Boss Life Page 9
I liked the concept. If it worked, I would have a chance to interact with people who are like myself. I also liked the focus on taking each business to the next level. It would cost me twelve thousand dollars a year and some hours of my time—cheaper and easier than trying to get an MBA.
I responded to the invitation, and Ed Curry, the group leader, scheduled a meeting at my shop. We met in December 2011. Ed is in his mid-sixties. He was raised in a small coal town in Pennsylvania, went to Vietnam for a year, and then worked for many years at a manufacturing company that made precision measuring equipment for auto manufacturers. That company had a couple thousand workers, and he worked his way up to a high management position. When they were bought by a German competitor, he went to Ernst & Young, the accountants. After retiring, he got involved in Vistage. For several years, he had been the leader of one group, but it had grown and he was splitting it up and putting together another. We ended up talking in my office for about an hour. Ed asked smart questions and listened carefully to the answers. A week later, I went to the introductory meeting, thought it was good, and signed the contract.
As of April, I have attended three meetings with the group. It’s an interesting mix of businesses: an accountant, a software start-up, a trucking company, a coffee roaster, a house painting and repair company, a document storage company, two software firms, and three manufacturers. One does precision grinding of metal components, one makes prefabricated metal stairs, and one makes custom conference tables. The group is all male. Ages range from late twenties to seventy. Three businesses are multi-generational: the precision grinding company is run by the son of the founder, and the trucking and coffee companies date back to the nineteenth century. Every other company is run by its founder.
I’m particularly interested in learning more about the staircase manufacturer. It’s owned by Sam Saxton. He is the youngest member of the group. He graduated in 2003 and then went to South Dakota to make his fortune. He bought farmland and put up tract houses, and prudently saved his profits. After the crash, he came back to the East Coast and looked for a company to purchase so that he could get richer. He purchased an outfit that manufactured prefabricated staircases, and then bought out a smaller competitor and folded both into one operation. He borrowed a couple million dollars from a bank to do all this. He needs to grow his companies quickly in order to service his debt and build equity.
Unlike me, who wanted to make things and ended up with a business, Sam wanted a business and ended up making things. He looks at the manufacturing part of his operation from a more neutral perspective. To him, it’s just a cost center, like every part of his business. Administration, marketing, sales, manufacturing, shipping: they all need to pull their weight. If they don’t make him money, and he can’t repay his loans, the bank will foreclose.
Sam projects energy. He’s a tall, strong-looking guy. He talks fast and with absolute assurance. Everything he has done since high school is aimed at business success. He studied entrepreneurship at Babson College, made his first small fortune before he was twenty-five, and since acquiring his factory, the sales have doubled. He has positive cash flow and is paying off a significant amount of debt every month. His biggest problem is operations—a couple dozen workers in a good-size factory are a challenge to manage under the best of circumstances. Sam has weak operational systems and doesn’t have a complete grasp of how his product is made. He wants to get the manufacturing under control so that he can grow the company even faster. Or so he has told the group.
Since our operations are very similar, I approached Sam after our January meeting and suggested that we exchange shop visits. At the end of March, Sam and his shop foreman, Dean, came out to see my operation. They expressed polite interest as we toured the shop floor. Visitors are usually blown away by the action out there. Sam and Dean, having been in factories before, just weren’t as impressed. Then I took them to the office and showed how we produce our proposals, how we make shop drawings, and how we use Google Docs for spreadsheets that we all needed to see at once. None of this elicited any comment. What got them excited was our database software, where we track our manufacturing activities from contract to delivery. Every day, my workers enter the number of hours they work on each project. We can see where each job is in our production stream and how many hours have been used at each point. And we can see all the jobs in each link of our production chain. It performs a bunch of other functions as well. It’s an incredibly useful tool.
The Partner’s daughter spent two years writing it for us. Her wages cost me about sixty thousand dollars, a bargain. Comparable packages from Microsoft or other vendors would cost hundreds of thousands of dollars and then require modifications to fit our processes. So I got an exceptionally well-crafted piece of software for very little money. Sam and Dean don’t have anything like this, and their operations suffer as a result. They have a hard time figuring out exactly where each job is in their pipeline and how much labor they are using on each order. They’re still using paper tickets to follow each job. Those get lost or damaged, and generate a lot of data entry work.
I tell them that fancy software doesn’t solve all my problems. In particular, our estimates of the hours required to build each project aren’t very precise, and there is a fair amount of error in entering data—my guys will often choose the wrong job from a drop-down list. Then their hours get charged to the wrong project. On a computer, bad data looks just like good data. It can be very difficult to tease out whether the numbers are a good reflection of actual operations. But I never want to go back to paper. We did that for many years, and it’s much worse.
