Boss Life (36 page)

I fly back to Philly on Sunday. It's been a good visit. Peter seems to be doing well as a software engineer, at least professionally. His personal life is more of a struggle, since he doesn't have time to try to make friends, and San Francisco is not a good place for someone too young to go to a bar. But he insisted that he's doing well, and that he wants to stay until next fall.

D
ATE
: M
ONDAY
, D
ECEMBER 3
,
2012

B
ANK BALANCE
:
$66
,
033
.
55

C
ASH RELATIVE TO START OF YEAR
(“N
ET
C
ASH
”): -
$71
,
120
.
77

N
EW
-
CONTRACT VALUE
,
YEAR
-
TO
-
DATE
:
$1
,
917
,
928

The temperature plummeted last night, and the office is freezing. The shop is warmed with gas-fired heaters, but the office, facing the wind, is always much colder. The chill is incentive to keep the Monday meeting short. I start with November sales—just $121,971. I'd rather concentrate on better news. The build total was good: $195,699 in a month that was two days shorter than normal. Our shipping total was better: $239,579. I dismiss the crew and think about what I didn't say. One decent month has not brought us to profitability. Year to date, we've built $1,834,731 and shipped $1,851,423. And spent $1,906,454. No matter how you measure it, either on a cash flow or accrual basis, I've lost money.

And individual performances? Dan won November, with $71,290 sold. Nick sold just $40,087, although he still has a commanding lead for the year. I'm even further behind, with just $9,670. Is that success or failure? I don't want to be selling and haven't made much effort recently. I'll call it success. I decide to ignore these low sales totals. It looks like the pattern of the previous three Novembers has repeated itself, despite our new methods.

On Tuesday, I have my sixth session with Bob Waks. We review how Dan and Nick have done since July: much, much better. Bob reminds me that I'm still far behind my targets and that I should probably replace Dan. I know that I'm not going to fire him before Christmas. That would be cruel. I promise a long, hard look after that.

—

ON SATURDAY
, I lunch with a friend who is struggling with his own business. Mike Vogel first met me in the summer of 2011, shortly after he quit his last job. He described his vision: a mash-up of a gym, a school, and a woodworking studio. He would open a nicely equipped woodshop, then sell memberships to people who lacked their own space and tools, and offer woodworking classes as well. I asked him how far along he was. “I've rented the space. Now I have to renovate it. It's just an empty warehouse right now.” The location was good, not far from wealthy neighborhoods full of potential customers.

I asked when he'd be opening his doors. He said that, with luck, it would take a year to fit out the shop. Uh-oh. “That's a long time. How much money have you got?” Mike had spent ten years working on Wall Street and he'd been frugal. He had two hundred thousand dollars in cash, and equity in his home worth about a hundred thousand. He had opened a seventy-thousand-dollar line of credit. He planned to use all of it for the build-out and to operate until he reached positive cash flow. He'd signed a five-year lease that, like most commercial leases, required him to personally guarantee the cost of the whole term. He was betting his cash and his house that the idea would succeed.

I met with Mike regularly, and every time I remembered my own business launch. For years I struggled with problems that can now be solved in a few seconds on Google, but in other ways I had it very easy. I didn't need a large amount of starting capital. A five-thousand-dollar inheritance covered a simple set of tools and my first six months of rent. Nancy had a full-time job, which covered our living expenses. I didn't need to hire people in order to get started—I worked by myself for two years. And I didn't need to present myself as anything other than what I was: a very small operator. Before the Internet, there was no requirement that I build a Web site or dominate social media. It was understood that beginners looked like beginners.

Mike had to solve a lot more problems before he could open his doors. Before he could expect a penny in income, he had to build a shop, stock it, and hire workers to interact with his members and teachers to teach his classes. He had to come up with courses. He had to establish pricing schemes for both membership and classes and build a marketing campaign, including Web site, Facebook page, and e-mailed newsletter.

