(See Sherline's home page at www.sherline.com for the product line and a photo Factory Tour.)
©2009, Joe Martin, All rights reserved.
No portion of this book can be reproduced in any form for commercial purposes without the express written permission of the author.
Click here to read what others who have read this book have to say.
This book is published on the honor system. If you enjoy it and feel you received valuable business information, we ask that you make a contribution of a ten dollars or whatever you feel it is worth to the Joe Martin Foundation for Excellence in Craftsmanship. Details on how to contribute can be found at the end of this book.
I first met Joe Martin when he was just starting Sherline Products in the early 1970’s in the same small industrial complex where I was starting my own graphics business. He needed line illustrations for the instructions for his new tool line, and I was in the right place at the right time. Our association has lasted to this day, and I was fortunate to be able to watch as he took what started as a small business to import tools from Australia and distribute them in the United States and turned it into a major business that now completely manufactures the Sherline product line and distributes it worldwide. He went from one rented 1000 square foot industrial space to a custom-designed 66,000 square foot showplace building housing well over a million dollars worth of production equipment. Joe is a product of the industrial parks that dot our nation. He has learned what it takes to survive in a small business environment and then turn that small business into a profitable venture doing business worldwide.
The growth of his business was not the result of luck or financial trickery…it was the result of hard work, tempered with more than a few hard knocks along the way. He did not climb over the backs of others to get where he is today, but rather brought along others like me to share in the success. Several dozen employees and many dealers around the world make a good living because of his efforts. Many thousands of people enjoy using the high quality tools he produces. Joe has spent the past two years writing about his experiences. Like his first book and the many instructions he wrote, you'll find that this easy-to-read text conveys some very profound thoughts on how to make money “The Old Fashioned Way.”
—Craig Libuse
By Joe Martin
"A man who works with his hands is a laborer.
A man who works with his hands and mind is a craftsman.
A man who works with his hands, mind and heart is an artist."
--From a poster on my Uncle’s wall with a quote by Louis Nizar
"A man who works with his mind, heart and billfold is an Entrepreneur."
--Joe Martin, March 5, 2000
Dedication
I dedicate this book to all the expert craftsmen in this world who work hard without being told, who live with their agreements without being forced to and who always produce quality work because of pride. They are the foundation of all nations.
Acknowledgements
I would like to thank all my friends who took the time to read my writings and made so many intelligent suggestions. Mark Rogo, of Morton Machinery, http://www.mortonmachinery.com in Los Angeles, California went so far “beyond the call of duty” of a friend that he deserves more than just recognition. I used so many of his well thought out suggestions that I am deeply indebted. Special thanks for my former partner’s wife, Barbara Hammons and Russell Millar of Millar Instrument, http://www.millarinstruments.com of Houston, Texas for their expertise in correcting my grammar and spelling.
A Special Tribute to Programmers
It should also be noted that this project would have been an impossible task for me just a few years ago when the marvelous programs created for computers that help me convey my thoughts didn’t exist. In a sense, these programmers are the new craftsmen of the 21st century. The Microsoft Word® program that I used was as much as a work of art as the marvelous cathedrals of the 17th century. We just haven’t acknowledged it yet.
Table of Contents
The reader should note that I have purposely left out the usual table of contents. This isn't a book about how to specifically answer every business problem. It is a book describing a way to go about doing business by giving examples. This book has been written to help newcomers to business become aware of problems they face and to help create a business atmosphere where everyone wins. The “bottom line” isn’t the only reason to be in business. The employees, vendors, investors and customers all deserve equal rights.
CHAPTER LINKS
(Click on any chapter name to jump directly to that chapter.)
I wish I HAD KNOWN this when I started
Deciding on a product or service
Making a business out of a hobby
The difficult part of writing this book wasn’t putting words together; it was the thirty-five years of learning what to write about. I didn’t do research on the subject, I lived it.
—Joe Martin
I was a model aircraft builder for many years and usually flew my own designs. As a group we didn’t use the exact standards of aeronautical engineers to design our aircraft, but we sort of knew what worked and what didn’t. Every now and then a design would be superb and the designer would get to write an article for an associated magazine about it. Now the designer would have to come up with three pages of BS as to why their model aircraft flew so well. They just couldn’t tell the truth and write about the law of averages and luck, so in most cases, you would end up with three pages of BS. I’ve found that most of the information published about starting a business has also been developed in the same manner. All BS. Hopefully, I have learned from their mistakes.
This book is specifically written for the workers of the world who want to or have already started out on their own. It contains the logic it takes to go from a one-person shop to a company that requires several departments; with each department having an individual manager. Once this plateau is reached a different set of rules come into play that will be closer to standard business practices. No longer is the company in a true survival mode. The next set of rules for these companies will be so dependent on the personnel and profit available that these new rules must be developed internally by that individual organization; therefore, I would never be so bold to suggest I could advise companies that have reached this level. However, I do believe the logic I offer may be the very useful to the department managers of these companies when dealing with their employees. If you think about it, a department in a large corporation is very similar to a small, specialized company.
New and growing companies with more problems than solutions have a tendency to attempt to solve simple problems with complex answers. Perhaps my writings may help these managers get back to reality and review what it really takes to build a business -
“The Old Fashioned Way.”
The Reason I Wrote this Book
When I first decided to go into business, I thought it would be wise to do a little reading on the subject; however, after just a few pages I would give up. Why? The authors were attempting to teach me how to run a large corporation, when all I wanted was to have my own 1000-sq. ft. (93-sq. meter) shop. Hell, I didn’t have any money to worry about, and I believed keeping track of it would be the least of my problems. My problem would be making it. This turned out to be so very true; therefore, I decided to pass on some of the things that were so difficult for me to learn to accomplish this. After reading this book it may surprise you to know I also know quite a bit about tax laws and accounting. I learned this as a result of being in business. It isn’t necessary to know accounting and tax laws to start a business. Again, your problem is to make and keep enough money to have it be worth keeping track of. This isn’t a book about how to con anyone out of money for a bad idea. It’s a book for that group of disgruntled workers who are willing to work hard, who believe their way is better and want to start a business of their own to prove it.
Writing in a Brief Style
In this book I used the same style of writing I use when sending my viewpoints to my local newspaper in the “letters” section where we are limited to 200 words. I wanted the reader to understand my point with the fewest words. This is far more challenging than one would imagine, and I spent a great deal of time writing and rewriting it. I would also like to state that I personally wrote and typed in every word in this book.
If you have the time and enjoy short stories, you might also enjoy reading Making a Business out of a Hobby. It is the last chapter of my first book, Tabletop Machining. It tells more specifically some of the details of the path I took in starting Sherline Products. Although there is some duplication between the two, they were written separately, and there are some additional lessons there that might be of value to you in starting a business of your own.
What it Takes
A person starting into business needs information that can’t be found in graphs or endless columns of numbers. They need to develop the skill to make educated guesses about their chosen field, their customers and employees. They need to know that these are the skills you need to become successful. The skills needed according to business schools are the skills that are easiest to hire. Look in the Yellow Pages for people with these skills and you have your choice of thousands if you are located in a big city. Advertise in the help wanted for a bookkeeper or manager and you’ll get a lot more applications than you will from a truly skilled toolmaker. Ask a Harvard business graduate which product your company should manufacture and they’ll have so many consultants working on the problem you’ll be in the poorhouse before you start. In other words, they can’t.
