Business is hell

Written by Rick Spence

Bording Ostergaard was enjoying a rare vacation in Quebec’s Gaspé region with his wife Monica’s family when disaster struck his business in Edmonton. On July 12, 2004, he got an e-mail from an employee urging him to hurry back because his office had been wiped out. The day before, a “weather bomb” had pelted Edmonton with hail and ice, dumping four months’ worth of normal precipitation in just 60 minutes. Sewers had backed up, basements had flooded — and the tidy bungalow in south Edmonton that housed Ostergaard’s network-design business, Optrics Engineering, had been invaded by more than a foot of sewage-laden water. Equipment and inventory had been destroyed, workstations ruined and business records soaked—and possibly rendered toxic.

The weather bomb, with its long, painful fallout, wasn’t the first disaster to strike Ostergaard’s business, which he runs under the title of managing partner. Yet, he still believes he’s one lucky guy. Trouble brought his family closer, his firm is now thriving and he has learned to safeguard his company. “The secret to success in business is figuring out how to stay in business,” he says. “You have to figure out how to keep yourself at home plate so you can keep on swinging till you get a home run.”

Ostergaard isn’t the only growth entrepreneur to face daunting challenges. When we asked the PROFIT 100 CEOs about the worst moments in business they’ve ever faced, we heard heart-stopping stories of million-dollar fires, top managers dying, clients turning into rivals and other setbacks of every kind. We followed up on three of these stories. Not just because trauma makes great drama, or because trials bring out our courage and creativity. These are stories worth telling because they offer useful lessons to help other entrepreneurs protect themselves — and provide inspiration to keep on swinging.

The perfect storm: Optrics Engineering

Bording Ostergaard’s career has been anything but uneventful. After receiving an engineering degree in 1989, he landed a job at an engineering firm, only to be laid off just before earning his P.Eng. certification. Soon after, his car was rear-ended and rolled over, slamming Ostergaard’s head against the roof. Doctors doubted he’d last the night.

Although he was off work for two years, Ostergaard pulled through.

With the support of his wife, a teacher, Ostergaard recovered. He bought a 486 PC and became a computer consultant, and then teamed up with professional investor Harlan Hendrickson to sell Canadian mutual fund data. Ostergaard developed technical-analysis and fund-trading software for Edmonton-based FundSoft Information Systems, and even typed up the new funds’ statistics every week.

But Ostergaard and his partner had a falling out, leaving him with the software assets but no licence to work in mutual funds. Fortunately, he had developed another business on the side: Optrics Engineering (No. 44 on this year’s PROFIT 100), a computer networking and software consulting business that helps corporate clients across North America make better use of the Internet. “I knew that if something went bad in one business, I still had the other leg to stand on,” he says. “I never expected both legs to get chopped off at the same time.”

Ostergaard’s plan was to create a new investment business with another partner, a licensed mutual fund dealer, while building his networking business. But disaster struck again. As the new firm was starting up in 2001, Ostergaard’s partner, just 43, dropped dead while brushing his teeth. Losing a partner was more than emotionally traumatic; without his licence, Ostergaard’s firm couldn’t trade mutual funds. So, he closed that business and focused on the networking side, when suddenly the technology market melted down and clients across North America cancelled their Internet projects.

Starting over again with just an assistant to answer phones, Ostergaard did what he had to in order to keep the doors open: network consulting, applying security patches and setting up websites and e-mail servers. But he learned the value of hanging in. By the time Internet activity picked up again, most of his competitors were gone. “Suddenly, we were prospering in a market where other people were disappearing.” Slowly he brought in new blood: a salesperson, a technical consultant and an administrator, housing them in a 1,200-sq.-ft. bungalow he had bought as an investment property. (Since the company did its marketing and most of its consulting work through the Net, says Ostergaard, “no one ever came to visit us.”)

He had seven people on the payroll when the weather gods laughed at Edmonton’s short summer. On July 11, 2004, ice jammed the freeways, baseball-sized hail crushed crops and plugged drains, and flooding closed the West Edmonton Mall. When it was all over, Optrics employee Scott Young thought he’d drop by the office to make sure it was okay. He found more than a foot of murky, bacteria-laden water in the basement, threatening computers, wiring, inventory and files. All afternoon and till 2 a.m., Optrics’ staff and their spouses worked in heavy boots with rented wet-vacs to fight the flood. They saved what equipment they could, salvaged inventory, and cleaned desks and chairs and moved them upstairs. They even arranged to have the phone system repaired so the company could open for business Monday morning.

