I have been promising an update of what I see going on in the world, especially re manufacturing. I have managed to clear the decks, and my mind, long enough to draft this update.
What I see happening is the result of events that started back around 1980. I will (try to) briefly summarize as follows:
1) Large manufacturing companies had let their costs blow out, and were losing profitability and viability. Cost blow outs were a result of decades of poor management, as well as union militancy.
2) In response, they made the decision to outsource components to smaller local organizations with lower costs. The large companies effectively surrendered, and this was an admission that they could not control their organizations.
3) The result of this outsourcing is that the larger corporations ended up with a cost structure that was very heavy in fixed overheads relative to direct labor costs. In other words, total costs divided by direct labor costs grew when the outsourcing occurred. This is important, because this ratio very much reflects how sensitive a corporation is to change in sales volume. More volume = dramatically more profit, while reduced volume = dramatically reduced profit when this basic ratio is high.
4) A further result of this is that the corporations outsourced potential profit when they stopped manufacturing components and concentrated on becoming assemblers.
5) When downturns happened, the corporations became severely aware of what I described in #3 – profits plummeted extremely fast.
6) So in response to the realization that they could not survive downturns, companies began to look for further reductions. They began to source components from low-cost nations. But it did not resolve the issue of a high cost to labor ratio or of having outsourced product.
7) By outsourcing components to low cost countries, they created competition for themselves, as these low cost countries began to sell complete products into the US in direct competition to the US assembled products. Americans, believe it or not, by and large prefer to buy American made. But some will buy a cheaper crappier product.
8) The corporations then once again begun to be in trouble, as even though Americans did not overall necessarily flood to the imported crap, it only takes a small percentage of them to do so to cause problems, again because of that pesky cost to labor ratio that blew out when the first outsourcing to local companies began.
9) So the corporations then had incentive to move their entire production offshore, which happened in many instances.
And that is where we are. All of these steps I forecasted would happen, all those years ago, and so it has come to pass. Of course, there is much, much more at play – automation, free trade laws, etc etc etc.
My company benefitted from step #2 above, and has been successfully supplying components for over thirty years. We are in a niche market, and make high quality, small volume components for some very large corporations. But we are now under pretty extreme competitive pressure.
First, there are many corporations at stage 6 – looking for more reductions. My customers are in a panic – they desperately need to cut costs in order to survive. They are changing from more expensive higher quality materials to less expensive materials – say from steel to plastic. They are of course looking to source from “low cost countries”, and are “encouraging” me to start a plant overseas (akin to taking a blowtorch to my feet), or to enter into joint ventures.
The reason my customers want me to either start a company overseas or enter into a joint venture is worth special comment. You see, the reason the want me to source the product as opposed to them sourcing the product is that they want me to continue to have liability for the quality/safety/etc of the parts. They do not want to import directly themselves, for the following reasons (and more):
1) Quality is crap, and they want to be able to claim against someone
2) Many countries have very loose government oversight, and they do not want to be associated with any issues that might spring up (environmental, etc.)
3) Many countries require that officials be bribed in order to do business there, and big corporations have rules forbidding them to offer bribes. They want me to offer the bribes so that their hands will be clean.
4) They want just in time delivery, and buying from overseas does not allow that. They want someone to import the product, carry the associated risk and cost of storage, etc. for them.
Further, I am coming under pressure from established companies in low cost countries that have collected the “low hanging fruit” – in other words, China, etc., have just about exhausted their take-over of high volume components, which is initially the easiest stuff to do and the most profitable for them – and have begun to collect high hanging fruit, too. And high hanging fruit is what I deal in – low volume, specialty components. These low cost countries now have the experience to tackle this sort of work, and it is about all the work there is left for them to take over in order to keep exports expanding. Again, I forecast this would happen.
There is also one more major competitive pressure on my company that I did not expect, but perhaps should have. Those middle size local corporations that initially benefitted from the outsourcing, and who are now suffering due to the parts they make flowing to overseas manufacturers, are now attacking me, too. They are desperate for any work, and are prepared to make a loss on the type of work I do just to try to buy themselves another day or two of solvency. They are effectively offering to make tools for free, and to beat any price that I have. Now, this is commercially unsustainable, and my customers know it. But folks in purchasing are measured on their ability to reduce prices, and there will always be some prepared to buy from someone who they know is going broke just to hit their targets this year, and they will worry about the fallout later.
So, in summation, I am under extreme pressure to reduce cost substantially. The only way I can do that is to either relocate production to a lower cost country, or to enter a joint venture with someone in a lower cost country. The risks of both are extreme.
Over the next few years, I expect the size of my company to halve, if I refuse to source from overseas. Then, in 2020 or there about, it will suddenly either be forced out of business, or will be not much more than a jobbing shop employing perhaps 20 people. A 20 person company would be viable and profitable, but the cost and expertise required to keep the business alive during a downsizing from a company of 150 to one of 20 is extreme. Financially, I would be better off killing the company at the appropriate moment, as the restructuring cost will be bigger than the cost of killing it. And as I am growing older, and have fought these battles for 35 years now, I do not know if I have it in me to fight the requisite battle over the next 10 years or so.
