Boss Life Read online

  The debt is always in the back of my mind. If I had invested it in the stock market, I’d still have a lot of the principal available, and in some years it would have produced a handsome return. But I put it into my company, and since we were always broke, I have had no return, neither principal nor interest. But now, with cash on hand, I decide to at least make interest payments. As boss, I can structure them any way that I want. I can set the interest rate to my liking, as long as it conforms to IRS guidelines: the rate must be similar to what the company would pay on commercial loans from outsiders. And I can decide whether to repay principal, or pay interest only, or skip a payment if I want to. This flexibility is very useful as I manage cash flow. It’s the main reason that I have dipped into my own pocket first when the company needed money. If I borrow from a bank or another commercial lender, I have no flexibility whatsoever. The bank will want its money, and if they don’t get it, they will foreclose.

  Having decided to make monthly payments, I choose an interest rate. Ten percent is on the high end of bank rates but lower than I might get from a lender who specializes in small, risky loans. I also decide not to make any principal payments. They’re a further drain on cash flow. I write and sign a check for the first payment: $3,225.82. I can’t bring myself to deposit it. Old habits die hard. I feel secure when the company has money, guilty when I take it out.

  —

  I CLOSED A DEAL on February 29 with Old Style Packing, who first called us the year before. They had a relatively low budget and wanted a set of tables that could be reconfigured on a regular basis. We had been getting a good number of calls asking for a table like this and I decided to design one.

  We had several modular tables in our portfolio, but all were large, expensive, and awkward to operate. A low-cost, easy-to-use version needed a compact and sturdy folding mechanism. We can’t produce that ourselves. I found a company in Michigan that made exactly what we needed: a set with wheels that was inexpensive and looked good. I ordered a sample set in December and slapped together a prototype—I screwed the legs to a piece of plywood. It worked great. Easy to fold, sturdy, rolled around at the touch of a finger, and the wheels could be locked. I made a table design that incorporated this set, but also let us build in custom sizes and woods, and include wiring, at a reasonable price.

  Shortly afterward, that call from Old Style Packing came in. It was a great opportunity to move from drawings to prototype, funded by a paying customer.

  This is how I have always introduced new products. I love the challenge of designing useful items, but making things just for the heck of it is not smart. First of all, what to build? How do I know that some new design will succeed in the marketplace? And if it doesn’t, what do I do with the prototype? Furniture is large, bulky, and hard to store. I don’t want a perpetually expanding museum of failed designs. The solution to this problem is to listen carefully to what potential clients ask for and build that thing. Everybody wins: my R&D effort is funded by the client, who gets a useful finished product, and I can use the new design in my ongoing marketing efforts.

  In the old days, it could be tricky to convince that first buyer to pony up some dough. Drawings of any design concept are bland and difficult to understand, but making a finished prototype before the sale was closed was hugely expensive and risky. That problem has disappeared. Modeling software shows the client exactly what the design looks like and how it works. I deployed this weapon in my proposal for Old Style Packing. Once I had a fully functioning virtual model of the leg mechanism, the complete table design was easy. I sent the proposal off, and a month later, the deposit check arrived. The job will be in production in the middle of March.

  The first day of March is a milestone on another project. The Company S table is ready to go into the finish room. Making furniture from scratch has two phases: building and finishing. Building involves cutting lumber up and putting it back together in more useful shapes. Finishing is applying liquid to the wood surfaces, which then dries into a protective layer. Correctly applied, the finish coat makes the surface smooth, shiny, pleasant to touch, and protects the wood from dirt and water.

  In our shop, we use a durable, water-resistant finish called a “catalyzed polyurethane.” It is very tricky to work with, however. It consists of three parts: resin, solvent, and catalyst. These must be mixed in exactly the right proportion. Before the liquid finish hardens—about a fifteen-minute window—it must be sprayed onto the wood in an even coat. The spray gun and hose weigh about two pounds. They must be held out at arm’s length, at the proper distance from the wood, and moved at the right speed. Spray too little, and the surface looks dry and blotchy; spray too much, and the finish will drip and run before drying. We often modify the natural color of the woods with stains and dyes. Stain mixes must be measured with the same precision as the urethane. And everything must be clean—dust in the finish is unacceptable.

