Pipes to profits
Another rate rise. Travel chaos. Succession pains. Data breaches. Vacant downtowns. Oh, and more Small Business insights into your inbox!
I like to think we own up when we get things wrong. And we did. Get it wrong, I mean.
We predicted last week that the Bank of Canada wouldn’t increase the rate - right up to the last minute we felt the current data showed trends which would make a good case for a rate pause - and then they went and increased it anyway. Admittedly they only increased it 0.25%, but it now sits at 4.5%, which is the highest it’s been since 2007. It’s the eighth successive raise by the Bank of Canada, but this time it comes finally with the promise of a pause.
“We’ve raised rates rapidly, and now it’s time to pause and assess whether monetary policy is sufficiently restrictive to bring inflation back to its two per cent target.” Bank of Canada Governor, Tiff Macklem
This is a significant statement by the Bank of Canada, and it’s worth giving it some thought, because this is a really a data story. The issue the Bank of Canada has when it keeps raising the rates is that the data they have around top-line inflation (the thing they’re trying to reduce) takes time to capture, and it often takes longer for them then to process its real meaning - often they’re working with calculations and data trends which are months old. So this is now a Bank of Canada hedging bets on the data it has (or doesn’t have yet) - trying to accelerate the decline in inflation quicker, while also giving itself more time and wiggle room in working out the ever-changing market conditions (along with US Federal Bank behaviour).
By driving down inflation quicker, the Bank of Canada is hoping to ease the pain on consumers quicker, while at the same time reducing consumer debt. We reported last week in The Data Room about how Canadian debt, post-pandemic, is on the up - these rate increases will be trying to force that down. But forcing those debt numbers down means consumers having less money to spend with Small Businesses, and Small Businesses themselves prioritizing paying down debt over growth - which, of course, damages the immediate growth economy.
It’s one of the reasons that the Bank of Canada has been so keen to improve how it collects and processes the data it uses to make decisions. The quicker it can capture data and understand its meaning, the less unnecessary economic pain for everyone.
When we talk about the importance of data - and how Small Business can use it for competitive advantages - it’s encouraging to know that even the Bank of Canada is taking the same approach. The more relevant, accurate data you have on a market, and the more real-time it is, the better your decision making, and the better the eventual outcome.
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Top story this week☝️
Yes, the rates went up
But…it looks like the last rise for a while. Part of that is because the higher interest rates have caused a proven slowing effect on spending in Q4/22. The Canadian economy grew by 0.1% in November as the last rate hike hit - then stayed flat throughout December - but this still meant overall that the economy grew at an annualized rate of 1.6%. So no recession, and no real surprises. This is a ‘forced’ slow down of sorts, driven by Bank of Canada policy based on lagged inflationary data from Statistics Canada. What were the main growth drivers fending off recession? We can thank the public sector, transportation, warehousing, finance and insurance for bucking the trend. Meanwhile construction, retail and hospitality took a hit. The current projections, barring any further rate rises or inflationary pressures, suggest a return to broader growth by the summer. So - another reason to look forward to the warmer weather beyond your ability to wear short-shorts. Link
More travel chaos - but not in the way you might think
Canada is huge. This is not news. Neither is the reliance we have on internal and external flights when it comes to speedy logistics, business meetings, conferences, and tourism. There were, however, a couple of news stories this week which started to highlight a new narrative around airlines. The old narrative around airlines was how they survived the pandemic but at a high cost - mass redundancies, unreliable service and baggage logistics dominated the headlines - despite the large amount of COVID funding they received to prevent just that. The new narrative is inflationary - this week Westjet cancelled their transatlantic service for all of 2023, affecting Vancouver, Toronto and Halifax; effectively cutting off routes to London, Dublin, Glasgow and Paris. The reasons given for this were, "compounding factors such as staffing levels across the industry, inflation and deploying our aircraft to meet the demand of our guests while enabling us to re-position our investments to better serve Canadians for years to come." So far, so vague. But a report today by CBC has revealed a bigger issue around a lack of qualified pilots, which is a longer term, critical problem that Transport Canada is going to need to quickly resolve. This, clearly, is a developing story which will have significant effects on local economies, and it will be worth keeping a close eye on going forward; with smaller airlines going out of business, Canadian travel and logistics are increasingly reliant on the big two operators - Westjet and Air Canada - which is seemingly high risk. Link
‘Tsunami’ of small business owners looking to exit
A beautiful exaggerated headline from the Financial Post, as they report on the ‘three in four’ Small Businesses looking to sell in the coming 10 years. Dig into it a little further and 75% of those looking to sell are doing so due to retirement, and that 75% are CFIB members. So it’s more than a little misleading; but it does raise the point that for many older Small Business owners, succession is an issue - and there is clearly a generational gap when we talk about Small Business ownership. Are baby boomers now naturally exiting businesses they founded in the transitional 90’s, when a job-for-life ceased? Are millennials still focused on working for companies that have societal impact, eschewing the risky call to self-employment? Are startup costs now too high for Gen Z? Has technology (such as e-commerce and micropayments) now redefined what a Small Business even is? Perhaps. There’s a bigger discussion here, and it’s one we’re going to be looking into with The Balance Sheet over the coming months. Link
Why the media is good. Link
The state of Canadian sick leave. Link
TikTok is morphing our point-of-view. Link
The Data Room 🤖
Each week, The Data Room provides some insight into Small Business data, and each month(ish) you’ll get a deeper dive in your inbox. Here’s this weeks insight:
Data security is now an ‘everyone problem’
There was a time when data breaches were the sort of headline you’d see associated with a credit card company or concert ticket provider - but now the problem of data theft has reached a level for most businesses of - if not now - then when.
