Suggestions for Startup Manufacturing Businesses

otrlt · Jul 27, 2021

Garwood said:
I'd like further discussion on "One man can only do one man's work".

The problem I run into with employees is one man can only do 1/4 of a man's work and frankly I'm lucky if I don't lose my entire days work trying to get a 1/2 a man's work out of 2 guys.

I expect I'm not hiring well.

I would love to hear about strategies you've employed to hire and retain employees that are capable of delivering one mans work. I really don't think my expectations are too high.

Hello Garwood,
I am compelled to comment on your statement, "One man can only do one man's work". You appear to be a reasonable/knowledgeable operator.

In my experience, the output of skilled tradesmen can be extremely volatile.

It is quiet possible that 1 man can do the work of 2-3, guys like this are not common, but they do exist.

triumph406 · Jul 27, 2021

otrlt said:
Hello Garwood,
I am compelled to comment on your statement, "One man can only do one man's work". You appear to be a reasonable/knowledgeable operator.

In my experience, the output of skilled tradesmen can be extremely volatile.

It is quiet possible that 1 man can do the work of 2-3, guys like this are not common, but they do exist.

Such as your self no dought

Oldwrench · Jul 28, 2021

Without casting aspersion on the OP, his voluminous advice is highly generalized and could have been taken from most of the books you can buy at an airport.

A manufacturing business, while subject of course to the universal—and obvious—laws of economics, is a different kettle of fish entirely from a reselling business. I'm not saying a good manager can't succeed in starting a manufacturing company, but without a pretty deep background in production equipment and techniques his enterprise will always play catchup against companies that have that background—otherwise known as "institutional knowledge." If said company makes its own products then there is the additional pressure of innovation to stay ahead of your competitors who are under the same pressure. Depending on hired personnel to answer that call is possible if you have the capital. In a startup, it's all you. Managers as a rule don't do technical innovation. You can hire bean counters a lot easier than you can hire a combination of technical expertise, vision and tenacity.

Oldwrench · Jul 28, 2021

otrlt said:
Hello Garwood,
I am compelled to comment on your statement, "One man can only do one man's work". You appear to be a reasonable/knowledgeable operator. In my experience, the output of skilled tradesmen can be extremely volatile. It is quite possible that 1 man can do the work of 2-3, guys like this are not common, but they do exist.

True, but you don't want to end up dependent on a prima donna. Here's a better way: work hard enough for long enough to be able to lease-purchase some CNCs, hire reliable intelligent people, and train them as operators. When one person can run 2-3 machines you will have broken that depressing hiring cycle of kissing toads while waiting for the prince.

If the business is doing whatever comes in the door (welding stove lids, straightening bent hydraulic cylinders, cranking a BP, etc) you are always dependent on the productivity and attitude of an individual. That's the inherent burden of a job shop which I personally found frrustrating and, in the end, insurmountable. Running your own production it comes down to your level of automation—which doesn't need coffee breaks and doesn't show up hung over...

Mcgyver · Jul 28, 2021

Talinthon said:
I think this depends on the business and the specific location it's located in..

Agreed. Forget that there might just be one shareholder, you're suppose to manage for the shareholders. Brevity prevents going into all the corporate finance reasons why, but return on equity in a small private business should be many times higher than for commercial real estate. For example if ROE for the business should be 20%, and the yield on industrial space 6%, you are doing your shareholders a misdeed by putting capital into an investment so much below what they're expect to get - a 20% ROE. For that reason, a very low percentage of businesses own their own office space, warehouse space and retail space

The flip side of that is that for some manufacturing business, the cost of moving is so prohibitive that not owning the space doesn't make sense. A landlord could have a gun to your head at every renewal. Pits, cranes, power distribution, moving machines etc can be as much as real estate. For heavy manufacturing buildings its rare that the building isn't owned by the business.

As an entrepreneur, there is a third dynamic in that many view it as a good investment. I don't think that should drive the decision unless you have a lot of excess personal money to put somewhere (like that describes the start up entrepreneur), yes you get good leverage but i agree its double jeopardy if the business gets into trouble. If you really want a good real estate investment, pick a good REIT...liquidity, diversification and professional management.

