Entrepreneurs Matter

Becoming an entrepreneur and starting a business completely changed my life. At first, it was a quest for independence and freedom … to move away from working for someone else, to take the risk, to see if I could do it on my own. But the reasons I continued ran much deeper … reasons that motivate so many business owners each and every day … reasons I respect so very, very much.

Today, in a world where many students are taught that business and capitalism are fundamentally based on the pursuit of greed, selfishness, exploitation and profit maximization … there is a need to re-introduce and re-romanticize today’s entrepreneur … the lifeblood of our communities and our economies.

Entrepreneurs start things. They try things. They see the world as a system full of gaps, of opportunities, and they set out to solve those problems by envisioning something better. They set out on a wonderful journey of purpose, adventure, risk and creativity … not to maximize profits and greed … but to see if what they imagined is, in fact, possible.

That is what fuels the hearts of entrepreneurs.

They envision new ways to deliver groceries and advanced drill bits to work in extreme climates. They suggest better ways for dentists to serve the poor and they improve the ways 3rd world countries filtrate drinking water. They imagine new video games for disinterested teens and they design new vaccines for impoverished children. They also start shoe stores and daycares and construction companies and cafes and corner stores.

Entrepreneurs Matter.

Entrepreneurs not only solve some of our most difficult challenges, but they also sign the paychecks that feed, clothe and shelter 78% of our local families. They not only represent the largest contributors to charities and non-profits, but their pursuit of free enterprise innovation and social cooperation has also led to unprecedented prosperity for humanity.

Over the past two centuries, free enterprise entrepreneurs have brought extraordinary economic growth and prosperity to hundreds of millions of people around the world. Extreme poverty has declined from 85% of the world’s population to 16%. The undernourished population has declined by 50%. Average income per capita has increased 1000x, with only 5% of that population living in North America. Sanitation, medicine and agricultural productivity have progressed to maintain a world population that has grown from 1 billion to 7 billion. 84% of the world can now read. And average life expectancy has increased from 36 years to an astonishing 86 years.

Our world is far from perfect … we have much more to improve … but we also need to appreciate the progress that has been made.

Governments didn’t accomplish these feats … entrepreneurs did. They innovated. They experimented. They took risks. They tried new things. And guess what? When their solutions worked and people derived value, their businesses grew and became profitable … which allowed them to invest in more ideas, create a broader vision, pay more taxes and extend their solutions to new markets.

That’s what changes our world. That’s what improves our communities.

That’s what matters.

So, as we move forward and continue progress on environmental, inequality, health care, animal welfare, and other global challenges …. let’s let entrepreneurs continue to be the lifeblood of innovation, our communities and our economy …. and let’s not turn them into the lifeblood of government.

Wanted: 100 of Alberta’s Best

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Wanted: Over One Hundred of Alberta’s Best Leaders

Role: Dynamic team member responsible for building a better province.

Requirements: Abundance of ideas, strategies, policy capacity, courage, accountability, transparency and urgency.

Reward: Basic pay, limited bonus and tremendous significance.

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They may not contain the same words, but Government of Alberta job postings like the above will be plentiful over the next 6-12 months, and I’d like to encourage many of our best and brightest to take a serious look, take a risk and step forward.

After 20 years working in the private sector, I took a risk, I took the challenge, and I became part of a team with the vision of transforming EEDC into a market-facing organization responsible for helping build a great city.

And nothing has been more rewarding.

The change came with responsibility. It came with accountability. And it came with a deep sense of purpose … three things that are desperately needed in our public service.

Today, our province needs to undergo the same leadership, management, professionalism and cultural transformation, and it will require a new generation of leaders and future leaders to be part of the journey.

Alberta will need you to step forward … in public service … to build a better province.

If you are stalling in your career, looking to make a contribution, wanting to leave your mark, or seeking a sense of purpose … I encourage you to take a similar risk and help accelerate our great province towards our potential.

I’ve never regretted a day in my role, and I love implementing the change that is needed.

When opportunity comes calling … which it will … I encourage you to step up and be bold.

