Raven’s Sun Enterprise Ltd. 1. Introduction On the moming of April 18, 2015, Mike LaPlante, founder of Raven’s Sun Enterprise Ltd. in Calgary, Alberta, arrived home weary after a busy night shift at the fire department. Following an unexpected economic slowdown coupled with unseasonably cold temperatures over the winter months, he had to regroup. How could he maximize profits at his new business while keeping his {job at the Calgary Fire Department and still manage to free up time to spend with his family? Mike wanted to continue working for the Calgary Fire Department while running his ownbusiness on his days off. He and his wife, a professional with her own career, had two children, and they shared child-care responsibilities. In May 2014, his wife had been about to go on a year-long maternity leave, so he had had time to launch his company. He had been thinking about starting up an owner/operator transport business for alittle over a year and had drawn up a full business plan around the concept of a flatbed (a truck with an open body) “hot shot” service, meaning dispatching within the hour. He knew there was a market for this type of transport service and believed it could be profitable. Since it had reasonably low start-up costs, he and his wife had decided to fund the business 2. Raven’s Sun History and Development Raven’s Sun was founded in May 2014. It is an owner/operator transport company that now serves the non-residential construction industry after moving away from the highly competitive unconventional oil and gas industry it initially served. The company provides transportation of cargo as needed by clients and is available for both delivery within the hour and scheduled deliveries (next day or beyond), Raven’s Sun started with one 2014 Dodge 3500 DRW 4x4 truck and a 36-foot trailer with 32 feet of lat deck equipped with ramps. Mike had decided to purchase new equipment to gain the benefits of lower unscheduled maintenance costs, a warranty, engine options, and improved appearance and safety. The truck was a Laramie edition, fully loaded with all optional equipment and providing comfort, buyer appeal, and a higher resale value. Mike was the sole owner/operator of Raven’s Sun with no other employees or outside help. He soon realized that, unless he also purchased a crane, he would be limited to sites with equipment for loading and unloading cargo from his trailer and to normal business hours, i.¢., 8:00 a.m. ~3:00 p.m. Although he didn’t want to assume unnecessary debt, after researching various options,he had decided to purchase a two-ton crane that he had mid-mounted on his trailer for better utility When Mike studied his four key success factors (Exhibit 1), he realized that, in one way or another, they all related to time management. If he could not make deliveries on his days off from firefighting, he could not gain the necessary reputation for being reliable and available. He could not work too many hours because that would compromise his safety and the quality of his family life, both of which he valued highly. The deliveries he made had to be profitable. Mike therefore realized that, before he could decide on the best operating strategy, he had to analyze the value of his personal timeBefore drawing up his business plan, Mike had used publicly available data to carry out an in- depth study of the transportation industry (Exhibit 2). Although there was not a lot of public owner/operator information available, he did find data that supported his business strategy. Within its first three months of operation, Raven’s Sun had shifted gears to begin serving the non- residential construction industry within and outside the city. The company operated on most of Mike’s weekdays off from the fire department and generated consistent revenues. This was perfect for balancing work and family responsibilities, as Mike was still free to spend most weekends with his family. As a result of the economic downtum, however, the business slowed down substantially in October 2014, and Mike's initial financial and business forecasts proved unreliable. Mike realized he would now face stiffer competition from other trucking companies. November, December, and January were also slow due to unseasonably low temperatures and theholiday season. Mike was forced to re-assess his financial situation, strategy, and marketing approach 3. Financial Analysis Given Mike's business strategy and key success factors, it was clear that Raven’s Sun required a detailed financial analysis. There were difficulties, however. The different charges and units of measure for different services made it difficult to find a common unit of measure. Analyzing profit potential was also difficult, as the business could only be rua on Mike’s days off from the fire department, Mike divided his revenues into two categories: 1. In-city deliveries (<50-km radius): billed by hourly rate plus loading/unloading rate and waiting time Long-hau! deliveries (>50-km radius): billed by kilometre rate plus loading/unloading rate and waiting time It was not cost effective to charge by the kilometre for in-city deliveries given the time spent at stop lights and loading/unloading. Charges for in-city deliveries were therefore based on a minimum of two hours at an hourly rate plus a one-hour loading/unloading charge Long hauls were trips with a driving radius of more than 50 kilometres and were charged based on distance traveled (at a rate of $1 per kilometre) plus a one-hour loading/unloading charge. 3.1 Cost and revenue data 3.1.1 Costs Mike decided to use number of working days as his measure of volume. For in-city deliveries, he assumed two deliveries per day, each a 100-km round trip. For long hauls, he assumed the equivalent of a one-day Calgary-to-Edmonton round trip of 600 km, but these couldn’t be done before night shifis. Estimated costs are shown in Table 1 Table 1: Costs per 100 kilometres Fuel Vehicle Truck ties | Trailertires | Fuel additives | Food maintenance $22.30 $120 s170 $1.40 ‘$0.70 $5.00*The fuel cost estimate assumes a price per litre of 91 cents and consumption of 24.5 litres per 100 km Costs per month: $3,500 3.1.2. Revenues: In-city and long hauls For in-city deliveries, Raven’s Sun charges $70 per hour for a minimum of two hours per delivery plus a loading/unloading charge of $80 per delivery. For long hauls, Raven’s Sun charges $1.30 per kilometre and a loading/unloading charge of $80 per delivery Table 2 shows Mike's estimated delivery demand for the next six months for both in-city deliveries (Panel A) and long hauls (Panel B). Table 2: Estimated delivery demand for the next six months Panel A. Estimated demand for in-city deliveries uy ‘August [September | October [ November_| December Trips, each t00km and | 22 2 20 2» 19 a Yeday Days worked per} 14 "1 10 10 95 as month Tota ken | 9.200 2,200 2,000 2,000 4,900 4,700 driven Panel B. Estimated demand for long-haul deliveries ay, ‘August [September | October | November_| December Tips, each 600kmand) 6 6 6 6 5 5 t day Days: worked per 6 8 6 6 5 5 month [7% 3.600 3,600 3,600 3,600 3.000 3,000 4. Mike’s Availability and the Poss ty of Hiring a Driver Mike’s schedule also plays a significant role in the analysis. Below is a table showing the days he is available to work for Raven’s Sun over a two-week period. “Unavailable” means that he is scheduled to work for the fire department during the day. “Available 8 a.m. —4 pm.” means he is scheduled to work a night shift for the fire department, so he could work for Raven’s Sun, but not do long hauls. To allow him to spend time with his family, Mike’s ideal schedule would be to operate Raven’s Sun twelve weekdays a month. Table 3: Mike's Fire Department Work Schedule Week Week 2 Monday, Unavailable AvaiableTuesday Unavailable ‘Avaiable Wednesday Available 8a.m.