Today is June 1, 2009 and today is the day that Friuch Consulting officially moves from being “me” to “we”. I want to document how we move forward on my blog because I’m hoping we’re going to learn some things that we can share with you as we grow Friuch into a going concern. I’m going to start with a recap of how we got here and in subsequent posts, get into the mechanics of the business.

Although I tell people that I started consulting in 2003, I actually started freelance work in 2001 when I used to do marketing and communications consulting. I wrote copy for a safety company and the Institute of Chartered Accountants. By 2003, I had jumped into consulting with both feet and was focussing specifically on science and tech policy. Like many startup consultants, I was a sub-contractor to more well-established consultants until I started getting my own clients in 2005. It was only last year that I stopped doing sub-contracting altogether.

When I had started, more knowledgeable consultants had told me that it would take me at least three years to get established. They were right. It was 2007 before things started to go smoothly. After that, my reputation and body of work had reached a point where I was no longer scrambling for clients. Business was coming my way in droves. By early 2008, I could barely keep up with demand. The follow charts shows my daily billable hours over the past year (June 1, 2008 – June 1, 2009). The red line shows how many hours most salary employees work. My totals don’t include pro bono work and business development work I do.

I was turning into the harried Technician from the E-Myth books – working 70 hours a week and getting burnt out. Late last year, when I felt like I was starting to drop balls, I started sub-contracting to people to make the workload more manageable.

Right now, I’ve got two sub-contractors working for me and I’m still working way too many hours per week. I can’t keep doing this and I’ve come to the realization that I need to make the transition from worker bee to business owner in the fullest sense of the word. Although I’m keeping the Friuch Consulting branding, it’s almost like I’m starting over again with an established client base. To ensure that the company grows (with or without me) I’ve taken the following steps:

1. I am incorporating. I’ve already secured my business name (Friuch Consulting Ltd.) and I’m going to be filing the incorporation paperwork after consulting with my bookkeeper later this week.
2. I’m seeking advice from my betters. I’ve haven’t been shy about seeking advice from people that I admire. On Friday, I’m having coffee with Stacey Cerniuk from Annex Consulting Group and the week after that I’m going to chat with Don Ference from Ference Weicker. I need to learn from people who have had success building medium and large consulting firms and I’m fortunate to know some key players.
3. I’m trying to be a Manager. I am having my first staff meeting ever on Wednesday and I’m trying really hard to partially transition from Technician to Manager.
4. I’m looking for more help. The business is still growing fast and in the next month, I’m going to be spending more time with three individuals who I think have a lot to offer and a lot to gain by associating with Friuch Consulting. With their help, the company will expand and increase its capacity to take on new and exciting projects.

My goal for Friuch Consulting is simple – I want to build the #1 Management Consulting firm in British Columbia by 2020. That’s a ways off but we have a lot of growing to do between now and then. I’m going to track our progress starting today and keep everyone up to speed on where we are going because as we learn, I’m hoping we can help others who are trying to grow their businesses.

I had the pleasure of attending the SFU Alumni Association Annual General meeting this past Tuesday night at the Segal School of Business. Business in Vancouver (BIV) was a major sponsor as were some of the banks. The panel discussion featured four SFU Alumni who are also BIV “Top 40 under 40″ award recipients in years past. These excellent speakers (including my friend Stacey Cerniuk) were talking about their secrets of success. There were some real nuggets in there but I think some of the audience members weren’t ready to hear them.

The extremely rude eye-rolling and snorting that some of the audience members were dishing out in addition to the ridiculously loaded questions about the environment and “profits” over social responsibility was disappointing. I’m going to assume that these snot remarks were coming from Arts and Social Science alumni and I’d like to call you guys out on your rude behaviour:

1. Only two of the four panellists have a business degree. The other two are Arts and Computing Science majors respectively.
2. The talk was not called “How to Rape and Plunder the Planet” – the theme was “secrets to success”.
3. The advice was not directed at business people specifically – it was directed at those who want to build something and be successful. That could be someone building a dance studio or a non-profit association.
4. Questions about how businesses can be socially/environmentally responsible could have been good ones if they weren’t asked like accusations.
5. When someone asked what motivates these business people, people were snorting when these business people denied that they were motivated by profit alone. What’s so hard to believe about that?

I’m a business owner and I’m not a business grad. I studied Communications and Public Policy at SFU and I fell into being an entrepreneur. That doesn’t mean I lubricate my bank vault door with baby harp seal oil. Here are some hard truths:

Being successful and being socially/environmentally responsible are not mutually exclusive.