Qualifications....corp finance background and prior to that leased and sold over 10 million square feet of industrial and office space

mrplasma · Jul 29, 2021

Mcgyver said:
Agreed. Forget that there might just be one shareholder, you're suppose to manage for the shareholders. Brevity prevents going into all the corporate finance reasons why, but return on equity in a small private business should be many times higher than for commercial real estate. For example if ROE for the business should be 20%, and the yield on industrial space 6%, you are doing your shareholders a misdeed by putting capital into an investment so much below what they're expect to get - a 20% ROE. For that reason, a very low percentage of businesses own their own office space, warehouse space and retail space

The flip side of that is that for some manufacturing business, the cost of moving is so prohibitive that not owning the space doesn't make sense. A landlord could have a gun to your head at every renewal. Pits, cranes, power distribution, moving machines etc can be as much as real estate. For heavy manufacturing buildings its rare that the building isn't owned by the business.

As an entrepreneur, there is a third dynamic in that many view it as a good investment. I don't think that should drive the decision unless you have a lot of excess personal money to put somewhere (like that describes the start up entrepreneur), yes you get good leverage but i agree its double jeopardy if the business gets into trouble. If you really want a good real estate investment, pick a good REIT...liquidity, diversification and professional management.

Qualifications....corp finance background and prior to that leased and sold over 10 million square feet of industrial and office space

Very eloquently put!

Assuming that a startup business reinvests as much of the net profit as possible, there is the question of how to reinvest it. Do you buy machinery and equipment (M&E) that you will quickly outgrow? Probably not smart. Do you buy unaffordable M&E that your production level can't yet, and may never, fully utilize? Not much different than acquiring commercial space!

Again -- pick a product that largely uses components already mass produced by other companies, and combine it into your product. Farm out production processes to other companies that have the necessary M&E. When your business reaches a level where it is financially prudent to buy your own M&E (fairly simple mathematics), then do it.

For the time being, reinvest your profits into marketing, advertising, inventory, and other investments with an immediate payoff.

We are talking about the first few years of a startup business -- not an established operation.

Garwood · Jul 29, 2021

mrplasma said:
Very eloquently put!

Assuming that a startup business reinvests as much of the net profit as possible, there is the question of how to reinvest it. Do you buy machinery and equipment (M&E) that you will quickly outgrow? Probably not smart. Do you buy unaffordable M&E that your production level can't yet, and may never, fully utilize? Not much different than acquiring commercial space!

Again -- pick a product that largely uses components already mass produced by other companies, and combine it into your product. Farm out production processes to other companies that have the necessary M&E. When your business reaches a level where it is financially prudent to buy your own M&E (fairly simple mathematics), then do it.

For the time being, reinvest your profits into marketing, advertising, inventory, and other investments with an immediate payoff.

We are talking about the first few years of a startup business -- not an established operation.

I think you're massively over-generalizing.

Having a product based business for awhile now I personally know a half dozen other folks with product based manufacturing businesses.

I would say, from my experience, basing too much of your products on outside components is a potential for disaster.

All the product businesses I know personally try their darndest to utilize as many proprietary processes as possible and do it in house.

No disrespect intended, but Torchmate sure seems like more of a right place right time kinda deal than a viable business model to copy. Good for you for recognizing the potential in your time and place, but if you weren't the first DIY plasma cutter company to capitalize on the internet somebody else would have been right there.

I think you were able to get away with using so many off the shelf components because you established your brand. I don't personally think farming all that out was a smart move in that situation. I think you got lucky and your branding and marketing carried you through.

mrplasma · Jul 29, 2021

Garwood said:
I think you're massively over-generalizing.

Having a product based business for awhile now I personally know a half dozen other folks with product based manufacturing businesses.

I would say, from my experience, basing too much of your products on outside components is a potential for disaster.

All the product businesses I know personally try their darndest to utilize as many proprietary processes as possible and do it in house.

No disrespect intended, but Torchmate sure seems like more of a right place right time kinda deal than a viable business model to copy. Good for you for recognizing the potential in your time and place, but if you weren't the first DIY plasma cutter company to capitalize on the internet somebody else would have been right there.

I think you were able to get away with using so many off the shelf components because you established your brand. I don't personally think farming all that out was a smart move in that situation. I think you got lucky and your branding and marketing carried you through.

Can't disagree! I was definitely in the right place at the right time. I still think it is wise to avoid making major investments prematurely, whether for equipment or real estate. Proprietary parts, although costly to produce, do help avoid copycats. I appreciate your well thought-out input.

dcsipo · Jul 29, 2021

Bobw said:
So.. How much of a raise should she get? $1 or $2 an hour?

