This is a story that I became aware of yesterday. It is a tragedy, and I think bears repeating.
Several times per year several of us, along with our wives, get together for fellowship and to discuss our business interests. We are like-minded individuals, and all own or operate small to medium sized businesses. We have been friends for many years. We had one of these lunches yesterday.
I was sitting next to one of my old friends and asked him how his business was going. He teared-up and could barely speak. He and I went aside to talk.
My friend is in his mid-seventies. His business is seventy five years old and was founded by his father in the Great Depression. His father nurtured and grew the business even during such hard times. My friend worked alongside his father for many years, and in due course the business became his. That was some forty years ago.
The business deals in relatively high dollar projects with six to twelve month lead-times. My friend slowly, steadily, patiently grew this business from a mere gosling to a full grown goose laying steadily more frequent golden eggs. Each year the business grew, added more employees, increased the size and scope of its projects, and became more profitable. It was never an enormous change year on year but rather was a steady and measured growth. The primary competition was originally local but gradually began to be centered overseas.
The business is and was always a relatively low margin business. Profitability relied on accurate quoting, highly skilled and experienced employees, and a set of rules that were developed over many decades. First among the rules was that the business always declined to undertake contracts above a certain size. The contract size undertaken would only expand as my friend determined that the business had the requisite skills and resources to do such larger contracts. Generally, each year the company could undertake slightly larger contracts. Currently the company has sales of approximately $10 million per annum, and employs dozens of people.
About twenty years ago my friend began to groom his son for succession. He sent him off to college to get his degree. Upon his return from college, my friend began the painstaking process of preparing him to one day assume control of the business. The son worked on the shop floor, in engineering, in quoting, in sales and administration. He was given experience throughout the company. Slowly he began to make major management decisions, carefully supervised. His biggest flaw was that he had the rashness of youth – he was constantly advocating for larger contracts and faster growth of the company. My friend was very patient with him and passed on the wisdom of many decades.
My friend was anxious to retire given is increasing age, but did not feel his son was quite ready. He stayed on, slowly reducing his hours, giving his son more authority, and checking his progress. His son was learning the lessons – jobs were accurately quoted, contracts were kept to an appropriate size, and profits were maintained.
Finally the day came when he saw that his son was ready. My friend was 73 on that day 18 months ago. He sold the business to his son on very favorable terms (the son borrowed against his house for the purchase) and ever so tenderly handed over the golden egg laying goose to his son, and proceeded to enjoy the fruits of his decades of labor – nice car, lavish holidays, etc. with his wife of many years.
The son, henceforth to be called the Idiot Son, roughly grasped the goose and ran off shouting “At long last I am King”. The die was cast.
With the first golden egg laid the Idiot Son ran down to the bank to show them its magnificence. The bank was duly impressed, as the company was profitable, the order bank strong, and there was a 75 year history of success, and so granted him a bigger mortgage to finance a much larger home for himself and his family. The goose was not too much troubled by this, as the golden eggs flowed freely still. It had been about two months since the business was passed along.
Then the Idiot Son ran down to the Mercedes dealer and borrowed the money for two AMGs – one each for him and his wife. The goose honked a bit at his folly, but still the eggs came and the goose was only slightly troubled, as surely more eggs would be laid. The Idiot Son took out more loans against future eggs and bought a new Harley and a new speed boat as well, and a nice vacation. The goose was concerned by this as never before were future eggs pre-committed, but there seemed there would be enough eggs to cover the debts. It had been about three months since the handover to the Idiot Son.
The Idiot Son decided that the current offices and factories were not grand enough for a man with such a magnificent goose, and so moved to far grander premises. The new premises were more than $100k per year more expensive than the previous site. The goose did not know this had happened. The Idiot Son, seeing that he could not reach his growth targets without extra engineers and administration and salesmen immediately recruited the finest of these he could find. Fine they were, and appropriately expensive. The goose was blissfully ignorant of this and kept laying magnificent golden eggs for the Idiot Son, not knowing that each egg had already been committed. It had been about 8 months since the Idiot Son took charge.