Social and environmental responsibility is a core consideration for most businesses these days. It’s not always talked about in terms of the social good that is done but for most companies, being socially/environmentally responsible generates revenue. It makes no sense these days to be unethical.

Not everyone who starts a business is some kind of Donald Trump wannabe

A lot of people (like me) who start businesses and try to be successful do so because it seems like the path of least resistance. This is not to say that starting a business is easy but for some of us – it’s a far better option that being an employee. I care about people and I care about the environment. I take issue with people assuming that I don’t because I need to make money to live.

Money isn’t everything

When you don’t have money – money is everything. When you have money, it’s less important. I heard a lot of scoffing when all four panellists denied that their primary motivation is money. I understood it perfectly. I’m fortunate to be in a position where I don’t need to worry about money and my big driver is success and the feeling I get when I help someone do something amazing. I spend a lot of time mentoring and volunteering and those are the things that bring me joy (aside from my work). I also have three little kids and a mortgage to pay so if my business makes no money, they don’t eat. I’m sorry if that offends some of you.

My own story

When I was in my undergrad, I took a lot of heat in my social science degree from people who perceived me to be “right wing”. Anyone who knows me knows that I’m almost apolitical – I go for the useful bits of policy wherever they come from. I worked through my undergrad to pay for school as a tradesperson. I was looked down upon by my peers for showing up to class smelling like welding flux, sawdust or varnish and when I spoke up about economic realities from the perspective of small business, I was decried as an elitist and a “right wingnut”.

One of my peers (who shall remain unnamed) took great pride in the fact that he never worked and spent a lot of time in developing nations helping the working people “fight for their rights”. Clearly, I didn’t understand the plight of these people. I asked him point blank one day “you say you don’t work – how did you afford all of these vacations to go down there to fight the man?” His answer – his Dad bought him the tickets. My question – what does your Dad do? “He’s an investment banker.”

I just about fell out of my chair. This punk, this trust-fund kid was calling me out for being out of touch with the working people when I actually was a “working” person and he was flying down to protest unfair economic policies on the dime of the very people who likely caused some of these problems. The irony just about struck me down.

The take home message

Don’t assume that everyone who runs a business is a bad person. Show them some respect for walking a very hard road and when they volunteer their time to come and try to share some very valuable pointers about success that are applicable to any field – shut your mouth and listen, asshole.

I had to chuckle when I saw an article saying (effectively) “Oh no! GM is going to start importing Chinese cars!” [READ] The comments from Digg on this are priceless. A lot of noise about the death of the American auto industry and how “traitorous” it is for GM to be “taking food out of American mouths” by importing Chinese cars. Also known as “badge engineering”, captive imports are something that US car companies have been doing for decades already and American cars are still around. Captive imports hit US soil first in 1948 when Ford started importing British-made Angelinas and Prefects and selling them in the US as Fords. German-made Opel Kadetts were sold by GM in the US as Buick Opels between 1967 and 1972. After 1972, when GM decided to phase out Opel Germany but didn’t want to ditch the model, they started selling re-badged Isuzus and called them “Buick Opels by Isuzu”. Confusing, eh?

Let’s look at a few interesting examples:

Mitsubishi/Chrysler

Mitsubishi and Chrysler have a relationship going back to the 1970s. The Mitsubishi Astron engine was the engine of choice for 4-cyclinder Chryslers between 1973 and 1989. Found in “classics” like the Dodge Aries K, the Dodge Caravan (you know – the one with the drive train that liked to commit suicide), the Dodge Colt and the Chrysler Conquest, amongst others. You couldn’t buy a Mitsubishi in Canada before 2002 (unless you imported one) because of trade laws. Mitsubishi sells a lot more than cars and ran afoul of the Canadian Competition Bureau on more than one occasion. Before they could legally sell their cars here, they sold them as re-badged Chryslers.

In the picture above, you can see the 2001 Chrysler Sebring convertible on the left and the 2001 Mitsubishi Eclipse convertible on the right. They’re pretty much the same car. For several model years, the Sebring was built entirely by Mitsubishi. Same goes for the Eagle Talon (Mitsubishi Eclipse GS), the Dodge Stealth (Mitsubishi GTO) and the Eagle Summit (Mitsubishi Mirage). Some of the American versions of these cars have huge followings, even today.