Ostergaard can’t say enough about the support he received from his staff and their families. Through a friend of a friend, he found 4,000 sq. ft. of space in a nearby office building (on the third floor!), but it wasn’t ready. For three months, Optrics’ staff worked cheek by jowl in one upstairs room, among piles of electronic components stacked on tables hastily bought from IKEA, while noisy demolition and recovery work went on downstairs. “Most employees would have left,” says Ostergaard. “We were hanging on by our teeth.”

He himself was looking after sales by day and cabling the new office by night, in between scouring eBay for discount phone systems. His worst moment: finding out that his insurance agent had forgotten to arrange sewage-backup coverage. (Ostergaard is still negotiating for compensation through his agent’s errors-and-omissions insurance.)

Funniest moment: drying out musty financial records in the house’s oven. “We spent three weeks cooking the books,” says Ostergaard. Overall, he figures the disaster cost him $100,000 in damage and lost income. But it also reminded him of what’s important. Since the flood, he has made a number of key employees partners in the business: “They demonstrated it was their company, and now they actually own part of it.”

He has learned from his experiences. He backs up all his customer and financial data off-site, and even stocks backup servers and a second phone system in case of hardware failure. And he recommends that business owners hire a professional to go over their insurance policies to ensure their coverage is complete. Even that vacant bungalow serves as backup office space. If Optrics’ new building burns down, he says, “I won’t be standing in the parking lot, wondering what to do next.”

With 12 employees now and 2005 sales of $3.4 million, Ostergaard says Optrics has more business than it can handle. Its clients include firms with such familiar acronyms as CBC, CBS, HP, JVC, RBC and WebMD. His biggest headaches now: the soaring loonie and finding qualified staff amid Alberta’s oil boom. “I’m a lucky man,” he insists.

His advice for other entrepreneurs coping with potential disasters? “Always have a Plan C in case Plan B doesn’t work out.”

Zap! You’re frozen: Energy Savings Group

Deregulation created Rebecca MacDonald’s success as co-founder of Toronto-based Energy Savings Group (No. 82). She never suspected her biggest nightmare would be re-regulation.

MacDonald, now executive chair of Energy Savings, started the company in 1997 to give Ontario consumers and small businesses a choice when buying natural gas. They could continue to pay their gas supplier every month, based on ever-changing prices, or they could lock in the price for five years by buying a fixed-price supply contract from Energy Savings. (It buys the energy in advance at bulk rates, locking in its profits.)

By 2001, when it went public on the TSX, Energy Savings had 217,000 customers under long-term contracts. Meanwhile, Mike Harris’ Conservative government had broken up Ontario Hydro, the province’s debt-ridden electricity producer, and announced plans to deregulate the electricity market in May 2002. “We were very enthusiastic about electricity deregulation,” says MacDonald. To lead the charge, Energy Savings hired a four-man executive team from Enron Canada.

By November, Energy Savings’ door-to-door sales teams had sold electricity contracts to 100,000 households. Then the roof fell in. In the hot summer of 2002, electricity prices soared, souring consumers on deregulation. On November 11, Harris’ successor as premier, Ernie Eves, suddenly reversed course and froze electricity prices through 2006.

Free-market thinkers and environmentalists alike attacked Eves’ reversal, which discouraged energy conservation and dissuaded private firms from building new generating plants. But no critic was angrier than Rebecca MacDonald, who complained, “Unfortunately, I didn’t know we’d have a premier who’s a complete lunatic.”

She’s still angry. Noting that the move boosted Ontario’s debt by nearly $2 billion, she calls it “the most insane decision any politician ever made.” With rates frozen, consumers had no reason to buy electricity contracts. Energy Savings’ stock plunged 25%, wiping out $400 million in market capitalization. “Everyone was demoralized,” MacDonald recalls. Some suggested laying off all 25 members of the electricity team. “There was anxiety on a lot of people’s parts,” she says. “But I decided to redeploy them to other jurisdictions.”