The fine new salesmen went out and found the nice large contracts the Idiot Son so desperately wanted. The fine engineers and estimators defined the work and quoted the jobs, and secured the large contracts. It was now 9 months since the handover. The old jobs were being completed and the new jobs were starting. The goose was now terminally ill, and would soon die.
Fast forward a further 9 months to yesterday, and the goose is long dead. The company just went bankrupt, and all the employees have been fired. The Idiot Son has lost all of his possessions including his house. His wife has left him.
The magnificent goose would have been able – just – to survive the outrageous spending of the Idiot Son. But the Idiot Son did not realize that the first nine months were financed by the contracts already in place when he assumed ownership. These projects were profitable and followed the established rules of the business – his father’s rules.
During the second nine months, the Idiot Sons jobs began to flow through. They were accurately costed – that was not the problem. The problem was the jobs were too big for the organization to complete – there was not enough skill and experience available and insufficient time to train new people. Overtime began to gnaw on slim margins, and late penalties kicked in. Each job lost money – lots of money. In the second nine months the jobs lost in excess of $1 million dollars. In combination with all of the personal and company debt, which could only be funded through continued profitability, the huge loss resulted in the bankruptcy of the once fine business .
In 18 months the Idiot Son destroyed the magnificent work of two lifetimes, cost many dozens of people their jobs, lost the Idiot Son all of his possessions and his family, and caused $10 million of annual work to move overseas. With the multiplier effect, the Idiot Son may well have stripped more than $50 million out of GDP. He accomplished this all by his idiot self, despite the years of careful training he had received. One single idiot did all of this damage in EIGHTEEN months.
Some of you have asked for stories of Evil Banksters and Corrupt Corporations and the Free Shit Army. I have some of those, too. But I am here to tell you there are a great many forces destroying the country – forces that largely go unseen. This Idiot Son is one such. One imbecile has caused untold millions of dollars’ worth of damage to the economy of the country – perhaps even hundreds of million worth if projected forward some many years. The Idiot Son is despicable in his arrogance and stupidity. He wanted instantly what it took his father decades to build for himself. I cannot fully express my disgust.
The great tragedy of this story is what happened to my friend. He has seen, suddenly and unexpectedly, the death of a company that he and his father built over 75 years. He has seen people that he has worked with for decades lose their jobs. He has seen his legacy die because of his Idiot Son. He is inconsolable. He is fine financially, but I do not believe he will ever be the same.
In eighteen months one idiot caused all of this devastation. It is truly a disgrace. Beware the Idiot Son seems to be the moral of this story, as I am afraid they lurk everywhere. May God save us from idiots in whatever guise they assume.
Llpoh
I currently have a good customer that I have grown in the past month. I picked up this account a month ago. They have great potential. The past couple weeks I have been dealing with so many problems. It started first with a UPS ground shipment that was damaged. We told them to file a claim with UPS. They didn’t want to because they believed it was poorly packaged. Bottom line, it was poorly packaged but they should have filed a claim since it left our facility in good condition. Anyway, I worked with my boss and the customer. I convinced my boss to do a RMA as they requested and that we need to no longer ship ground and do freight for future shipments to avoid the mess. My boss fucks up and doesn’t tell our shipping/receiving guy what needs to be done for future shipments. I get another call last week and they want me to come out there and see another damaged shipment. I’m pissed because this should have been avoided if we shipped the way my customer and I agreed upon. I explain that I’m sorry. This is unacceptable and that I will make sure this doesn’t happen again. At this time, the customer loves me because I am showing urgency for their concerns. If things can’t get any worse, Monday they get a pallet that is damaged. I go up there immediately. The pallet was destroyed. I told them we would never ship this out like this. It was clearly dropped by the freight company. I tell them to file a claim immediately. They listened to me because they trust me and like me plus I told them we will not take this back. Well I’m taking a beating on this account and I’m thinking ok 3 strikes with a new customer in the first month is not good but Ive done ok because they really like me. Shit they probably don’t have any reps that address their concerns as fast and serious as me. I’m busting my balls on this account. Well………today they call me and are frustrated with my inside sales guy