The Skills You Need
The skills you need are what to do next without anyone telling you. Sometimes this is easy because the demands of your customers eliminate the problem; however, if you really want to run your company you can’t have customers deciding your future. You have to be at the helm. You have to be able to watch a customer flinch when you tell them the price that’s too high or watch their eyes light up when discovering they need it and can easily afford it. You have to develop a gut feeling to know good employees and good ideas. These are the things that can’t be entered in the books but they are the things determining your destiny if you chose to go it alone. The accounting books only keep score.
Read a Little, Think a Little
What I write about are problems that affect all businesses, not just machine shops. I write in my own style and you’ll find it easy reading. I try to write without using complex or excess words, somewhat like a good design that doesn’t use complex solutions. I want to impress you with my logic in solving problems, not the obscure words found in large dictionaries. Read this book one paragraph at a time. Think about what I wrote and how it might be applied to your particular circumstance. There are many subtle things to think about. I don’t believe the overall book would be very good if I attempted to write how my logic could be applied to every particular circumstance; it also would have been an impossible task. This could be interesting reading while traveling or lunch. Read a little, think a little, or, better yet, think a lot.
A Collection of Random Thoughts
This book is a collection of random thoughts that came into my mind as I thought, “I wish I had known that when I started.” I took these thoughts and sorted them into logical groups, but I didn’t sort them in an exact order or order of importance. Hopefully you’ll find the book more interesting with this random approach. Some of my observations may seem stupid or obvious, but each one cost me more money and time than I care to remember. This book could have easily saved me a million dollars when I needed it most if I had paid attention to these details. These are things that you will usually learn the hard way. As an example, I state, “Don’t hire employees who start talking about their careers.” Well I didn’t hire just one to come up with this conclusion; I hired many and they have all moved on after I paid for them to go to school or spent thousands of dollars having the most expensive people in my shop train them. They didn’t leave because wages were better at their next job. They left to continue endlessly searching for jobs that don’t exist.
Information for the 21st Century
Consider the fact that I’m writing these statements and book in the context of the year 2000. Things are changing so fast today that in the year 2010 I may have different points of view, but I doubt it. What I write about is so basic that human nature would have to change more than technology to influence my viewpoints.
My Qualifications
I have a unique perspective on business because I’ve been actively involved in every phase of business. I had to learn these different phases because I didn’t have the finances or the temperament to pay employees and consultants for things I could do or teach myself to do. It has been an experience that I wouldn’t have wanted to miss and knowing about all these different phases is what has made it so interesting. I’ve taken the time to understand the interactions of these different phases. They are:
1) Creating a new design or invention
2) Designing the components so they can be manufactured economically
3) Creating a complete set of production drawings with the aid of a CAD program
4) Deciding on the amount of inventory to build or purchase
5) Engineering what equipment will be used to manufacture the product
6) Writing instructions for these products
7) Coming up with an advertising and marketing strategy
8) Deciding on where and how large the business establishment should be
9) Deciding on what equipment to purchase
10) Deciding how many employees to hire and how much to pay them
11) Understanding the tax and accounting rules that affect your business
The Definition
Entrepreneur—A person who manages a business and assumes the risk for the sake of profit. (Dictionary)
Entrepreneur—A person who is self motivated and approaches profit making as an art form, and can craft these two traits into a talent for making money in the business world. (A better definition offered by Mark Rogo of Morton Machinery)
A New Word
Did you know the first time someone called me an entrepreneur I had been in business for ten years and I didn’t know what it meant? I was always too busy trying to survive to learn fancy terms like that. Looking back, I find the dictionary doesn’t accurately define it. “Assumes the risk for the sake of profit.” Now that’s a joke. It’s like I had a choice. Who in the hell would invest in Joe Martin?
The True Entrepreneur
To me, the true entrepreneur starts with a vision of a new and better method, product or method of marketing and then goes on to accomplish that vision. They don’t ask for help or screw anyone to get ahead. The bottom line means little as long as they survive. Their trophies are their buildings and establishments. They enjoy their work, for it is their life. They’ll impress you with what they have done, not with how they look or what they say. This is a different group of people than you would normally associate as being businesspeople.
If you want to get along with this group, skip the BS.
Confidence Building
My own family thought I was going off the deep end when they found out I was quitting a good job at Kraft Systems and starting out on my own again. I can remember my mother saying, “You think you’re too big to work for someone.” My brother explained how I didn’t know enough about business to succeed. Carl, my best friend who later became my partner, spent a couple of hours trying to talk me out of it. Dad bought me a micrometer. With encouragement like that, how could I fail?
Ace in the Hole
Actually, I had an ace in the hole. I was a hell of a lot smarter than they thought I was, and I was willing to put forth the effort it would take to survive. I never was very good at sports so this was going to be my “big game”, and I didn’t intend to lose. Profits never entered the picture. Survival was the only success I was looking for. One day at a time. One week at a time. Finally, 30 years later, I’m at the goal post, and I don’t know how to stop.
Surfing
I’ve always felt like a surfer who is riding a big-ass wave over a coral reef and doesn’t have time to stop and plan the next move. I had to make my own rules on the spot and move on. There wasn’t time to discuss my next move in an academic setting. These rules have served me well over the years for I have more satisfied customers and employees than I deserve. The decisions I had to make were always compromises but I believe they were fair. Of course, of the many decisions I made I wish I had a chance to make a few again, but who’s perfect? I’m not ashamed how I got to the “goal post.” In fact, I’m damn proud of it.
CNC Machines
Before starting on my book I want you to fully understand that the CNC machines (computer controlled robots) of today are the future. They will be used to manufacture products in every country and for every industry. I don’t over emphasize these machines. Even third world countries, where wages are ridiculously low, use CNC machines because it’s simply a better way to get a job done. CNC machines aren’t only used in machine shops. They will be used to print your books and weave the fabrics of the clothes on your back. These marvelous machines are a part of our life and they are unavoidable. You have to know about CNC whatever your endeavor in business.
Your Word
The most valuable thing you own when you start a new business is your word. You have the choice to make it even more valuable or worthless. You should treat it as if it were made of gold and never allow it to be devalued. Once it has lost its value there is little you can do to restore it.
What is the Worst that can Happen?
You don't necessarily need a lot of money to get started. You may find it interesting that I believe it is easier to start a business with little money as long as you have a skill that can be sold. You have little to lose and much to gain. The worst thing that can happen is that you will end up where you are right now; working for someone else. Start with more money than brains, and consultants, advertising agencies, attorneys and accountants will soon relieve you of the excess money supply. Lee Trevino, a professional golfer, told a story that best represents getting a business started. When questioned about the pressures of playing a game of golf where a hundred thousand dollars could be riding on one putt, he told the reporter that it was fun to be playing for such high stakes. Then he added, “I’ll tell you what pressure is. It’s playing for $20 when you only have $10 in your pocket.”
You have More to Invest than You Think
Your most valuable asset is time and if you don’t spend it wisely you’ll go broke. In today’s U.S. labor market you have to figure at least $20/hr for employees and $75/hr and up for consultants; therefore, it’ll take more money than most people have to pay other people to do your thinking. I’m sure that you believe all your problems could be easily solved if you just had a few thousand dollars more, but the truth is it would only put off the inevitable if you don’t have the intelligence and self discipline to be your own boss. You have to be a person that is driven to succeed by not accepting failure, and remember failure should also be defined as not completing projects.