Some of our best people are needed.

Lessons from the Waiting Room

My appointment was for 9:30am. I got in at 10:30am. Not bad, because my expectation is so low that I brought two hours of reading materials. This was a smart move, as the most current magazine in the waiting room was published in July 2006.

After waiting five minutes the nurse came in, asked me my height and weight, and then told me to strip down while handing me a glamorous turquoise paper gown. Not sure why, as this was just a consultation. She left in a hurry.

After sitting somewhat exposed for another ten minutes, the doctor finally charged in through the door. We had never met.

He confirmed the name of my family doctor, the one who ordered the colonoscopy two months ago. He confirmed my age, which has been correctly increasing every year since date of birth on my file. He confirmed that I have a family history of colon cancer, which again was clearly on my file.

He pulled out a stethoscope and confirmed I was breathing.

We wrote a few things down. I wonder what possibly he could be writing down.

Then he turned to me all serious-like and said, “Yup, at your age it’s a good idea to get a colonoscopy. They’ll book you in at the front desk and they will give you instructions on the prep that’s needed.”

He smiled, politely said goodbye and left the room.

I looked down at my beautiful paper gown. I felt exposed and defeated. I felt ashamed for the incredible waste of time and money and waiting time and lost productivity that just disappeared during this “consultation” that provided me with absolutely no value and that surely undermines the abilities the family GP who was very capable of providing me with an instruction sheet.

After booking the first appointment available three months out, I headed back to the office. Someone asked, “Hey, where have you been.”

I answered, “I’m really not sure … but I think I found that $7 billion the Premier is missing.”

Upgrading our Strategy

I used to struggle with the number of hours kids spend playing mindless video games. Minecraft, Farmville, Tropico, Settlers …. there seems to be an endless supply of, and demand for, non-violent nation-building games.

I used to think they were wasting their time. But I have come to develop great hope that they in fact are developing the skills to run our province with much greater foresight than previous generations.

Think about it. If you were given this wonderfully productive piece of land called Alberta, what would you do? What would you build? How would you create a society so productive and so prosperous that you would be the envy of the world?

Imagine digging a hole in the northeast part of the province and discovering what is now the Oil Sands – an endless supply of thick, dark, peanut butter like substance worth trillions of dollars. Would your first move be to build a railroad or pipeline and ship it out of here? Or would you build upgraders and refineries, petrochemical facilities and manufacturing factories that allowed you to control the market on everything from jet fuel to fertilizer to plastic toys?

Imagine planting a farm in southern Alberta and you were able to produce high quality Durham wheat. Would your first move be to harvest the crop and put it in rail cars to be shipped to a pasta plant in Italy? Or would you consider building your own pasta company, under a Canadian brand that exports and competes worldwide?

Imagine raising cattle on some of that land. Would your first move be to sell your young cattle to someone across the border who will beef them up before sending them to a slaughterhouse? Or would you consider building your own beef processing plant, a steak & hamburger restaurant chain or Alberta BBQ beef skewers which are exported to China.

Just daydreaming here … but you get the point.

Occasionally, opportunities present themselves to re-start the game, and to make better decisions. Over the past decade, building value-added upgraders and refineries didn’t make a lot of financial sense as margins were better from existing refineries south of the border. But now as labour becomes more available, input costs come down, the Canadian dollar falls, technologies are improved, risk of building upgraders/refineries have been mitigated, and neighboring provinces refuse unrefined products through pipelines, it’s time to think strategically and make some nation-building investments.

We can keep shipping stuff out of here and shipping out our wealth in the process. But these video-game-addicted kids are telling me that’s not the best way to win the game.

No Holiday Here

Last week my holidays were spent reflecting on what’s going on in the world and what it means for us in Edmonton. I started the year with the phone ringing off the hook by very anxious people wanting to talk about the fall in the price of oil, the provincial budget and the impact on their businesses … and I returned to the office this week to quickly realize that the phone is still ringing.

So, I thought I’d take this opportunity to share some of my recent speaking notes, and to encourage a collective call to action.