  The only way to fix a flawed finish is to wait until it dries, sand it off, and start over. Even if one tiny part of a tabletop is bad, the whole thing has to be redone, because a refinished section is never a perfect match for the rest.

  Eye of an artist. Knowledge of math and chemistry. Physical strength and endurance. Meticulously clean. Performs under strict time pressure. It’s unusual to find all this in one person. A good finisher is hard to find, and worth a lot.

  Dave Violi, my finisher, has unleashed his superpowers on the Company S table. At the end of the first week of March, we reassemble it for final inspection. It is magnificent. Everyone in the shop stops to admire it. And, without exception, the first thing they do is run a hand across the top. A perfectly smooth, even topcoat, with no dust specks or other flaws, has been applied to each of the three oversize top pieces. Dave is a master of martial arts, and his strength and agility made the difference. We have eight days before our client’s board members gather in their new headquarters. We need to get the table to the customer.

  Back when we made dining room furniture, I did all the deliveries myself. I learned a lot from watching a buyer’s first encounter with their purchase. Clients are very nervous on delivery day. Our sales process is designed to construct an image in the client’s mind of what the finished item will look like. Their hope that we will do a good job will be confirmed, or not, by the actual product. When I was doing delivery, I could make sure that everything went smoothly and that the client was pleased. Happy clients make the final payments. Unhappy clients cause delay and distraction while their problem is addressed.

  Google changed our market from local to continental. Our clients are now scattered across the United States and Canada. We have to ship a large, delicate product over long distances, as quickly as possible. Damage is a disaster. Our products are one of a kind, so we can’t pull a replacement part out of inventory.

  We have to trust strangers to transport and deliver our work without damage. Unfortunately, both truckers and installers vary widely in quality: some are careful and competent, and some are not. How can we find good people? How can we get them to take extra care? And what, besides paying them, could we do to make sure that they succeeded? I arrived at three methods: use middlemen to find the trucker and installer; redesign the tables for ease of shipment and assembly; and optimize packaging design. How does this work?

  First: the middlemen. Our volume of business is too small to impress a large trucking company, and we need to hire installers in places that we have never been to. So we use a freight broker for trucking and an installation broker for installation. Both firms take the parameters of our job and get bids from interested vendors. It’s their job to identify quality vendors and deal with them if things go wrong. The vendors get significant business from the middlemen, who represent lots of small companies like us, so they pay some attention. And we give significant business to the middlemen, so they pay attention to us. This is an instance where it is not in my best interest to shop around for a low pric
e. We need to commit to our middlemen so that they act as our champions. This raises shipping and installation costs, but saves us a lot of time and trouble. I chose one freight broker and one installation broker years ago, and have stuck with them ever since. Our person-to-person relationship is as important as the money in making it work.

  Second: the design. Traditionally, a person moving and assembling furniture is presumed to have specialized tools and some skills. Our clients have neither. Detailed instructions won’t help. Our tables are all different from one another, so a universal instruction book won’t work. We’d need a new one with every project. I tried this a few times, and it took huge amounts of time. The clients ended up calling me for help anyway. I decided to rethink our construction details with ease of assembly as a primary goal. All tables would henceforth consist of components small enough that one person could pick them up and move them, but big enough so that there weren’t too many pieces. The parts would self-align so that they could go together only in the correct position. Hand knobs would join all the pieces together: no tools required. Even an untrained person could see at a glance exactly what to do. We adapted this system to everything that we built. As it turned out, this also speeded up construction considerably. In order to build a table, it needs to be put together and taken apart multiple times. So thinking about assembly from an ignorant client’s point of view had benefits for our sophisticated workers as well.