The decision I am making now is do I do something I have never done, which is outsource work or jobs to low cost countries? I have never outsourced any work, local or overseas, as I am perfectly capable of managing my business. And I am disgusted by the number of people that have made the claim that I have outsourced work. It is a damn lie.
But I simply cannot compete with the extreme low costs on offer, and the dumping/predatory pricing that is underway. And then there is the extreme risk involved in outsourcing. I imagine I can manage that risk if I choose, but it is a consideration. At this point I believe it improbable I will choose to outsource any work.
I am busy restructuring the business to allow it to be viable for the next 8 to 10 years at about half its current size. That is a difficult process and some hard decisions are being made. For instance, I ultimately will have to choose between employees that have been with us for 30 years and younger, more active employees. The younger ones I have are far more productive, but are less experienced. The longer-serving employees are full of experience and skill, but their motors are running down. To survive/thrive the business will have to be extremely efficient. And I will have to keep the most efficient employees. It is going to be a brutally hard decision to make and implement.
Once that restructuring is complete, I will have to finalize the plan to either kill the business off at the most financially advantageous point, or let it dwindle to the jobbing shop mentioned above. That too will be a difficult decision – do I make the best decision for me personally, or do I save as many jobs as I can. I do not have the answer. In the end, my willingness to absorb stress will probably be a, if not the, determining factor.
I don’t envy you your future, and the decisions you will have to make. You left out the emotional component, as every owner feels emotionally attached to his business, and vitriol for those that are undermining it. Maybe it’s time to take the money and run. I don’t see much economic opportunity in this country for people that work hard and produce products. The economy is shrinking, and the government is doing everything possible to wipe out small business owners. You (and I) will be taxed to death as the government runs out of money and borrowing capability. The Fed money printing can’t go on forever.
“Americans, believe it or not, by and large prefer to buy American made”
I have to disagree with you on this point. Baby boomers and others made it fashionable to buy foreign goods in the ’80’s. No self respecting boomer would be caught dead in an American auto. And even today, the geezers that used to buy Cadillacs are all driving Lexus’ or Toyotas.
Buying foreign goods from countries that severely limited imports of American goods has wiped out our country. Our trade deficit is almost $500 billion a year. We are being bled dry of capital, and we produce little or nothing anymore to be found on the store shelves. America cut it’s own throat with foreign trade agreements. We switched to a financialization (debt) economy and a service (minimum wage job) economy. No turning back, it’s only accelerating. For guys like you, the handwriting is on the wall. Whether you choose to read it or not is up to you.
LLPOH… Thanks for the education which perfectly illustrated where we were, where we are and where we are going. It sucks.
You’ve been talking about closing down for a few years now. Maybe now’s the time to get it underway. You’d probably live longer taking a different path than what you foresee anyhow. Besides there are some great cruises out there to some really interesting and fun places that Mrs. LLPOH might enjoy!
Good luck with shoveling the shit you choose to shovel. It sounds like mostly bad choices – except for the cruise…
MA
There is another factor that you’ve missed. It is best explained by the following video:
It’s about 3 years old but you can see that it’s accurate. People need to know how our monetary system was designed to en-serf the population. Not for us, but for our descendants as there is little hope that we can turn this thing around in time. If not for that fool Kerry’s major blunder we would perhaps have already reached the end game.
AWD – thanks. Perhaps you are right re buy American. I think it is more they cannot be bothered to check where stuff is made. RE the emotional toll, it is indeed severe. Not re the company as such, but it is more related to lost jobs and the fact that it relates to the disintegration of the country in general.
Re the trade deficit, the Us simply is reliant on debt, and people are prepared to take the debt in exchange for goods. When that stops the shit will hit the fan. Re discrepancies in trade law, you are very right indeed. There are some horrible anomalies that do a lot of damage.
Muck – I am going to ride off into the sunset when the restructure is complete. Not sell the business, just not manage it day to day. Will oversee strategy, and will make the decision whether it. Totally dies or continues. Whether it lives or dies is up to how the employees behave, I suspect. Thanks for the good advice.
From what I have observed we are well into the deflationary cycle. There is no stopping it, the Fed is going to be hit hard when they realize their folly. All the outsourcing of major corporations only served to take money out of our domestic economy. Lower wages and elimination of jobs took more money out of our economy. When a large portion of the population are getting funds from the government, which are being spent at the same corporations that are only staying afloat because of those funds, there is going to be trouble.
All the money that is given to the poor is just within a revolving door of the same corporations that are causing the problems. Example, the U.S. Government issues food stamps through J.P. Morgan. Most EBT benefits are spent at Walmart, J.P. Morgan and Walmart make a profit to be held in an equity group or invested to maintain their monopoly. Those profits never circulate in the real economy of small business owners and individuals. The inflation alone from these program causes all the same money to be sucked right back out of the economy. People who work are over taxed meaning and any other extra money is also sucked out of the local economy.
Most of these corporations that Llpoh are pointing to created their own future destruction. There is no way to over cannibalize (Admin’ words) your market and keep the record high profits flowing. I read an article recently that said only about 15% of the profit from a big box retailer stays in its local community. That is a severe imbalance that will be corrected. Most of these same corporations took the other 85% and either hold them in private equity groups or invest through private equity groups. Fiat currency only works as long as it is actively being spent.