GM and… well… everyone

I can understand that people are sensitive about China. China’s bad, right? They’re “commies”. To suggest that this would be a change is precedence for GM is laughable. Starting with Buick Opels from Germany in the 1960s, GM has a long history of utilizing captive imports. Here’s a partial list of notable GM Captive Imports from recent years:

• Cadillac Catera, 1997-2001 is an Opel Omega (German)
• Chevy Sprint, 1985-1988 is a Suzuki Cultus (Japan)
• Geo Storm, 1990-1993 is an Isuzu Impulse (Japan)
• Pontiac G8, 2008-present is a Holden VE Commodore (Australia)
• Pontiac Vibe, 2003-present is a Toyota Matrix (which is actually a Corolla) – Japan

In the picture above, you can see the 2008 Chevy Aveo on the left and the 2008 Daewoo Kalos on the right. They’re identical. However, the relationship between Daewoo and GM is very complicated. Daewoo, in a previous era, was partly controlled by Toyota. Since 1972, Daewoo and GM started joint operations. Between 1972 and 1996, all Daewoo cars were re-badges of GM cars. In the late 1990s, Daewoo ran into trouble during the Asian economic meltdown and just about went under. GM bought the majority of Daewoo’s assets in 2001 and formed GM Daewoo. Currently, GM owns 50.9% of GM Daewoo with Suzuki and SAIC (a major Chinese car company – oh no!) owning the rest.

Ford and awww… you get the point. Why?

I can’t stand Fords. I’ll cop to the bias. Suffice to say we won’t learn anything new by looking at them for this posting. They do the same thing Chrysler and GM do – captive imports. The real question that is left at this point is why? There are a few reasons:

1. To fill a hole in a model line-up
   

    

   Some companies lack sub-compacts. Others, like VW, lacked a full-sized luxury minivan so they turned to Chrysler and have taken on the Dodge Grand Caravan as a captive import. The 2008 VW Routan is actually a Grand Caravan. It’s made in Ontario! You probably hear things in car commercials like “the best fuel economy in its class”. Car classification is complicated and subjective – Wikipedia has made a stab at cataloguing the classes [READ] – but the auto manufacturers look at each others’ models and try to have a comparable offering.

    

2. To raise Corporate Average Fuel Economy (CAFE)

   Introduced by the US Congress in 1975 in the wake of the Arab Oil Embargo (when the US first started looking at small cars in a serious way), CAFE is a benchmark that is set by Congress that sets and minimum harmonic average that a manufacturer’s fleet must meet. Companies who do not meet this standard have to pay a fine of $5 per 0.1 mpg they are under the minimum times the number of vehicles they sold that year. To avoid these penalties, companies like GM have counted their Captive Imports towards their CAFE. So while these cars do not contribute as much to the bottom line of the company as their domestically built cars, they help the companies avoid some potentially massive fines from Congress.

   If you want to read more on CAFE, the Wikipedia article is pretty good. [READ]

Update: May 18, 2009. Just saw Obama’s annocement that he’s going to raise the CAFE minimum to 42-MPG for passenger cars by 2016. [READ] Two reactions:

1. 2016? That’s right at the end of his presidency (assuming he gets re-elected). Wow! What a risk taker! (/sarcasm)
2. 42 MPG for passenger cars sounds impressive but if you read into CAFE more carefully, nearly half of the cars on the road are already exempt from CAFE so this change would have minimal impact of overall emissions.

My verdict is that this policy move is incremental at best and will likely get beat down by auto lobbyists – in 2016.

The results of the 2009 BC Election are in – Gordon Campbell’s Liberals are in for a third straight term (albeit with a smaller majority – something that does not shock me). What did shock me was how badly the BC STV electoral reform proposal got beaten in the referendum. Last time this issue was up for discussion, it garnered 57.7% of voters’ support. It needed 60% to pass. Because the vote was so close last time and many voters had expressed confusion about the option at a technical level, it was decided to run the referendum again.

The initial results on STV this year is 39% in favour of the change. Because of this substantial drop, the issue is effectively dead in BC and is unlikely to go to referendum again in the next few elections. Some pundits are claiming that this result has killed STV for a generation in BC and probably in the rest of Canada as well.

My theory as to why STV died at the polls is that voters never really understood how the process works and when they did, they had some fears about how it would affect the political balance in this province. I imagine that a good number of Liberal supporters voted “no” on the issue because they felt it would lead to NDP majority governments. I also heard some folks with concerns about coalition governments that “wouldn’t be able to get anything done”.