2014: The Year of Living Anxiously

Last January, following our annual IMPACT Luncheon, I began characterizing our economy as utopia, with 5.5% GDP growth, 3.9% population growth, 4.9% unemployment, $95 price of oil. The Edmonton economy was on fire and the Conference Board of Canada was predicting 4.9% GDP growth for Edmonton in 2014, and the top performing city in the country for 2015, 2016, 2017 and 2018.

We were not as optimistic at EEDC. We worried that the market was overpriced. We became concerned about governments thinking 3.9% population growth would last forever. We were closely watching the surge in supply of tight oil out of the US at the expense of Saudi Arabia losing market share. We felt the Alberta economy was becoming overheated with labour costs reaching all-time highs. And we were most troubled about social unrest because of the unemployed youth in the east, throughout the US and around the world.

We launched a scenario planning initiative with the help of Incite Marketing to come up with a document that hopefully encouraged the business community to start thinking that the current economic environment, utopia, may in fact change and change quite quickly. Although published in May, I have attached this EEDC document here for your use and benefit.

Geopolitics of Oil

In 2008, the price of oil plummeted from $140 to $40 in a matter of six months – a $100 drop. It was driven by a financial crisis. Bear Stearns collapsed in March 2008 and Lehman Brothers then collapsed in September. Banks refused to honor each other’s credit, shipping and trade halted, and tankers full of oil were stranded in oceans without the ability to dock. It was a totally different situation than today.

Today, oil has plummeted from $105.93 to $50.46 in the past eight months – a $55 drop. It has been driven by a geopolitical agenda of OPEC states (specifically Saudi Arabia) in direct defense of its market share in the United States, and with the goal of putting highly-leveraged and high marginal-cost producers around the world out of business.

Who are those? The US has drilled >20,000 new wells in the last 4 years. They now product 9Mb/d vs 10Mb/d in Saudi Arabia. Most of those shale oil companies are highly leveraged and in need of cash flow. As prices have declined, it now costs more to develop new wells than they are making on existing ones, which is unsustainable, and the low prices will start to squeeze many highly-leveraged producers out.

And who are the high marginal-cost producers? Venezuela is the highest and dangerously close to defaulting on its debt. Nigeria has had to raise interest rates and devalue its currency, as has Russia. Iran is a high cost producer flirting with economic and political unrest. And Brazil offshore and Canada’s oil sands operators are next in line of the highest marginal cost producers.

With Venezuela, Nigeria, Iran, United Emirates, Algeria and Kuwait all high cost OPEC states, the Saudi’s who are in charge need to walk a careful line such that their quest for market share doesn’t create war in the Middle East or an overthrow of power in Russia. If either of those events happen, the price of oil could soar, and we’re seeing anticipation of that this week and in the markets over the past 45 days.

Response by Alberta

When we look at our scenarios, a $50 price of oil regardless of global expansion/contraction is a tough scenario for the Government of Alberta. Our provincial government will move into cost containment mode (program cuts and salary rollbacks) and hopefully make incremental vs. drastic changes to their fiscal framework – something that is desperately overdue. Capital expenditures will be reduced but funded through deficits, as they have learned their lesson of the Klein years and understand that they the need to invest in infrastructure otherwise burden future generations. These are unpopular but essential moves, as Alberta needs to create stability in its financial model in order to provide long-term, sustainable funding to essential programs in the years ahead.

We live in a province that has been consistently out of balance. We have an energy strategy and an energy funding strategy. That is it. Our post-secondary strategy, our healthcare strategy, our diversification strategy, out budgeting strategy has proven that it cannot withstand a -20% change in the price of oil … and that is detrimental to the long-term health of our economy, our people and our communities.

I sympathize with our Premier who has inherited this problem of revenue volatility, as these are the same problem as we experienced in the 1980s, the 1990, the 2000s and now in 2015. And it will be the same volatility problem that we will experience in the 2020s, 2030s and 2040s unless we take action and show the political leadership necessary to make incremental changes to our tax structure, our savings policies, our discipline around expenditure growth, and our transparency around financial reporting such that the public can understand our financial situation and support him in making the tough decisions.