The Running Room recently announced that they’d been the victim of a cyber security attack that involved the theft of customers’ emails, names, addresses, phone numbers and credit card information. There have been several other high-profile cases where major retailers like the LCBO have made the news - but just how prevalent and costly are ‘cyber’ crimes in Canada?
In 2021 we saw 18% of Canadian businesses being involved in some form of ‘cyber security’ incident. That’s a huge number - 1 in 5 companies - and it’s not just the large, faceless mega-corporations that are targeted anymore. 16% of Small Businesses and 25% of Medium Businesses have been impacted; this includes things like ransom payments, social media hacks, leaks of personal or client information - or activity that had no real apparent motive other than general annoyance.
As of 2021, Canadian businesses spent $10 billion in attempts to curb digital fraud through various means, and Small and Medium Businesses covered more than half of that total spend. Data shows that 61% of all businesses are investing in services like 3rd party consultants, or cybersecurity professionals. Moreover, 16% of Canadian businesses have opted to pick up insurance that specifically protects against losses from cybercrime, but when looking at the numbers its effectiveness looks questionable; for businesses that both had insurance and were victims of a cyber security incident, only 22% actually went ahead and filed a claim, and only 8% had claims that were successful.
Most businesses are on the right track by at least setting up the bare-bones services that every business with an internet connection needs. Canadians are protecting themselves with email security (73%), anti-malware software (76%), and network security (69%), but the majority fail to keep these services up-to-date. Only 35% of organizations frequently apply the updates or patches needed to keep these services functioning at their best, meaning that 65% of businesses who had the forethought to secure their information are still leaving themselves vulnerable.
We’ve spoken before about the best data security fixes you can apply to your business today at zero cost. We’d recommend you stop reading this right now and action at least a few of them before you inevitably join the ever-growing statistics.
The Balance Sheet 💬
Each week, The Balance Sheet, provides Small Business opinion, voices and futures, and each month(ish) you’ll get a deeper dive in your inbox. Here’s this weeks insight:
When will we properly discuss the problem of downtown?
Halifax Regional Council has recently decided to change how it taxes commercial property, in a move which will penalize those in ‘business parks’ - businesses they say are big box stores that should ‘pay their way’ in helping Small Businesses downtown. But does this really solve anything?
The ‘what if’ theory rolling around the maritime council chambers right now is - ‘what if we used commercial tax rates as a tool to target big box stores in out-of-town business parks in an effort to increase the affordability of downtown to Small Business?’. On the face of it, it’s a blunt tool - there are a number of Small Businesses which will be hit by these changes, based entirely on their geolocation, which seems…unfair. Sure, the business park has a Costco and a Best Buy, but it also has other independents - think the brunch place you visit after you shop, or the sushi takeaway you grab on the way home - that use their (often expensive) positioning in a business park to gain foot traffic. Small Business owners, especially those in retail or hospitality, tend to orientate their business models around footfall and volume - and business parks are the places where volume is certainly present. So let’s pause a second and think about what has caused this blunt tool to be brandished about. Blunt tools, after all, tend to be used as a last resort.
“Coun. Sam Austin said the current tax system contributed to decades of businesses moving from the urban core to the city's edges where land value was lower. "This is a small measure to try and right-size a little bit of that”.”
“Paul MacKinnon of the Downtown Halifax Business Commission said it's the equitable thing to do. He said since chains like Walmart or Costco have national pricing strategies, the business parks they are in can usually weather tough economic times. MacKinnon also said cities like Toronto have taken this step. "We know that businesses in downtowns and main streets were more impacted by COVID-19 … so we think the time is right for this kind of shift," MacKinnon said.”
This narrative of ‘business park moves businesses from urban core’ hitting the mainstream as opposed to just main street is a relatively recent one and it’s often counter to long standing (and existing) civic policy. Business parks, for example, were a core economic policy of Halifax, approved as part of the Regional Municipality Planning Strategy under the catchy title of the BPFD (Business Park Functional Plan). The Halifax Regional Municipality owns this business park land for the most part and controls its use.
