Shop owners swap stories of shrinking the business in order to stay profitable (and sane). April 5, 2006
Over the years, I have read articles in trade magazines about companies who are expanding, buying new equipment, and building new factories. I have never read an article about companies who have successfully downsized. Has anybody out there strategically downsized rather than going out of business, and how did it work out for you?
I've spent the past 5 years doing unprofitable work. You know the kind - look at me, I'm the hotshot who landed an order for 10,000 units a year, have 15000sf, fancy leased machines, and a lot of employees. Only problem is that there is never any money left for me at the end of the month, and the past year we have been in the hole considerably each month.
Has anybody else out there gotten fed up, gotten a smaller space, laid off the "dead weight" employees, and thought that a profitable $1000 order is better than an unprofitable $100k order? That is what I would like to do. Any words of advice? Fed up, but still love the industry.
(Business and Management Forum)
From contributor T:
It's called the alligator-chicken index. If you get yourself an alligator that eats six chickens a day, you better have six chickens to feed it. Six chickens is roughly the equivalent of one arm.
From contributor H:
Shrinking in order to grow is a logical, smart, and in the end, profitable thing to do. It is much better to be a big fish in a little pond then to swim with sharks in the sea. It's what you keep, not what you handle. Sometimes it's not easy, and swallowing your pride to fatten your wallet, it does not feel good at first. I have been through this. About 10 years ago, I went from 5 guys full time to 2. It not only saved my business, but it saved my mind and love of what I do. 15 years later, I'm still here. I've been fortunate enough to sit back and watch bigger guys come and go in my area. I never regretted it, even on the bad days.
From contributor S:
Throughout most of the 90's, I owned a cabinet and millwork shop. Excellent sales every year, 7-12 guys regularly working 40-50 hours a week. Trouble was, I was working 16 hours a day, 14, maybe 15 days in a row. Take a day off to sleep and start all over again. In '97 I'd had enough. Not only did I downsize, I shut the whole thing down, liquidated everything and sold the company. We were profitable, and the sale was very profitable... but I wasn't happy and hadn't been for a long time. I didn't love woodworking anymore... hell, I didn't even get to work wood anymore.
Then last year, I got an offer to manage a small cabinet shop. It sounded like fun and the money was good enough, so I took it. Eight months later, they downsized and asked if I wanted to buy the shop. Thought about it and thought about it, then I took them up on their offer. I had a built-in clientele, dream machinery to work with, I was totally in control... life was good.
Then the business really came pouring in. 4 projects a month, 5 projects a month... 6, 7... too much too soon. I started putting in the 16 hour days again and hiring cabinetmakers left and right. And then it dawned on me... why was I doing it all again?
Long story short, I started canceling the overflow jobs, forced myself into 9-hour days and laid off all but one cabinetmaker and one furniture maker. We make enough to pay everybody and keep the bills up to date, but we're not making much more than that. But considering the alternative, I wouldn't have it any other way. If I hadn't scaled down (again), I would have ended up exactly the same way as the first time. Hardly the definition of success, in my book.
From contributor B:
Contributor S, what you did is commendable. But in the last situation, did you think about raising your prices, which would have, most likely, run away at least 1/3 of your jobs, which would have made you more money and less time spent in shop?
From contributor I:
I am a small, one man shop right now and am happy about woodworking. When I raise my prices to trim down workload, I get nit-picking clients all across the board who become much more demanding and ruthless. Payments get held back, more stuff gets redone, feelings get harder. Under these conditions, it would be better to work for someone else who has a cast iron stomach. I had one helper all summer and had to let him go. All the extra work paid for him and nothing else. Will go with more experience next time.
From contributor E:
With 26 plus years under my belt, the best advice I can give anyone is that sometimes you make more money on the jobs you don't get. Keeping this in mind, price your work so you can live and forget about being a big shot.
From contributor J:
You have to love those jobs when, after the fact, you realize you should have just handed the customer $500 and told him you didn't have time to do his job. Usually what happens when you start cramming.
From contributor S:
My prices are already higher than most of my competitors in a 100 mile radius. There is only one cabinet company I know of that is regularly pricing higher than me (I know because we usually end up bidding on the same jobs). We're running between $450 and $600 plf on cabinetry; furniture is priced by what I think the end product is worth... not cost + profit.
But I understand what you're saying. I'm not the type to cancel jobs, but none of them were contracted (design stages) and I had to get out from under the weight of it all. Much happier now, turning out much better product because we're not swamped and making what I need to make to pay all the bills. I know I'm luckier than a lot of wood butchers out there, and believe me when I say I appreciate my good fortune.
From contributor G:
I think the future will be mostly very small shops. Skilled labor is expensive in this country, so I really don't know how any large shops can turn a good profit. I'm currently a one man shop and happier than I was when I had employees. I make slightly more than wages, but it's better than the alternatives. The biggest problem I have is enough time to get a job done, because things seem to take forever when I'm alone. I started pushing out my lead times as much as I can get away with, and it's helped.
From contributor A:
We lose money on everything we do... but we make up for it in volume. :)