How much of your own time (=$/h) would you lose if she left and a new person needed to be brought in? Figure percent of profit off of that and the number for the raise is in front of you. It might surprise you how much more than 1 or 2 bucks an hour. The next question: can you afford either scenario.

Bobw · Jul 29, 2021

dcsipo said:
How much of your own time (=$/h) would you lose if she left and a new person needed to be brought in? Figure percent of profit off of that and the number for the raise is in front of you. It might surprise you how much more than 1 or 2 bucks an hour. The next question: can you afford either scenario.

Dude... That's complicated..

Replacing her. Well... On paper it would be easy, she doesn't bring any fantastic skills
to the shop, and "On Paper" anybody with a pulse could do her job. If I was a bean counter
idiot, I would lay her off and hire somebody for minimum wage.

In Reality.. I would have a damn near impossible time replacing her, even if I was in an
area that actually had a pool of people to pull from, it would be incredibly difficult.j

In 4.5 years, she has called out twice. TWICE!!!!!! once because she was sick, and once
because her car was dead. TWICE!!!!! She went home early a few times, but we all have those
days. TWICE!!!!!!

The most important thing.. She doesn't steal my shit.

Can I afford it.. Sometimes.. Don't care.

So, yesterday I asked her if she was making enough. And she said "Yeah".
So I asked if she wanted a raise, and she said "No, I'm happy where I'm at".
She actually said that.. Have any of you ever had somebody working for
you say that?

So I gave her a dollar an hour raise. I'll probably slide in another dollar
with her X-mas bonus.

mrplasma · Jul 30, 2021

More on Being in the Right Place at the Right Time

We have all heard the phrase "he or she was just in the right place at the right time." I don't know how many of you have seen the scene in the 1949 movie "Twelve O'Clock High" where General Pritchard says "I believe that to some degree a man makes his own luck."

If we tell ourselves that a particular success story (small like mine, or big) was due to dumb luck, or was some kind of fluke, then we feel better about our own plight. To some degree, maybe a man makes his own "right place at the right time."

In a sense, every place and time is the right place and time. What worked in my own case, might be totally useless in this day and age. However that doesn't mean that there aren't comparable, perhaps far better, opportunities out there right now for those who can grasp them.

When I started making low cost CNC plasma cutting machines, 1998, the Internet was just starting to become a marketing tool, low cost CNC controls had just become available, and there was no direct competition in my price range. That was definitely the right time to introduce my product, and the Internet was the right place to do it.

That time, and that particular opportunity are gone forever. However, what emerging technology, product, customer group, and marketing approach are just right for today? You know a great opportunity is out there waiting for someone to think of it! Look at Gates, Jobs, Zuckerberg, Musk - the list goes on. Were these guys all in the right place at the right time? Yes they were, but they recognized that fact and took advantage of it.

DDoug · Jul 30, 2021

I haven't seen you write about this part yet, could you explain a little more about who the competition was ?

IIRC it was the expensive machines like Cleveland Machine Controls (C&G), Koike Aronson, cybermation, MG, Linde (now ESAB).

Talinthon · Jul 30, 2021

mrplasma said:
I certainly don't pretend to have answers for everyones' personnel problems. So much depends on your locality, the jobs available in that region, the supply of viable job applicants, and a variety of other conditions. I think Bobw has the right idea for an overworked one-man operation. Find someone to do the time-consuming menial tasks not requiring any particular skill. That makes more sense to me than trying to hire a skilled person and doing all the shit work yourself.

If you need skilled help besides yourself, I would suggest some of the old adages: hire to your own weaknesses; you get what you pay for; etc. Just as successful products have some attribute that sets them above competing products, successful employers have something to offer that sets them above competing employers. This could be higher pay, better benefits, more pleasant work environment, better training, better work hours -- the list goes on. Remember that you are in competition with other employers for good employees. Word of mouth travels among workers just as it does among customers.

Not sure how big a perk it is, but I don't scream, yell and throw temper tantrums. I'll yell at you to stop if you're about to do something that will result in a bad outcome and I might call you a rookie if you've got experience and make a rookie mistake. And if I can swing having AC I'm going to do it.