Opening day, this last April, brought a new set of challenges. I thought that he would have difficulty finding customers. A membership woodshop? What's that? He'd have to educate an indifferent world about this new thing. Mike wasn't worried about that; he was more focused on his lack of woodworking skills. He wasn't sure he could teach his staff if he wasn't a master craftsman himself. I reassured him that basic woodworking isn't all that difficult and I was happy to help him with whatever technical issues came up.

Neither of us predicted his biggest headache, the issue that has dominated our conversations since opening day: staffing. Mike had no experience being a boss to a group of workers and wasn't sure how many people he'd need. Even worse, he needs skilled and competent people, but his business model doesn't allow for high wages. So he's stuck with young folks, just out of college, who haven't found steady work elsewhere. Mike has hired enthusiastic people, but they have no experience and can barely support themselves on the salaries he can afford: twelve dollars an hour to start. I told him that he won't get much for that and he certainly won't keep anyone worthwhile for very long. This has turned out to be true. The people he wants to keep have left for better pay, and the ones that have stayed are less competent. One key employee, Amelia, is extremely loyal and reliable, but she constantly makes idiotic mistakes. Which is a problem when she's in charge of maintaining the Web site and Facebook page, dealing with members, and collecting payments.

He's been complaining about her for as long as I've known him. I've challenged him to fire her. He won't. For better or worse, she's the only one who understands the systems that she's cobbled together. He can't imagine how he'll get through the period between her dismissal and the arrival of a new person, and he doesn't want to interview a potential hire while Amelia is around.

I wouldn't call Mike a mellow guy, and the stress of the situation is eating at him. At lunch, he's working through a long list of complaints. I point out that in a lot of ways he's done well. I didn't expect him to even open his doors, but he got to that happy day without going broke. It cost him $225,000 or so. He's been surprisingly successful at signing up members, and he's been cash positive since August. Really, he should be proud of himself. He took a huge risk and he hasn't failed yet. That's success for a very small business.

He counters with a litany of negatives: he's not paying himself, and he'll never get his $225,000 back, let alone make any return on the investment. And he's really tired of dealing with faulty employees. I tell him I know how he feels, although I've never had his staffing problems. Mike and I discuss my wage scale. I'm sure that I'm paying more than I need to, since nobody has ever quit, but I'm able to attract and keep competent people. I lay out my expectations for different amounts of money:

Minimum wage
(in Pennsylvania, $7.25/hr): I don't hire at this wage. It might work for unskilled, youth, or temporary workers, but that's not what I want.

$10/hr:
My starting wage. I expect a reliable worker who shows up on time and works at a steady pace, but not much in the way of skills. Should be able to perform simple tasks (taking out trash, unloading materials) correctly and understand enough English to follow simple directions.

$12/hr:
If the $10/hr person can learn some technical tasks, and perform entry-level work without supervision, I can pay more. They also need a valid driver's license and should be willing to work extra hours when required. (They would be paid overtime per Pennsylvania law.) They should understand complex spoken English. This is also where I start workers who want to become skilled woodworkers but have had no training. These workers require significant attention from management and coworkers, so we can't pay them much. They must immediately demonstrate a good work ethic, curiosity, and willingness to take direction. And they must have “good hands”: woodworking talent. This is not evenly distributed in the population and can't be taught.

$13
.
50/hr:
A worker on the training path will get a raise to this level as a reward for reliability, hard work, and increasing skills.

$15/hr:
Starting wage for someone fresh out of woodworking school. Most training programs emphasize skills that are, in my shop, obsolete. We rarely work with hand tools and our equipment is much more sophisticated than that found in schools. These green workers will still need very significant training, and we'll also need to determine whether they have “good hands” and a good work ethic.

$18/hr:
A worker who has had both schooling and some work experience, or whose skills and work ethic have been vouched for by their former boss. I still need to see whether this person can reach our required level of speed and accuracy, much higher than the industry average.

$20/hr:
A worker who has been with me long enough to learn our procedures and can do most tasks without error. I will keep a worker in this wage range until he can do a very wide range of items without a problem. This might take a while—some pieces only get built now and then. Also, at this level, a worker shouldn't need constant attention from management.

