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  A year ago, in the winter of 2011, I realized that my increased sales force was generating a lot of routine work—writing contracts, sending finish samples to clients, keeping track of payments. We had systems in place, but they took a lot of my time. I decided to hire an assistant. I’m always looking for the easiest way to fill a position, so I turned to my wife. She knows everyone. As soon as I described the problem, she had a person in mind: her friend Emma Watson. Emma and her husband had moved to the area a few years before, after he had retired from the diplomatic corps. She was looking for a way to supplement his pension.

  I hired her and she was perfect: hard-working, smart, and diligent. I worked with her closely as I trained her, and bounced ideas off her whenever I wanted a fresh opinion. Unlike the rest of us, she had not spent her whole life in woodshops and had an outsider’s perspective.

  When I hire someone, my first consideration is whether they can perform the specific job. People are complicated, though, and often have personalities, skills, and experiences that aren’t relevant to the positions I hire them to fill. In large organizations, nobody cares whether an employee might have the ability to perform more than one job—if a problem needs attention, another person will be hired to solve it. In a very small company like ours, employees’ secondary abilities become an inventory of possible new functions for the business. Suddenly a boss can consider a course of action that would otherwise have been out of reach.

  I mention to Emma that we got an inquiry from Kuwait and wonder whether we should bother with it. Her reaction surprises me. Why don’t we contact the U.S. Trade Representative in Kuwait? I never considered asking the government for help and had no idea where to start. But Emma is familiar with the way things work in our embassies. She volunteers to get in touch with the Department of Commerce people in Kuwait. I tell her to go ahead. If their response is promising, then I’ll decide whether to devote any of our limited resources to developing it. Emma goes to it with a will. She is seizing the initiative, something that my other employees have rarely done. She’s only a part-time administrative assistant, but she’s proving her usefulness by increasing her own responsibilities, may-be with hopes of a full-time job.

  I’ve employed more than a hundred and twenty people over the years. I’m willing to assert that you can divide employees into two groups: the ones who want to perform their job competently then go home; and the ones who are always thinking about ways to get ahead. In my experience, the first group vastly outnumbers the second. One of my biggest problems, as a very small company, is to find ways to advance people. We aren’t large enough, or growing fast enough, for a career path to be available to every employee. Instead, the shop is divided into various functions, people are hired to do that work, and they are going to stay in the same position unless a vacancy becomes available. And that’s not common, particularly for the top-level jobs. Those are filled with people who have been with me for a long time and show no desire to leave. I know that some lower-level people are unhappy about this, but I don’t know what to do about it. The size of the business determines our resources for trying new ideas and exploring other markets. But restricted resources limit our ability to increase our size. Catch-22, small business edition. The solution is to be more profitable. Profits become a war chest that could fund further expansion. But I’ve been particularly bad at making profits, barely able to find the cash to survive. Without an extra cushion, I have no way to move in new directions. It’s nice to get good ideas, but I need to think carefully about potential costs to the company and whether we can afford to pursue the opportunity. I have often found myself in the position of having to squash an employee’s enthusiastic suggestions that we do this or that because of lack of resources. It is discouraging to the worker, and discouraging to me. And I’m sure that it is one of the main reasons that I haven’t seen tons of initiative from my people—I haven’t been able to respond to their suggestions, so they stopped giving them.

  I end up Skyping with the guy in Kuwait, who seems credible. I send him a short proposal, with some examples of our work and approximate pricing. And then I sit back to see what else Emma comes up with. If we start exporting, she will be indispensable, and we’ll have access to a very large new market. Everybody wins! I have some doubts about servicing Middle Eastern customers—post-sale care might be a problem—but I’m willing to pursue the idea. The cost of finding out more is very low, and I have some cash on hand.

  The approach from Kuwait is not the only foreign opportunity to consider. In the spring of 2011, a guy called me from New York, asking if I had any interest in doing custom work for his company, a large European furniture manufacturer. (I’ll call it Eurofurn, not its real name.) I told him that it depended on what they had in mind. He told me more: Eurofurn had been around for more than a hundred years. It had outgrown Europe and expanded to the Far East, Australia, South Africa, and the Middle East. Now they were moving into the United States and had opened a New York showroom. My caller, whom I will call Nigel, was an Australian who had been put in charge of American operations. He needed to respond to Eurofurn’s clients’ requests for custom items. That work could be done at their German factory, but shipping time was an issue, so he had turned to Google to find a custom table maker in the United States.

  Nigel came to see our operation in May 2011. I gave him the standard tour: how we designed our work, how we modeled it with software, and how we tracked orders. We toured the shop floor, concentrating on our CNC and veneering capabilities. He was impressed, or so he said. On a shoestring, we had put together sophisticated capabilities for a small company.

  I wanted to get a better sense of the Eurofurn product line, so a couple of weeks later I went to Manhattan. Say these words to yourself: “European furniture showroom in Midtown Manhattan.” What pops into your head? You probably got it exactly right. A large room in a historic building, with a stunning view of the city. Super sleek tables and chairs, computers everywhere, a crew of young, stylish workers. English is spoken with attractive foreign accents. A well-funded, impressive operation.