in regard to a past PO. Now upper management is involved and think it would be beneficial to meet him. I talk with my inside guy to find out what’s going on. He explains everything and the issue was that the customer processed a PO but never sent it to my inside sales guy for confirmation. They call him today wondering why the shipment is late. He tells them I have no record of the PO. The buyer freaks because her boss is on her about this PO and she is trying to put blame on my inside guy for her disorganization. She comes to me and explains the situation and is mad because the cost went up from the first RFQ. My inside sales guy tried to explain that the quote was no longer valid and since he never received a PO, he had to run a new quote which was higher. I have a good relationship with this customer but there has been so much going wrong so soon. I’m afraid eventually I may not be able to patch everything up as I have been. This one could tarnish the relationship but we will see what happens when I meet with management. I had my inside sales guy print out all email communications this past month in case she tries accusing us of not coming through. I’m realizing she fucked up and is getting railed by management and she’s trying to blame my guy. I don’t want to rat her out so I’m going to try and smooth this out without pulling out emails to her boss. This has been a good experience for me but stressful. I hope this won’t hurt our business in the long run with them. On the plus side, I’m glad I’m meeting with management. Maybe I will be able to even grow our relationship from this since it allows me to meet management so soon. I already have a good relationship with the buyer and materials planner and engineer.
The reason for my story is to show you a situation where it is hard to admit fault when something wasn’t your fault. I feel like This situation will either be very positive or negative. No neutral. Everything possible has been wrong with this account but I have kissed ass to still get good business. I’m scared my efforts may not be enough this time. I’ll let you know what happens from this situation once I get through it.
It is frustrating because my boss is the son of the father who built all 3 businesses for over 30 years. The son is 30 and the dad doesn’t really involve himself in the businesses anymore. He still owns them though. The son lacks leadership and business practice skills. I’m so frustrated because there is no system or accountability. I’m doing my job by bringing opportunities but I feel like it will be hard to bring in big sales since I want things done and executed efficiently. Quote turnaround time needs to be fast, pricing good, and I need my questions answered fairly soon. It’s not my business but I see so much potential. If I could change how things are done, we would get more business. I guess I just have to wait until the day I decide to start a company. The good thing is that I’m taking everything in like a sponge. I’m learning so much from this job.
Jmarz – I understand your frustration. These are some serious fuck ups and the company gives the appearance of being very poorly run, based on what you are saying.
After the first problem, I personally would have hand delivered the second item, if I were in charge. Why wasn’t it done? There shouldn’t have been a second fuck-up, under any condition. Your customer is obviously close enough for you to get to fairly quickly. You did the right things by giving the customer attention – but your company has to perform. Someone has to follow up on this every step – the boss fucked up when he didn’t convey the message on the second one, etc. Etc. etc. The company is fucking the goat and really needs to consider if it is going to survive or not. This is some bad shit.
Re the messages/PO, this is an absolutely common theme, and must be fixed. Businesses must have a fail safe process in place. This is an absolute must. Ours goes like this: the order comes in via fax, in most cases. We print out a daily register of all faxes received, and compare that to the physical bits of paper to make sure all is accounted for. We file every printout every day and thus have a daily record going back in perpetuity of every fax received. If a customer says they sent an order through, we can instantly check if they sent a fax and prove it one way or another. This has saved our ass more times than I can tell you. When we get an order, we send a confirmation of acceptance. If they do not get a confirmation, they know their order was not received. In any event, without a confirmation, an order has no legal validity. Customers need to know the policy on this so there is no misunderstanding. If this or something similar isn’t in place, disaster awaits.
As you may be able to tell, I do not believe in fuck-ups. I have zero tolerance for them. Zero. Of course they happen. But never, and I mean never, do I tell my employees “shit happens”. If a fuck-up occurs, they hear about it from me – every time, no exceptions. They know they aren’t being fired, and it will be forgotten tomorrow, but they also know that fuck-ups are simply not allowed. And processes are put in place to make sure they do not happen/re-occur.
