CEOs SpeakA View From the Mid-Market

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TALENT AND SUCCESSION PLANNING

TRADE AND REGULATION

MID-MARKET

COMPETITION AND DISRUPTION

Mid-market companies are an essential part of our economy. They contribute more than $210 billion to our Gross Value Add (GVA) and employ more than 1.9 million people across the country.[1]

Yet the mid-market is often overlooked – by the media, by the public and by service providers – which means there are few opportunities for mid-market leaders to share best practices, trends and ideas.

At Houser Henry & Syron LLP, our focus is on helping mid-market businesses thrive. We know that sharing experiences and ideas is key to success in today’s market. That is why we sat down with a broad cross-section of our clients to find out what is at the top of their agenda.

MID-MARKET CEOs SPEAKPublished September 17, 2018

Based on interviews with mid-market leaders, we share five of the biggest concerns on the minds of Canadian mid-market CEOs and leaders.

1. Uncertain trade environment. As the world moves towards territorialism and protectionism, mid-market CEOs are worried about the impact of a NAFTA renegotiation or tariff war on their export revenues and their supplier costs.

2. Regulatory change. From changes in employment law through to new environmental regulatory requirements, some CEOs are worried about the rising cost and effort involved in managing the business and maintaining compliance.

3. Succession planning and talent acquisition. As skilled employee tenures shorten and experienced leaders and managers start to retire, mid-market CEOs are facing growing long-term leadership planning and development challenges.

4. Competitive pressures. New competitors – and new disruptive business models – are creating competitive pressures on mid-market companies who sometimes lack the capital and capacity to match technology investments.

5. Consolidation in private markets. With investors and corporations now looking to deploy investment capital, many mid-sized businesses are either finding themselves the target of an unwanted takeover or they are seeing their supply chains rationalize into larger units.

From a management perspective, our conversations with mid-market leaders suggests that CEOs are starting to feel the pressure of continued disruption. In some cases, the disruption is new – new technologies, new competitors and new customer demands are all putting pressure on today’s mid-market companies. But, at the same time, many of the challenges are also rather familiar – changing regulation, succession planning and cost management, for example.

Given the pace of change in today’s marketplace, we expect some of these issues and disruptions to evolve rapidly. Some will create significant opportunities for mid-market firms who, arguably, are able to respond to changes in the market with more agility than their larger competitors. Others will create growing challenges for mid-market decision-makers, particularly those with smaller management teams and fewer external resources.

Indeed, in today’s increasingly disruptive business environment, mid-market decision-makers need advisors they can trust. They need partners with deep experience solving similar challenges for other mid-market companies. They need professionals

with specialized skills and broad business acumen to augment their team and feed into their decision-making process. They need tailored services that respond to their unique situation and market context.

[1] The MME Sector In Canada, HSBC Bank Canada, 2015

Mid-market companies are an essential part of our economy. They contribute more than $210 billion to our Gross Value Add (GVA) and employ more than 1.9 million people across the country.

MID-MARKET CEOs SPEAK Trade and RegulationIn this environment, Canadian mid-market firms can no longer patiently wait for more certain times. Indeed, our view is that mid-market firms, in particular, need to be finding ways to enhance the agility and flexibility of their business models, operating models and supply chains.

That, in turn, will require better contingency planning, enhanced insight into global trade and regulatory trends, deep commercial insight and an ability to think creatively about future.

Ongoing disruption in the global trade environment is creating significant uncertainty for Canadian mid-market companies. It’s not just tariffs that keep changing unpredictably; it’s also many markets around the world moving towards greater protectionism.  That is having deep implications on the Canadian mid-market supply chain and sales strategy.

Indeed, viewed against a backdrop of continued trade threats from the current US administration, it would seem that the signing of the US-Mexico-Canada Agreement (USMCA) has done little to renew confidence within the Canadian mid-market.

To find out how some of Canada’s leading mid-market firms are managing this uncertain trade and regulatory environment, we talked one-on-one with Canadian founders, CEOs and business leaders. We discussed the impact that tariffs have had on a select group of businesses. We explored their strategies for improving business flexibility. And, we talked about their plans for the future.

Here are five key themes and insights that we drew from our conversations:

1. Staying put. As one respondent noted, Canada remains one of the most secure and transparent markets in which to do business as a mid-market company. Most say they have explored the advantages and disadvantages of moving their operations to the US, but the vast majority remain fully committed to their Canadian-based structure.

2. Rethinking sourcing. Facing the potential for increased volatility on the southern border, many of the business leaders with whom we spoke have already started to look for alternative suppliers and vendors outside of the US. Some will be increasing their sourcing from within Canada. Others are focusing more on Latin America, Europe and Asia.

3. Adjusting the strategy. Those CEOs and leaders with large export businesses have been rethinking business activity in some markets to reflect recent trade disruption. Many said they were looking for new niche products and new service-based revenue streams to rebalance their businesses due to volatile markets.

Ongoing disruption in the global trade environment is creating significant uncertainty for Canadian mid-market companies.

4. Assessing pricing. When US tariffs were applied in the run-up to the USMCA, many resource-intensive mid-market companies found themselves absorbing much of the additional cost.  This was done to save customers from higher prices. Now they are rethinking their longer-term pricing models to create more flexibility in anticipation of further potential volatility.

5. Improving relationships. As uncertainty increases, many Canadian mid-market companies are relying (at least, in part) on their trade partners to help manage the pressure. In some cases, this may mean some short-term cost sharing on prices increases. In other cases, Canadian firms have been working with suppliers to re-think batch orders to streamline the tariff process. 

