‘Slowing down the beast’ at Watch It!

Step #3: Last time it was talk of to sell or to grow. Now it’s talk of improved efficiency

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We first introduced Watch It! as a ‘Next Step Company’ in October 2013. Click above to read the company’s steps so far.

The Meeting

It’s round two for Darren Bondar, the founder and CEO of Watch It!, and his team of advisors. And while the last meeting was defined by whether he wants to sell his business or grow it, in this one he settled on the fact that both outcomes can be served by the same strategy, one that’s built around maximizing the efficiency of his operation. “Positioning ourselves to digest and be more efficient and increase the overall profitability and same-store growth will benefit us either way,” Bondar says, “whether we sell or keep going.”

For the University of Calgary’s Derek Hassay, this focus on tightening the screws in the business was encouraging. “I was a little concerned about the conversation that he had been having about where does the business go and what does he want to do with it, but we got off that conversation and instead talked about what he can do to fine tune it – how to make this business even better. And I think there was a lot of enthusiasm about that.”

There was. “Sometimes it actually takes concerted effort to slow down the beast, if you will, as it does to step on the gas pedal,” Bondar says. “But that’s exactly what we’re trying to do – digest what we have and slow it down.”

The Key Takeaways

The first priority for Bondar is to focus on improving the operational efficiency of his business. “We have no plans for further growth,” he says, “unless we find a great location and a great franchisee. We just really want to focus on what we have, and we believe that by doing that we’re going to be able to improve every aspect of our company.” According to Hassay, that’s not always as easy as it might sound. “It’s easy to become distracted. Growth is different from profit maximization.”

A big part of that push will be a renewed emphasis on marketing and branding. “I got some great marketing ideas. That was the top takeaway for me – just on how to better position our brand and improve its visibility.” Those ideas included sponsoring amateur athletes, building out a Watch It! team of ambassadors and emphasizing the company’s Canadian roots and the fact that it’s celebrating its 15th anniversary this year.  “I think that really got Darren quite excited,” Hassay says, “and we felt good about being able to help a bit. We talked about sponsorships, and him getting excited about sponsoring events and athletes and activities, and that led into the conversation about this being his 15th anniversary. There really hadn’t been a plan for acknowledging that in things like his new catalogue, and I think he was going to jump on that.”

Bondar also needs to make sure he has the funding in place he needs to make those sorts of investments. True to form, MacPherson Leslie & Tyerman’s Doug Ballou was discreet when it came to sharing details about the meeting, but he noted that find that funding is a box that Bondar has to tick off in the near future. “One of the things on his list for 2014 is to put a new credit facility in place to provide some operating capital to the company. He’s got a couple of franchise stores that he’s buying back and will become corporate stores, and there’s also some renovations of leased-store premises. This year has some specific cash needs for the company, and we had a good conversation about structuring and negotiating new credit facilities.”

Holbrook was equally circumspect in discussing the content of the meeting, but he says that Bondar has an important – and difficult – choice to make. “It’s an interesting dilemma that Darren is up against, because at the end of the day he has to really look at the best way to build value in his business. He’s kind of gone back and forth between a franchise model and a corporate ownership model, and the reality is that he’s got some tough decisions to make around what’s going to be the most financeable and bankable arrangement.”

And while it’s no secret that labour costs are a concern for just about every business in Alberta, that’s particularly true for a retailer like Watch It! that’s looking to fatten up its margins. “While he doesn’t have high turnover,” Hassay says, “it is something to be thinking about longer term. You want to keep your best staff members, but how do you make them a part of your success so that they’re promoting the best lines, the most profitable lines, the ones that are a priority for your company?” The team of advisors discussed a range of possible solutions, including creating a more formalized HR process and an incentive program that more closely aligns the company’s interests with those of its employees. That could – indeed, should – give employees a reason to stay with the company longer, and the payoff attached to that, Hassay says, could be huge. “You’re moving yourself into the Starbucks kind of world, where people are being developed.”

The Next Step

Now that the plan has come more clearly into focus, it’s time for Bondar to execute on it. “We’re at the stage where now that this is the goal, let’s help move it forward,” Hassay says. “And I think the advisors had some input – they were able to demonstrate to him that we can help him.” A big part of that moving forward process will be the decision he makes on how to finance the plan – and Holbrook thinks he’ll have to make some compromises there. “I think he’s got to be practical. The real advice I gave him, I can’t tell you – but I think the tough part is that the practical decision may not be the optimal business decision. But as a banker, I’d suggest that practical is going to be the easiest way for him to sleep at night.”

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