Calamity – pretty nice post. I do not think the problem will be corrected, but I agree with most everything you said. Saying that has made my head hurt! Thanks for the comment.
Oh, It will get correct. The events that will correct it will not be pretty though. They recently restructured the restaurant I work at for the very same business problem. They took out all the old furniture and replaced them with smaller chairs that are high backs. People used to stay for 2 hours gorging themselves on food. Now it is impossible to stay comfortable long enough. Over the past month I have no seen any obese people come into the store. They cannot fit in the booths and the chairs are only fit one butt cheek. They also replaced the salad dressing to a fatter content that now contacts milk. Before I would see a table of 4 easily go through 4 bowls of salad before their meal arrived. Now they may make it through 2 bowls. They changed the music from the rat pack sound track to current pop music. I rare see any retirees anymore. Even with all these changes they still cannot change their demographic quick enough. If they had changed their business to focus on same store sales 5 years ago they might have turned the tide. I am sure within a year I will not have a job there. I doubt most corporate businesses can survive this deflation.
Omg, you complimented me!!!
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Thanks Llpoh, very interesting. Good Luck with whatever road you travel.
Just to play the other side for a second… what if you go on the offensive? You’re saying your domestic competitors are selling at a break-even or an outright loss to gain volume and last another few days/weeks/months. What if you sniped them on strategic contracts in order to give ’em that gentle push into the dark night? Just think of all the comments you’ve had to endure form the likes of uppity shoulderchippers like me over the past few years and take it out on your actual, tangible enemies. I mean, if you’re only looking at the next ten years or so, why not go out fighting?
*Obviously, I have no idea if it’s possible for you to do that or not. It just seems to represent the spirit of the shit throwing monkey brigade and I think you’s probably find a way to have fun with it. That’s my rapidly depreciating $0.02.
E – Good thinking. It would be easier to do if I was not a supplier to manufacturers. Although I am a niche manufacturer, I rely on continuous work/contracts. I supply small volumes of high end parts on an ongoing basis. If I attack on cost, then I get to wear the cost not for a short-term, but indefinitely. And that would hasten my demise. I would rather lose work than take on money losing work. That way I am able to restructure around what can actually make money.
To knock off the dumpers, I would need to do so at a loss. Those folks are selling below cost in the mistaken belief that their problem is volume, when it is actually cost. Their fixed costs are huge relative to their labor costs, and that is why they are in such deep crap. I run with exceedingly low fixed costs, so drops in volume do not send me into loss situations (once I restructure a bit). I am relatively unique in that way, and I have seen off a lot of competitors as a result of keeping fixed costs low.
If I were operating on a contract basis, I could well attack them as I am profitable and they are not, and in the end I would win, probably. But I do not want to take on money losing work, as that is a road to hell.
I see. It was all so much easier when it was just US Steel and Standard Oil.. heh :). Your competitors trying to undercut you on volume to drive you out is pretty much what Rockefeller & Co pulled off 100 years ago. Apparently, your competitors don’t understand that the dynamics have drastically changed and the Amazon model of “(operating margin – losses) X volume – poor quality^2 = good idea” doesn’t fucking work. This is what happens when recent MBA’s take over strategy without ever having turned a wrench or made something from bar stock.
Great equation. Laughed and spit out my scotch. Too funny.
And to think, I’ve never run a business. … well, except for that little one I’ve been running for about 2 1/2 years. Since my enterprise is entirely based on labor, and I’m the only source of labor, and my supplies cost maybe 10% of each sale at most, maybe I’ve managed to figure out something without knowing I figured out something…?
Glad you enjoyed the math. It’s hard, don’t you know?
I had a “sunset” business, that is, technology was passing us by. I outlasted all my competitors and was the last man standing. Why did I last longer? Good management.
I outsourced. Myself. I moved to a foreign country where the cost of living was a lot cheaper. Reduced my salary but not my standard of living. I had a good manager at the home office that dealt with the staff and customers. I managed the promotions, inventory, payables and receivables remotely from the foreign office. I played golf some mornings and worked afternoons and early evenings (about 35-40 hours a week over 7 days).
I gave my credit card info to the shipping companies and as many of my suppliers as possible. When a bill was due, they put it on my credit card. The credit card company gave me frequent flyer points. Every summer when the manager took time off I would fly 1st class for free back to the home office. I stayed at a long time friends home for the 2 to 3 weeks I would be there. I hated it there and was always looking forward to going back to my new home.
The manager’s wife had health issues and he wanted to retire. I had to choose between going back or closing. As I am 60+ and had no desire to work his job as well as mine, I closed. I just didn’t see the point of working long hours to try and squeeze another 2 to 5 years out of the company that had no long term future. I didn’t need the money.
I enjoyed working and miss it but I have no regrets about the decision.
Llpoh, I understand what you are going through. Something else to consider — wtf are you going to do with your time if you close? It is a real shock to the system to be retired when you have worked all your life.
From my experiance in the automotive industry Chiner has a beat so bad it hurts to fight it. In fact it does not PAY to fight it.
Folks i give you 2 reasons why we loose. The first is the light control module on the 02-05 crown vic and grand marquis. This over engineered pos has a failure rate close to 50% at 5 years. It uses a common phillips 2203 relay hard wired into a unit controlled by the Body Control Module. When these units go bad the headlights just fuckin drop. Right to no lights. Hit a bump and lights return.