Impact on Business

There is a range of perspectives on what this will mean for business, from the Conference Board’s prediction of a recession to local predictions that we will weather through similar to 2009-2010. Given no one can accurately predict the price of oil or geopolitical stability, I would encourage business to focus on the reality that has emerged:

  1. We are in a provincial budget crunch and a global competitiveness crunch.
  2. Operating costs in the oil service sector are up 50% over the past 5 years with wage inflation running around 6% per year. This has created an overheated sector that is in need of correction.
  3. Capital expenditures are looking to be down 30%-35% in conventional energy business.
  4. Capital expenditures are looking to be down 15%-20% in the oil sands business.
  5. Layoffs have started, and we are anticipating the corporate sector will eliminate 25,000 – 30,000 jobs in 2015. This will impact out-of-province workers in northern Alberta and approximately 20,000 families and high paying jobs (mostly in the Calgary area) in the coming year.
  6. Our provincial unemployment rate will rise to 6.5%-7.0% which will have a socio-economic impact on our major cities, but will be felt to a much greater extent in southern Alberta.
  7. Household incomes will remain flat, but still at quite a relatively high level of disposable income.
  8. Household and personal debt will get concerning as rates flirt with rising in late 2015.
  9. Canadian dollar will continue to follow the price of oil, resulting in a boom in tourism and our export industries (forestry, agriculture, manufacturing, etc.) will expand with US/Global growth.
  10. $4 Billion of new construction in Edmonton’s downtown will go ahead as planned, as most projects are well underway and will continue through 2015-2016.

I know I am supposed to be the booster of our city and economy, but I am also a realist and I care deeply about the long-term success of our local businesses and the financial health of our families. My suggestion is that we should get used to this level of oil pricing at $50, but prepare budgets for $40 oil. This may sound lower than what you are hearing by most economists, but I was trained to always budget for reality and adapt to an optimistic environment, as opposed to having to do it the other way around.

So What Can You Do?

Given “hope” is not sound strategy, there are a few things we can all do to prepare ourselves and our businesses accordingly. You can take or dismiss these as you wish:

  1. Focus on your balance sheet, be it corporate or personal, and develop a plan that you can share with your bankers, accountants and other professionals in a proactive manner.
  2. Communicate openly with your employees and family about the situation. Reset their expectations and involve them in the level of preparedness that needs to be taken by everyone.
  3. Re-forecast with an understanding that population growth and income levels will remain flat.
  4. Those with strong balance sheets should be looking for opportunities and acquisitions.
  5. Those with high cost structures should address systemic and productivity issues with their business models.
  6. Advocate openly for the need to make incremental changes to our tax structure, which are needed, as our elected officials need the courage to do the right thing.

A Bright Future

National messaging about our province has been much bleaker than required. Yes, we need to: (1) Establish discipline around our expenditure growth; (2) Make incremental changes to our tax structure; (3) Institute a de-politicized savings/investment policy; and (4) Establish transparency around financial reporting such that the public can understand our financial situation and support the Premier in making the tough decisions. But the message must go further.

We need to communicate “why” we are doing this and not just running massive deficits like other jurisdictions. Our message needs to also say that “Alberta is committed to implementing these four steps over the next 2.5 years, and once we do this, our province will be: (1) Still the most tax advantaged jurisdiction in North America; (2) Blessed with an abundance of energy, food, fibre and materials that the world demands; (3) Armed with the strongest and smartest labour force of 18-36 year olds that now understand what it takes to be competitive; and (4) Filled with Canada’s best managed companies with solid business models and diversified markets that outperform whether the price of oil is $140 or $40.

Our message to the world, and to Albertans, needs always to be aspirational – we know the changes that we need to make, and then look out because before you know it, Alberta will be back out front leading the nation, bigger and stronger and more competitive, like we have been consistently over the past fifteen years.

We have work to do. Let’s make the changes. And then let’s get the plan underway.