Staff

In the nine years Earl and Alex have been in business, they have had four full-time employees. When they had to downsize several years ago because of a downturn in demand, they had to lay off these employees, who were never rehired. They hired Alex's sister to do sales, but she has moved away. Currently Earl and Alex are helped by Earl's mother, who handles the Sears catalogue orders, and by Alex's son, who is training to become a mechanic.
Working with family has been a success. Earl and Alex share the conviction that treating each other and their employees in a businesslike manner has contributed to their success in this area. If they were in the position to hire new employees, they would look for qualified staff who required little supervision, were committed to their work, had high work standards, and were capable of handling customers in a friendly manner. According to Earl, "They would have to be conscientious about their work. No short cuts on repair work, because we've established our reputation based on service and we don't want to lose it. They could not leave tools lying around because it's a reflection of sloppy work and gives the customer a bad impression." The difficulty in running a small operation arises when there is a serious illness or the owners want to take holidays. Earl and Alex have not had to deal with illness: Alex has taken only three sick days in the past eighteen years. But physical problems may increase

now that he is getting older. Holidays in the past have meant taking only long weekends, staggering their time off and covering for the other partner, or occasionally hiring previous employees or relatives to cover for them. They try to take a proper holiday every second year. Alex explains, "Since I'm the only mechanic here, its tough to take regular holidays. Our customers are used to quick repair service and I can't let my customers down." The benefit of owning the business is that the partners have the flexibility to take a few days off if business if slow. Alex is able to leave his son to handle the repairs on some Saturdays.

Competition

There are some competitors offering similar services in Fort Smith and the surrounding area. These businesses could take away business, but Lou's Small Engines has built up a fine reputation over the years, and this has served to protect their share of the market.
There is one small engine shop which sells Polaris snowmobiles in Fort Smith. Another sporting goods store operates in town, and two other sporting goods stores are in the planning stages. Alex notes, "Competition is getting stiff. One new store will be run by an ex-schoolteacher who plans to carry team sports equipment. The other store will concentrate on hunting equipment, but won't have our reputation." Earl adds, "We've built our reputation over a number of years and that includes Alex's good reputation in the repair shop. If customers have any problems we'll stand up to our mistakes and

make sure that the customer is happy. We're established in the sporting goods area. We know who are customers are and what to sell, so I don't lose sleep over these new competitors. I just make sure that we've got the proper stock and that we're competitively priced. We don't offer real low prices and hope to move a large volume of business because there aren't enough people in this town."
The repair shop has little direct competition. Alex comments, "I do not service cars or trucks. Local garages do that work, and they don't service small engines. It's an understanding we have with the other businesses here. The town is too small to support all of us in the same business."
When the territorial government seeks tenders on certain jobs, Lou's Small Engines also faces competition from Bombardier dealers operating in nearby towns such as Hay River and Fort Chipewyan. On the whole Lou's Small Engines has done well in bidding on government contracts. Earl explains, "Alex and I have established a minimum gross margin that we must earn on a contract. If we don't get that margin then I don't want the contract. If we're not going to make a dollar then it's not worth doing. We're in business to survive and make money." Advertising of the firm appears in the Business Yellow Pages and the local newspaper. In Earl's opinion, Lou's Small Engines does not need to advertise unless new inventory has just arrived or a sales event is planned. Most people in town know about the business already.

Financial Information

The purchase of Lou's Small Engines and Sports was accomplished through personal investment, a territorial government grant, and a bank loan. The territorial government has been very helpful over the years. Other government assistance includes a loan when Earl and Alex consolidated their debts and a grant to purchase a computer and training for Earl.
Earl is far from positive about their relationship with their local bank. He recalls, "The bank is very difficult to work with when trying to negotiate a loan. Ask any business; the bank won't lend money to anybody in town. You have to go in there and fight for it. They have to get permission from Calgary, but Calgary doesn't know our situation here at all.

