garyhlucas
Stainless
- Joined
- Oct 17, 2013
- Location
- New Jersey
I will apologize if the title is incorrect, I didn't know how to word it.
I am asking for help here and would like to share this thread with my boss without any editing so I am hoping we can stay on topic and avoid snarky comments. Thanks in advance.
A little background on our problem. I am being asked to sign an employment agreement after working for the company for almost 5 years. I was working for the owner at another company he owns and moved over to this company to develop new products. I warned him of the need for employee agreements at the start as I have management experience in multiple manufacturing companies. I have invented (mechanical design, electrical design, PLC programming, CNC programming of parts, Startup and debugging) all of our products except one minor one. Without me at the current time they will not be able to build the products because all the other employees have been here for a short time and most don't even know how the product works. I have been training everyone and recently my best young engineer left because he wants to pursue a PE and can't here. Finally I turn 65 in July, but have no plan nor desire to retire any time soon as I enjoy what I do.
The employment agreement raises my salary to 100K and gives me royalties of $1000 to $7500 per sale with the bulk being around $5000. My royalties extend two years past my last date of employment for any reason. Currently there are about 7 jobs in the pipeline. My title is Director of Innovation a non-operating position. So this is really very fair and I have have absolutely no quarrel with the terms. The one thing I lose after signing this is leverage. I think that is important because I am fairly sure I won't collect much more than my salary for the next year because the company will fail.
We had a meeting on Friday about the employment agreements for all employees. It was attended by all 9 employees and the owners lawyer and an HR lawyer. It started with a power point presentation that lasted over two hours talking about all the great opportunities the company has. It also introduced the new organizational chart. It has the owner as CEO with five management positions reporting directly to him. There is no operations manager under him and his whole career is as a sales rep, no manufacturing experience at all. He is also CEO of his sales company and accounts for more than half their sales despite having 5 salesmen and is frequently out of the office. Question #1 do any of you company owners or managers see a problem with this arrangement?
We sold one system for $100K, basically our cost about 3 years ago. We sold the second system along with many improvements and a building/tank for $250K, again a little above our cost. We sold two mores systems at about $250K each which should be reasonably profitable except permitting issues now have the installation and payments a year behind. The first is in the shop now for actual construction. We took a retrofit job that was supposed to bring us cash but not identifying all the issues means that I believe we paid out likely $50K over cost. We just won three new jobs all for $250K to $500K or so, and we are the basis of design for a number of municipal jobs worth $1M or more. We also have quotes out on probably 50 systems based on a parade of very impressed potential customers visiting our shop and the two operational job sites.
In the meantime we have moved from our cheap shop space to a brand new higher rent building that only gained us fancy office space, no additional shop space to build the products. There is empty space for rent on the other side of the shop wall. In anticipation of all this work we have increased to 10 employees, and our current burn rate is about $60K a month. Sales over 4 years have brought in maybe $400K and the rest is a cash infusion from the owners other company or other sources that I may not know. I estimate maybe $1.5M spent so far. We have not achieved profitability nor break even yet.
In the meeting the owner showed a slide of the hockey stick progression of sales orders. I think he believes that the same approach to growth for his sales company will work here, sell your way out of a cash flow problem. In his other company he spends money for years chasing jobs and they celebrate when they get a PO because their work is mostly done. In manufacturing the PO is the start of all the spending. I believe that the hockey stick chart of sales growth has a reverse hockey stick of cash required to deliver that product. I think our $60K burn rate with nothing going out the door can only get much much bigger. So question #2 is what do you guys think?
The owner has been searching for money. When I asked him he said he had not found an outside investor and he made a disparaging comment about Venture Capital vultures that surprised me. So I think he may have decided to go it alone and that is why he is doubling down on making sales. I get it, I understand the Golden Rule of business, he who has the money rules. So in that vein I proposed a way out of this situation. I think we should hunker down and give up our fancy office space and move our employees into what is now our kitchen with a few motivated employees sitting around one big table. Cut our employee count in half and get rid of everyone that isn't motivated or is working on projects to big for self financing. Currently that is the bulk of what they are doing. We have lots of quotes out for small systems that are bearing fruit. We do the big systems when we are profitable. So question #3 is does this sound like it would work?
So from my perspective right now regarding the employment agreement. If the owner is going it alone I feel the need to use whatever leverage I have to help him succeed. If he doesn't I'd really like not to be bound by any kind of agreement about what I consider to be my intellectual property. If he continues and finds out that he can't pull it off then an outside investor is a rescue investment. That's a fire sale for pennies on the dollar and I may get a pink slip or just a new boss. Or he might sell the company at a large loss with similar results. In the latter two cases maybe I can bargain for an even better agreement with the new owners? Opinions?