Here’s a quick test to see if you've got what it takes. Pick out a skill that you believe would be helpful if you decided to start a business that you don’t have now and don’t want to learn. A computer program like MS Word or Excel might be a good choice because it’s inexpensive, available and useful. Now give yourself a two-week crash course on the subject without any help. Don’t call your friends who could help you or take a course at school. You have to do this on your own using only the help screen built into the program and pure logic. This is far more help than you’ll ever get in the business world when it comes time to make an important decision. Using all the spare time available, work day and night for two weeks. No weekend breaks or time out for family functions, sports or TV. Just work! If you can’t control the computer program to do something useful and relatively complex at the end of two weeks, it might be wise to keep your day job. In business, you’ll find you’ll work the hardest when you’re not getting paid; and if your business is successful, you’ll make the most when you're doing the least.
Positive Thinking
A total waste of time can be standing in front of a mirror saying, “I can, I will.” This isn’t the secret of success. Positive thinking is taking the time to understand what you're trying to accomplish and learning what is necessary to accomplish this. Your everyday actions should reflect your positive thinking. You have to focus on your goal and not be “sidetracked” by nonbelievers. When you start a business, success is dependent on what other people think of you and your products, not what you think of yourself. The two things you have to sell are a good product or skill and integrity. Integrity is something you have to show people you have by your actions; it is not something you can tell them you have.
Leave Room for Failure
When I start on a new project I always estimate my chances of success. You have to be realistic and know there is always a chance of failing. I found that by mentally arriving at the percentage of success I have before I start, a failure is simply a loss. It isn’t devastating because I knew the odds at the beginning and it didn’t work out. This method keeps you from mentally putting all your “eggs in one basket.” Positive thinking isn’t the answer. You have already thought positive to start the project and being realistic about the project is what it will take to get it to succeed. You also have to be realistic enough to know when to give it up and plan your next move.
Who Starts a Business?
Have you ever noticed how few engineers, scientists, and business college degreed graduates start businesses? They may acquire businesses, but they very seldom start them. The reason is they can’t work alone or not willing to take the personal, financial and ego-related risks to accomplish their ideas. It may also take millions of dollars of investment to experiment with their ideas. What you find are craftsmen and hobbyists starting manufacturing business because they know how to make and design the parts and the tooling they need in a cost-effective way. Investors are finding that hi-tech companies can’t be run without a CEO who has a complete knowledge of the technology in which the company is involved. Things are happening too fast today to make decisions by committee.
The New Investors
The venture capitalists have discovered this fact and are willing to put their money into ventures where they believe the leaders can stay abreast of current technology and lead at the same time. This is a marvelous trend. The engineers and scientists of the world were getting screwed because the products this group wants to build or sell needed a capital investment that few individuals had. They also can’t work weekends on used equipment, as I have, to build a business.
Taking a Chance
I remember an employee who quit. He told me what was wrong with me was that I was unwilling to “take a chance.” Can you imagine that? I’ve spent the better part of my life investing my own money in my own ideas and this guy tells me I’m unwilling to take a chance. Taking a chance and not liking someone's idea are two different things. What is a legitimate risk in the mind of one man is a measurable failure in the mind of the next. This is what makes the world of business so fascinating. I’ve been called a pessimist. I call myself a “realist”, and I look at all new ventures pessimistically; this also includes using my own ideas. Optimistic people are always getting into trouble because they resort to hoping things will turn out. By being a realist I’m convinced things will turn out. You have to “nit-pick” every aspect of a new endeavor to eliminate the chance of failure. Think like a critical customer and fix the problem you may find through “their eyes” before it is an actual problem.
The Difference Between Sales and Engineering
When a sales person sells a product; their satisfaction is that they closed a deal. When an engineer or designer sells their product; their satisfaction is that they designed something that another person would purchase. This fact is more of a difference than you might believe at first glance. My lack of sales skills have screwed up too many “deals” by me not knowing when to shut up; but, on the other hand, a sales person could never know the satisfaction I have when I see my products being used by satisfied customers. This is something I have never been able to put a cash value on, because in the cold world of business it is the bottom line that counts. Or does it? There is a need for both types in this world, but there is more to making business than “closing deals.” Fortunately, there are still a few salesmen out there who work with potential customers to solve problems and create deals where everyone wins. It is the satisfied customers using products or a service they like that can keep a business going for the long haul, not a few quick deals where you win and the customer loses.
How to Lose Your Ass
If you really want to lose your ass in your own business, get involved in something you know little about. If you don’t have the desire to learn and think about every aspect of the needs of the customers that would use the service or products you plan to manufacture or sell, quit while you’re ahead. To be successful you have to be extremely good at knowing your potential customers and their needs. This is the most important thing. This is the information you can’t get from outsiders or employees. You have to know your customers well enough to know how much they will pay for the service or products you plan to manufacture and sell. You could pay thousands of dollars for market research that was done by people more interested in their golf game than your success. Excuse me for being redundant but this point is so important.
When to Walk
Did you ever notice that people tend to judge others by themselves? What I’m trying to say is that if someone doesn’t trust you, you shouldn’t trust him or her. I’m not interested in any deal that involves a partner who needs an attorney to do his thinking. The only chance you have to break even on a deal like that is to have a better attorney. It isn’t worth the effort. Of course, there are times where agreements have to be properly documented, but if the deal can’t start with a simple handshake and a feeling of trust, forget it.
Partnerships
When two or more persons get together and form a partnership where they plan to work together for an undefined period of time, it is as close as it can get to a sexless marriage. The way you can make it work is by keeping it sexless and not start screwing one another. Both sides must bring something to the table, and both sides must believe the other side is bringing something to the table for the partnership to work. Lawyers will advise you to clearly define ownership at the beginning. The problem with this is at the beginning there is very little to divide that has value. It is more important to arrive at a method of determining ownership at a future date. Consider the hours worked vs. investment. One partner puts $5000 into a venture and a second partner puts their skill and work into the partnership. It could be quite possible for the working partner to put a couple of thousand extra hours into the venture in just one year by working nights and weekends, as I did. If their time was charged to the partnership at only $10 an hour this could bring their investment to $20,000 in just one year, while the second partner went about their life at their regular job. This is why I believe partners should accurately keep track of the time invested by each partner at a reasonable rate, as well as money they may invest. Would it be fair for the investor of only $5000 to own half if the company (that in just a year now had a value of $40,000 because of the other partner's hard work) while making income from a regular job and spending weekends with their family? These problems usually don’t come to light until a spouse of one of the partners wants a divorce.
From my experience working around the small start-up businesses located in industrial parks, I consider the above to be the most important paragraph in this book. It might be wise to read it again.
Partnerships Can Have Advantages
The good part of a partnership is when two people with different skills team up and appreciate the skills of the other partner or partners. Together they solve problems that would be impossible to solve alone. They have a common interest and enjoy working together. Partners with the same skills have to learn that they can’t always have their way and that they cannot be competitive with one another and remain partners. Partners with the same skills should rejoice in the fact that they can discuss their most technical problems with someone who may help them find the answer to technical problems. Partnerships can be great. Mine was.
Investors
A decision that will have to be made by most business owners is “how much you are willing to give up to own and control the company you started.” Notice I stated, “give up.” Many times the amount of money you could make would be higher if you sold a portion of your business. If an offer like this comes along you should take the time to review your past and decide if you started your business only to make money. I started my business to do it my way and I find “moneymakers” very boring people. I wouldn’t want to be associated with an investor where I had to explain my actions in terms of profit only. A good investor is someone who brings more than just money. They can bring contacts, experience and the constructive criticism that could build your company to the point that your “smaller” piece of the pie worth more money overall.
Get in a Business You Enjoy
I believe that selling to a recreational or hobby market in which you are involved in is your best bet. You know your customers because you’re one of them. You like your customers because they are just like you. This is the type of market you can deal with because it is possible for an individual to develop a new product, manufacture it, advertise it, and sell it to this specialized market. I have and I’ve enjoyed every moment of it. You have to work too many hours to be working at a business that you don’t enjoy.
