art Smith: Yup. Or, sit down with … you know, you can sit down and try to have a constructive discussion with the individual, but you gotta go into that discussion realizing that you’re probably gonna end up with a difference of opinion or something, and it’s not going to be something that happens overnight. Right? Those are, depending on the situation, those could be discussions that take 18 months. Because a person might, you know, for their own personal reasons, aren’t ready to leave. Right? Or give it up.
Katie Milton: Yeah. Well, so it’s kind of like a business divorce, right?
Art Smith: That’s a fair way to look at it in a private company.
Katie Milton: Yeah, exactly. We all know how well that works in-
Art Smith: Yeah.
Katie Milton: In life, right, so we might expect similar outcomes?
Art Smith: Yeah. An easier way to look at it is … An easier way to think about it is more succession planning. Say you have three business owners, and one is just physically tired or burned out or whatever, then maybe a better way to look at it is how do you plan for succession in the company. That person might, you know, move to a board position or move out of a senior role from a day-to-day point of view and take on more of an individual contributor perspective, and they bring somebody else in that works from more of a management perspective to fill that role. It’s probably better to deal with that in that manner than to let the person stay in that position when they’re very unhappy because they’re not productive then, and it will cause a lot of acrimonious behavior on the team.
Katie Milton: Yeah, okay. So, succession planning can help deal with that.
Art Smith: Yup, yup.
Katie Milton: Okay, awesome. So we have one more question left, and then the previous one that we wanted to come back to, so I’ll give you those.
Art Smith: Sure.
Katie Milton: The last one is, now that I’ve got a website up and running, what are the top three things I can do to start generating sales leads?
Art Smith: Well, that’s an interesting question. I would probably say, like, in the online world, people drive activity to websites through many different techniques, and I can’t say that I’m experienced in that area. What you need to do is look at how you … Before you even get far in your business, you’re going to have to understand the structure of the marketplace and how the sales funnel materializes. Whether they come through a website is just a fulfillment mechanism.
So, you have to ask yourself where are your customers, who are they engaged with in the marketplace, how does that marketplace kind of assemble itself, and then how do you move them through a sales cycle from awareness down to close. Right? And I know that that’s a much sort of theoretical-sounding answer to how do you create leads and drive them to a website, but this is where a lot of people who come up, in my opinion, who come up with great products and great ideas fail because they’ve got a great widget, we’ll call it, but it doesn’t actually fit in the marketplace so nobody can actually deploy it.
So then how do you sell something that nobody can actually utilize? Right? Or, it has to be sold through a partner channel, and they want to sell it online because somebody else owns the customer. Well, that’s not going to work. So, they need to sit down and spend some time looking at, okay, you got a great product or a great service idea, but how do I get that thing to market. And I call it your go-to-market strategy. And you gotta put a go-to-market strategy together for a product.
If somebody doesn’t know what their go-to-market strategy and the pricing of their product, they’re months away from ever making a real sale in a scalable fashion.
Katie Milton: Okay. Well, let me ask a question to clarify. Do you think it would be possible to just kind of play around with, like, a concept in just a few minutes? Like, for example, what if the product were an ice cream cone. In that example, what would you do? What would be your process there?
Art Smith: Well, for example, first is … first question is who’s your client. Do they currently consume ice cream? How do they buy their ice cream? What’s their proximity to that vehicle? What’s the price point of the ice cream? Are there anybody else selling ice cream cones? All those kind of questions, especially, like, ice cream is a non-differentiated product, right? If you thought about it, how’s ice cream delivered? It’s either delivered through Dairy Queen, you know, if you think about that. It’s delivered through your grocery stores or convenience stores. So, that really talks to the structure of the marketplace. You’ve got to get into those supply chains, whether it’s Sobey’s or Safeway’s or Loblaws or President’s Choice in Canada … I’m using Canadian examples … and understand how those people buy, shelve, and market your ice cream. Because if you don’t crack that marketplace, you’re not selling to anybody.
At best, you’ve got a store that’s maybe in a mini mall, and you’re doing retail sales. So you could sell ice cream, any type of retail thing, but you’re not going to scale. You’re not going to get past the local convenience store model. So that’s what it means, how do you get into the marketplace and what’s the structure of the marketplace.
Katie Milton: So, I’m hearing you say that there’s probably a lot of market research that needs to be done before somebody puts their website together.
Art Smith: Yeah, well, yeah. I wouldn’t say … There’s a combination of effort, and then there’s time to do it. Right? So, don’t get me wrong. You’re going to have to spend some effort in doing it and thinking about it and writing it down, and then you’re going to come up with … and this is a really iterative process by the way. Then you’re going to go out there, and you’re going to fail fast, as fast as you can. You know, you try to get some customers, but more than likely what you’re going to do is fail. And through that failure, you’re going to learn about the marketplace.