As for who to hire, I'm probably going to go for an experienced salesperson after I move the shop. If I'm on the road, the work in the shop isn't getting done; when I'm in the shop all selling stops aside from my very minor online stuff. I think it's better to have someone bringing work in while I'm pushing it through as it's hard to both be out selling and trying to train a new floor guy at the same time.

Talinthon · Jul 30, 2021

mrplasma said:
Quote Originally Posted by Mcgyver View Post
Agreed. Forget that there might just be one shareholder, you're suppose to manage for the shareholders. Brevity prevents going into all the corporate finance reasons why, but return on equity in a small private business should be many times higher than for commercial real estate. For example if ROE for the business should be 20%, and the yield on industrial space 6%, you are doing your shareholders a misdeed by putting capital into an investment so much below what they're expect to get - a 20% ROE. For that reason, a very low percentage of businesses own their own office space, warehouse space and retail space

The flip side of that is that for some manufacturing business, the cost of moving is so prohibitive that not owning the space doesn't make sense. A landlord could have a gun to your head at every renewal. Pits, cranes, power distribution, moving machines etc can be as much as real estate. For heavy manufacturing buildings its rare that the building isn't owned by the business.

As an entrepreneur, there is a third dynamic in that many view it as a good investment. I don't think that should drive the decision unless you have a lot of excess personal money to put somewhere (like that describes the start up entrepreneur), yes you get good leverage but i agree its double jeopardy if the business gets into trouble. If you really want a good real estate investment, pick a good REIT...liquidity, diversification and professional management.

Qualifications....corp finance background and prior to that leased and sold over 10 million square feet of industrial and office space

mrplasma said:

Very eloquently put!

Assuming that a startup business reinvests as much of the net profit as possible, there is the question of how to reinvest it. Do you buy machinery and equipment (M&E) that you will quickly outgrow? Probably not smart. Do you buy unaffordable M&E that your production level can't yet, and may never, fully utilize? Not much different than acquiring commercial space!

Again -- pick a product that largely uses components already mass produced by other companies, and combine it into your product. Farm out production processes to other companies that have the necessary M&E. When your business reaches a level where it is financially prudent to buy your own M&E (fairly simple mathematics), then do it.

For the time being, reinvest your profits into marketing, advertising, inventory, and other investments with an immediate payoff.

We are talking about the first few years of a startup business -- not an established operation.

Click to expand...

I do agree with everything with respect to a true startup. I guess I've been approaching this from where I'm at 9 years in and looking to pivot from a pure service shop into product manufacturing (I have the machines to fix blades which means I have the machines to make blades).

@Mcgyver, I haven't taken the ROE difference between the business and the real estate into account and what it would take to find the maximum return, at least not to the level that you may be accustomed to. I'm approaching this with what appears to be the most efficient use of the money generated. Here in Woodstock, rent is going to run me anywhere from $4500-8000 month depending on size (3500-10,000 sq.ft). So far, I have only been able to find 1 adequate space under 5000 sq.ft and they wanted $4500. That same $4500/month should comfortably cover a $700k mortgage including taxes, insurance and funds for long term maintenance. That might only leave a 6% ROE on the real estate but the rent has to be paid whether I pay rent to myself or to some landlord who doesn't have my best interest in mind. Once the numbers on the mortgage make sense, I would use the real estate as collateral for a LoC so I can fund future growth without needing to get on my knees and beg a banker to consider thinking about maybe 20 minutes of his time to here me out.

My qualifications - very few other than having had to bootstrap using credit cards as no bank has been willing to work with me. Even with a 700+ credit score, I haven't been able to qualify for overdraft on my business account (but they will give me $75K of credit card space if I wanted it).

Garwood · Jul 30, 2021

Talinthon said:
My qualifications - very few other than having had to bootstrap using credit cards as no bank has been willing to work with me. Even with a 700+ credit score, I haven't been able to qualify for overdraft on my business account (but they will give me $75K of credit card space if I wanted it).

Lucky bastard! You had credit cards???!!!

mrplasma · Jul 30, 2021

digger doug said:
I haven't seen you write about this part yet, could you explain a little more about who the competition was ?

IIRC it was the expensive machines like Cleveland Machine Controls (C&G), Koike Aronson, cybermation, MG, Linde (now ESAB).

Other than a 4x4 unit being made by another startup company, the only remotely comparable machines out there in 1998 were the expensive industrial machines you mention above. They were sold via distributors, and it was difficult to find any on-line pricing whatsoever. There was a tremendous vacuum that needed filling, i.e., a low cost 4x8 machine sold exclusively via the Internet to hobbyists and small businesses.