“Nerds” Can Be Heros Too
The “nerds” that took over the computer market succeeded when old, well established companies with “snobby” managers failed. Why? These nerds weren’t nerds to their customers; they were heroes. They were doing the impossible, sitting behind their computers developing products that customers loved. Customers thought of them as quarterbacks of their favorite team. Every time you see what Bill Gates accomplished think about this. To be successful it isn’t necessary to look good to everyone, just to your customers.
An Interesting Analogy
One of the joys I have is purchasing and owning the buildings and equipment it takes to produce my product line. I feel the same way when I look at my manufacturing facility as a farmer may feel when he looks over a field of crops growing on a good day. Profit allows me to purchase new and faster equipment, and I love it. Farmers may purchase more land and love it. You can never get the same satisfaction by adding zeros to your investment account.
A Wonderful Adventure
For me, business is a wonderful adventure. I’m never so sure where I’m going that it gets boring. One day I may have to go with the flow to survive and a week later I’ll feel like a fish swimming upstream. You have to know when to take the helm and when to go along for the ride. These are difficult choices because you’ll be dealing with employees’ personalities and financial survival at the same time.
The Product
Nothing that I’m writing will be of much good to you unless you can come up with a good product or service that will keep you in business. It has to be wanted by consumers who are willing to buy at the price you are asking. This is where it all starts. I will try to make you aware of many of the problems that I had to solve and some of the logic and things to consider about new products, but -
You have to decide what a customer will find satisfactory when the complex equation of cost vs. quality is calculated.
Customers all want perfect products, but wanting perfect products and paying for perfect products are two different subjects. A customer will usually start with the “low end” product if they have a choice between two items that are somewhat similar but have a major difference in price.
Consider the previous paragraph the second most important fact in this book.
Where to Start
First, you have to know more about your chosen field than your average customers do. If you think about this for a moment, your work or your hobby will be your choices. Pick either and again you have a choice of two: eliminate an irritant or add a pleasure to a task. The irritant could be cost, size, appearance and complexity. The pleasure that could be added is lower cost, simplicity, appearance and pride of ownership. Next, ask yourself if you have built a gadget or have performed a service that makes a particular task easier? If you haven’t a better choice for a business might be related to sales or service. In this case, team up with someone who can come up with products or services but who doesn’t have the skill or desire to package, advertise and sell their ideas. In every case, the road to success is a long one and you need a skill that can be marketed or lots of money to keep the doors open until your products or services can provide an income.
Ideas
I consider myself an original thinker. I don’t copy other products or methods; in fact, once I make my mind up to start a project I will go out of my way to avoid looking at what other people or companies are doing. When I start on a project I have an uncompleted design in the back of my mind and looking too closely at something someone else has done narrows my thinking. I believe I would lose more than I could gain. There is nothing wrong with checking out the competition after you have developed your original idea, but don’t do it until after you have gone through the process of developing your own idea past the concept stage. When I hear teachers expounding their theory that their duty is to teach students where to find information rather than making students learn the information I would like to ask them how many good ideas have ever came by putting several books next to one another on a shelf. Good ideas are the result of knowing a great deal about many things and putting together many seemingly insignificant facts from millions of combinations to come up with a new idea. Of course, the solution found with a good idea would have been the “obvious solution” to a group who couldn’t figure out how to tie their shoelaces on their own.
Listen to your Customers for New Ideas
Customers or potential customers can be a gold mine for new ideas, but you have to listen to them. Usually they can’t tell you what to make or how to make it; however, they may tell you about associated problem they are having. Putting some thought into ways to solve their problem can be a source of some great ideas. My customers are unusual because many can tell me not only what to make, but also how to make it. Few will be so lucky to have customers like this.
Turning Ideas into Products or Services
Think about how the product answers a particular problem that could be useful to others. Decide how much a potential customer would pay to easily solve a problem of this type. Now consider how many customers you would have at different price levels of quality. Pick out the group with the most potential. Don’t be too optimistic! Subtract the discounts you’ll have to use to have dealers sell your product. Now you have the amount you have to be able to beat in order to manufacture, advertise and sell this product at a profit. Working with the quantities you believe you could sell, you can begin to accurately predict manufacturing cost. Now you have the basic information that you can use to decide whether you want to go on with the project. Most of what I have written about in this book will give you more insight to accomplish what is in this paragraph.
Selling Imported Products
Sometimes products can come to you by way of an overseas manufacturer. They can be found in import trade magazines. The good part is you may be able to become an exclusive importer for them for a surprisingly small order. The bad part is the agreement isn’t much good if you can’t buy all of what they can manufacture. I’ve personally seen Asian products sold direct to the consumer at a lower price than an importer with an exclusive agreement paid. This happened within months of giving the exclusive agreement and after that company spent thousands on advertising the same goods. Try suing a company in Asia and you’ll see what I mean. Again, if you want to lose your ass, buy a large quantity of merchandise used for something you know little about. You have to know how products are discounted and sold in the area you plan to sell before you sign a purchase order.
Selling Ideas
We have a customer who is a professional inventor. He comes up with an idea and does all the design work to put the product into production. He then goes out and sells the package to the appropriate manufacturing companies. He doesn’t get up front money and when he shows them the product there is a prototype complete with packaging, tooling designs, tooling cost and instructions; a very complete package. He is very knowledgeable about his trade and doesn’t require agreements before he allows potential customers to see his idea. He told me he has never been taken advantage of to date. Most companies are ethical and don’t steal ideas; however, the ease that products can be copied in Asian countries today makes me more leery. Problems arise when suggestions are given that are not well thought out. For example, a suggestion could be made to an oil company to produce a fuel that didn’t pollute and had twice the energy at 25% of the cost. Any fool would find this idea worthwhile, but the idea is worthless without the solution. Ten years later after the Oil Company has spent billions of dollars improving their product by 5%, they get accused of stealing an idea.
Plastic Products, a Good Way to Success
To start a manufacturing business on your own you need products that are difficult to duplicate. Injection molded plastic parts may be the answer. The tooling is expensive but the part price is low. If you want to “test the water” you can save money by building prototype tooling out of 7075 aluminum and do a little second operation machining to eliminate expensive slides. A plastic injection mold toolmaker will explain what I’m referring to. Once the tooling has been built and tested the product is very easy to manufacture. This is one type of manufacturing that can be successfully contracted out. The toolmakers that build plastic molds are a very talented group of people and usually can improve the designs they work on if given the chance. Not all plastic parts are cheap throwaway items. Profit can be higher selling to a specialized market that you understand and gives you a realistic chance of success.
Build a Crude Prototype ASAP
Very few new designs will stand the test of a prototype. The design will usually change before the prototype is built. In the past I would start by building a simple prototype using a simple drawing or sketch. Now, as my skills with computer drawing programs improved, I find myself adding more and more detail to these first drawings. However, it could be thirty years of designing products that allows me to do this. It is important to realize that the original idea always starts inside your head, not inside a computer or on a sketchpad. You don’t have to put in all the details to start on the first drawing, but the new idea should be there. You should develop a thorough understanding of the interaction of the parts involved. I’m sure you have seen computer designs being manipulated in 3-D as they turn and rotate on a video screen. When I can do this with a mechanical design in my mind I feel I truly understand the design. The longer you take before building a prototype, the more difficult it will be to change your design. You should always assume that your design can be improved and have a method to change it. Many times the new design is the process involved to make standard parts. Again the final design should be put off as long as possible to allow the changes to be made easily.