You’re going to actually learn about who are your competitors, because you probably identified some of them, but you didn’t identify them all. You’re going to learn about what price differentiation in the market, what’s the quality of the product that differentiates you in the market, things like that. Then you’re going to come up with version two of your product offering and go out to market again and try once again. Right? And all these things … The basic formula for ice cream hasn’t changed, but you’re spending all your money on how to get the right market formula.
When people talk about, hey, that was an instant success, but it’s been eight years in the making … The product was probably fine in year one, but it took them seven years to get it properly introduced to the marketplace and get enough scale that people would think that they’re actually a sustainable, viable business. Right?
Katie Milton: Wow, wow.
Art Smith: And there’s more of those on the face of the planet than there is the overnight, you know, I hit the tech wonder out of the ballpark and, you know, I got a 100 million customers. Like, for every one Facebook, there’s 10,000 people who have gone through the go-to-market strategy and put a product out to market.
Katie Milton: Mm-hmm (affirmative). Mm-hmm (affirmative). Excellent. Excellent. Well, thank you for some extra context there and kind of playing around with that ice cream example.
Art Smith: Yeah, that’s a good one.
Katie Milton: Then I’ll bring us back to the question that we paused on before, and that is, are there a few rules of thumb you could share with us that would help a small business owner differentiate between good business borrowing versus bad business borrowing.
Art Smith: That’s a great question, Katie. Actually, I’ve been thinking about this one since you asked me about it, and I’ve changed my mind. I can probably put it really succinctly. When somebody needs money, nobody wants to lend money to them. When people don’t need money, everybody wants to lend money to them. Right? So, if you’re a smart or a savvy business owner, keep that in mind. Right? You’re running your business. You’re doing really well. People will give you money.
When you’re doing poorly, is when you need money, but nobody’s going to give it to you. So when times are good, what you want to do is cultivate a couple relationships, maybe two, maybe three, with your bank and other financial providers that trust you and you get to know them and you build that relationship, then so when times get bad or tough, they’re there for you. Okay. So, you’re going to need them. You might go 20 years, and then that day you need them, you’re going to need them. And if you don’t have them, you could go bankrupt. Right? Or, if might be in your first years.
So, you want to sort of build that relationship. You don’t want to dedicate a lot of time to it but you want to have them there, and that’s probably the best thing. Companies like Capital Now are great people to basically build those relationship with and have them, you know, for lack of a better way, a standby facility, just like a line of credit that people can draw on overnight. I know a lot of our customers already use it, so ideally, you would like to use a great big bank that gives you an operational line of credit, but when they pull those back, you want to have somebody already in your back pocket you work with and you trust that you can tap on to step into the gap, without spending a lot of time doing it because … and I’ve gone through this in my own business over the last 20, 25 years.
You want to go out and try to get a relationship started with a bank and get a line of credit, that can take you six months. You could be out of business by then. Or, if you want to try to find an investor to help you out. That also is going to take six, nine, 12 months. Even government grants take weeks to get, and they may not even touch you. So, when times are good, cultivate those relationships. Get them in place because you can use them during good times to grow your business efficiently, and then in hard times, you have a couple different opportunities or resources you can draw on to help you out in a pinch.
That’d be the rule of thumb for people. It also helps in your own personal life. Like, if you’ve … you know, I find that I’ve been fortunate in my own personal life that I’ve built … you know, I have quite a few assets, so I have an operating line of credit based on those assets. I find that gives me great flexibility, you know … When I want to do something, I can do it. I don’t need to go and sell a whole bunch of stocks in the stock market or take out a big loan or anything. I have a standby facility with my bank, and I get really good rates and excellent service.
Katie Milton: Excellent. I think that that’s a really fantastic rule of thumb. Get credit when you don’t need it.
Art Smith: Exactly. That’s a good way to put it.
Katie Milton: Excellent, excellent. And, I believe that that brings us to the end of our 10 Small Business Questions, Art. I would like to wrap up by letting people know how to get in touch with you if they have any feedback or any questions based on the responses that you shared with us today. What’s the best way for our listeners to get in touch with you, Art?
Art Smith: They can just send me an email.
Katie Milton: Okay, and-
Art Smith: That’s probably the most efficient way.
Katie Milton: Okay, and that’s firstname.lastname@example.org. Is that correct?
Art Smith: Correct.
Katie Milton: Okay, excellent. Well, we will direct our listeners that way if they have anything that they want to clarify with you, and I want to thank you again for sharing with us your experience and your insight on these questions. I believe that our listeners will find this a very valuable use of their time. Thanks so much, Art.
Art Smith: Thank you, Katie, and you have a great day now.