Boss Life (6 page)

The approach from Kuwait is not the only foreign opportunity to consider. In the spring of 2011, a guy called me from New York, asking if I had any interest in doing custom work for his company, a large European furniture manufacturer. (I'll call it Eurofurn, not its real name.) I told him that it depended on what they had in mind. He told me more: Eurofurn had been around for more than a hundred years. It had outgrown Europe and expanded to the Far East, Australia, South Africa, and the Middle East. Now they were moving into the United States and had opened a New York showroom. My caller, whom I will call Nigel, was an Australian who had been put in charge of American operations. He needed to respond to Eurofurn's clients' requests for custom items. That work could be done at their German factory, but shipping time was an issue, so he had turned to Google to find a custom table maker in the United States.

Nigel came to see our operation in May 2011. I gave him the standard tour: how we designed our work, how we modeled it with software, and how we tracked orders. We toured the shop floor, concentrating on our CNC and veneering capabilities. He was impressed, or so he said. On a shoestring, we had put together sophisticated capabilities for a small company.

I wanted to get a better sense of the Eurofurn product line, so a couple of weeks later I went to Manhattan. Say these words to yourself: “European furniture showroom in Midtown Manhattan.” What pops into your head? You probably got it exactly right. A large room in a historic building, with a stunning view of the city. Super sleek tables and chairs, computers everywhere, a crew of young, stylish workers. English is spoken with attractive foreign accents. A well-funded, impressive operation.

All their designs were quite modern, mixing metal elements of polished stainless steel and chrome with woodwork. The choice of wood and the design of details were understated—no exotic grains, but very clean, uniform, and very well made. The metal components were beyond our capabilities, but we could produce most of the woodwork. It would be different from what we usually make, but we could do it.

Nigel and I discussed what came next. I walked up to one of the chairs around their conference table and pulled it back—an unconscious gesture on my part. To my surprise, the chair didn't move. No casters. It weighed close to fifty pounds. It had a swivel seat, but the chair wasn't designed to be repositioned. I said, “Here's the first thing you need to change for the American market. We like our chairs to roll around.” He sighed. “Yes, we have heard that opinion. We prefer for the chairs to stay in place around the table. Much neater.” He rotated his chair's seat, sat in it, and rotated back, without shifting it. With a graceful move, he showed the American how it's done. In Europe, anyway.

It underscored what I had been wondering: don't they have all their own products and operations worked out already? This is a very large, very old deep-pockets operation with a worldwide presence. What do they want from little Paul Downs Cabinetmakers?

Nigel had an answer. Eurofurn expected that a successful entry into the U.S. market would take several years. Eventually they would need a factory in the United States. Their manufacturing sites in other regions of the world were begun as joint ventures with local companies. When they moved into a new country, they identified suitable partners and worked with them to get the factories up and running.

For their American effort, they wanted a very small company, for whom even a low volume of orders would be significant business. It would take a while for the business to ramp up. If they went straight to a large, established company, they would not be able to provide enough work, initially, for the partner to treat the orders with importance. And they also wanted a company that understood the highest levels of craftsmanship. They would accept nothing less than work indistinguishable from the output of their German factory. At the end of this meeting, I was enthusiastic about the possibilities and flattered to have been chosen.

Back in the office, I found lots of information about Eurofurn on the Web. News reports put their sales at a hundred million dollars per year. Eurofurn's own site emphasized the partnership between factory management and the workers, their profit-sharing program, and their care for the environment. It especially emphasized the industrial designers who came up with the products, presenting them as heroes of creativity. It was clearly a great company.

The relationship developed throughout 2011. During that same time, we were running flat out on other projects, but I made sure that we responded quickly to Eurofurn's pricing requests and promised extra fast turnaround. In the fall, we got our first orders, totaling $8,111.

Our interactions with Eurofurn are oddly difficult. The drawings they send with quote requests are sometimes incomplete or make no sense. Even worse, they don't seem to have any uniform way of naming their jobs. We can't tell whether a given pricing request is a revision to a previous job or something entirely new. Sometimes a quote request has a customer name, sometimes just a date, sometimes what appears to be an invoicing number. There's no consistency, even on different items for the same customer. I've been sending Eurofurn inquiries to Dan Smolen—I thought that they would be relatively easy to sell—but the confusion drives him crazy. I wonder how they managed to keep track of orders going all around the world.

Despite these issues, Nigel seems to be happy with the way things are going. The New York sales staff found that American buyers demand more customization than the worldwide clientele, and some of Eurofurn's designs are not a good fit with American wiring practices. We've taken some orders for pieces that solve these problems.

At the end of February, I make another visit to New York. Since our very first meeting, Nigel has been dangling the possibility of a significant increase in order volume. Eurofurn wants to move manufacturing of its wood tabletops out of their home plant, and top management has discussed bringing that work into my shop. I have the space and see it as a way to increase my sales volume without ramping up ad spending.

Nigel and I discuss the prices we have quoted him for custom work. Why did we charge so much, he asks me, when he was getting much lower pricing for similar items from his factory in Asia? I tell him that there are two problems: we don't really have good information about exactly what the details consist of, because we haven't been provided with any engineering drawings. And we also get no opportunity to produce anything in volume, so we cannot operate efficiently. I assign our highest-skilled workers to Eurofurn jobs, as the look they want is difficult to build without some very sophisticated machines that we don't have. He admits that his Asia factories are actually running an assembly line and took several years to arrive at low prices. But he can't give us large quantity orders until we bring the price down. I can't bring the price down without more orders. I'm not going to borrow money to buy the extremely expensive machines we'd need without some commitment on his part. I ask him straight out: “What kind of order volume do you anticipate per year?” He answers: “I think we could be doing at least two hundred and fifty thousand dollars this year, and one million in 2013. Can you get your plant up to speed by then?” Frankly, I think his numbers are preposterous. I can't see how his office could even keep track of that many orders. But this isn't the moment to challenge him. He's bullshitting me, I'll bullshit him right back. “Of course we can do it,” I tell him. “But I need to get better information from you.” I want to see the engineering drawings for the work we are meant to produce. What I'd really like would be to get into his factory. I ask him, “Can you send me some pictures or video of what is happening at your home factory? Or can I come over to see it in person?” That would be best. I'll see the machines, get a good look at their workers, and see what we're competing with.