—4p.m. | Unavailable Thursday Avaiable8a.m.—4p.m. | Available 8am.—4p.m. Friday Available Available 8 am.—4 p.m. Saturday ‘Available Unavailable Sunday ‘Available Unavailable Mike realized that simply indicating his availability for deliveries did not fully account for his scheduling challenges. He recalled one night when he was driving back to Calgary from Edmonton on a deserted highway. At 1 a.m. he was startled by a backfire and realized that he could not remember the last few seconds, Afraid that he had fallen asleep, he pulled over at a rest stop and slept for an hour. He could not recall any similar incidents as a firefighter, but he was unwilling to risk such a possibility by filling every available time slot with deliveries. Already there had been a few weekends when he had had to postpone family outings, such as visits to the zoo, because he needed to rest or catch up with paperwork. Mike wondered if he could free up some personal time by hiring a driver and focusing on managing and marketing his business, as those tasks could suffer if he continued to be the only driver. 5. Conclusion It was 11:00 a.m. on April 18, 2015, and Mike was exhausted after his night shift at the fire department. His wife was about to have their third child, and he had to find a way to juggle his {job with the fire department and his new transport business while still spending quality time with his family Before launching Raven’s Sun, Mike had taken an introductory managerial accounting courseand recalled something called a cost-volume-profit (CVP) analysis that could help him with the quantitative aspects of his decision. He would have to combine this analysis with safety, work- life balance, and the key success factors in his business plan to come up with a solution thatwould best suit him and his family. Since he was off the next day, he decided to devote the entire day to conducting an in-depth analysis. Should he focus solely on in-city deliveries, on longhauls, or on acombination of the two? He needed to find a solution quickly, before the baby arrivedExhibit 1 Mission, Vision, Value Propositions, and Key Success Factors The original business plan contained mission, vision, and value statements providing a general direction for the business. The core values reflected Mike’s personal beliefs — regarding safety, for example — and were never revised. But after Raven’s Sun had been in operation for a few months, the company’s mission and vision statements were revised as follows, giving the company a clear direction. Mission: To create a new niche in the trucking sector of the transportation industry by providing a diverse selection of equipment and capabilities that will adequately service the transportation needs of multiple industries within Alberta and its neighbouring provinces, British Columbia and Saskatchewan. This was an ambitious mission statement for a company with just one truck and a part-time driver and demonstrates the difficulty a small business owner can have in articulating their strategy. Vision: To capture a profitable share of the trucking sector of the transportation industry and to sustain profitability and growth for Raven’s Sun. Value propositions: To be available to customers and to transport their cargo according totheir schedule, ina safe, professional manner, with an emphasis on personalized customer service. Key success factors Based on Raven's Sun’s mission, vision, and value propositions and Mike’s analysis of the transportation industry, he developed the following four key success factors * Operate efficiently in selected markets to support competitive pricing and an acceptable retum on Mike’s investment of time and money, given the risks involved * Quickly build a reputation among clients for being able to meet their needs for reliable and timely deliveries + Operate safely ‘+ Maintain an acceptable work/life balanceExhibit 2 Market Research Study ¢ The demand for drivers was incre: ing + Trucking demand was increasing ‘Flatbed opportunities were expanding «Alberta was one of the top three provinces for domestic trade activity ‘© Construction materials were the main commodity carried in domestic trade + Local freight haulers would benefit from strong non-residential construction activity and the resulting need to transport building materials Mike also learned that owner-operators had to deal with the following issues: © Stress © Long hours ‘© Variation in costs * Highly competitive environment. Pricing was competitive, and clients tended to hire haulers with a good track record who they knew to be reliable and available when needed, This made it difficult for new owner/operators to break into the market. Raven’s Sun’s original target market was the unconventional oil and gas industry, but economic conditions pushed the company to change its focus to the non-residential construction industry. Research showed that real capital spending on manufacturing plants and other industrial buildings dropped by 10.5% in 2014, but there was a 2.7% increase in overall non-residential capital spending. In 2014, the commercial segment was the one bright spot in the non-residential construction industry, with real commercial capital expenditures increasing by 8.5%. Marketing initiatives indicated that the oil and gas industry was a harder market to break into because companies needed to be added to vendor lists and have additional safety training and field operation awareness. It was clear that conventional oil and gas reserves were declining and there were increased costs associated with exploring for the remaining reserves due to the boom in the unconventional oil industry and its impact on the work force and rig availability. Unconventional production would soon dominate the Canadian market and oil sands would play an increasingly important role on the global stage. Based on this information, Raven’s Sun originally decided to focus its efforts in the unconventional sector of the oil and gas market such as companies operating in oil sands and coal bed methane. Mike also realized that the non- residential construction market and the oil and gas market could complement each other by off- setting activity levels throughout the year.