  All their designs were quite modern, mixing metal elements of polished stainless steel and chrome with woodwork. The choice of wood and the design of details were understated—no exotic grains, but very clean, uniform, and very well made. The metal components were beyond our capabilities, but we could produce most of the woodwork. It would be different from what we usually make, but we could do it.

  Nigel and I discussed what came next. I walked up to one of the chairs around their conference table and pulled it back—an unconscious gesture on my part. To my surprise, the chair didn’t move. No casters. It weighed close to fifty pounds. It had a swivel seat, but the chair wasn’t designed to be repositioned. I said, “Here’s the first thing you need to change for the American market. We like our chairs to roll around.” He sighed. “Yes, we have heard that opinion. We prefer for the chairs to stay in place around the table. Much neater.” He rotated his chair’s seat, sat in it, and rotated back, without shifting it. With a graceful move, he showed the American how it’s done. In Europe, anyway.

  It underscored what I had been wondering: don’t they have all their own products and operations worked out already? This is a very large, very old deep-pockets operation with a worldwide presence. What do they want from little Paul Downs Cabinetmakers?

  Nigel had an answer. Eurofurn expected that a successful entry into the U.S. market would take several years. Eventually they would need a factory in the United States. Their manufacturing sites in other regions of the world were begun as joint ventures with local companies. When they moved into a new country, they identified suitable partners and worked with them to get the factories up and running.

  For their American effort, they wanted a very small company, for whom even a low volume of orders would be significant business. It would take a while for the business to ramp up. If they went straight to a large, established co
mpany, they would not be able to provide enough work, initially, for the partner to treat the orders with importance. And they also wanted a company that understood the highest levels of craftsmanship. They would accept nothing less than work indistinguishable from the output of their German factory. At the end of this meeting, I was enthusiastic about the possibilities and flattered to have been chosen.

  Back in the office, I found lots of information about Eurofurn on the Web. News reports put their sales at a hundred million dollars per year. Eurofurn’s own site emphasized the partnership between factory management and the workers, their profit-sharing program, and their care for the environment. It especially emphasized the industrial designers who came up with the products, presenting them as heroes of creativity. It was clearly a great company.

  The relationship developed throughout 2011. During that same time, we were running flat out on other projects, but I made sure that we responded quickly to Eurofurn’s pricing requests and promised extra fast turnaround. In the fall, we got our first orders, totaling $8,111.

  Our interactions with Eurofurn are oddly difficult. The drawings they send with quote requests are sometimes incomplete or make no sense. Even worse, they don’t seem to have any uniform way of naming their jobs. We can’t tell whether a given pricing request is a revision to a previous job or something entirely new. Sometimes a quote request has a customer name, sometimes just a date, sometimes what appears to be an invoicing number. There’s no consistency, even on different items for the same customer. I’ve been sending Eurofurn inquiries to Dan Smolen—I thought that they would be relatively easy to sell—but the confusion drives him crazy. I wonder how they managed to keep track of orders going all around the world.

  Despite these issues, Nigel seems to be happy with the way things are going. The New York sales staff found that American buyers demand more customization than the worldwide clientele, and some of Eurofurn’s designs are not a good fit with American wiring practices. We’ve taken some orders for pieces that solve these problems.

  At the end of February, I make another visit to New York. Since our very first meeting, Nigel has been dangling the possibility of a significant increase in order volume. Eurofurn wants to move manufacturing of its wood tabletops out of their home plant, and top management has discussed bringing that work into my shop. I have the space and see it as a way to increase my sales volume without ramping up ad spending.

  Nigel and I discuss the prices we have quoted him for custom work. Why did we charge so much, he asks me, when he was getting much lower pricing for similar items from his factory in Asia? I tell him that there are two problems: we don’t really have good information about exactly what the details consist of, because we haven’t been provided with any engineering drawings. And we also get no opportunity to produce anything in volume, so we cannot operate efficiently. I assign our highest-skilled workers to Eurofurn jobs, as the look they want is difficult to build without some very sophisticated machines that we don’t have. He admits that his Asia factories are actually running an assembly line and took several years to arrive at low prices. But he can’t give us large quantity orders until we bring the price down. I can’t bring the price down without more orders. I’m not going to borrow money to buy the extremely expensive machines we’d need without some commitment on his part. I ask him straight out: “What kind of order volume do you anticipate per year?” He answers: “I think we could be doing at least two hundred and fifty thousand dollars this year, and one million in 2013. Can you get your plant up to speed by then?” Frankly, I think his numbers are preposterous. I can’t see how his office could even keep track of that many orders. But this isn’t the moment to challenge him. He’s bullshitting me, I’ll bullshit him right back. “Of course we can do it,” I tell him. “But I need to get better information from you.” I want to see the engineering drawings for the work we are meant to produce. What I’d really like would be to get into his factory. I ask him, “Can you send me some pictures or video of what is happening at your home factory? Or can I come over to see it in person?” That would be best. I’ll see the machines, get a good look at their workers, and see what we’re competing with.