Thanks to those of you that take the time to read this tome.
I am asking for help here and would like to share this thread with my boss without any editing so I am hoping we can stay on topic and avoid snarky comments. Thanks in advance.
A little background on our problem. I am being asked to sign an employment agreement after working for the company for almost 5 years. I was working for the owner at another company he owns and moved over to this company to develop new products. I warned him of the need for employee agreements at the start as I have management experience in multiple manufacturing companies. I have invented (mechanical design, electrical design, PLC programming, CNC programming of parts, Startup and debugging) all of our products except one minor one. Without me at the current time they will not be able to build the products because all the other employees have been here for a short time and most don't even know how the product works. I have been training everyone and recently my best young engineer left because he wants to pursue a PE and can't here. Finally I turn 65 in July, but have no plan nor desire to retire any time soon as I enjoy what I do.
The employment agreement raises my salary to 100K and gives me royalties of $1000 to $7500 per sale with the bulk being around $5000. My royalties extend two years past my last date of employment for any reason. Currently there are about 7 jobs in the pipeline. My title is Director of Innovation a non-operating position. So this is really very fair and I have have absolutely no quarrel with the terms. The one thing I lose after signing this is leverage. I think that is important because I am fairly sure I won't collect much more than my salary for the next year because the company will fail.
We had a meeting on Friday about the employment agreements for all employees. It was attended by all 9 employees and the owners lawyer and an HR lawyer. It started with a power point presentation that lasted over two hours talking about all the great opportunities the company has. It also introduced the new organizational chart. It has the owner as CEO with five management positions reporting directly to him. There is no operations manager under him and his whole career is as a sales rep, no manufacturing experience at all. He is also CEO of his sales company and accounts for more than half their sales despite having 5 salesmen and is frequently out of the office. Question #1 do any of you company owners or managers see a problem with this arrangement?
We sold one system for $100K, basically our cost about 3 years ago. We sold the second system along with many improvements and a building/tank for $250K, again a little above our cost. We sold two mores systems at about $250K each which should be reasonably profitable except permitting issues now have the installation and payments a year behind. The first is in the shop now for actual construction. We took a retrofit job that was supposed to bring us cash but not identifying all the issues means that I believe we paid out likely $50K over cost. We just won three new jobs all for $250K to $500K or so, and we are the basis of design for a number of municipal jobs worth $1M or more. We also have quotes out on probably 50 systems based on a parade of very impressed potential customers visiting our shop and the two operational job sites.
In the meantime we have moved from our cheap shop space to a brand new higher rent building that only gained us fancy office space, no additional shop space to build the products. There is empty space for rent on the other side of the shop wall. In anticipation of all this work we have increased to 10 employees, and our current burn rate is about $60K a month. Sales over 4 years have brought in maybe $400K and the rest is a cash infusion from the owners other company or other sources that I may not know. I estimate maybe $1.5M spent so far. We have not achieved profitability nor break even yet.
In the meeting the owner showed a slide of the hockey stick progression of sales orders. I think he believes that the same approach to growth for his sales company will work here, sell your way out of a cash flow problem. In his other company he spends money for years chasing jobs and they celebrate when they get a PO because their work is mostly done. In manufacturing the PO is the start of all the spending. I believe that the hockey stick chart of sales growth has a reverse hockey stick of cash required to deliver that product. I think our $60K burn rate with nothing going out the door can only get much much bigger. So question #2 is what do you guys think?
The owner has been searching for money. When I asked him he said he had not found an outside investor and he made a disparaging comment about Venture Capital vultures that surprised me. So I think he may have decided to go it alone and that is why he is doubling down on making sales. I get it, I understand the Golden Rule of business, he who has the money rules. So in that vein I proposed a way out of this situation. I think we should hunker down and give up our fancy office space and move our employees into what is now our kitchen with a few motivated employees sitting around one big table. Cut our employee count in half and get rid of everyone that isn't motivated or is working on projects to big for self financing. Currently that is the bulk of what they are doing. We have lots of quotes out for small systems that are bearing fruit. We do the big systems when we are profitable. So question #3 is does this sound like it would work?
So from my perspective right now regarding the employment agreement. If the owner is going it alone I feel the need to use whatever leverage I have to help him succeed. If he doesn't I'd really like not to be bound by any kind of agreement about what I consider to be my intellectual property. If he continues and finds out that he can't pull it off then an outside investor is a rescue investment. That's a fire sale for pennies on the dollar and I may get a pink slip or just a new boss. Or he might sell the company at a large loss with similar results. In the latter two cases maybe I can bargain for an even better agreement with the new owners? Opinions?
Thanks to those of you that take the time to read this tome.