Other pundits have suggested that the way the question was framed this time impacted the results. Last time, voters were told that a group of citizens had recommended STV and they were asked to vote for or against it. This time, voters were simply asked to vote for the existing system (first past the post) or for STV. This could have scared some voters off because it put things in terms of “abandon the current system”.

In any case, it was an interesting election. Voter turnout was down to 47.6% this year (compared to 62% in the 2005 BC election). The NDP gained three seats and still no special interest parties represented.

I want to start by saying that I neither advocate for or against BC-STV but I do believe that people should educate themselves before going to the polls. Tomorrow, in conjunction with the British Columbia General Election, voters in BC will have another chance to vote for or against and new election system called Single Transferrable Vote (STV). There are groups campaigning for and against this issue and there are some relatively neutral groups that are trying to provide unbiased information. I wanted to share some of the better resources that I’ve found while trying to educate myself:

1. Understanding STV
   

   This site has an excellent lay-persons description of how the system would work at a technical level and shows an example of how election outcomes would change from previous elections if this system was in place. There’s also some great information in there about how this proposal came before BC voters and a reminder that the last time this issue went to the referendum, more than half of the voters were in favour of it but the threshold was set at 60%. Check out the very detailed section where this person outlines how the 2005 election might have played out under this system with various scenarios [READ].

2. Ireland’s STV System
   

   In terms of use cases, one only needs to look to Ireland to see what an STV system in action looks like. They’ve been using it since 1922. As you can see from the above link, Ireland has debated doing away with the STV system on a number of occasions but when put to a referendum, people voted to keep the system. Obviously, the system works well enough for Ireland. How readily this would translate to BC is another matter and I leave that interpretation to you.

   Malta also uses the STV system as does Australia for its senate. There are many countries that use proportional representation as their voting system but these systems are slightly different that what is on the referendum. You can read up on Proportional Representation on Wikipedia with a full list of countries that use this system. [READ]

3. Advantages of Proportional Representation Systems
   

   The Electoral Knowledge Network has a good summary of the advantages of a proportional representation system (STV is a PR system). The main arguments for it seem to be that it translates the popular vote more accurately into seats won, provides more seats to minority parties and reduces wasted votes. There’s a strong campaign for BC STV that you can read up on if you’re interested. [LINK]

4. Disadvantages of Proportional Representation Systems
   

   Thanks again to the Electoral Knowledge Network, here’s a good summary of the downsides of PR systems like STV. The main arguments against it seem to be that it can lead to coalition governments (which have a bad reputation for lacking the power to push legislation through), it can lead to party fragmentation and it can give a platform to extremist parties. There’s an equally strong campaign against BC STV that you can read up on as well. [LINK]

Again, I see valid arguments on both sides of this argument and I do not advocate either side. I do advocate that everyone read some of these resources before going to the poll tomorrow so that you can make a more informed decision.

I learned an interesting lesson a few years ago when I was helping a friend sell a used boat trailer that was worth roughly $1,000. At first, we were trying to sell the trailer on Craigslist at a deep discount – around $300. We didn’t get any calls in four weeks. Then I remembered some of my grad school economics theory and said “let’s try premium pricing and see if that moves it”. We put it back up on Craigslist at $2,500 and it sold on the first day with three other offers as backup. Why did this work? Let’s check with Wikipedia:

Premium pricing (also called prestige pricing) is the strategy of consistently pricing at, or near, the high end of the possible price range to help attract status-conscious consumers. A few examples of companies which partake in premium pricing in the marketplace include Rolex and Bentley. People will buy a premium priced product because:

1. They believe the high price is an indication of good quality;
2. They believe it to be a sign of self worth – “They are worth it” – It authenticates their success and status – It is a signal to others that they are a member of an exclusive group;
3. They require flawless performance in this application – The cost of product malfunction is too high to buy anything but the best – example: heart pacemaker.

I don’t usually direct-quote but I couldn’t put it better myself. In the case of the boat trailer, people were pounding down the door to buy it at almost ten times the price we were willing to let it go for because they believed it the higher price to be an indication of good quality. You can try the experiment yourself next time you want to sell something. Be prepared to play around with the price. We lucked out by guessing the right price on the first try. Here’s an excellent example of premium pricing in action:

This is a tough market. Selling $2 hugs right next to someone giving hugs away for free. Why would anyone take the $2 hug? Either people would do it to piss off the guy giving the free hugs or they really want a hug and believe that the $2 hug is better. A third person could have taken this hug experiment a step further by offering $20 hugs. This would drive increasing business to the $2 hug in a strategy called “Goldilocks Pricing”. Goldilocks Pricing is when you put a range of product offerings in front of consumers with one base-model product, one mid-range product and one ridiculously over-priced product.