This paragraph I would consider third in importance. From this point on it is up to you to decide what’s important. - Joe
Using the Tools You Have or Not?
A true craftsman may get by with the tools they are familiar working with but a company cannot. Labor costs in modern countries will not allow craftsmen to work “the old fashioned way” and remain competitive, however, when building your own tooling for your own products you should build it with the familiar tools you may already own. Put your money into items that will make you money with an employee operating the equipment. In this case, the tooling for a new product can be spread out over the run of this product. If you are bidding on work of this type you may find you are not competitive without modern tools. In many cases, just to view the work you are bidding on requires a computer and a working knowledge of the associated programs because drawings are no longer available. Computer aided designs (CAD) along with computer aided manufacturing (CAM) have simplified these processes and at the same time made designing more difficult. A different type of skill is needed to operate these programs and machines. Only the manufacturing companies that develop the skills of CAD-CAM will survive in the 21st century.
Craft Type Products
There is a fine line between a produced product and artist or craft type product. A craftsman or artist may come up with an item that has a demand that is higher than they can produce. This fact causes the price to rise. The moment the item is manufactured and the process is automated the item has little value. The value in products such as these is the value added because the customer believes that the craftsman or artist personally crafted the item and that these items have a very limited availability. Ask yourself how much value an autograph has that was printed in a book?
Things to Consider about Mass Marketed Products
Products that everyone can use have problems of their own. It takes so much money and organization to sell even a simple product of this nature to an entire nation or world that an individual has little chance of marketing something like this on their own. In this case, you are better off trying to sell the design; however, the companies that sell to this type of market usually can’t find the time to sell and market the products they may have on the drawing board and usually aren’t looking for new ideas. This leaves you between the old rock and a hard place. You see attempts for this type of products having their last gasp for life on late night television commercials. A big part of making that final decision about what to develop should be considering the odds you have for success. Choose something that has reasonable odds. Mass marketing doesn’t.
A Major Blunder
I remember a joystick my partner and I designed for radio control transmitters. We were never paid for this project and we were left with the plastic injection mold tooling. This was a complete design and build job and we had thousands of dollars in it. One year before computer games became popular I sold the design and tooling to a company in England for $1500. The next year the computer game “Pong” came out and the computer industry was looking for these input devices. I missed my chance because I didn’t have the six months it took and the money to build another joystick. If I had been paying attention to what was going on around me I would have seen the potential for the tooling I owned in the corner of my own shop. The joystick market went on to become a 100 million-dollar a year business and I didn’t even get a little piece of the action. Excuse me while I take the time to give myself another well-deserved kick in the ass. To survive you have to be an opportunist and you can’t always take the easy path. I believe we all have opportunities pass by in life. You have to stretch to get the prize. Did you ever notice that most people complain about things that they didn’t do as they review their lives?
Products Ahead of Their Time
A new product that requires a lot of explaining as to what it is used for can be the hardest to market even if there is a definite need for it. The lower the selling price, the bigger the problem. You can’t expect a sales person to spend five minutes trying to sell a five-dollar item. Something in the packaging or advertising will have to do that for you. The question now becomes whether you can sell enough products to pay for the ad because the ad also has to be large enough to explain what the product is used for.
Complexity
A clever simple product is impossible to keep control of unless you can come up with a method of manufacturing it in such a way that you can’t be undersold. If the product were so simple that any home handyman could manufacture it, it would be impossible to protect your right to sell and produce it even with a patent. Products that are difficult to manufacture or produce at a very reasonable cost have the best chance of surviving because they are difficult to copy. In my case I chose to manufacture a very complete complex product line. I thought I could protect myself with the fact that to copy my complete product line would involve too much time and money for such a small market. So far, I’ve been correct when it comes to the miniature tool line.
Perfection
After customers find out about the finer points of a particular product line, they may be willing to spend the extra money for perfection. Perfection is expensive and to improve a product just a few percentage points may triple its manufacturing cost. Perfection isn’t a good choice of words when it comes to consumer goods. They are manufactured to tolerances that are limited by the state of art. The tighter the tolerances, the higher the cost. At some point, the additional manufacturing costs forces the retail price above consumer acceptance, and true perfection can never be reached. It’s the true entrepreneur that knows when he’s reached the point of no return and the inventor or tinkerer that doesn’t. It is foolish to work to tighter tolerances than necessary, but as a designer I know how difficult it is to design with liberal tolerances.
Shipping is an Important Consideration
Suppose you came up with an item that would be useful to people who do their own landscaping and you could sell it for $20 a bag. With a product like this the packaging and shipping can become more important than the product if the bag weighed 100 lbs. It could cost you more than $20 to ship one bag to the next city, and the only way to get the cost down is to own your own shipping network and produce the product regionally. Companies who sell bricks or other heavy items do this. To do something like this could require millions of dollars just to establish a distribution and delivery network at a reasonable cost. If standard shipping rates were applied to some of these items, the selling price would skyrocket. What I’m saying is that shipping is a very real cost that has to be passed on to the consumer, and that the product you consider economically sound may not be when the actual shipping costs are added. The Internet now has services available to the small manufacturer that allow him to piggyback with other small manufacturers and thus get the same volume price breaks that larger manufacturers do.
Electronic Designs are Easier to Change
Electronic designs have had an advantage that few products have had. Customers judge them by how they perform and cost. Suppose I designed a truck with an engine that only weighed thirty pounds, but still developed the same power as existing truck engines have. How many potential customers would I have after they looked under the hood and saw a cute little box in place of a massive engine? You would have a “tough-sell” with that group. The same group would buy a TV without ever “looking under the hood.” Too often good ideas fail because of an unsophisticated market. Plan for these problems in advance and they will not be as much of a problem. Again, the Internet offers a method of test marketing using email to potential customers, friends and business associates.
Good Designs
When I was building model aircraft, my friends and I had an interesting way of judging the quality of a model. We would set the model on the ground and start backing away from it until it looked good. A three-foot (1-meter) model would be considered superb and a fifty-foot (15-meter) model was one that was pretty crude. There were also models that wouldn’t look good no matter what angle or distance they were viewed at. This was the perfect example of a poor design. The best craftsmen in the world can’t make a bad design look good. A well-designed product is deceiving. The solution to a problem solved with a good design will look so obvious that no one would consider doing it any other way once they have seen it. These are the designs you’ll get the least credit for even though they are your best. The solution looked obvious, and because it was obvious it was assumed the problem was easy to solve. Any designer that has spent hours looking at a blank sheet of paper as I have can explain why it was so difficult to come up with such a simple solution, but who will believe this when the solution turned out to be so simple?
Should You Patent Your Ideas?
