Downsizing your shop
Businesses that have grown too fast or too big choose to cut back and go small. October 2, 2001
Question
I am thinking about scaling down my shop, back to 1 or 2 guys from 6. Can anyone with similar experience share their thoughts? Also, I don't know about transferring leased equipment and owned equipment to another business name.
Forum Responses
From contributor B:
Why scale back? Most of us work hard to gradually increase our volume and profit. Maybe things are not running efficiently in your shop. I would like to hear your reasons for scaling back. Have you read the "E Myth"? I have a small shop with 3 full time employees and I am constantly trying to increase throughput and scaling back just seems like running in reverse. Tell us more.
Not fun anymore? Being more of an administrator and less of a woodworker? Tired of having to do it yourself to do it right?
I did what you're thinking of doing. Several years back I grew my shop to 5 fulltime, 2 part time and me. Growing was easy. It would still be easy. But I found myself not liking it. Found myself working for the shop, not the shop working for me. All office, all paper, no hands on, and the money didn't help me sleep any better at night. Nor did I get to spend any more time at home or leisure.
I scaled back to my 2 best men and myself. Paid them each more, and myself. Now they work with me and I am happy doing what I do.
From the original questioner:
I am doing all of the bidding, material ordering, design and cutlisting, a lot of the cutting, a lot of building, too much installing, taking too many phone calls and handling the everyday business chores. I don't mind doing these tasks, but why not get paid for them? My shop has not really been profitable in the last 3 years and I am tired. The reasons for not making money are many but I believe the biggest reason is overhead. We deliver a good product and continue to get repeat customers but with me wearing so many hats, the jobs are often behind and mismanaged. I want to have more control and make more money. If you are a small shop and want to grow larger, that's great, but take it slow and get the right people in the right positions and don't overextend yourself.
I would really like some feedback on some of the legal issues related with closing one company and opening up another.
From contributor F:
Closing one and opening another should be no problem and depends on how much baggage you're carrying. It sounds like you do have excess baggage. In that case, see a lawyer. If you have a good company but size is the only issue, downsize. Minor issues may be workman's comp or state unemployment funds in a carryover.
I sold a large firm when I was told I had cancer. After beating this, I was ready to go back to work. Because I had nowhere to go, I started over. Formerly I was a 'C' corp. This time I'll stay small, work for 5 to 7 years and retire.
If you have built a business identity in your community, that identity cost you both time and money. To do that again with a new business will take time and money. My restart was easy because of my reputation and I turned a small profit in the second year instead of the 5th year that the pundit says is needed. A small example is a yellow page ad. Place it today and it shows up in November or whenever. A successful business name is an equity!
Both as a shop owner and journalist, I've done the 70-hour week thing, and decided it's not for me.
My dad worked his tail off and socked away money for a comfortable retirement with mom. But she was diagnosed with cancer shortly after he retired. The experience taught me that I didn't want to live for tomorrow, but for the here and now. Now, I'm very protective of my family time and personal playtime. I am able to bring a fresh perspective to work each day.
I can also speak a little about scaling down a woodworking business specifically, because I did so myself before turning my efforts in the field more toward writing and consulting. I was up to three guys and a couple of part-timers, and eventually scaled back to just myself, which was how I started. I rediscovered the pleasure of working at my own pace instead of someone else's, and my customers didn't seem to mind. In fact, they appreciated the individualized attention.
No doubt, this approach is not for everyone. I've found that by identifying and balancing the main areas of my life, I'm a *much* happier person. Two books I'd recommend for anyone looking at restructuring their life: "Creating a Life Worth Living" by Carol Lloyd, which includes techniques for managing your time by dividing your pursuits into five distinct "arenas"; and "What Color is Your Parachute" by Richard Nelson Bolles, which includes valuable exercises which, completed diligently, will teach you more about yourself than you can imagine.
Anthony Noel, forum technical advisor
From contributor E:
I grew my shop to 12, then decided I was more a manager than a woodworker (which is what I enjoy). Yes, I made money with employees (sometimes), but found I was accepting jobs I didn't want to keep the guys busy. Seemed the more employees I had, the harder and longer I worked. Now there is my son and me. No more general contractors--we work strictly for the homeowner and accept only the jobs we want. Money is not everything.
From contributor B:
Maybe small is good. I should listen to all you old timers out there and learn! I want to grow, only I want to do it slowly. I am in this for 8 years now, and reached a respectable level of income only a few years ago. I just turned 33 and have many years ahead of me (so I like to think).
You guys that have scaled back: how long were you in business before you decided to scale down?
From contributor F:
If I were 35 or 40 I might still be in a growth mindset. Slow, or more correctly, controlled growth is a good thing. Look at the dot coms that have grown at a hectic pace and now are dropping like flies. Your own business will let you do better by your family and give you flexibility.
From contributor J:
Why change your name and business identity just to downsize? Sounds like you are more interested in starting over from scratch. Your name and reputation is what has been bringing in the work to keep your crew busy. All I would do to slow down is to make sure that the jobs that you take are the ones that you want to do and ones that you can make a fair price on. Sounds to me like you have been taking jobs just to keep your shop busy and hoping to make money on. Sometimes to make the money that you deserve (at least as much as that plumber or electrician who works out of his truck) you just have to go after a smaller piece of the pie.