The theory is that the overpriced product will make the mid-range product look even more attractive to the consumer. The lower-end product does the same thing if it enhanced the perceived value for money of the mid-range product. So, if we had someone offering $20 hugs, it would drive business to the $2 hugs because the $20 hugs don’t seem like good value. As the guy in the video demonstrated, by highlighting the flaws of the free hugs, the $2 hugs seem like good value. While I don’t recommend mud-slinging to enhance your own business, you could have three people from your own company selling hugs and play around with these pricing strategies.

I’d suggest having someone relatively unattractive (like me) with garlic breath offer up $0.50 hugs. Have a clean and reasonably attract person offer up the $2 hugs and have someone ridiculously hot offer up the $20 hugs. I would bet money that at the end of the day, the $2 hug person would make the most money.

On my way into the office this morning, I was listening to news radio and was treated to a good news story – Canada’s labour market added almost 36,000 jobs in April. [READ] After months of major job loss announcements, this was music to my ears. He also said that self-employment accounted for a good portion of this growth – a fact that caught my attention. Then the announcer stuck his foot in it. He said “self employment is often seen as a sign of desperation in a weak economy”. I just about choked on my coffee. WHAT? Is this guy for real? I brought it up to my client when I got downtown and she said “I agree. Self employment is a sign of desperation.”

With all due respect to these narrow-minded individuals, self-employment is absolutely not an act of desperation. Anyone who thinks that starting your own business when the chips are down is a way to solve your problems needs to reassess that view. I think there are advantages to being self employed and risks that make it a hard road for anyone considering the move.

First and foremost, let me be clear – becoming self-employed is the hardest option out there when you need money to live. It takes in many peoples’ estimation; 10,000 hours or 3-4 years to build up enough experience and a reputation that will land you work consistently. There is no way to shortcut this. In the meantime, you could be making better money doing just about anything else. The money is not why people should become self employed.

I think that self-employment is a strategic decision and it’s not for everyone. There are definite advantages and disadvantages (taken from the Ontario Council of Agencies Serving Immigrants):

Advantages

• Independence, control and freedom from routine: Companies or individuals you work for are your clients, not your employers. As clients, they can state what results are expected from you, but cannot direct your work. You will want to satisfy your clients if you wish to receive more work, favourable referrals or better rates. But you are your own boss – you decide when, where and how to work to get the job done.
• Financial rewards: A business may become very profitable. Companies are willing to pay more to independent contractors because they don’t have the expensive, long-term commitments that they do with permanent employees, such as benefits, unemployment compensation and pensions. Independent contractors may also deduct business expenses from their taxes, which may increase their net pay.

Disadvantages

• Less security. It will be your responsibility to make sure you always have work to do. This means you may sometimes be without work and therefore income.
• No free benefits. You will have to pay for your own sick leave and vacation, fund your own retirement plans, and buy dental, disability and life insurance. Self-employed people are generally not entitled to receive Employment Insurance benefits.
• Paying your taxes. As a self-employed person, you are solely responsible for doing all the paperwork and paying your taxes on time. If you are an independent contractor, you will pay estimated taxes quarterly to pay your Canada Pension Plan contributions and income tax.
  

These are the kinds of things that someone needs to consider before becoming self employed. A cursory web search will turn up these results. Given these facts, how could someone turn to self employment out of desperation? You’d have to be desperate and naive. I think there’s a real opportunity these days for those who are brave enough to go the self-employment route:

1. Turmoil in the economy creates opportunities for project work that needs to be done quickly and effectively. Many organizations are laying off staff or do more with the staff that they have. This doesn’t mean that new projects stop coming up. When they do, many organizations turn to self-employed people to fill those human capital gaps.
2. There was a labour shortage before the economic downturn and in many fields, there still is. Anytime demand outstrips supply, there’s an opportunity for the more entrepreneurially-minded among us to profit.
3. Sub-contractors come cheap. Because there are more potential hires on the market these days due to economic turmoil, your selection of sub-contractors is greater now than ever. You still need to source quality people to help you grow your business but chances are they’re going to be cheaper now than when the economy is at its peak.

That’s my rant. I invite anyone who thinks that “freelancing” or “self-employment” is the easy route to comment here. I double-dog dare you.