Wise words from the mountaintop—Part 1
Wise words from the mountaintop and selective-attention disorder
Prevailing economic conditions have put me in a funk. It seems that the last time I really knew what I was doing as a business manager was in 1995. At that time my job shop was reporting profits, our machinery was in excellent condition, and our major customers were forecasting solid growth. I decided then that we needed to expand our capacity and capability to keep up with demand.
This was the first major change in the business that I had contemplated since the departure of my dear father. All I had was his ghost to advise me. "You are only as rich as the amount of money you are willing to spend," he had once said. He had also advised against letting the company get too big, but I barely heard that advice. Occasionally I suffer from selective-attention disorder.
Given the solid performance of the company and its customers, I set an ambitious course to split the operation into two separate locations to make room for new machinery. To fund this project, I went to my banker with a business plan and an asset list. Appraised at current fair market value, the machinery was worth nearly what I had paid for it. (Keep in mind that this was nearly eight years ago.)
At that time we did not owe very much against the equipment, and I had a significant amount of equity in it. I wanted to spend it.
"You are asking for the biggest loan in the history of your company. What are you going to do with the cash?" asked my shocked banker.
"I am going to lease a second building, buy some new machinery, pour a foundation for a new metal cutting laser, add the needed electrical and pneumatic systems, pay off the line of credit, hire a bunch of people, and start a Web site. We might burn cash during the transition until all of the dust settles from the relocation. But with the increased capacity we'll have, we quickly will become more profitable than ever," I explained.
"Normally you borrow money from the machine tool manufacturer to fund new equipment and you limit operating expenses to what you can cover with profits. This time you also are borrowing money for operating expenses! Are you sure this is wise?" he asked ponderously.
I regarded his conservative banker attitude as a cross between a joke and an insult. "Look at the company's history of sales growth. Look at these forecast charts. Look at the value of the assets you will have as collateral. This is a no-brainer. There is no bottom to the high-tech manufacturing industry because the new economy is going to be wonderful! We are on the leading edge of an economic boom!" I countered.
With the advantage of hindsight, I can report that the forecasted boom did happen. It lasted a long while, but it also petered out. There really was no bottom to the high-tech manufacturing industry, it seemed—it just kept falling and falling.
As the boom faded, we tried all sorts of things to keep the business happy. We postponed machinery upgrades and we reduced our staff. We changed our client base. We took on debt by giving up every asset we had as collateral. Alas! The appraised value of the assets fell, and we were trapped with high loan payments. I needed help to figure out what to do.
Have you heard the rumor that wise gurus live on mountain peaks? I recently decided to take advantage of the fact that I live near the Rocky Mountains, which are topped with 100 percent natural peaks, and went in search of a source of wisdom and guidance.
The Lofty Bird's-eye View
Without much effort I found myself high on a mountaintop. No, this is not an admission of substance abuse. I refer, of course, to the lofty elevation of being nearly 2 miles above sea level.
As I ascended the air got thinner. The oxygen is so scarce above 11,000 feet that trees have a hard time growing. Near the peak of this mountain was a lone bristlecone pine tree, dwarfed and gnarled by the harsh environment. In the sparse shade of this scrawny vegetation I could make out the sparkling glint of a pair of beady eyes watching me as I breathlessly approached. To my amazement, they belonged to a great and masterful business adviser who awaited me!
"Dude!" I wheezed as I collapsed on a comfortable-looking boulder. The eyes narrowed in acknowledgment. "What is wrong with my business?" I asked. "Bad management the problem is" was the reply. "Great," I thought. I climbed all this way in search of help and I find a Yoda-wannabe.
"Oh, Tiny Sage. I seek specific and instant solutions. Your knowledge is vast and your mind is very fine. Please help me understand for I am so dumb and do not grasp your vagueness," I wheedled.
"General questions beget general answers" was his brief reply.
Slightly peeved, I said, "I am the same guy I was 10 years ago, except for wear and tear that some might call experience. Why was I a good manager then and I am a dolt now?" I wondered aloud.
"Right off the top, I do not know. As a good manager, you are adept in many disciplines. You are expert in strategic planning, adaptive tactics, documented policy, enforced procedure, leadership development, and understanding of money," the wise man said. I certainly could not argue with that.
"Tell me, which of these is your greatest skill?" He smiled thinly as he asked this and I sensed derision in his tone.
"Oh, Guru of Smirk, I am able to do all of those things."
"Ah, yes. Just fine your business is running?"
"Well, no. It is not."
"Then I must continue to question your skill," he said gently.
"My current operations plan covers all of those topics," I replied defensively. I watched as he fiddled briefly with his laptop. I was amazed at how well-equipped mountaintop gurus are these days.
"Is this the operations plan to which you refer?"
I stared bug-eyed at the display. "How did you get into my network?" I blustered.
He smiled. "It was no problem." He scanned the document briefly and said, "I have an answer to my question!"
"What do you see as my greatest skill?" I asked hopefully.
"Prolific production of manuals to collect dust," he laughed. "You write the manuals, put them in a binder, and set them on a shelf. Lovely they are, so neatly printed."
"OK, so I like to write. I still do not know what went wrong with my business strategy," I pouted.
"It you for fell," he yoda'd.
"Excuse me? What are you talking about? I cannot understand this pronoun-verb reversal speech problem of yours."
"OK, try this. You, like many of your peers, converted your apparent equity into cash and did not increase your cash flow to service the new debt. You were sucker-punched by the inflated value of your capital assets. It happened to the agricultural community. Now it has happened to manufacturing."
Now that sounds like wisdom, I thought. But it did not give me any sense of what to do. He assumed a martial arts scorpion pose and said, "You have not been adept at the three critical management responsibilities—cash flow, policy, and enforcement."
"What should I do about it?" I pleaded. "Wrong mountain for fast answers, my eager student. There are many answers to your complex question, but uncovering them will take time and great effort on your part," he laughed ominously.
The saga continues to unfold in next month's sequel ... er, column.
The FABRICATOR is North America's leading magazine for the metal forming and fabricating industry. The magazine delivers the news, technical articles, and case histories that enable fabricators to do their jobs more efficiently. The FABRICATOR has served the industry since 1971.