I make my visit to Sam’s place in the first week of April. He’s a few towns over, in the most non-descript building in a non-descript industrial park. There’s no sign, just a couple of doors on a long, blank wall. The first one I try is locked. The second one opens into a small room with an unused reception desk. Behind it I see a dimly lit kitchen space, and then another door. Nobody in sight. I open the door and find myself out on the factory floor. It’s very large and gloomy. There’s a steady roar of machinery. A couple of guys are packing a spiral staircase in cardboard off to my right. “Sam Saxton?” I shout. One stops wrapping and leads me to a staircase. “Go up there, through that door. They’ll help you.” I climb and find myself in a small room with six cubicles. Each holds a person wearing a headset, looking intently at a small screen, focused on their conversation. Eventually one of them looks up. “Sam Saxton?” “Sure, follow me,” he says, and takes me to the other end of the space. He knocks on a door, then opens without waiting for an answer. The inner sanctum, at last.
Sam is behind his desk, on the phone. He waves at me, holds up one finger: wait. I sit on the sofa and take a look around. Sam’s office is dark—only one small window overlooks the dismal parking lot. Walls painted light gray. The carpet is dark gray. There are a couple of large holes in the drywall. No art. No photographs of family. All the furniture is cheap, old, and well-worn. Sam’s desk is covered with paper, in a semi-orderly fashion. His computer dominates the space.
The phone call ends and Sam springs to his feet, coming around the desk with a big smile and hand extended. “Sorry about that—consultants!” Short pause. “Sorry about my office. Not so nice as yours.” He gestures to the holes in the wall. “Sometimes I get mad and need to punch something. How about we tour the shop and then talk?” Sam stops at one of the cubicles and tells the woman there where he’s going. We descend to the shop floor.
I take in the expanse. It’s a large space, with eighteen-foot ceilings. Sam answers my first questions before I ask. “Thirty-eight thousand square feet. I have twenty-nine guys right now. I’m hoping we do four-point-two million dollars this year.” It’s the beginning of a very informative tour.
Sam’s operation is very similar to mine. He uses machines to cut parts and workers to do assembly. There are a lot more welders in our economy than skill
ed woodworkers, so he pays his workers three to five dollars less than I pay mine for comparable jobs.
Metalworking isn’t as dusty as woodworking, but it’s grimier—there’s a thin layer of black sludge on every surface. Once you get beyond that, though, the shop is neatly arranged. The workers move around at a decent speed. Sam knows everyone’s name and tells me a little about each one. Half of them are American citizens, of all colors, and the rest a grab bag of immigrants from Eastern Europe, Mexico, and Central America. No women. Sam tells me that some have been in the military, some to trade school, and some just picked up skills at other jobs.
We head back up the stairs and pause at the cubicle cluster. We have been discussing AdWords, which Sam also uses to connect with far-flung customers. Sam says, “Those proposals you e-mail to the client? They’re very nice but we would never do that. We always make an appointment to review our proposal with the client. We get them on the phone, make sure they are in front of a computer, and then fire up a program called ‘Glance.’ Clients can see on their screen whatever is on our screen. We go through their quote line by line, show them the proposed design and the numbers. Then we ask for a credit card. They don’t get the document unless they buy.” I think about that for a moment. It seems very aggressive. “Who designs the stairs?” I ask. “Does the client see any drawings, or an image of what they are going to get?” Sam tells a young man to bring up a quote. The stair set is shown in a simplified drawing. There are clear photographs of similar stairs, but not an exact representation of this particular one. The numbers in the quote are in a large font, easy to read. This approach is very different from ours—the design itself isn’t highlighted as much as the numbers. It doesn’t sell itself. The salesperson is doing the actual persuasion. I’d like to see a screen-sharing session, but nobody has one scheduled until the evening.
Over lunch, I focus on the question of who designs each custom staircase. Do the salespeople do it? Do they actually know enough about building staircases to do a good job? Sam tells me that this isn’t really a problem. Staircases are not that complicated. Even a spiral staircase can be worked out using simple algorithms, as long as the height to be traversed is measured correctly. All the construction details are simple and are deployed the same way in every job. It’s similar to our approach—a limited set of construction details used to make a wide variety of items. But the overall complexity is orders of magnitude less than ours. A much smaller set of choices will satisfy the vast majority of his buyers. On the few occasions that he gets a request for something complicated, one of his people with an engineering background can solve the problem.
I ask how he finds salespeople. “We put ads on Craigslist.” That works? “You get a lot of bozos. But I get a few who have done some sales before. I do phone interviews first—you can tell a lot from that. If they sound good, we bring them in for a face-to-face. And if that’s good, then we start them training here, and also send them out to be trained. I have a consultant—he’s great—Bob Waks. He’s been working with me for a year now. Our sales have doubled. You should meet him.” My first instinct is to recoil at the mention of a consultant. Doubling my sales would be good, though.