  Nigel agrees to ask his superiors about a visit. I leave the meeting in a mixed mood. I feel that his projection of sales volume is nonsense, and I know that without significant outside investment I won’t be able to handle their million dollars in orders by the end of the year. I don’t have the capital to buy the machines that I think we will need, or any good way to interview, hire, and train the additional staff. It would be a huge stretch for us. But now isn’t the moment to put the brakes on. Neither of us has made any real commitment yet. I might as well keep going and see what happens.

  MARCH

  DATE: THURSDAY, MARCH 1, 2012

  BANK BALANCE: $145,855.88

  CASH RELATIVE TO START OF YEAR (“NET CASH”): $8,701.56

  NEW-CONTRACT VALUE, YEAR-TO-DATE: $407,271

  New orders arrived at a nice pace in February: twelve jobs worth $213,669. Nick continued as best salesman, closing six deals worth $150,104. Dan did four orders worth $37,768. I sold two, adding $25,797 to the total. Dan still trails Nick by a wide margin, but the total for the year exceeds my target. If current trends continue, I’ll need to figure out what to do about Dan, as he’s not producing at a rate that justifies his salary. The conventional fix for a slumping salesman is to pay him only with commission or get rid of him. Nobody would be surprised if I fired Dan—that’s what bosses are supposed to do—but I just don’t have the stomach for it. I can picture how unpleasant it would be to announce a decision that will probably destroy Dan’s life. He’s new to the area, with an unemployed wife and four small kids. He needs a stable paycheck. It’s in my power to provide that or take it away. Nick is carrying the load for both of them, so I just let the whole thing slide.

  Our cash position is solid. In the past four weeks, we took in $232,475. Some of this included payments for jobs we did for the federal government in 2011. The government pays the whole contract amount thirty days after delivery, and we had shipped a couple of jobs to the Air Force in December. The rest is incoming deposits. We spent a good deal of money in that same period: $185,782, or $9,289 a day. More than I wanted, but the overall picture is good. We’re ahead for the year.

  Since we have cash, I decide it’s time for the company to start making interest payments on the money it owes me. That number is substantial: $387,098. Most of that dates back to my years with The Partner and before. I would make loans to the company whenever the business ran out of money, once or twice a year. Incoming payments have always been unpredictable, but rent and payroll arrive like clockwork. I squirreled away as much of my pay as I could and usually had between ten thousand and twenty-five thousand dollars in a personal account, separate from the money I used for family expenses. I had no other financing options. Before The Partner, my books were in such disarray that no bank would lend me money. I remember well the humiliating day in 1994 when I dressed up in my best suit, sat down with the manager of my bank, and was told that I was far too risky for a loan. So I financed the company out of my own pocket. During the sixteen years I was sole proprietor, I loaned the company $167,650 and was paid back none of it.

  The Partner brought some change. His wife sorted out my books, but she died before she could teach me to manage cash. Bookkeeping, which records what has happened to a company’s money, and cash management, which looks forward to figure out what is about to happen, are very different. Bookkeeping and accounting are standardized. Cash management is not. Amazingly, it’s up to each company to invent its own methods of predicting cash flows and planning expenditures. The Partner had no idea how to do this. He left it up to me, and my method was to watch my bank balance, make payroll first, let other bills accumulate, and hope for the best. We frequently ran short of cash and had heated discussions about how we had gotten into this fix, but we never
came up with a solution. He didn’t think that losses were unexpected for a growing company, and I didn’t know any better. Our agreement was that we would each contribute equal amounts when the company needed more cash. Before the crash, we made twenty-one loans, averaging $31,776. We managed to repay ourselves just nine times, with an average repayment of $20,286. In 2005, we opened a bank line of credit for one hundred thousand dollars. In those days, banks handed out loans like candy to any company that showed revenue growth. They were eager to give us money, as long as we pledged our personal assets (my house, his money) as collateral. We used it all in eleven months. The Partner repaid the loan in October 2008 by raiding our cash (without asking me). He believed that we were about to fail and that his investment was gone, but he didn’t want a bank default on his credit rating. His action left the company free of external debt, which turned out to be a good thing.

  After the disastrous fall of 2008, I was forced to run the company without borrowing. It was painful, but I managed it—at least until the following summer, when I realized that our Web site was coded in a way that made it hard for Google to tell what it was about. Developers that we hired in 2004 to spruce up the site knew nothing about search engine optimization, so the source code for every page and picture was done without words, only letters and numbers. I was driving traffic to the site by paying for AdWords clicks, but we never appeared on the free rankings. I knew that as times got tougher, I would need better marketing or we would die. So I emptied my children’s college fund ($31,251) and spent it on a new Web site. Development took seven months. The new site rolled out in early 2010, just as the economy and my fortunes began to recover. Coincidence? Maybe. Worth it? Definitely. If I hadn’t spent that money, I’m sure we would have failed.