  Third: the packaging. This must do more than just protect the goods. It has to communicate to everyone on the path from our shop to client. We want to send a different message at different points in the journey. The packaging has to intimidate the warehouse worker, convert the installer from neutral actor to enthusiastic champion of our product, and delight the customer. After a lot of experimentation, we have settled on a two-layer strategy: wrap every part, crate the whole order. Every piece of the table gets wrapped in foam, then in cardboard, and is clearly labeled to show exactly what it is and how to open it. Then all the pieces are bundled into a custom-made crate with wood sides but no top, so that there is no temptation to stack another load on top of it. To the truckers, the shipment looks heavy, strong, and expensive—something that is worthy of extra care. When installers break down the crate, they find nicely packaged, clearly labeled, and easy-to-handle pieces that are a breeze to bring into the client’s premises. We’ve heard numerous times from clients that the installers told them that we made the best table they had ever worked with. Good packaging converts the installers into our ambassadors and puts the client in the right frame of mind.

  Designing tables for easy assembly ended up saving me money, but crating and wrapping is expensive. My shipping manager, Bob Foote, needs a full-time helper to keep up with shop output. It’s interesting to break my whole crew down and see what proportion of the workforce works in the different parts of the operation: out of fourteen workers, four are doing design and sales, six are on the shop floor building the furniture, two are in the finish room applying coatings, and two are handling logistics. In other words, the people doing the woodworking, which is what most people think is our primary activity, are outnumbered by people adding value at other points in the supply chain.

  It takes two days to package all the components of the Company S table and to build custom crates for the oversize top sections. After it ships, I keep my fingers crossed, and the crate arrives safely at the installers, and a day later we hear from them that the install has gone well.

  I send the final invoice, for $7,551, to my contact at Company S, along with care instructions. I don’t hear anything back, which is slightly unsettling but not unusual. I presume they’re busy with their board meeting. They have ten days to settle up. They’ve made all the previous payments without delay, so I turn my attention to other matters.

  Emma Watson has been talking to the government. The U.S. Department of Commerce is eager to help us. She’s also found that Pennsylvania has its own export assistance program and maintains trade missions in a large number of foreign cities. Both of them contract with a third outfit, the World Trade Center, to provide manpower. Emma makes an appointment with the WTC to come see us. Two guys show and give us three cards each.

  Like everyone who visits us, it takes them a little while to wrap their heads around the concept of a cabinetmaking shop that makes nothing but conference tables. These export guys have been in lots of factories, and ours does not compare to bigger entities. In some areas we are very advanced—our robotic machines and our marketing on the Internet—but in lots of others, we look like what we are: small and undercapitalized. The government guys don’t seem to care about any of that. Their job is to promote exports, and to do that they need American companies to work with. They wax ecstatic about our inevitable triumph on foreign shores, aided by their services. While they are gassing on, I’m looking at them and wondering what their day consists of. How hard do they work? Do they ever wonder if they won’t get paid? (I suspect not, since the guys who print the money are issuing their checks.) Would I ever want a job like theirs, where I put on a suit every morning, do something entirely predictable, and then go home? Where I knew exactly how much money I would make today, tomorrow, and in the future? Would I be happier if my life had more security?

  After the trade guys depart, we contemplate the pile of beautifully printed, expensive brochures that they left. Our first decision is whether to sign up with the federal program, run by the Commerce Department, or the state program, run by Pennsylvania. The local contacts are the same guys we just met with in either case, but the staff in our target countries is not. Emma has no doubt that the feds are the way to go. Her argument: every person on Earth will take a call from the U.S. ambassador, while nobody has heard of the Pennsylvania trade delegate. Go with the people who can open doors. I agree. That decision leads us to the various levels of services offered by the Commerce Department. We settle on something called the Gold Key Matching Service. (Who thought of that name?) For a couple hundred dollars, a Commerce Department office located in our target cities will call around to local merchants to see whether any of them are interested in meeting with us. The process starts with a questionnaire, in which we describe what we make and what kind of foreign business we are after, and continues with a phone interview with the trade rep. I’m still only half committed to the whole idea of exporting, but Emma is enthusiastic, so I agree to sign up for the Gold Key Matching Service. I have to spend money at this point—three hundred dollars—but I feel like that’s not too much to see what happens next.