I have my name on a couple of patents that took a lot of time and effort to get and didn’t pay off. I have the basic patent for computerized timekeeping but after getting it I realized I didn’t stand a chance in hell of defending it. What am I going to do, sue IBM? Patent attorneys make a living getting you patents, and what you do with it after that is your problem. Ask your patent attorney if they would defend your patent on a contingency and you’ll get a lot of mumbling with the end results being “no.” If the patent they documented for you were so good you’d think they would want a piece of the action. You should realize that if the idea you want to patent has been written about anyplace in the world before you applied that it can make your patent worthless. One thing a patent can usually do is to prevent someone with a similar patent from going after you. A patent search shouldn’t cost more than a few hundred dollars to do and should be done to protect yourself. Patents can now be checked using the Internet. You can’t put “patent pending” on a product unless it is actually being decided on by the patent office. Applying for a patent will protect you and the longer it takes for the patent department to get to it can turn into an advantage. You get 17 years of protection once the patent is awarded, but you will be protected upon application. If it took five years for the patent office to get to it, you could be covered 22 years. Please remember I’m not an attorney and I’m just referring to my own experiences that I learned from being involved with our own patents. Patent law is changing, especially in the area of the Internet. The U.S. Supreme Court is reviewing soft patents, and the U.S. Patent Office is also taking a second look at how they approve soft patents in light of the Internet. In the age of the Internet, these patent walls are coming down fast and furious and are becoming difficult and costly to protect. Looking closely at old patents can be a humbling experience when you discover how smart people were one hundred years ago. (Reference: http://www.uspto.gov)
Give Your Idea a Quick Reality Check
I always start on a new design by estimating how much a potential customer will pay, subtracting the discounts I’ll have to give dealers to sell it, and then work with the amount I have left to manufacture, advertise, and ship the product. This is a realistic way to look at it and gives you a way to accurately evaluate the market. You have to know the discounts used for similar products in the market that you plan to enter to do this. You may find your good idea can be forgotten about when this simple test is preformed. When I did contract machining I had customers that were about to spend thousands of dollars for a run of parts, yet, have never given a thought about the discounts of the market they were about to enter. You can find examples of this logic in salvage yards throughout the world. Again, the Internet may be the ideal vehicle in which to avoid middleman mark-ups and established distribution networks.
Don't Make Special Accessories for Other People's Specialized Products
A risky venture is to design and build products that can only be used with another specialized product. You would be at their mercy. A design change and your product will only fit their old models. The type of product I’m thinking of is not an accessory that would go with many motorcycle models but an accessory that would be used with another accessory; that is, a specialized accessory for a specialized accessory. You have little chance of being sure dealers will buy yours. Being better or cheaper doesn’t guarantee results. Dealers are inundated with more products than they care to sell and having to setup a new account to sell a $10 item may not seem worth the effort to a dealer who has a thousand items on the shelf, with many not selling well. Your best chance is trying to sell it as an exclusive to the basic marketer of the product and let the people who already control the market distribute it. Manufacturers will not be interested because they usually sell only products they have complete control over. It can be too risky to have to rely on someone without a track record. They also can usually manufacture the product themselves. The old “Build a better mousetrap and the world will beat a path to your door” rule doesn’t always work well anymore. Again, remember that the established lines are creating more products than dealers care to carry, and it can be very difficult to sell one a product that is only a “little bit” better. I’m not saying it can’t be done I’m only trying to make you aware of the problems you will be facing.
Don't Use Your First Idea Until You Prove It's the Best
Before I commit to an idea I think of every possible way to accomplish the same thing. I don’t put a time limit on this thinking unless there are outside pressure. Before I even mention the project I’ve already considered many methods to accomplish the same thing; therefore, I may seem negative to an employee’s suggestion when I can immediately choose to use this method rather than the suggestion of the employee’s. Sometimes I’ll see a design and make the statement “It looks like they used the first idea that popped into their head.” There is something about designs that have this look. A good analogy would be of food that has been prepared properly and then placed on a plate in an unappetizing way. Well-designed products have a look that you don’t have to justify.
You Can Get Screwed
I really got had with a line of products I developed to be used with full size machine tools. The 5C collet (a clamping device) is the most popular collet used in machine shops today. On a standard lathe it could take 30 minutes to switch from a collet set up to a 3- or 4-jaw chuck. I designed a 3-jaw chuck that could be mounted in a lathe in place of a collet. This could save machine shops considerable time. To make it a complete product line I produced at the same time adapters to fit the not so popular lines. I sent samples to the major suppliers and sales were going great. Soon after sales for our most popular item dropped to non-existent. I couldn’t understand it. I happened to notice a mail-order sale in tool supplier’s flyer that had what I thought was the product I manufactured at a very low price. We contacted them and found out that they no longer purchased this item from us. The bastards had my product “knocked-off.” That wouldn’t have bothered me as much as they were using the pictures I sent them in their catalog and probably used the “free” samples I sent them to copy. They were also using the thousands of dollars I spent on advertising to get sales. I was pissed, to say the least. Fortunately, that was the only time that it happened to me so blatantly.
Should You Make Components Yourself
This is a question that can have so many variables that it becomes very complex to answer. I don’t believe a product can be produced and remain competitive over a long period of time by contracting out your main component parts. Everyone will end up making a profit on your sale except you. The only way you can get reasonable prices is to buy in quantities that are so high that the inventory for that component could cost as much the equipment to build them. I found I could buy a used machine and make my own parts, but I also had the skill to do it. If you don’t have these skills, you don’t have the choice at the start as I did; therefore you have to contract the work out. Remember that these are skills that can be acquired by a company by hiring a skilled employee, but skilled employees are expensive and it takes profit or an investor with a deep pocket to do so.
Pricing a New Product
When I price a new product, I may have to run a piece of equipment at a lower rate than I want to keep from out-pricing the product in the market place. Doing this allows me to make a profit on the other operations involved and as long as the overall product line remains profitable, it can be a wise decision. Think about the times when brand new factories costing millions of dollars are shut down because they were not profitable. In many of these cases, if the basic overhead rate is calculated on what they could recover from the investment, rather than what they invested, it could be very profitable to leave it open. Maybe the return on their investment might be lower than they originally planned, but it could be a return rather than a loss. Automobile manufactures do this all the time.
New and Better Designs Because of CNC Machines
Designers are no longer limited to simple shapes. They can design a part exactly like they want it. CNC machines can cut a complex shape as easily as a straight section. No longer are expensive cutting tools needed to produce complex shapes. The machine is capable of cutting the complex shape with the same tool used to produce a straight section. If the program has been properly written all the shapes developed can be checked with a couple of dimensions. CNC machines allow a small producer to make economical production runs in lower quantities than ever. In many cases, a machinist with the skill to operate these machines could produce more parts than a purchasing agent could buy and keep track of in a month when dealing with small quantities. These machines can make you money if you learn to use them. They are the robots that make our lives better by building better products at a cost all can afford. These robots will not be sweeping the floor in your living room, but they will be used to build the tooling and assemble the vacuum cleaner that you can purchase at very reasonable prices. They are fantastic!
The Joe Martin Employee Intelligence Theory
After 35 years of dealing with people on a business level I’ve come to this conclusion: Put any ten people together of any occupation and you will find one incredibly smart and one incredibly stupid compared to their position in life. The rest will be spread evenly throughout the group. Just because people have found their way to the upper brackets in wages in this world, it doesn’t mean that they are any smarter than the rest of society. I’ve always been more amazed by the intelligence of some low-wage employees than the superior intelligence of high-wage workers. Sometimes these intelligent low-wage workers get caught in a trap by accepting a low-wage entry job. You should be on the lookout for this skilled group and give them new opportunities rather leaving them in their present jobs just because they do it well.
Employee Relationships for a Small Business Owner
Maintain a close personal connection to your employees on a “Business level.” There is a difference. You should always have time to listen and advise employees with problems, who are valuable to your company. Most small business owners will find themselves playing “father” to more than one employee and making a personal loan or helping buy a first car or advising on a personal situation. Never let them feel you’re above that. Always listen to them. I would recommend not lending money to employees that “beg.” People who pay their bills never resort to “begging.” It’s against their nature. Make the small loan with no interest in mind only as a tool to make sure they stay employed. Of course the agreement should be that the loan has to be paid in full if they decide to leave the company for any reason. This is an important method in a management style that breeds employee loyalty and is the right thing to do.