From contributor E:
I was in business about 20 years before scaling down. We are getting enough job offers to work 20 employees which makes me want to start hiring again. Then I stop for a moment and think back and say naah.
I scaled back from five to one about three and a half years ago. My income last year was more than double of my best year as an employer, and this year's target is in the 100k vicinity. You may want to read some details in Cabinetmaker magazine in the March issue. Some of us are not meant to be managers/babysitters. After consulting with Tony Noel and streamlining the production, I now accept only jobs with a high profit expectation. Notice "accept", as opposed to going after, bid, chase, etc. By working fewer, but more profitable hours I can have a life and much of the respect that eluded me while being an employer.
My next step in this process is beginning to materialize: early this year I started delivering/installing my products on the average 2 weeks early. This means better money (faster) and a great peace of mind that I find very hard to describe, but it's great to go to work. I still quote an 8-10 week delivery, and when it happens in 6 weeks, people are ecstatic. It was hard to say no at first for certain jobs or certain people, but it gets easier with time. And once you have your niche, however small it may be, you'll be the champ in that area from the beginning to the end.
From the original questioner:
Some are wondering why I want to start a new shop and risk losing the reputation I have built. I feel that most of my customers have not purchased a cabinet, but have purchased me and the way I handle my commitment to them. I'm not tooting my own horn, but let's face it--a box is a box and many of us build them but not many people stand behind what they say. I'm not referring to anyone here. I do try to honor my word and for the past 6 months or so that word has been late and I don't like that. I suppose I could just slow down and be very selective of the jobs that I take, but I do have "baggage", as was stated earlier. I think it's time to release some of the burden and begin a new chapter.
From contributor J:
I don’t know your situation but I do know it is easy to get in over your head and sometimes next to impossible to just slow down. My father had a successful cabinet shop and I can think of 6 - 8 of his ex-employees who also grew successful cabinet shops. So I always felt the need to grow my own business and took the jump into dept and a larger building. It just wasn’t fun going from a two-man shop to having six employees and I could not stay out of the shop when I should have just been concentrating on the business. My second year the economy dived and I worked my butt off just to lose money that year. The only way that I was able to reorganize was to sell my home and to start over.
I have been where you are right now. Three and a half years ago I was thrown into running this business, after my father died. Although I had tons of shop skills, I didn't have any business skills other than basic sales and ordering. I found myself with 1 employee, down from 7, and $90,000 in debt with no work in progress, but about 2 months behind schedule. The hours 8am to 11pm come to mind. Just about everyone told me to quit, including my family, but I wouldn't do it. I knew I could make it work and work well.
To make a long story short, in those last 3 1/2 years I have gone from me and one other, to 11 and now back down to me and one other again (and he's only a trainee). I have learned to use the employees as a measurement to see if I can actually afford machinery and software before I buy it. Today I have $400,000 in machinery and software purchased all new and now it's time to learn how to use them. I also sell two lines of stock and semi-custom cabinetry to hit different price points and not make every damn thing I sell.
I also have learned to sub out as many things as I can. The key is to make money, not to make cabinets. As a matter of fact, my goal is to use those machines about 2 hours per day, if that. I do want to grow again some day, but I think the correct way is to have all of the tools and equipment and showroom in place and then hire clerical helpers to keep you in the shop. There is one thing I am absolutely sure of--you will never find a better production foreman than yourself, but anyone can sell cabinets.
The 1st step is to let some guys go. It's like a pressure relief valve in your head and gives your checking account a break, too.
My father and I make up my shop, no employees. Are you a cabinetmaker or are you a businessman? If you like to work with your hands but still run a business, then downsize. I would keep my same company name, just lay some folks off. On the other hand, if you are in this business to make money, then hire a dozen more and get after it. I am a hands-on type person and am happy with making a good living, staying small and spending time with my family.
I started small and have stayed small for 11 years. I am somewhat in a niche by location and reputation, which has taken time to develop. I have focused on machinery rather than employees for expansion. I am to the p2p phase now in machinery. My feeling is employees and machinery both cost the business money. Employees have an infinite cost escalation, where machines have an initial cost and then an upkeep cost. Machinery buys the business time. Employees cost the business time. Every business is unique, so assessment should be done on an individual basis. For me, it became apparent the time purchased by the machinery far outweighs the costs of an employee, so my business philosophy is, do everything myself, take only profitable work, be versatile, hire help only when absolutely needed, and remember this is a service business, not a manufacturing factory.
From contributor D:
I faced the same question that you are dealing with now and downsized from a shop of 6 to 8 people. It was the best thing that I have done in a long time. It relieved a lot of headaches. Today I'm a one-man band and glad to be playing my own tune for a change.
Was the experience you gained from being a 6 to 8 man shop necessary to allow you to be successful as a one man shop or could you have stayed a one man business and done just as well?
From contributor D:
For me, it was necessary to have the experience of having a shop of that size so that I would realize that big is not always better.
I thought that the bigger you were the more money you would make. Well, the only thing it got me was a lot of stress, hair loss and sleepless nights wondering which of my employees wasn't going to show up in the morning.
It taught me that I am a craftsman and not a businessman, which in the long run is fine with me. I now let the accountant do what he does and I design and build the product. That was probably the one most important thing that I learned out of the whole experience. Now I do what I love to do, and let somebody else take care of the rest
Life in a one-man shop is far from prefect. It has it's fair share of head as well as back aches, but I would not trade it for anything.