  On March 9, our new folding tables are ready to ship. I take a number of photographs of one of them, both raised and folded, to add to our Web site. I can’t get a good picture of it under our glaring lights, so I generate a nicer image with a rendering program. I only post renderings of pieces we’ve actually built and always include some shots of the table on our shop floor, even though those are often terrible photos. I want to prove that we actually do the work we show.

  Photos are easy; pricing is hard. What should I charge for this new product? What should I charge for any product? It is a surprisingly difficult question. There are two ways to think about this: first, what is the customary market price? and second, what does it cost us to make it? The first approach doesn’t work for us. We have almost no information on what our competitors are charging because they don’t publish price lists. We have some idea of what factory-made tables cost, but that doesn’t help us price a custom project. So we work from internal cost projections.

  Our pricing spreadsheets predict the costs of each project, but when I check the actual build data, I find that the forecast was often wrong. Errors and differing skill levels of the workers on each project make for wide ranges in build hours, even for very similar tables. And the actual material costs are murky, too. The spreadsheet predicts how much wood we need to buy, but the area calculations are very imprecise, and we haven’t updated our cost data for the diffe
rent woods since 2007—I haven’t had time to track down hundreds of (volatile) prices. I’m assuming that the recession has brought demand and prices for wood down. Given what happens on the shop floor, inaccurate cost data may not matter. Wood comes in random sizes, with some defects, so yield is inconsistent. Sometimes we can use scrap from earlier work in a subsequent project, sometimes not. Errors and rework require duplicate material orders and extra time. In order to give ourselves a margin of safety, we mark up the theoretical material costs by 40 percent to cover uncertainty. Then we add that number to our labor costs, calculated at $78 per hour, no matter which worker, with associated pay rate, is working on the project. The sum of those numbers is, theoretically, our minimum profitable cost. We then mark up that number by 7.5 percent as an additional safety margin and add 2 percent for the sales commission. That’s our theoretical price for any of our products.

  I have told Nick and Dan to get at least the calculated price out of the customer, but sometimes we need to cut a deal to make a sale. We might also change the price if the spreadsheet kicks out a number, say $10,032, or $40,151, which is just above an obvious pricing cut-off point. I’ll gladly give up a couple of dollars to bring a number from five digits to four, or from one decile to its lower neighbor. I’ve read enough about retail pricing to believe that people really do respond to slightly lower numbers in those situations.

  In aggregate, this system works. Our material costs are lower than what we charge for them, and we use about 5 percent fewer shop hours than the spreadsheet predicts. This system has produced positive cash flow and profit in the past two years. But in a particular case, I am wary of the time-cost predictions. They are wrong as often as right, sometimes in our favor and sometimes not.

  Which brings me back to my modular table. I’m putting it up on our Web site and I want to put a number on its page. I have the build hours from the Old Style job. We had predicted that it would take sixty-nine hours to build four tables, and it had come in at fifty hours—28 percent under. The material costs were predicted to be $2,234, but we had ordered only $841 worth for that job. (But we might have used up materials we had on hand, so that $841 is not our actual cost.) Based on that data, I offer a lower price for future iterations than we charged to Old Style. They paid $9,210 for their set of four walnut tables, two of which had data ports. I rerun our pricing spreadsheet using the actual build times, and find that the new number is $1,594. Per table in a set of four, that is, and taking advantage of the efficiencies inherent in producing multiples. I expect that we will get orders for more than one table, and that the actual order size will be more than five thousand dollars.