There are thirteen (13) business parks in HRM owned by the municipality and the province, plus an additional three owned by the private sector. The HRM owns and operates six (6) business parks in HRM (Burnside, City of Lakes, Bayers Lake, Aerotech, Ragged Lake, and Lakeside), while the Province manages seven (7) parks (Sackville, Woodside, Aerotech, Bedford, Eastern Shore, Musquodoboit Harbour and Sheet Harbour) through Nova Scotia Business Inc. (NSBI). The three privately owned parks in HRM, Dartmouth Crossing, Bedford Commons, and West Bedford Business Campus, include a total of 950 acres of land, and focus on providing for retail and office uses. Source
We’re not here to do deep reporting on this strategy, nor are we here to shine an all-seeing light on the changing trends in business psycho-geography or the politicking in play. There are far smarter people out there better suited to and qualified for that task (like local-beat journalists - support them! They’re essential!). But there was a shift - something which is probably true of most major cities over the years - where the focus and support shifted from downtown, and the selling of mixed use land became a bigger draw for municipal balance sheets. Trends come and trends go, but what is a noticeable recent trend is the realization of the cultural vacancy of downtown, the endless empty store fronts, the lack of business diversity, the rising (or monopolistic) rates, the general lack of funding and conversation around public transit / access solutions - and condos, condos, condos. It almost feels like long standing policies around business parks and land use might just be a major contributor to the current downtown woes.
The process of working out the problems with downtown and the lack of business diversity and survival is a tough one, layered with multiple competing commercial interests (hint: it’s not just landlords). But the questions remain. Why are storefronts empty? How can they be allowed to be empty for so long? Are downtowns culturally important enough in the current society to actually warrant intervention and mass investment? Who - or what - is actually responsible? The pandemic played it’s part for sure, but this isn’t purely a post-pandemic problem. The signs were loud and clear before the lockdowns, so we can’t just sweep this one under the COVID rug, even if it’s convenient to do so.
It’s interesting that Halifax City Council are prodding this problem now - though they are prodding it with a very long stick, and they are maybe prodding it a little too late. It’s hard not to see this as simply a hand-tied attempt at addressing the vague issue despite there clearly being a much larger, complex, knotty pre-and-post pandemic problem to solve. Somebody is doing something though - which is better than doing nothing. So we should applaud the initiative.
But without a bigger discussion around the cultural importance of downtowns, without giving local councils, local advocates, residents and Small Business owners sharper and better tools to make meaningful change - without addressing the real problems and policies that have made downtowns increasingly empty over the years, making them increasingly vacant and one-note - this could be, as Van Jones would say, simply another nothing burger.
Space Camp 🚀
Each week we highlight some news, insights or updates aimed specifically at those starting a new business, or considering a new startup venture. If that’s you, you should also check out our Startup and New Business Programme.
Climate start-ups turn resilient
Sure, millennials love to ‘do work that matters’, but it seems like investors are also maintaining investment into startup businesses that are addressing the need for combating climate change. Part of that is because venture is speculative, and part of that is that climate is so embedded in key economic sectors such as food and energy production, that, for some, it’s now an essential part of their investment portfolio. Link
If you’re interested in hype research (and who isn’t?!) this is a great dig into what people are actually excited about right now in terms of technology products. If you’re building cool things right now for the tech-literate, it wouldn’t hurt to check your ‘hype summit’ biases. Link
The Canadian start-up layoffs are happening
The big name tech firms have been cutting their headcount, and that went as far as Google eliminating its DeepMind office in Edmonton. Now, as we enter 2023, smaller downstream startups are starting to reign in their hiring. Part of this is the worry of follow-on capital; if you know money is getting harder to raise, it’s best to reduce your running expenses to give you more ‘runway’ to hit that KPI or find that investor. For most businesses, that biggest running expense is…payroll. There is a benefit though to newer startups with secured funding who are looking to hire in what was a highly-competitive market. So it’s not all bad news. Link
Market at-a-glance 📈
BOC Indicators (Link):
BOC Prime Rate: 6.70%
BOC Unemployment Rate: 5.0%
BOC CPI Inflation Rate: 6.3%
BOC $USD Exchange Rate (Link):
Low: 1.3314 CAD [0.7511 USD]
Average: 1.3356 CAD [0.7487 USD]
High: 1.3393 CAD [0.7467 USD]
Best GIC Rates (Link):
1-year GIC: 5.30%
3-year GIC: 5.28%
5-year GIC: 5.28%
Best 5Y Mortgage Rates (Link):
Prime Rates (Link):
TD Bank: 6.70%
National Bank: 6.70%
CRA Canadian Pension Plan Rate: 5.95%
CRA Employment Insurance Rate: 1.63%
CRA Minimum Wage per Province: Link
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