I suggest there are at least two lessons you may learn from your experience – follow-up, follow-up, follow-up, and do not accept fuck-ups – period. Follow-up is now so ingrained in me that I do not even think about it. One of the few things that will get one of my employees fired is if when I follow-up that they tell me, yep, I have done what you asked, and then I find out they haven’t and it goes to shit. That is a terminal mistake. And I always make sure people are spoken to re any mistakes – any. Not abusively, but to let them know that mistakes simply are not acceptable.
Hope I am not too much of a hard-ass.
Admin – I know, and I am so ashamed. Please do not consider me guilty by association.
Llpoh
I hand delivered their most recent order and personally picked up the first 2 damaged shipments of heavy lead gaskets and loaded them up in my Camry. I they appreciated this a lot. Not too mention I convinced my boss that we should deliver all future parts that we originally had issues with. They loved this when I told them. The last time I was there I personally delivered the order and they made a statement that they wish I would deliver all their stuff. The next day I told them we will have someone deliver future orders that deal with the lead gaskets we had shipping issues with.
Man, I forgot to add something. Our fucking shipping guy accidentally sent a pallet that was suppose to go to a different customer to the customers facility I have been having issues with. I was pissed. I went up to our warehouse and spoke with my boss. He was pissed. They sent someone today to go pick up the pallet from the wrong customer and deliver it to the right one. Unbelievable. There is no accountability at my company. The problem is that there really is no system in place. Thank God we are being forced to become AS 9100 certified. Although we are in the third month of training I see no results yet. My boss isn’t even being involved in the training. He is basically telling our quality control guy to handle it all.
Admin – Sorry, no. The Big Green. Wah hoo wah.
Jmarz – getting pissed is one thing, but (nicely) kicking shit out of the supervisor will get more results.
And by the way – quality systems eat shit. Do not expect results. Quality systems ensure that when you make a mistake, you will make it over and over the same way. They have little or no impact on running your business. They help run your customers business, which is why it is being forced on you. It will very likely add to your problems rather than alleviate them. Sorry to be the bearer of bad news. The other thing quality systems do is cater to the lowest common denominator – and in so doing they take initiative away from the most able in the company. In fact, quality systems largely kill initiative entirely.
In my experience businesses are made up of three segments of employees. There is the top achievers – the top 10 to maybe 20%. These are the ones that can make your company great. Then there are the average 50 or 60 percent. These folks run your business day to day, and you need them desperately. then there is the bottom 20%, and much of your time will be spent trying to fuck them off and manage them. quality systems, if you are not careful, can neuter the top 10 to 20%.
llpoh — most excellent post!!!! And very many excellent responses. One of the most enjoyable threads ever.
I would only add one additional lesson from the Idiot Son ….. ACCOUNTABILITY!!
In other words, NO ONE can do it alone! EVERYBODY needs to be accountable to someone. You need a good team, even if it’s a small team. To whom was Idiot Son accountable? No one but himself. Very bad move. Even a half way decent accountant (like Jim) would have been able to set him straight.
Stuck
That’s the nicest thing you’ve ever said about me. My goal in life has always been to be “halfway decent”.
Stuck – thanks for that. The problem was that even the best accountant would simply have seen, in the first nine months anyway, that he had committed his future profits for paying for his toys. The order book looked ok, and the company was throwing sufficient profits to pay for the godies, and had a 75 year history of doing well. The minute the old orders dried up, and the idiot’s inprofitable new, expansionary orders started flowing, the goose was dead, and no one could have resurrected it. It kept twitching for another nine months, but it was dead from the nine month point almost instantly.
The idiot should have installed a board of directors, but even they might not have caught the issue – jobs were being quoted correctly, etc. The jobs simply were too large for the company to handle, and the idiot hadn’t saved for ar ainy day. The old man would have seen the problems, but he was traveling, and enjoying his retirement, and would never have thought that it could go south so fast. Plus he wasn’t asked.