Who's Available
You’re dreaming if you think you are going to have the same choices available as the big corporation you may be presently working for when it comes to hiring employees. You will have to take chances and give people a chance for a new start. The employees with the credentials get jobs with the larger employers that offer benefits that are impossible to offer by your new company. This is the time to consider the benefits of a partnership with a friend with the same long-term interest. If your new business requires a full time office employee you need an all around office person. They are sometimes called a “girl Friday.” This group likes the varied duties of a small business and they don’t like the pecking order associated with large businesses. They can have much to do with your company’s success. In any case, your first employee should be capable of doing and willing to perform the tasks that you shouldn’t be wasting your valuable time doing. Legible handwriting and the ability to talk clearly is a must because they will be answering the phone and taking messages. Banks can take care of payroll for you and it isn’t a big deal to do it yourself using the payroll programs available. Don’t get involved with paying anyone working in your shop straight wages and calling it contract work. You could end up paying their taxes even though you didn’t deduct them. You could also be sued out of existence if they were injured at your business. Workmen’s compensation insurance can be very expensive; for example, a roofing contractor may pay over 40% of a worker’s wages on that insurance alone. Labor laws are quite clear about contract work, and agreements between employee and employer aren’t considered unless they are legal according to state and federal law. Labor laws and OSHA rules are not as bad as you are led to believe.
Pay a Little More and Expect a Lot More
If employers looked at their employees as their customers, we would all be a lot better off. The days of slavery are gone and you have to work with employees towards a common goal. Each employee deserves respect and recognition no matter how low on the totem pole they are. Wages are the way employers have to express employees worth to the organization. Some employees’ worth can be dependent because of what they know, but others can be worth the same amount because of what they do. How many roofers could you get to spread tar on a roof in the middle of a hot summer day if the basis for their wages was the intelligence to do the immediate job? A roofer’s job can be so miserable that it takes exceptional wages to get workers for that trade. A brilliant person with absolutely no interest in the job they were hired to do will not have any value to the company. A janitor could be very valuable by keeping the business exceptionally clean and being helpful, creating a great working environment for everyone. The employees take their cues from you as the owner as well. Make a point of appearing on the shop floor as often as possible and be sure to ask employees how he/she is doing, what improvements can be made, etc even when they may be “low man on the totem pole.” It’s the right thing to do and right message to send.
Wages and How Much Does an Employee Really Cost
For a quick mental calculation, the number I presently use to figure the direct cost of an employee is their wage plus 30%. However, the real cost can be quite a bit more when you start considering what it costs to hire and train each employee.
Below is what it cost a year for a $10 (not reflective of true wages, just an easy number to work with) an hour employee that has been employed over two years working in the machine shop in the year 2000.
Employee #1 @ $10 x 40 = $400 wk x 52 wks = $20,800
Benefits & Employer Expenses
State & Federal Unemployment Insurance = 2.9% of first $7000 = $203
Fed Social Security & Medicare = 8.65% of gross wages
Workers Compensation = 3.42% of gross wages
Employers share of Medical, Dental, Vision, and Life insurance = $1230/yr.
Vacation benefit 2 wks pay = $800
7 Paid holidays = $560
Employee Earned Wages = $19,440
Vacation – 2weeks 800
Paid Holidays - 7 days 560
Insurance Benefits 1,230
Workers Compensation 711.36
Unemployment Ins. 203
SS & Medicare 1,799
3% Profit Sharing 624
Adjusted Wages $25,637.00 which equals earned wages ($19,440) plus 30.5% ($5927)
Negotiating Wages
I have found it is best to give an employee a wage increase before the employee has to ask for one. This way you control the situation. If you allow an employee to get so unsatisfied with their wages that they already have an offer from another company, you have lost. Competing with a company making an offer for your employee puts you at a disadvantage. If the employee doesn’t perform as expected at another company, that company could easily replace them. In your case, if you give in to their demands, “you own them”, and I’ll guarantee you that employee will be knocking on the door for another wage increase within six months. Now you have an overpaid employee that is bragging to their fellow employees about how much more they make. I have given up on negotiating wages with employees that have another offer; however, if an employee brings a good point to the table I’ll consider it.
Pay Skilled Employees What They Ask
After being in business for a while, you learn or should know what the going rates for different jobs are. For skilled shop people we usually start employees at the rate they are asking, however, there is always a clear understanding that the more they make the more we expect. If they can’t do what they promised we then offer them the opportunity to work for wages we think they are worth or lay them off. You can usually determine the value of a new employee in a very short period of time. I don’t like the way workers are treated today. To take American workers and force them to take major pay-cuts by threatening a move to another third world country is disgusting. Who do they think can afford to buy these products if only a select few make decent wages in this country?
Toolmakers...They Just Don't Get Enough Respect
Toolmakers come up with more good ideas in their lifetime than most engineers could in two lifetimes. The problems they solve building the fixtures to produce a part at a reasonable cost are usually far more complex than the part they are producing. They get used by both management and engineering. What usually happens is management will have a meeting with engineering to discuss a new process that must be developed. After the meeting the engineers of this company head for the shop and talk to a toolmaker that has worked there for more years than anyone can remember to see if they can do it. After sleeping on it the toolmaker comes up with an idea and the project goes ahead. It works out everyone gets credit and a bonus for a job well done. The toolmaker that made it all possible? Oh, they had to get rid of him because he was old and his area of the shop was always dirty.
Employees and their "Careers"
If a potential employee starts talking about his or her “career” during a job interview they are saying to you that they will work for you until they find something they believe is more interesting or better. Consider your company as another stepping stone. This will be a short-term employee, and you have to decide if you can come out ahead. They may have a skill that could be transferred to your company in a short period of time. This would be the only condition I would hire this employee. You have to use these employees just like they plan to use you. If you have a job opening that will involve a lot of training for a new employee, consider moving a presently reliable employee up to fill this new position. This is a good thing to do, and all your employees will think better of you for it. All our good employees have worked their way up through the ranks. Many times an employee can get trapped in a low-paying job because they do it well. If you want to help employees with their careers, start with the reliable employees you already have, not with a new employee that, in a sense, has told you up front that he or she will be short-term help.
Alcoholics
I had the unfortunate experience of hiring several employees with a severe drinking problem. Twice I tried to be a “hero” and work with their problem. These people have a problem that an employer can’t solve. The time I wasted with alcoholics was very frustrating because they were talented employees. What I found was that they would go along just great and then, when you really needed them, they would disappear for a week or so. I believe the added pressure of knowing that they had to “come through” would create an atmosphere they couldn’t handle. The choice you have is to put employees with this type of problem in a job where they can’t affect the overall operation, or let them go. Getting involved with their personal life isn’t a good idea.
The New Managers
CNC machines allow a smart worker to produce more work than ever. Rather than eliminating the need for intelligent workers, these machines require organizational skills that few managers have. The machines they control are very complex and the employees who can control these machines are equally as valuable to a company as that of standard managers. In the past managers were considered people managers. The managers who control these machines are robot managers. When you consider how important these machines have become to the quality and efficiency of manufacturing a product, the group of workers that controls these machines will soon be equal to the managing staff of any company in prestige and wages. Today’s management still hasn’t grasped the concept of this point, but soon they will be forced to accept this condition when they find their million dollar machines operating at half speed.
A few years ago before purchasing a new CNC machine, I went to another business to see the same model in operation. There was only one employee there who could operate that CNC machine. A few years later I received a brochure for an auction at the same company. I found out the employee left and they never found a replacement for him. The machine he ran cost over $200,000 and the employee quit because they wouldn’t pay him a fair wage. The high-dollar payments on a machine that wasn’t operating bankrupted the company. This should make my point.
