Success in the U.S.: Be Prepared for Bigger Peaks, Deeper Valleys

By Ottawa Business Journal Staff
Wednesday, March 12, 2008
 

With the U.S. real estate meltdown, you might think that CKG International, a Canada based real estate consulting company that does about 90 per cent of business south of the border, would have nothing good to say about the U.S. market. That couldn't be further from the truth.

CKG has been in business about seven years and rode the wave of the U.S. real estate boom by carving a niche for itself in the luxury market, which is one of the few markets still growing today.

CEO Scott Goodfellow explained that a company doesn't have to go through all the complicated processes of work visas and setting up a satellite office in the U.S. to take advantage of a very lucrative market to the south; it's simply a matter of managing the risk.

OBJ: How is business doing?

GOODFELLOW: We're doing pretty good right now considering the state of the real estate market in the U.S.

Last year was really tough with a lot of people getting out of the business. They just didn't have the money they once had and the first thing to go in the budget is always the training. But now we're seeing that people are getting over that initial shock of "the sky is falling" and now they're thinking "OK, I really need to start thinking about my business again and I need help to get through this tough market."

OBJ: When did you decide to branch into the U.S.?

GOODFELLOW: Basically right from the beginning. That's just the way our company started. My father was working for another coaching company in the U.S. but based here in Ottawa because a lot of the work is done over the phone. He branched off on his own. So when I came on board, we identified that the U.S. was the place to go because the market is so much bigger, there is so much more money and opportunities there.

OBJ: How is having a majority of clients in the U.S. different from a business that deals mostly with domestic clients?

GOODFELLOW: I think in this day and age, going to the U.S. or even going global is more of a mindset. It's easier than ever to break through borders and you just have to look and see if it's aligned with your strategy. Is your organization ready to handle the extra business is probably the biggest issue, but of course all the legal issues are there as well.

It's really not as difficult as it appears with the North American Free Trade Agreement, as long as you're not working in the U.S. For instance, if you're looking to set up a branch in the U.S. it's a bit more complicated, but we even looked into that and it is doable. It's going to take us some capital, but the borders between Canada and the U.S. aren't that daunting. If you have a good business lawyer, it's not that difficult.

OBJ: If you don't have an office in the U.S., how do you attract clients there?

GOODFELLOW: The average income of our clients is about $1.8 million in gross commission and an average sales volume of $80 to $100 million. We do a lot with companies like RE/MAX, Century 21, Coldwell Banker, all the major brands bring us in to their companies to speak and we get a lot of clients that way. Referral is also a large part of our business.

We don't have salespeople on the road or anything because that would take a different business plan, they would need work visas and things like that.

OBJ: It seems that the peaks are higher in the U.S., but right now we're seeing that the valleys are a lot lower, too.

GOODFELLOW: Right. And if you're doing business in the U.S., you need to recognize that. We looked at it five years ago and said, we know this bubble is going to burst at some point, but what are the opportunities here? We knew that we always have Canada to fall back on. In any kind of hot market you want to explore that as much as possible, but you also have to look further down the road, at what cost is that coming with?

In the U.S. it's just a different mindset. They have that capitalist mindset where they want to have that edge and stay ahead, and for our industry, that's what we're offering.

In the past year we have focused more on Canada because the market is still pretty stable here. But in Canada, business people tend to be a little more conservative.

OBJ: So what tips do you have for companies looking to expand into the U.S.?

GOODFELLOW: First of all, you have to do your research. See what it's going to take to operate in that country from a legal standpoint. Also, keep in mind that there is way more competition in the U.S. so you want to see who your competition is and what is your competitive advantage, if you have any. Obviously, doing the market research is a big part of that. You have to do the research and see if it's viable – you don't just go on a hunch.

But really it just comes down to mindset. A lot of people are afraid (to go into the U.S.). I like to call it the "prettiest girl at the dance" scenario. Everyone is afraid to ask her to dance, but all you have to do is ask. As long as you have a solid strategy in place, it's really not that hard. We are also looking to expand into Dubai, Singapore, China. Those are hot markets right now.

THE EXPERTS SAY

The first thing I would tell a company looking to expand into the U.S. is to plan to make one single successful entry into the market. We don't want to have a failure and we don't want it to be unplanned. We want to do it one time and do it right.

Second, I would tell them that they should be careful to avoid one-stop shopping with advice. There is a potential for a need for advice from an immigration lawyer, a lawyer who forms business entities, and a U.S. tax accountant. A company may not need all three but at least the company needs to reach out and touch all three to determine how many of those they may need. This is where I see lawsuits or failures.

Say you decide to save a little money by not talking to immigration. You get a huge contract that for some reason requires you to send someone to the U.S. and that person gets turned away at the border. You've just lost the whole contract.

Another pitfall is tradeshows. If you are selling your service in the U.S. and the order is taken by a Canadian and sold back in Canada, you may be OK. But by and large, when you're at tradeshow in the U.S. selling a product or service, you're going to have a look from immigration. So if tradeshows are on the horizon, I would say to seek immigration advice.

Gene Moses, 
business lawyer, Law Society of British Columbia foreign legal consultant

Selling to the U.S. is a very easy thing to do and many Canadian companies already do that. Most start out doing sales in the U.S. through online sales or by going to trade shows. It's easy to see why the U.S. has a market that is 10 times bigger than Canada's. Tthey have a similar legal system and a similar tax system, so it seems like a natural fit.

However, it is important to understand that there are different rules. There are distribution issues, customs issues, transportation issues. Not knowing those can get you into trouble.

For instance, I had a client who was trying to sell his product into the U.S., but the size of his product meant he had oversize charges and it didn't make sense to sell to the U.S. However, if he shipped his product in two pieces, it got through no problem. I often see that, companies will modify their product in order to do business in the U.S.

For services, some need to be locally certified before they can sell their services in the U.S., like architects and engineers.

Even though I am a lawyer, I would say that finding legal advice is second. Your first move would be to make sure that you understand your market and your clients; find out if you really can do what you're setting out to do. Then you can get legal advice. NAFTA makes it really quite easy, you just have to make sure you are compliant so there are no surprises.

Barry Appleton, 
managing partner, Appleton & Associates International Lawyers

By Julie Fortier
Special to the Ottawa Business Journal