The problem with making something idiot-proof is that they can be so damn ingeneous. That is one of my favorite sayings.
And here has got to be a new TBP record – no shit – there are over 60 posts, and not a single thumbs down – not one! Some bastard will fix that, but it must rank up there with DiMaggio’s for expected longevity!
llpoh
You are a helluva good writer.
Admin – high praise indeed. Many thanks.
Llpoh
If you don’t agree with those standardized, quality control certifications, do you just implement your own system. To become AS certified it will cost our company 50k. I think that is absurd but supposedly most large companies are beginning to shift to doing business with only certified companies. Some companies won’t even talk to you if you aren’t ISO or AS certified. I’ve seen ISO companies that still have plenty of issues in comparison to some companies who have no certification but a good system.
Stuck
I agree with you on this thread. We have some super wise contributors on this site. You included of course. I have learned a lot from this thread. This site provides so much knowledge and value.
Jmarz – you need to be certified to work for a lot of companies. It sucks but there it is. Your internal management systems are a different matter. The quality system/ accreditation has nothing to do with that, save to insist that it is a repeateble sytem and is documented. If it costing $50 grand then may I suggest that you are probably going to end up with something that will e too complex and a significant hindrance. There are many people that make huge amounts helping put these systems in place. Then there are some that help you get through at a low cost and a minimum of fuss. They would get you up and running for a fraction of $50k – if you can find them.
As you might imagine, I hold most quality auditors/managers in contempt. The are generally the most unhelpful and obstructive types imaginable. The old adage abot those that can do, do, and those that can’t do teach applies. Quality managers are the ones who couldn’t even teach.
I apologize to any quality managers reading this. You are obviously the exceptions. Please do not hit the thumbs down button and destroy the record.
Apologies for the above typos.
Jmarz, I realized I didn’t clearly address your point. What I am saying is that some folks try to use a quality system as a management system. That is grossly incorrect. Before a quality system is put in place, there should be an A grade management system in place. It doesn’t have to be anything really complex – it just has to work well. The quality system then is used to simply document the management system already being used. This is a common misconception. Quality systems do not address problems – they simply ensure that whatever is being done is repeated over and over consistently. Garbage in and garbage out still prevails.
That is why many copanies perform very well without any quality system – performance is based on management not quality systems.
Thanks, jmarz.
BEFORE ISO certification: We fuck up everything we do.
AFTER ISO certification: We fuck up everything we do …… but it’s damn well documented!
This is all you need to know about Quality Systems.
PS. You should send llpoh a c-note for all the free education. lol
Stuck – you said it far better than I did – but exactly so.
I am glad to be of service at no charge. I believe he has great promise.
Jmarz – htere is one thing that I do not know how to teach, but that you must learn by yourself. That thing is that it is critical to focus on the end result you want and not on the process itself. I do not care about the process. I only care about getting the result I am after. It seems very simple, but I have encountered very few who actually are able to make the transition from being process oriented to result oriented.
Your above scenario is a good example. The job was effectively left to the process – salesmen sell, clerks clerk, shipping ships, and somehere it went wrong. For me, after the first mistake, I focus on the objective – we fucked up, we need to correct it immediately, we need to recover position with the customer. The result I want is to immediately get a good replacement in the customers hands with no posibility of another mistake. The way to do this jumps out at me- hand carry the product. You ended up at the same decision, but only after the process failed another 2 times. The result you want determines the process you use, not vice versa. When you can clearly see and focus on the result you want, fuck ups largely disappear.
llpoh said: “And here has got to be a new TBP record – no shit – there are over 60 posts, and not a single thumbs down – not one!”
fuck that noise. getting a little kumbaya up in here.
llpoh said: “Some bastard will fix that, but it must rank up there with DiMaggio’s for expected longevity!”
you got that right, homie
llpoh post score sez
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1st March 2011 at 7:42 pm
Yeah lol llpoh is probably going nuts with all my questions on this thread. The wisdom is very appreciated.