Within a year or two, a number of copycats began appearing. However by that time, I had a fairly broad customer base, a large web site, and a degree of brand recognition. I don't think any of the new-comers ever caught up. Many went under within a short time. By the time my business sold, in 2011, I had dozens of competitors. I have no idea how many there are now. Suffice it to say that it would be futile to try to duplicate my startup today by the same methods.

idacal · Jul 30, 2021

on hiring help i thought about all the bosses i worked for and what I liked and what I hated. then I try to be the employer that I liked working for, THATS A GOAL NOT A REALITY. but there is also the issue of they have to fit your work culture. I tried temp help talk about worthless. finally I just realized pay enough that I can choose who stays and who goes, and I do let people go that dont fit because their paychecks hurt, Im not desperately needing bodies that just end up being there to piss me off. and good help is worth what it takes. Hiring for Attitude this book helped me out a lot I kept trying to hire people who wanted 70 hours a week mainly to stay away from their wives. I like being home I dont want to work overtime. so I had to find guys that want to go home at night and, have structured their financial situation so that works. I can of course outwork them any employer would be able to. but I can't be mechanicing on the truck, while loading the trailer, while catching up the paperwork, while visiting the next customer. as for the lady doing all the mundane but necessary jobs thats a keeper make sure she knows how much she is appreciated. right now my office lady is my second highest paid employee.

Big B · Jul 30, 2021

Oldwrench said:
The statement advising renting over ownership is bit simplistic IMHO. Owning gives you the ability to lease the premises to your company for $10K a month or whatever. Rent is throwing away money, unless your operations are easily portable (like a warehouse). Also it's just plain nice not to have a fucking landlord.

I totally agree with your take on real estate IF you can afford to own and still have money to grow your business. There are also some nice tax considerations when you do like you suggest and own the real estate personally but lease it to a company that you own, like not paying 15% off the top in social security taxes. Just make sure that you don't go overboard and pay too much over market value for the lease or the IRS will be talking to you about it.

I already owned the building that my shop ended up in. It just got repurposed.

Big B · Jul 30, 2021

Garwood said:
I'd like further discussion on "One man can only do one man's work".

The problem I run into with employees is one man can only do 1/4 of a man's work and frankly I'm lucky if I don't lose my entire days work trying to get a 1/2 a man's work out of 2 guys.

I expect I'm not hiring well.

I would love to hear about strategies you've employed to hire and retain employees that are capable of delivering one mans work. I really don't think my expectations are too high.

Usually nobody works as hard as the owner if the owner is hands on, at least that's been my experience.

Big B · Jul 30, 2021

mrplasma said:
We have all heard the phrase "he or she was just in the right place at the right time." I don't know how many of you have seen the scene in the 1949 movie "Twelve O'Clock High" where General Pritchard says "I believe that to some degree a man makes his own luck."

If we tell ourselves that a particular success story (small like mine, or big) was due to dumb luck, or was some kind of fluke, then we feel better about our own plight. To some degree, maybe a man makes his own "right place at the right time."

In a sense, every place and time is the right place and time. What worked in my own case, might be totally useless in this day and age. However that doesn't mean that there aren't comparable, perhaps far better, opportunities out there right now for those who can grasp them.

When I started making low cost CNC plasma cutting machines, 1998, the Internet was just starting to become a marketing tool, low cost CNC controls had just become available, and there was no direct competition in my price range. That was definitely the right time to introduce my product, and the Internet was the right place to do it.

That time, and that particular opportunity are gone forever. However, what emerging technology, product, customer group, and marketing approach are just right for today? You know a great opportunity is out there waiting for someone to think of it! Look at Gates, Jobs, Zuckerberg, Musk - the list goes on. Were these guys all in the right place at the right time? Yes they were, but they recognized that fact and took advantage of it.

I've always found that the harder that I work and the more I think the luckier I get. I had a friend tell me a few days ago that if I bottled my farts, people would buy them. His analogy to my ability to make money doing a wide variety of things. He is just the opposite of me and has never owned his own home or much else, in spite of our similar jobs over the years. It doesn't make anyone right or wrong. It just makes us different.

Suggestions for Startup Manufacturing Businesses

otrlt

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