The overall theme of our discussions was best voiced by the CEO of one Ontario-based manufacturer.  He said, “we just want the uncertainty to be over.” Unfortunately, all signs suggest that the current environment of trade uncertainty

will only become more perilous as the US heads into the 2020 Presidential Election. Expect trade and tariffs to sit center-stage for both US parties as they seek to establish their platforms.

MID-MARKET CEOs SPEAK Talent and Succession PlanningThe war for talent is raging. Canadian mid-market companies are feeling the pressure. Unemployment is at historic lows across our country. Competition for key skills [particularly in the STEM (science, technology, engineering, and mathematics ) fields] is heating up. Tenures are shortening. Finding, developing and retaining the talent that businesses need – particularly at a management level – is becoming increasingly difficult.

It is not surprising that many mid-market CEOs say that talent acquisition and retention is the biggest challenge now facing their companies and their industries.

Houser Henry & Syron LLP recently asked select Canadian mid-market CEOs and founders how this war for talent is affecting their companies growth. We talked about their management succession plans. We also discussed winning strategies for attracting, developing and retaining key talent.

Our conversations indicate that Canadian mid-market firms are employing a range of different strategies to help solve their workforce challenges. Here are five common themes:

1. Competing on culture. Many mid-market firms are attracting new talent by showing that they have a vision beyond simply making profits. Some, particularly those in the healthcare and services fields, are focusing on their ‘higher purpose’. Others are drawing new recruits with their family-like culture and relaxed work environments.

2. Leveraging their networks. While recruiters and headhunters were cited frequently by mid-market CEOs, the vast majority also noted that they were taking a much more personal approach – pressing friends, family, networks and colleagues for potential leads on new talent. Many also participate in apprentice, co-op and internship programmes with local colleges and universities.

3. Rebalancing the workforce. A handful of Canadian mid-market company CEOs are starting to think about how they can shift their resource allocation by leveraging new technologies like automation and robotics. They are also thinking about what skills they may need in the future and are updating their talent strategy accordingly.

4. Reviewing the succession plan. Recognizing that much of their top talent – particularly in management – is nearing retirement, most mid-market firms are broadening and accelerating their succession planning to include not just key leadership positions, but also critical capabilities throughout the organization.

5. Assessing their own exits. When it comes to their own succession plan, many CEOs and founders seem to expect they will sell their companies (either to a competitor or another family member) rather than find a replacement. Those with other exit plans are working hard to groom existing executive team members to replace them.

In our conversations, we were struck that every CEO sees talent as both a key enabler and a barrier to growth. If they could get the right talent, CEOs felt confident they could achieve significant growth. But they also know that, if they start to lose the war for talent to their competitors, they will suffer a significant competitive disadvantage.

Our view is that Canadian mid-sized firms need to execute a variety of strategies to ensure their workforce is engaged, stable and capable. That will require a flexible workforce strategy and a robust succession plan.

It is not surprising that many mid-market CEOs say that talent acquisition and retention is the biggest challenge now facing their companies and their industries.

MID-MARKET CEOs SPEAK Competition and Disruption In every Canadian industry, mid-market firms are facing intensifying competitive pressures. For some, this challenge is from new online players which are competing not only on convenience and brand, but also on customer experience. For others, low-price foreign imports are threatening product lines and driving down margins.

At the same time, customer expectations are starting to change. Businesses and consumers are demanding faster turn-arounds and delivery times. They expect digital processes and paperwork. They are looking for personalised service. But they are also sensitive to cost.

In the midst of this disruption, Houser Henry & Syron LLP spoke with selected Canadian leading mid-market CEOs and founders to learn how these new competitive pressures are affecting Canada’s mid-market businesses. We wanted to explore how they are responding to the disruptive environment.

What we found was a vibrant mid-market that was rapidly adapting to their competitive pressures and – even amid this disruption – were finding ways to differentiate themselves from their competitors.

Here are five ways they are accomplishing this:

1. Competing on quality. Rather than join the ‘race to the bottom’ on prices and risk commoditization, Canadian mid-market firms are focusing on quality. They are reshaping their portfolio towards specialized products and services. And they are improving their procedures and capabilities to better meet customer expectations.

2. Personalizing customer service. Leveraging their size as a benefit, many mid-market companies are emphasizing the ‘human side’ of their businesses. “We try never to let our customers go to voicemail,” noted one CEO. Others boasted of increased investment into customer service capabilities and more personalized customer experiences.

3. Shifting to services. A growing number of firms are exploring how they can start to deliver new services that not only support their products but also create new, more sustainable revenue streams. Everything from expanding the traditional after-sales service channel through to creating new ‘products-as-a-service’ models are being explored.

4. Investing in digital. Particularly in the back office and in order processing, many mid-market firms are implementing new digital tools that are convenient and easy for customers to use. CEOs and founders are looking to alternative methods to help improve the customer experience and to reduce costs across the business.

5. Scanning the marketplace. Recognising that customer expectations are largely shaped by their last experience (regardless of the industry), mid-market CEOs are looking across the Canadian and international markets to find new ideas to adopt and competitive opportunities in their own business.

What is clear is that Canada’s mid-market CEOs and founders are ready to compete, but in Canadian style. Not with a head-on, winner-take-all

approach, but rather by finding niches and value propositions that they can own and grow – building on the foundations of what made them great in the first place.

In every Canadian industry, mid-market firms are facing intensifying competitive pressures.

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About HHS

Since 1934, Houser Henry & Syron LLP has provided legal services to Canadian and foreign private

businesses, helping them deal with complex legal challenges to grow and to manage risk successfully.

We help our clients with mergers and acquisitions, commercial real estate, reorganizations,

shareholders disputes and agreements, commercial agreements, employment issues and financing.

We also pride ourselves in practising in Plain English.