Nigel agrees to ask his superiors about a visit. I leave the meeting in a mixed mood. I feel that his projection of sales volume is nonsense, and I know that without significant outside investment I won't be able to handle their million dollars in orders by the end of the year. I don't have the capital to buy the machines that I think we will need, or any good way to interview, hire, and train the additional staff. It would be a huge stretch for us. But now isn't the moment to put the brakes on. Neither of us has made any real commitment yet. I might as well keep going and see what happens.

D
ATE
: T
HURSDAY
, M
ARCH 1
,
2012

B
ANK BALANCE
:
$145
,
855
.
88

C
ASH RELATIVE TO START OF YEAR
(“N
ET
C
ASH
”):
$8
,
701
.
56

N
EW
-
CONTRACT VALUE
,
YEAR
-
TO
-
DATE
:
$407
,
271

New orders arrived at a nice pace in February: twelve jobs worth $213,669. Nick continued as best salesman, closing six deals worth $150,104. Dan did four orders worth $37,768. I sold two, adding $25,797 to the total. Dan still trails Nick by a wide margin, but the total for the year exceeds my target. If current trends continue, I'll need to figure out what to do about Dan, as he's not producing at a rate that justifies his salary. The conventional fix for a slumping salesman is to pay him only with commission or get rid of him. Nobody would be surprised if I fired Dan—that's what bosses are supposed to do—but I just don't have the stomach for it. I can picture how unpleasant it would be to announce a decision that will probably destroy Dan's life. He's new to the area, with an unemployed wife and four small kids. He needs a stable paycheck. It's in my power to provide that or take it away. Nick is carrying the load for both of them, so I just let the whole thing slide.

Our cash position is solid. In the past four weeks, we took in $232,475. Some of this included payments for jobs we did for the federal government in 2011. The government pays the whole contract amount thirty days after delivery, and we had shipped a couple of jobs to the Air Force in December. The rest is incoming deposits. We spent a good deal of money in that same period: $185,782, or $9,289 a day. More than I wanted, but the overall picture is good. We're ahead for the year.

Since we have cash, I decide it's time for the company to start making interest payments on the money it owes me. That number is substantial: $387,098. Most of that dates back to my years with The Partner and before. I would make loans to the company whenever the business ran out of money, once or twice a year. Incoming payments have always been unpredictable, but rent and payroll arrive like clockwork. I squirreled away as much of my pay as I could and usually had between ten thousand and twenty-five thousand dollars in a personal account, separate from the money I used for family expenses. I had no other financing options. Before The Partner, my books were in such disarray that no bank would lend me money. I remember well the humiliating day in 1994 when I dressed up in my best suit, sat down with the manager of my bank, and was told that I was far too risky for a loan. So I financed the company out of my own pocket. During the sixteen years I was sole proprietor, I loaned the company $167,650 and was paid back none of it.

The Partner brought some change. His wife sorted out my books, but she died before she could teach me to manage cash. Bookkeeping, which records what has happened to a company's money, and cash management, which looks forward to figure out what is about to happen, are very different. Bookkeeping and accounting are standardized. Cash management is not. Amazingly, it's up to each company to invent its own methods of predicting cash flows and planning expenditures. The Partner had no idea how to do this. He left it up to me, and my method was to watch my bank balance, make payroll first, let other bills accumulate, and hope for the best. We frequently ran short of cash and had heated discussions about how we had gotten into this fix, but we never came up with a solution. He didn't think that losses were unexpected for a growing company, and I didn't know any better. Our agreement was that we would each contribute equal amounts when the company needed more cash. Before the crash, we made twenty-one loans, averaging $31,776. We managed to repay ourselves just nine times, with an average repayment of $20,286. In 2005, we opened a bank line of credit for one hundred thousand dollars. In those days, banks handed out loans like candy to any company that showed revenue growth. They were eager to give us money, as long as we pledged our personal assets (my house, his money) as collateral. We used it all in eleven months. The Partner repaid the loan in October 2008 by raiding our cash (without asking me). He believed that we were about to fail and that his investment was gone, but he didn't want a bank default on his credit rating. His action left the company free of external debt, which turned out to be a good thing.

After the disastrous fall of 2008, I was forced to run the company without borrowing. It was painful, but I managed it—at least until the following summer, when I realized that our Web site was coded in a way that made it hard for Google to tell what it was about. Developers that we hired in 2004 to spruce up the site knew nothing about search engine optimization, so the source code for every page and picture was done without words, only letters and numbers. I was driving traffic to the site by paying for AdWords clicks, but we never appeared on the free rankings. I knew that as times got tougher, I would need better marketing or we would die. So I emptied my children's college fund ($31,251) and spent it on a new Web site. Development took seven months. The new site rolled out in early 2010, just as the economy and my fortunes began to recover. Coincidence? Maybe. Worth it? Definitely. If I hadn't spent that money, I'm sure we would have failed.

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

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

—

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

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

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

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

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

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

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

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

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

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

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

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

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

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