Now a LCM from Motorcraft was about 450 COST 700 List. Sucks but hey not my car until it WAS my car. My 03 grand marquis had this problem back in 09 and the local Ford dealer did me a solid selling me the unti at cost. Still 300 plus for lights. So i did some research.
I took apart the LCM and traced out the circuit. I desoldered the defective $8 relay and sold my rebuilt unit to a customer for cheap. Then i got screwed.
My kids 04 grand marq got the same problem. Hey no big deal I know whats wrong ill.just buy a relay.
No longer in production. Ford bought every single relay cause it was eating into sales for the LCM.
Enter Chiner
Dorman oe solutions re-enginered the system so you could install an aftermarket pr module to eliminate the defective relay. Cost $80.
Usa companies could not compete as.this unit eats Ford Factory salez for LCM.
I installed the chiner box on the kids car amd it works perfectly.
FUCK YOU FORD.
Not sure of what your product is, but, if it is not a necessity, you may not have to worry about 10 years from now. Maybe not even 5.
With the shrinking American incomes, cheap crap will be bought to keep up appearances (like the Prada knock-offs) and then not purchased at any price.
If it is a semi-necessity, it will only be bought when the old one is absolutely dead and then they will buy the cheapest, not the best.
If it is a true necessity, and there are few, you may survive IF you can reduce your overhead fast enough.
We have an unsustainable economy and you are experiencing it from the supplier’s point of view. You are not alone. Many thousands of owners are going through the same process and will end the same way. That is the future.
llpoh-thanks. I don’t know much about manufacturing management or product marketing, but what you have laid out makes perfect sense. Especially keeping the fixed costs under control-that part I do understand very well. It must be hard to see a business you have built up becoming unsustainable for reasons beyond your control, but I’m sure you’re not the only one struggling with this predicament. I have no doubt you will make the smart decisions when you need to.
C’mon now. Your story about the Grand Marquis is pretty much the tale of every Ford. Found On Road Dead. Fix Or Repair Daily. (Backwards) Driver Returns On Foot. These little sayings stay alive for a reason – they’re generally accurate. I current own two Fords and there are two Mercury’s in my recent past, so I know ALL about little shit with planned obsolescence. Ball joints, headlight lenses, door striker bushings, wiper arms, A/C blend actuators… Yes, there are numerous annoying fuckyou’s built in to those things, but you should’ve known that going into the deal. My justification for getting them anyway is that they are actually not terribly expensive to keep running, they don’t cost as much up front, properly maintained they can last quite a while, and when something does inevitably fuck up, it’s not that difficult to get to and replace. That and the styling of most everything else out there right now sucks Schweddy Balls. IMHO.
You missed one, E: “It’s all I could A FORD”. I’ve owned my share too-some of the lamest engineering of the Big 3, IMO. But I’m biased, a Mopar guy. Best engineering from the big 3, at least into the late ’70s. Too bad they had such shitty QC.
Leo – I plan to keep busy. Travel foreign and domestic. I have purchased around 100 acres and am building a home and am going to do the back to nature stuff – chickens, garden, cow or two, grow soe firewood, build a pond, etc. I will also tend a day or two to the business until such tending becomes too tedious/difficult/etc. Glad you got through in one piece!
Lots of good insight, folks. Yes, it is hapening to many, not just me. I suppose I am fortunate to have made it through before the crisis hit. Not everyone did, for sure.
AKA – I am basically on autopilot at the moment, restructuring the business for the volume that it will have going forward a few years. I have done this type stuff for a long time, and am pretty good at it. It is just this time I know there is no permanent fix. Before, I could fix a plant and know I had given it a chance of permanent survival. Now, I know the restructuring will only work until the next inevitable step in the process occurs – that the low cost or desperate suppliers will attack the niche players as they will be the only ones left to attack. I cannot compete when an employee costs me over $100k a year or thereabouts total cost. No matter how efficient I get, I cannot overcome the cost issue, not to mention the endless red-tape. And I will not throw good money at automation, whichwill simply delay the process a year or two. It is what it is.
* – I can reduce overhead at light speed. I supply mostly for semi-necessity products. It has been good for me, but the clock is ticking. Even if by some small chance I am best in the world at doing this shit, it would not be good enough in the end. To even try would mean I would have to once again risk everything I have, and I sure as hell am not doing that. That is a young man’s game, and I am past that point.
– OFF-Topic –
Admin,
the best Russian dashcam road rage ever…
https://youtube.com/watch?v=5RAaW_1FzYg%3Fautoplay%3D1%26modestbranding%3D1%26rel%3D0%26showinfo%3D0
please insert it in the next funnies. I can’t
– end of off-topic –
Loopy,Interesting take on the high time preference of the corporate world.
2020 ?
You really think you can swing in the hurricane force winds of change for another six years ?
BTW, just throwing this out, but have you ever considered changing product to meet new market demand ….e.g. weaponry, survival products/tools,bunker equipment furnishings
I see the sales of this lot of this type of product doing well these days….another sign of the times.
FWIW, I wish you the all best of luck.