Indeed, Eves’ backtracking inspired MacDonald to act on a long-held plan to diversify. “This taught me one thing,” she says: “Never count on one jurisdiction.” Within two months, Energy Savings was selling gas contracts in frigid Winnipeg. The company now operates in B.C., Alberta, Manitoba, Ontario, Quebec, Illinois and New York. While U.S. sales volumes are still low, MacDonald says, homeowner behaviour in the U.S. Northeast is much the same as in Ontario, “Customers who sign a long-term mortgage like a long-term solution to energy costs, too.” Half of Ontario’s gas customers now buy on five-year contracts, and MacDonald expects U.S. rates to be similar. She’s also eyeing expansion to Ohio, New Jersey, Maryland, Virginia and Texas.

Her firm’s door-to-door sales tactics make it easy to take on new markets. Drop an experienced team from another state or province into a test site and start ringing doorbells, and you learn quickly if a market is worth developing. Today, Energy Savings has more than 1.2 million customers, four times its 2002 total. Indeed, MacDonald now wishes the company had expanded sooner. “If we had diversified, I wouldn’t have had so many sleepless nights.”

Back in Ontario, meanwhile, Liberal Premier Dalton McGuinty is re-deregulating the electricity market, and Energy Savings is back selling contracts. One final benefit of Eves’ folly: most of MacDonald’s competitors are long gone.

No way out but through: Mercurial Communications

Give ’em a taste of success, and many entrepreneurs forget the tough times. Not Chris Coldwell, president and CEO of Victoria-based Mercurial Communications Inc. (No. 30). He’ll never forget the worst moments of his career, because they helped him become a better business leader.

Coldwell, a software developer who founded Mercurial in 1996 because he didn’t want to work for other people, never meant to be a business leader. “I ended up having more work than I could handle myself, so I started hiring people,” he says. “It just kind of got out of hand.”

By mid-2001, Mercurial had more than 40 employees creating software code and new technologies for local businesses and giants such as AOL and Microsoft. Then came the dot-com implosion. “Within a month, we lost all our major clients,” says Coldwell. “A month later, we lost our small clients.”

Coldwell had never had to do cash-flow forecasts before. Now, he was doing them daily. “It was scary,” he says. “I started realizing that I wasn’t going to be able to pay people.” He tried to delay layoffs to the last possible moment, which he now realizes was a mistake. The ice-cold result: he had to fire people just before Christmas. “I felt like the Grinch,” he says.

By spring, only Coldwell and one staffer were still toiling in Mercurial’s 5,000-sq.-ft. office. Coldwell sold the furniture and started working from home. He owed more than $100,000 to contract employees and creditors, and was living off his credit cards. “I was advised to pack it in,” he says. “But I didn’t want to leave anyone in the lurch.” In a tight-knit community like Victoria, reputation is all you have, he says. “There was no way out but through.”

Coldwell recalls this time as “having a 24-hour panic attack for about three months.” His best therapy was time with his two children, he says. “Colouring kept me grounded. All I had to do was stay within the lines.”

But he never felt right trying to launch a comeback from his home. Recalling how business had picked up when he had moved into his first office, Coldwell talked a former landlord into giving him an 1,800-sq.-ft. office for free. The deal: free rent for six months, half rent for three months, then three-quarters rent, then full rent — and then double rent till all was paid back.

With new confidence, Coldwell worked the phone, calling clients, prospects and strangers across North America. He’d tell them what he was up to, ask what they were hearing, angle for contacts who might be planning projects and generally let people know that Mercurial was alive and kicking.

As Woody Allen says, 80% of success is showing up. After two weeks of networking, Coldwell won a subcontract from a California software developer he had called just to say hello. The client had suddenly landed an 18-month contract for insurance software, and was 40 people short. Jubilantly, Coldwell called his former employees back to work. Most returned eagerly, some of them quitting other jobs to return. “It was crazy, wonderful,” says Coldwell. “Just how it used to be.”

Coldwell hired back nearly all his former employees, and paid off those who were owed money. But even with business bustling again, Coldwell maintains his networking regimen. “It’s something you can never stop doing,” he says.

Today, Mercurial has $9 million in revenue, 115 employees, disciplined finances and a methodical sales effort. “It’s a real business,” says Coldwell. He looks back on Mercurial’s darkest days as a time of tears, anger and personal growth. And he’s grateful that he got to learn about cash flow, planning, insuring receivables, managing stress and always, always selling — “things everyone else seemed to know except me.”

Originally appeared on PROFITguide.com