Howard – I have rather enjoyed the positive vibe herein but I know for some it is no fun at all. I just didn’t think you were the type – after all, a man of healing is supposed to be kind of heart and all that.
Llpoh
Last question from me on this thread. You mentioned have a consistent pricing scheme. I agree with you completely on this principle. It drives me nuts because my company has no consistency on pricing. It is purely up to the inside sales representative. He decides how to mark it up on his own. Some customers he may do a 40 percent mark up and some maybe 30 or 20. I wish we had a system with calculated margins we need to meet. This way there is no hassle on my part to find out how we did on the pricing of the quote from our customer if we don’t receive a PO after a couple days after the quote is sent out. I would change so many things at this company if I could.
Anyway, my question is what in your opinion is the lowest margin you would deal with in business to make it worthwhile? I know there are a lot of variables that determine pricing but in general, what is the percentage must you make at a minimum? If you don’t feel comfortable answering that i understand. In my opinion, I would assume one would have to make at least a 20 percent margin to compensate for the risk of doing business. Any less than that, one could put there money in gold or silver and have less risk or even the stock market.
Jmarz – generally, what you are after is a return on investment (capital used) overall, rather than margins per se. You want a return on your investment that makes the risk worthwhile, and your pricing needs to reflect that risk. That is why some busineses work on very slim margins (say grocers), and others need to have high margins (think anything with high capital investment costs – certain tech comapanies, etc. that might have small turnover to investment).
So, if I have $5 million invested, and want a 15% return (I personally want more than that for running a business as they are very risky), then I am after a pretax profit of $750k. If I have sales of $7.5mm then obviously I need a 10% net profit. It is reasonably straightforward to work backward from there to determine margins and pricing policy.
It doesn’t always work this way – but it is a starting point. Net profit tends to vary rapidly up and down as sales increase/decrease, while capital of course tends to remain constant.
Hope that helps.
Llpoh
That helped a lot. Thank you so much for all the wisdom. I sincerely appreciate it. Not too many people are willing to take the time to mentor others. It shows what kind of character you have. I wrote down some of the stuff you told me tonightbso I don’t forget it. The pricing example helps a lot. I was so focused on margins when I need to determine my ROI first and than work from there.
“The Idiot Son is despicable in his arrogance and stupidity.”
Arrogance is the mother of all evils. Arrogance is the difference between the Idiot Son and his predecessors. Arrogance is what killed the golden goose.
Arrogance is now at the top of the world charts, Billboard’s #1 hit. This result will repeat itself again and again all over the world as arrogance continues its ascendance over virtue and values and measured reason.
I don’t mean to hijack this thread … but it does seem to be coming to an end … so let me just say a brief word about different pricing depending on the customer in another industry … the morgtgage industry.
The very first thing a mortgage broker tries to determine upon the very first contact with the borrower is, “How much money can I make off this mark?” Here’s the drill.
They ask several key questions; your credit score, your percentage down payment, job stability, etc. Then they quote you a rate. The percentage they quote over the Par Rate reflects the premium the lender will pay the broker for closing the loan. (They also get paid from “points” they charge you directly.)
Anyway, the “better” the profile the lower the price. In other words, a great credit score, huge down payment, and 5+ years on the job … well, not much money will be made on that person because they can go anywhere and get a mortgage, so the broker has to be very competitive … which in turn means they won’t make “the big bucks”.
A less qualified or poorly qualified borrower … now that’s where the big bucks are made. Their options are limited. Many are happy to get a mortgage at any price … and so they DO pay a hefty price. That’s why the sub-prime market was soooooo huge prior to the meltdown …. there was a LOT of money to be made off these folks. And, really and truthfully, no one gave a fuck whether or not the borrower had the ability to repay.
There ya go. A very very condensed but accurate overview of the mortgage industry and how we got in this mess.
Stuck
Did you work in the mortgage business?
Stuck – I do not think I would like that industry! It must have left a bad taste.