LLPOH,
I hope you go the way Muck pointed out. It`s a twisted world we live in and there is no way to fight back right now other than deny them the income they stole ‘legally’.
Peace
Wow dude: you really know your shit! My .02 which is now worth .001 since the FED took over is to sell the bidness at the right time and you and the Mrs sail into the sunset. You Ford haters can kiss my fat boomer ass! I have been driving ’em longer than most of you weak-dicks have been alive and they have been “berry berry good to me”. I take care of my stuff, do the maintenance on time, &tc. Also I buy American: Colt, S&W, Winchester, &tc.
If a Dartmouth educated Native American MBA baby boomer can’t make it, what possible chance do any of us have?
Yes, there a few who rise through the ranks to become C level execs, and I don’t begrudge anyone their success. LL’s business is privately held, thus he isn’t beholden to the global oligarchy, which is why his company will fail. The oligarchy have solved the problems of succession.
North American can survive independently of the global economy. It appears the battle being wage, and lost, is control over the fruits of production. When the national GDP funnels into the hands of a few, wealth disparity continues to increase to levels not seen since the 1920’s. Everyone wanted to get on the band wagon, investing in stocks.
It remains to be seen whether QE to infinity will be enough to offset the dampening effect of the ACA. Once again, as with medicare, socializing the risk and privatizing the profit. It’s been a business model which has worked with spectacular success thus far, until it doesn’t.
LL’s manufacturing business is a cog in an increasingly irrelevant system. He’ll live and die, having provided for his family to the nth generation. Same for MA. Don’t know about Stuck, he’s a sea anemone. Admin isn’t doing to bad, having saved a phenomenal percentage of his wages over the years. You guys are the exception, maybe 20% at the most are ready for a long term decline in the economy, and it’s most likely going to get worse before it better. A lot worse. Whether it rises to the level of the destruction of the social order remains to be seen, as well. Continuity of government has certainly been addressed.
@LLPOH – “cow or two”
Beef sells well, if you have neighbors you can often barter beef for fresh fruit and veggies.
@JIMSKI – I drive a 2003 Ford Focus. At 100k miles I ran into a litany of problems. Failed gaskets, ruptured thermostat, failed alternator, a strut (not a mechanic) failed in the front end.
It turns out the Ford Focus’ produced from 2000-2003 all ran into the same problems right at 100k miles, Ford had deliberately chosen poorer quality materials for these parts so that you would be forced to buy factor parts at ridiculous mark-up.
Had they just put the better parts in to begin with it would have been less than $100 more per car, but the way these things failed often led to a cascade of problems.
Anyways, I’m right there with you. Corporate America tried to make its money off the people by screwing them over and then using the profits to buy lobbyists who would force the people to pay anyways.
@ecliptix –
” I know ALL about little shit with planned obsolescence. Ball joints, headlight lenses, door striker bushings, wiper arms, A/C blend actuators… Yes, there are numerous annoying fuckyou’s built in to those things, but you should’ve known that going into the deal.”
My wife got the car when she was in high school, we still drive it because we refuse to buy another new vehicle until the house is paid off.
I had no idea about planned obsolescence when I started driving the thing. My first car was an ’86 Mazda B-2000. You could literally drive that thing to hell and back with no oil and fumes in the tank and it would keep chugging along. I was used to vehicles that could do their thing indefinitely, having to baby-sit a “new” car shocked the hell out of me.
This weekend I get to fix a broken window actuator, and maybe replace that damned radio finally.
“they are actually not terribly expensive to keep running, they don’t cost as much up front, properly maintained they can last quite a while, and when something does inevitably fuck up, it’s not that difficult to get to and replace.”
Sometimes a breakdown is damned inconvenient though. Of course, as far as I can tell these problems are built into damn near everything these days, unless I feel like shelling out massive $$$ for an ugly European car.
WHO GIVES A SHIT ? Many businesses fail every day ! Some from ‘self inflicted’ injuries – many from ‘outside forces’ that are beyond the business owner’s control. SUCK IT UP !
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llpoh
Your story reads like a Steinbeck novel about our descent into the next Great Depression. We have a country of short-term thinking greedy executives who run the major corporations and care not for the sustainablity of our economy. The mentality of quarterly earnings and compensation tied to stock market gains has slowly but surely destroyed the country.
Free market capitalism hasn’t existed for at least a century. Small business owners like yourself have been put in an impossible position. Globalization was nothing but wage arbitrage for mega-corporations, who also lobby Congress to create laws, regulations and tax code that are designed to drive you out of business.
The corporate fascist state has killed the goose that laid the golden egg. Once you have outsourced enough jobs to foreign countries, there aren’t enough working Americans to buy their goods. We’ve reached the tipping point. Your dilemma is documentation of that point.
Do what’s best for you and your family. We only have a short-time on this earth and you deserve to enjoy it.
The carnage from the worst legislation in modern history keeps piling up. The latest damage assessment comes from a Gallup poll that shows “Forty-one percent of small businesses surveyed have frozen hiring” because of ObamaCare, while an equally astonishing 19 percent have actually reduced the number of employees in their business specifically as a result of the President’s health care reform. 38 percent said they have pulled back on expansion plans…
…But wait, it gets worse: 24 percent of poll respondents are thinking about dropping insurance coverage for their employees (“If you like your health care plan, you will be able keep your heath care plan. Period. No matter what.” – Barack Obama, July 2009.) And 18 percent report transforming full-time jobs into part-time positions.