Sam tells me that when he bought the company, “There were a couple of sales guys here, not very good. Just stuck in their way of doing things. After I brought in Bob to train them, they weren’t happy with new ways. I had to get rid of them.” I’m sympathetic; firing people is difficult. Sam shrugs. “Had to happen. I can’t have people selling who don’t sell. I’m constantly going through them.” I’m curious about pay. What’s the split between salary and commission? “I give them a monthly draw at first, two thousand dollars. Then it’s a hundred percent commission.” What if they don’t cover their draw for a couple of months? He gives me a look: you really need to ask me this? “I get rid of them, of course. I give them three months after training, and if they aren’t hitting their numbers—goodbye! They can’t do the job, I’m going to find someone else.” We finish lunch and he comes back to the subject of the consultant. “Look, you should call this guy. He’s good. He’ll help you.” I don’t know. We have our way of doing things, and it has worked well. Things are bound to turn around. I’m afraid that any changes will make things worse. But I keep thinking about it on my way back to work. Why am I so afraid to fire people when they don’t perform? Why do I put their interests ahead of mine? Is that really what a good boss does?
—
ON THE SECOND SATURDAY of April, I pick up my son Henry from his school. He’ll be with us for two weeks. Until he was twelve, he lived at home and attended the autism classroom at our local schools. In seventh grade, as puberty kicked in, he became very aggressive. We were lucky to find a residential school near us, Camphill Special School, which can handle him. The cost, $65,000 a year, is covered by our local school system until Henry is twenty-one years old. Then we’re on our own.
It was an amazing change to get Henry out of the house. Until then I hadn’t realized how much energy he was sucking up, and how it distorted my relationship with my other boys. The timing was also good for my business. Henry left in 2006. I was doing all the design, selling, and administration for a company of eighteen workers. I can’t imagine how I would have managed with Henry at home. It would have been a perpetual emergency for me and my wife as he battled with the storms of puberty. I strongly believe that without the federal legislation that forces the local school board to pay for appropriate schooling, my business would have failed. Having Henry home all that time would have broken me.
Henry’s school is part of a farm. There are easy chores for him to do. He is very well cared for, well fed, and kept busy. We can’t replicate that. The school runs on a normal school calendar, so he’s home for Thanksgiving, Christmas, spring break, and summer vacation. While he’s back, our lifestyle changes. Like all teenage boys, he’s always hungry. We have to keep our kitchen cabinets and refrigerator under lock and key. Henry will not wake himself at night when he needs to pee, so I get up at two and six a.m. and take him to the bathroom. When Henry is not eating or sleeping, he listens to music. He likes to hear the same disc over and over at top volume. When he eventually gets tired of that, he throws the CD player across his room. Henry also demands to go for a drive at least twice a day. It doesn’t matter where, but anything shorter than an hour, and he has a huge tantrum.
It’s an exhausting regimen. My wife runs the day shift; I step in when I arrive after work. Long office hours are out of the question. He’ll return to school on April 22. And the next day I fly to Germany to visit Eurofurn.
With Henry home, I have a good excuse to delegate more work to others. Emma takes up the urgent administrative tasks, Dan and Nick decide who will take each incoming lead. While I’m out driving Henry around, I can stop at the shop. He can tolerate a short visit, but he has figured out that the fridge is not locked. If I lose track of him, he helps himself to sodas and sandwiches, and then I have to buy someone’s lunch.
—
WHILE HENRY IS HOME, I’m watching our bank balance, contemplating the dollars that are not coming in as we fail to collect deposits, and the amount going out to fund operations. My projections predict a zero bank balance early in May. I can delay that day only by slowing expenditures. It’s time to stop paying myself.
I set my pay depending on how much I think the company can afford. No employee would put up with this, but I am used to it. From 1999 to the beginning of 2008, and in 2010 and the start of 2011, my salary was $70,000 a year. In November 2008, I had cut my pay by 50 percent, while cutting my workers’ wages by 15 percent. I restored my people’s wages a year later. I only restored my own pay in March 2010. That’s thirteen years without a raise.
We pay biweekly, twenty-six times per year, so $70,000 a year works out to $2,692 per paycheck. Adding on taxes, each of my paychecks was draining $3,230 from our working capital. Not too expensive for a worker who was produc
ing all the sales and designs, running HR, doing all marketing, answering the phones, and covering any administrative tasks. By the middle of 2011, which was a good year, I decided that I could afford to give myself a raise. I bumped my pay rate to $140,000 a year, or $5,384 every two weeks. Add the taxes, and now each of my paychecks removes $6,461 from our working capital. If I went out and hired someone who could do everything that I do, it would cost me at least this much.
At the end of 2011, we suddenly found ourselves awash in cash. I decided to pay all my workers a nice bonus and give myself a much larger one, a small compensation for all the lean years. So my last paycheck of 2011 included a $70,000 year-end bonus. I decided at the beginning of this year to raise my salary again. I wanted to see whether we will still have positive cash flow if I pay myself the same amount as in 2011 but at a consistent rate, not a small regular check with a giant bonus at year-end. So I increased my pay rate from $120,000 to $180,000 a year, or $8,307 per check. This put my pay at 7.5 percent of our target revenues of $2.4 million a year. That’s on the low side of what $2.4 million should produce for the boss. Ten percent would be a decent yield for the owner of a business of this size. Reasonable or not, my salary costs more than $16,000 a month. If we make our sales targets, it’s not a problem. But if we don’t, it hastens the day when we run out of cash.