$25/hr:
This person should have mastered every aspect of his job. He should be able to manage a helper and contribute ideas that improve our operations. This is also where I would start a worker with previous experience doing work very similar to ours.

$30/hr:
This is foreman pay, for complete mastery of both our particular skills and the wider demands of the trade. This worker should also be an energetic, innovative leader who can monitor all shop activity and provide direction to other workers. He/she will also drive innovation in our procedures and work closely with me and the office staff. In my experience, at this level, a person works a lot of overtime. I pay OT, instead of putting the foreman on salary, to reward that effort.

—

SO THAT
'
S MY WAGE SCALE
. For the first ten dollars an hour, I get reliability; the second ten, a worker with skills adequate for our regular production; and the third ten, all the old-style hand skills. We're custom makers, so we often need to do something that could be done by machine, but will require a large investment in programming and tooling. That's when the master-level workers shine. They can jump in and do something tricky, quickly, and keep moving.

Mike listens to all that and tells me that he might be able to bump three guys to thirteen dollars an hour after New Year's. He won't be paying a Christmas bonus. Maybe he'll take his people to dinner, but that's all he can afford.

After Mike leaves, I consider whether my guys deserve Christmas bonuses. Will Krieger and Dave Violi have been putting in huge hours, but they're getting overtime for that. As for the rest of the crew? Nobody else has come close to the hours that Dave and Will have put in, or put much effort into improving shop operations. Dan and Nick have not resisted the new sales methods, but they didn't think them up, either. I know who really deserves one: me. I'm the one who, in response to the crisis of falling sales, tried everything I could think of to save us. I swallowed my pride and asked for help, and then looked at how I've run the company for a quarter century and realized that it wasn't good enough. I made hard choices and lived with the consequences. And I'm the one who hasn't had a paycheck since April.

The next eleven working days, leading up to Christmas, are remarkable: nothing bad happens. Will Krieger keeps the shop running smoothly. There are no machine failures, no employee misbehavior, and we are beating our time estimates. Dan and Nick close six deals worth $98,388. We're amassing cash: the remaining military payments arrive, and we get money from new customers and completed projects. Two new buyers pay their entire bill up front to get the cash off their books before the year ends. From the beginning of the month to Christmas Eve, we take in $233,170 and spend $150,897. The net gain, $82,273, takes me past my starting balance at the beginning of the year. By Monday the twenty-fourth, I've got $147,111 in the bank.

Monday, Christmas Eve. Twelve of the fifteen employees have shown up to work. At the meeting, I tell them that our annual sales will be very close to last year's totals. We finished 2011 with $2,138,572 in new orders, and as of today, we stand at $2,066,064. I expect a few more jobs in the last days of the year, as bosses with extra cash rush to spend some of it and reduce their tax load.

Ron Dedrick raises his hand: “How about our bonus? We have money, and sales are back where they were last year. And you gave us a big bonus then. Are you going to do it again?”

It's the question I've been dreading. I swallow and deliver my answer: “Maybe. I'm not comfortable with our cash cushion. We're positive, but we've been negative most of the year. Bonuses are expensive. Do you remember what you got last year?” I had been very generous, giving the lowest-paid workers fifteen hundred dollars, and the higher-paid guys four thousand dollars each.

“You guys got a nice surprise. Well, that added up to forty-eight thousand dollars, not including payroll taxes. But we also had a lot more cash, so I could afford it. A year ago, I had $280,000 in the bank. Today I have half that.” Stony looks from the crowd. “I'll tell you what. Next Monday, New Year's Eve, is the last payday of the year. I'll make a decision then, based on our cash position. But I'll tell you right now, it won't be anything like last year. I just don't have the money.” Unhappy looks all around, which I find a little bit disgusting. All year, I've paid them on time and in full, even when it was a struggle. I resent the implication that they are entitled to a bonus after such a bad year. I'm tempted to point to the donuts and say, “There's your bonus, gentlemen,” but I restrain myself. Instead, I end the meeting and walk back to my office.