Just sell your business and move to Uraguay and start a bed and breakfast on the beach somewhere. Why do you even bother? You know that the government will destroy your business model eventually, they are hell bent on it. Especially if we get another democrat in office. You’re toast.
Just get what you can now, that’s my advice. It’s like selling while the stock is high or at least high enough to get something.
Even if you don’t sell, if I were you I would be taking Simon Black’s advice and getting as much money offshore as possible, in gold, in other currencies, whatever.
You know the dollar is going to sink eventually and there is always the threat that they may nationalize your business, hell it’s already written into law, they are just waiting for the right moment to enforce it.
Get out now while the getting’s good.
+10 Admin…life’s to short to put up will years of thankless toil and trivial bullshit , just for a few weeks of leisure…. FWIW…my advice is, cash your chips and take the time to enjoy the sunset … if you can.
http://blogs.telegraph.co.uk/news/tomchiversscience/100229658/you-only-have-4000-weeks-of-existence-use-them-wisely/
We only live for about 4,000 weeks. If you’re anything like me you’ll find that statistic startling, even though it’s obvious (average 80-year lifespan in Britain, 52 weeks a year = 4,160) when you stop to think about it. It’s particularly troublesome on a Monday morning, when you’re idly wishing the week away, and thus – without the slightest qualm – wanting 0.025 per cent or so of your allotted lifespan to simply disappear.
Llpoh, without at least some description of the product/business your company is in, this post is masturbatory and useless.
This is why despite having enough capital available to purchase or start a business I cannot imagine attempting such a leap of faith. I sit and watch the gathering storm and wonder when it will arrive, hoping it does so while I’m young enough to manage.
The Great Depression is best explained (IMO) by Higgs’ “Regime Uncertainty.” Political and social events were so threatening to private capital that owners of it simply withdrew it from productive application.
When (official or unofficial) criminal organizations threaten to take whatever you build, you STOP BUILDING until conditions become less threatening. It may take 30 years to see the threats abate.
This is a prescription for exactly the doom & gloom most TBP’ers expect. It’s not pessimism, any more than looking at approaching storm clouds induces an expectation of rain and causes one to cancel the picnic.
Llpoh, you and many others (Perot, Paul, etc) have been attempting to explain and to warn not only what was happening way back then, but what the future would bring. Not what the majority wanted to hear, but regardless, we must all face. I know you will make the correct decision, but good luck nevertheless.
Admin: (“If you like your health care plan, you will be able keep your heath care plan. Period. No matter what.” – Barack Obama, July 2009.)
My son has already been notified, the insurance plan his employees voted on and and want to keep? Not good enough per the government, son handed out the government document explaining that on Jan 1, 2014 they all must purchase insurance through the government exchange, or face penalties and fines.
My son runs a internet based company with 25 employees, all of them obama voters, all of them totally surprised at the fines, all of them clueless about the other side of obamacare, all of them are the problem really.
All they heard was free.
A friend on my facebook posted this photo. I though it would be appreciated.
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Thanks all – one common thread is advice to sell up. Problem is, you have to have buyers. And very few folks want to buy into manufacturing. And fact is, I am its most valuable asset (i am not unique there – most family owned businesses are much the same). So, it is damn near worthless on the market. But it does spin profit, and I make more in a year than I could sell it for. So, I will keep it alive for the moment.
But I am riding off to semi- retirement. I will dabble and keep an eye on things. I have a couple of managers who can keep it running day to day so long as there are not big strategic issues, and I can keep an eye on the books via the net. I am heading off on a long vacation shortly, and am looking forward to that.
TPC – maybe more than a couple, but not too many more.
Skinbag, what a douche. I am not crying, just telling people what is happening. I am concerned about my employees, as there are some good people that will be hurt.
DC – I do not blame you.
Admin – as always, very insightful. I am not some great thinker, but I saw this thirty years ago. When companies start to outsource their work to other local manufacturers, the writing is on the wall. It is a signal they have lost control of their business. The rest was as inevitable as falling dominoes.
Z – I supply heavy industry, medical tech, transport, etc. Many f my customers are huge, but not all. Thanks for the kind words.
llpoh
I wish you wouldn’t have answered Zara.
I enjoy the idea (but not the mental picture) of Zara choking his chicken over this thread.
I hope your vacation is in Israel. Zara’s dick would probably fall off from all the kinetic action.
Stuck – I thought about not doing so. But I thought others may not have read other articles where I mentioned the general properties of my products, and took that bit on board while ignoring his bulshit (more or less).
I was amused by his comment about the thread being useless. Given he is such a success and all that, and having lost lots of money due to his inability to protect his property rights, I guess he is a really good judge of what is useful and what is not.
Re my vacation – I avoid anything that smells even vaguely of turmoil or poverty (I have seen lots of poverty stricken areas, and if I never se another it will be too soon. So Admin will not likely see me driving through the Thirty Blocks). India, China, Sth American shitholes, Mexico, Any Muslim nation, etc, have no interest for me, and I avoid them like the plague. What I really enjoy is ancient ruins, things related to the development of civilization, fine art, and combining those things with natural beauty. There are a few things I would like to se in Sth America, but it is too unstable for me. They need to sort out their affairs first.