 They just flat-out refuse so that's very, very hard. Even when the government approved our initial purchase of the business, the bank loan would not be processed until we received the government funds, which took a year."
The accounting system was recently computerized. Earl enters sales information on a regular basis and their Hay River accountant handles the year-end financial statements. Earl notes, "I had never dealt with computers before, so initially it scared me. Once I got into it, though, I got a handle on it. I will generate monthly reports that show sales by product, labour, and units costs, accounts receivable, and accounts payable. We will know what is selling and what isn't, so we'll know where we have to improve."
Five years of financial information is set out in the following table. 		The return-on-equity ratios, which compare profit before interest and taxes to total owner's equity, fluctuated throughout the period from 0% in 1988 to 18% in 1987. This variability reflects the turbulent local economy, which has included a recession. In 1989, for each $1.00 invested in the business, Earl and Alex earned .14 percent.
The sales-to-asset ratio fluctuated throughout the period in a narrow range between 1.34 times and 1.8 times. This ratio indicates the capacity to generate revenue based on the company's investment in assets. For every $1.00 invested in assets, Lou's Small Engines generated more than an equal rate in sales, with a high in 1988 of 1.8. Total salaries declined steadily throughout the five-year period, reflecting the company's general strategy of retrenching in order to survive the tough economic times.
Financial Information for Lou's Small Engine and Sports Limited
1985
1986
1987
1988
1989
Returns on Equity (%) 5 4 18 0 14
Sales/Assets (times) 1.67 1.34 1.34 1.80 1.60
Total Salaries ($000) 84 96 80 70 60

Reasons for Success

Earl and Alex define their business as a success because it is profitable, they enjoy it, and it provides a needed service to the community. Many factors have contributed to their success and to the longevity of their business, including excellent service on all their products, active care for customer satisfaction, a strong partnership, and their longtime residence in Fort Smith.
Alex comments, "It's fun because I get to play with the toys around here. I really like that. I can come here any time of the day or night and work. It's relaxing by myself and nobody bothers me. I'm glad our wives are working, though, because if they weren't working for the government, we couldn't support our family in the slow times."
Customer service and satisfaction is still their number one goal; Alex notes, "Customer service has always been first since Lou started the business. Our service is known across the North and people really appreciate it. We try to satisfy the customer in a timely manner. It is the service and the smile you give them that brings in new customers and brings back the old customers."

 Earl adds, "Customer service has to be your goal or forget owning a successful business. For example, there are six outlets in town that sell peddle bicycles. Every year we sell up to eighty bikes, which is more than our main competitor, the Hudson Bay. I use our after-sales service as the sales pitch to attract customers."
Another important factor in the success of their business is their strong partnership. Although they are related through marriage, each treats the other as he would any other business partner. Alex explains, "Business is business and pleasure is pleasure. We do mix the two, but we try to be open and honest. We've had our ups and downs but we have worked through them. We go hunting together and discuss business issues."
Earl adds, "I guess we just understand each other and get along. It helps that we had a natural division of duties from the beginning. Alex has always handled the repair shop and I had nothing to do with it. I run the front counter and handle sales. We did find out the hard way that we have to communicate all the time. Sometimes I get into a routine and forget about discussing a problem or I'll put it off for a while.

The problem continues and then all of a sudden, everything comes to a big crunch, then we have to sit down and deal with it. Partnerships can split over things like that, so communication is number one."
Finally, Earl and Alex go back a long way in Fort Smith. Alex points out, "People know me very well. I was practically raised with all our customers. They know my work is good and we stand behind it."

Areas of Improvement

The major challenge facing Lou's Small Engines is remaining competitive. It is crucial to watch the competition, and Lou's Small Engines' pricing strategy is fine-tuned as required, so that they remain competitively priced. As new competitors enter the market, this will become even more important.
Earl thinks that more training in the computerized bookkeeping package would be beneficial. "If more information is available to us, we can be on top of problems quickly. I think we are on the right track with the new computer." Alex would like to hire another mechanic because the work is very steady for one person. The pressure would ease his working hours, but the question is whether or not they can afford another person at this time.