Hiring Unskilled Employees
The term “unskilled” is used too often these days. I’ve never hired a person that I would consider totally unskilled. I hired several that had personality problems that were so severe they had to be replaced, but they still had a skill. The skills that this group has can’t be found on an employment application. I’ve found that when you try to hire using employment applications as your guide, you’ll end up hiring employees that are good at filling out employment applications. The educational system in this country has made the high school diploma worthless and it can no longer be used for a standard. However, a potential employee that has enough interest in their chosen craft to go to a trade school may be more valuable to a manufacturing business that an engineer. For machine operators I like to hire employees that can fix their own cars or have hobbies that take skill. In today’s world the skill to operate a computer is always a plus. A potential employee who has taken the time to teach themselves a skill on their own and purchase the tools used is a major plus. Taking the time to find what this group is capable of doing will give any company a surplus of skilled workers. By giving them the opportunity to advance, you’ll find a group of loyal skilled employees that all companies need.
Sarcastic Employees
A major error can be having a sarcastic employee talk to customers. A receptionist with a problem of this nature can cost you more business than a good salesperson can get. If questioned about their actions they can usually recite exactly what they said and it will not sound so bad. The problem wasn’t what they said but how they said it. Listen carefully to how employees talk to customers. I personally find sarcastic people quite humorous even when it is directed at me, but having employees piss a potential customer off while giving them directions of how to get to your business establishment is inexcusable.
Post Office Box Addresses
Unless you have a company that is known nationwide don’t use a Post Office Box number for an address. You are better off using home address such as Fairway Lane than a P.O. box. Potential customers have been trained not trust such an address. Too many swindlers have used P.O. boxes in the past and you’ll have a strike against you before you start. There are very few businesses that can be successful working out of a home. You need a place of business to build on; you need a place where it all comes together.
Logos and Company Names
If you personally have a name that is used by a large company, you can’t necessarily use it. Your name may have already been registered and they own it. Some companies will go to extraordinary efforts to protect it. In any case, make sure you can legally use the one you choose before spending money on printing or advertising. The US Patent and Trademark Office (http://www.uspto.gov) is a good source of information on trademarks. The first thing you have to realize about logotypes (the symbol representing a company’s name) is they are not as important as advertising people think. On the other hand, since they are so easy to produce with a computer graphic program, it would be foolish to have an ugly one. The company makes the logo famous; it isn’t the other way around. If logos were important, General Electric wouldn’t be one of the largest companies in the world. Don’t try to tie your logo directly to the products or services that you are presently planning to market. In time you and your company may head off in an entirely different direction making the logo obsolete.
A Totally New Product Requires a Lot of Salesmanship
It is also difficult to try and sell a new product unless it can be compared with a product now on the market. If the reason for the product has to be explained you’ll need a very dedicated sales force. Customers will not read or listen to long sales pitches. Before starting on a new venture, play with the financial numbers and convince yourself it is worth the effort. To make $50,000 on a product that has a potential profit of $0.10 each requires sales of 500,000 parts. This is fine if you get orders in the 100,000 range, but you will not survive if you are going to sell twenty-five at a time. The numbers just aren’t there. If you are just starting out, you will need to have some big-ticket items to sell to pay the bills.
Pricing Your Product
A real problem in designing and manufacturing products is the value a customer may give a part compared to the cost of manufacturing. A plastic part has little value to most customers because they are used to trashing complex disposable plastic products every day. Parts that have been manufactured by the millions have the tooling cost cut by a proportional amount, and the cost for each part becomes negligible. When a plastic part is used in a low volume product, however, the tooling cost for each part produced will normally exceed the material cost. Material cost can also be higher than one would imagine. In 1997, the steel used to produce Sherline tools cost from $.45 to $4.00 a pound, aluminum costs were about $2.00 a pound, and the plastic used for the speed control case cost around $2.00 a pound. These are prices paid for materials purchased in production quantities.
I’m sure you have seen the same 40-piece socket wrench sets that sells as low as $4.00 that I’ve seen on the shelves of auto parts stores. I couldn’t get the chrome plating put on that set for $4.00 in high quantities in California, never mind manufacturing and discounting it. I really don’t understand how or why they do it, but the fact that they do affects how a potential customer will evaluate the value of other tools. A customer will see a value in large parts, but little value in a small part. This small part may require machining operations from each side and can cost many dollars to produce, but a customer often doesn’t have the expertise to see this. Small parts may take longer to load in a machine than a large part because they are delicate and can be difficult to line up. A cutoff saw takes the same time to cut a one-inch long piece off as it does a ten-inch long piece. Customers perceive value from their everyday experiences, and that is something you must deal with if you ever plan to produce a product.
An American Company's Place in the World Market
American manufacturers are at a disadvantage when it comes to selling throughout the rest of the world. The U.S. market is the largest market in the world, and we now have a great distribution method to get products to the consumer with very little markup. Take the $4.00 socket set for example. It probably is sold directly to a discount chain of stores who only mark it up 25% and sell it directly to the consumer. The discount chain stores have such a large buying power it allows them to deal directly with manufacturers throughout the world. Products are shipped directly to their warehouses with no middleman markups. This is a great deal for consumers, but it makes for tough competition for an American manufacturer.
The biggest difficulty in establishing a market outside of U.S. is the discount structure. Everyone wants to make 40%. For example, in this country, large chain stores will order direct from a manufacturer in Asia, mark the product up around 30% and sell it direct to the consumer. In Asia an importer will import a U.S. product, mark it up 40% and sell it to a distributor who then marks up their cost 40% to a retailer, who also wants to make 40% on a sale to the consumer. I’ve had the discounted price of my products increased over four times on products sold overseas. Needless to say, these attempts failed. The different method of marketing in foreign countries makes it very difficult for U.S. companies to compete. This will change rapidly because these countries are beginning to develop marketing methods similar to our own. I no longer waste my time working with foreign distributors who use this method of selling. Competitive consumer pricing no longer allows this multi-tier system of distribution. To make matters worse, U.S. manufacturers must compete with companies that sell products here that don’t have to deal with the higher safety and environmental standards set by OSHA and the EPA. I’m not suggesting we should do away with these agencies, for I believe they are needed to protect our workers and citizens. I’m only reminding you of some of the problems that face U.S. manufacturers.
Taking Advantage of the Internet
Our web site has been a very good investment for both the customers and Sherline dealers. What inspired me to put the effort into having Craig make a very complete site was I believe it is the way of the future and I didn’t want to be left behind. What I really like about it is you don’t have to live with mistakes because you just had 25,000 copies of something printed. Information is easily corrected or updated—instantly. I felt that if we did a really good job we wouldn’t have to change it and it could be useful for years, just like the good tooling I keep referring to. I believe we have created a useful site by including plenty of good information such as instructions for our machines and accessories for our customers and potential customers to examine. We also reach a readership that is worldwide. This can be impossible with standard advertising methods. We have picked up a number of new distributors in other countries because of our Web page. We have also made an increased number of direct sales overseas because fax and e-mail communications make it easy for anyone looking at a web page to order. Time of day, long distance phone calls and the language barrier are much less of a problem. The web site was put together over a period of about four months and has been constantly expanded and improved. The most interesting thing is how inexpensive it is. It costs only $500 to $700 a year for a very large site. Compare that with a two by three inch ad that costs $1,000 and is history once the next issue comes out. I believe only the surface of the Internet has been scratched and it will keep growing for many years. It represents the leading edge of the “information revolution” that is to our era what the industrial revolution was to our grandparents and great grandparents.