Stucky, llpoh, my point (which I’m sure I made poorly) is that without context, any bitching about foreign competition/offshoring, etc. isn’t too helpful as the particulars vary from industry to industry and market to market. In this case, the first thing that came to mind, after reading llpoh’s initial post was if any non-tariff barriers apply… Llpoh, thx for the response, but I don’t have a clearer picture hence I remain where I started.
As for travelling to Israel, I’m afraid you fucks are out of luck. No way will any regulars from TBP get visas now that the NSA has given Israeli intelligence dossiers on all of you; even llpoh due to guilt by association. You’re welcome. 🙂
Let’s have a fund raiser
http://www.youtube.com/watch?v=ilvWjzODvos&feature=youtu.be
Z – there are indeed some really bad barriers to trade out there. They do at times affect the issue, and the playing field needs to be levelled. I am/was trying to give some background on what happened, and what is happening.
I do not think trade barriers are the answer in any way, as I believe that the US is simply not competitive at this point especially re consumer goods mfg (some high tech things are still viable), and a trade war will simply drive up prices locally, and will make the US increasingly inefficient and drive quality of products down. The dominating position the US had in manufacturing pre-1980 saw this very thing occur, and it was how the crack in the wall began that was ultimately taken advantage of. For instance, the dominant position of the US in auto manufacturing lead to huge wage/benefits bills, poor quality autos, and eventually ended up with foreign automakers taking advantage of that fact. The US automakers have never recovered from their bloated and protected position, and I believe they never will.
Trade barriers will result in even less efficient US manufacturing, and so the products on offer will become less and less valuable in trade. The US needs a great may resources from overseas (and I do not mean big screen TVs and such), such as oil. And eventually debt will not be taken in trade, so the US will have to offer hard goods in exchange, or will have to offer land, buildings, etc.
And as it – the US – becomes less and less competitive, the goods on offer will become less and less desirable, and more and more of them will have to be offered for whatever the other entity has, and at the same time the US will be losing ground to other nations that are becoming more and more competitive.
The US simply cannot compete at the moment against traditional type manufacturers. Costs are vastly too high. And there is not enough efficiency gains to be made quickly enough. Even if I could put out ten times more goods for the same number of hours, I would still be too expensive. My $100k per employee might fall to $10k equivalent, but even there labour is simply too expensive versus alternatives.
The average Chinese worker makes under a tenth of what I pay my workers, so there you have it – when the Chinese want to attack low-volume industry such as mine, assuming level terms of trade, and assuming transport issues are not too severe – I am screwed.
It has been coming for a long time. They have collected the low hanging fruit, and are now climbing the tree to where my perch is. I knew it would happen, and I can but stave off the day, restructure, and then decide whether I want the business to continue as a jobbing shop, or whether I pull the pin and let it go under. I simply am not sure what I will do. Many factors are at play. It also depends on how well I can insulate myself from any direct risk – corporate directors carry personal risk, and that will weigh heavily. IF an employee is willing to assume the directorship risk, then that would be a positive action. But I will not likely assume the risk for relatively modest return
LLPOH and others,
You may like this article, posted by the green lantern, contributor at Turd Ferguson`s site:
http://www.tfmetalsreport.com/blog/5065/whatever-happened-justice
Admin,
I noticed the post I made at 07:18 came out with some delay. I logged in with my WordPress account (Eugend66) if the comment landed in the ‘spam’ rubric of the site, then, if this comment posts immediatly maybe the solution for me and others is to log in with the TBP account.
In my case – eugend66. No more comments to approve for you. 🙂
Peace
eugened66
You are one of the commenters whose comments go into my pending file for some reason. There are about 10 regular commenters that have this happen. I don’t know why. My WordPress settings are set to allow all comments without moderation. I think it is the Wordfence plugin that is supposed to protect the site from hackers.
Ha!
Llpoh, I so enjoy your views from the front.
I read your article, great points that most miss/don’t see as important, but that truly are.
Skinhag (whatever) misses all your points, which (as you well know) means he has NEVER, not ONCE been responsible for others’ families and their financial futures.
Never made a payroll while sacrificing your own, never paid a gubment fee/fine for his job out of his pocket.
In his world, ALL bizness owners be rich and if you close your doors it’s because YOU are a failure, cause the freaking streets ares lined with greenbacks and you be making it rich stealing from the gubment, your workers, and the poor.
I hope he, and the majority like him, have to shovel shit and eat bark to survive.
Anyway, read your article and the (mostly) good comments, and then (relief!) saw that your are thoroughly looking at the risk issue.
Right now there are hundreds, if not thousands, of small/med businesses that are surviving on the gubment contract tit. The day is rapidly approaching (as employers like you give up) where they are the only ones left to cannibalize.
Hate to say it, but will be kinda amusing for me (in a real sad way), as these are the asses now that help the gubment and the big corps lie to the masses and keep the bullshit flowing. When they are up I am going to laugh hard. Probably quietly too, but hard nonetheless.
I wish we were in the same position as you, you see the upcoming (further) slow down and are actively figuring out how to survive it.
That, I believe my friend, is more than half the battle. Planning for the worst and taking steps to lessen/avoid it.
I have the distinct feeling that you are going to be just fine with the company running, or without.
Thanks for the (sad) update, Going Galt is no longer just a literary device.
Hi teresa! Thanks for the input. There is so much happening out there it is impossible to convey it in an article or thread.
Much of what I know and can see I cannot put into words. It is a peculiar strength of mine – I have the ability, generally, to see cause and reaction. What I do not always have is the ability to explain what I see. It makes life difficult for my employees at times, as in those instances I am forced to issue instruction without being able to provide adequate reasons for the action. That is very frustrating for them.
I was considering today how I might be able to provide some assistance to readers contemplating starting up small businesses. I do not want to discourage initiative, but I do want to convey the risks and skils needed before they go down that road.
The basic issue I see overe and over is that folks think they are starting a business, when in fact they are not. They get a business name, they call what they do a business, etc. But mostly what they are doing is buying themselves a job. Buying yourself a job is not the same as owning and running a business. A perfect example of this is someone running a landscape “business”. They have a pick-up, a mower, perhaps a trailer, and voila – they have a “business”. I disagree.
For me a business really takes its form when the “business” is able to shed and add labor cost in direct proportion to its sales. If it cannot do that, the business is all fixed overhead. And it is facing doom at any moment. I would suggest that that point generally does not occur until there are several employees on the books.
And the fixed nature of labor costs at small employment levels is one of the prime reasons small “businesses” go broke – any small downturn can be fatal as they are unable to shed labor costs as the labor costs are fixed and not variable, and they quickly find that sales margins cannot cover the fixed costs.
Anyway, sorry for the rambling. I wish I knew how to quickly convey what people going into business ownership will need to know to have a chance to survive. There is just so much to know, and most folks simply do not know what they do not know.
Thanks again. And good luck.
@LLPOH: You never ramble. One think you also need to crank into your calculations is what the FOMC came out with today. We are now on the road to total perdition a-la Weimar Republic, at least until the stock and bond markets totally reject it, the world rejects (or even starts to reject) the dollar and whatever economy we have tips into an inflationary depression.
No taper, no slowdown in adding garbage to the central banks assets, no change at all.
Historically, that’s pretty much the norm when governments start to fail. They can’t steal any more from the populous (most of said populous is on the dole), they can’t cut spending anywhere because the gored oxen will bellow, scream and finance someone else for the power jobs and so they take the road most traveled and inflate.
Since Bernake and Company are not fools, just crooked politicians, they know damn well what they’re doing and doing it anyway.
Since it not going to end well – and we don’t have a clue how slippery the slope is or how fast we are going to get to the bottom of it – You will probably do what’s “right” to protect what yours and the people depending upon you. Then you will thoroughly munched and crunched and eventually devoured by the parasites we serve.
But — you are a good man – and I suspect (as I’ve told you before) I’m absolutely sure I would have loved to work with you (and you would have gritted your teeth and put it with it!).
As I was growing up – say 25 to 40 – I learned that one of the best ways to progress in any organization was to find the most ambitious and hungry man (or woman – though not so much back then) and ask him, “How would you like my job?”, knowing full well that he would say , “Sure!”. Then I’d teach him everything I knew about the job, how to best do it, what the knots and curls were and how to work around them, and then I’d delegate and work his ass off.
Then, when (as it always did) a better opportunity came along and my boss wailed, “Jeeze, who can we get to replace you?”, all I’d have to do is point at my trained tiger and say, “Him”… I’d get the new (usually higher paying/more challenging, more responsibility, exotically located and more fun!) job and start training another replacement after I’d been there long enough to identify him!
I’ve worked for myself a lot over the years, but in the way you described, as a lone wolf with fixed overhead and just couldn’t be bothered to grow it into something like you have. I honestly don’t know which way is better. I liked the way I did it, you liked the way you did. That’s the world and each of us (unless you’re a parasite and worthless piece of shit) takes responsibility for himself and those who depend on them. Maybe a family was the most I was willing to commit too.
Just keep on coming back to TBP (i.e. bring a laptop and share your adventures with all of us monkeys!)..
MA
Zarathustra says:
“Llpoh, without at least some description of the product/business your company is in, this post is masturbatory and useless.”
LLPOH makes widgets. He said this was an ‘update’ not a case study. You get 5 minutes with a manufacturing mogul like LLPOH and you want a recap of the day to day stuff before you tackle the big pic? Like Stuck, I’m also amazed he didn’t kick you to the curb.
Muck – to me, it sems you did what I finally learned to do: I stopped worrying about the politics and concentrated on the job and doing the best job I could. I hear the echoes of that in your willingness to train and support others – and it is something you have every right to be proud of. You did not step over someone to move ahead – you moved ahead based on your wilingness to help and to focus on the job at hand. In the end, it paid off for you, and for me.
Although by not being a politician I could never rise high up into the ether of a major corp. But I became very valuable to those types, as someone like me paved the way for someone like them. Until I deciced to run my own ship.
Juan – on my own threads I try to be much more civilized. I also tend to try to be nice when someone posts original stuff of their own. I post this stuff as perhaps someone out there can get some small bit of value from it. Z came back with something of value, so it is all good.