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Why are some shops successfull and some fail

kpotter

Diamond
Joined
Apr 30, 2001
Location
tucson arizona usa
I have wondered why some businesses fail when they seem to have all the right things in place. Why does a shop that has all the equipment and all the man power tank. Why do shops that seem to be run by morons succeed? I have been to tons of going out of business meeting with shop owners and most of them had all the right skills and equipment yet they still went under. Last week I went to a shop with my old boss to check out some equipment and the place was beautiful they had great equipment skilled machinists and no work. I know of several shops run by barely functioning drunks who are up to there neck in work, the only thing I have learned is the world is not fair. What is the secrete sauce that keeps a shop alive. I should be out of business I am terrible with the money part my equipment is old and I am not an amazing machinist.
 
More often than not it has to do with a shop getting over leveraged. They get a bit of work & go finance a bunch of machines. When work slows down you can layoff employees to cut the monthly nut, but the machine payment just keep coming.
 
My experience is having the right kind of work that fits your equipment and not trying to do things your not good at, watching your cash flow, minimizing debt, continuing to find new customers regularly ( companys move, contacts retire or quit) while juggling work in process so your not late with quality work. When one of these variables get out of whack, anything can happen. I've seen the same thing, some companies that are poorly managed seem to make money in spite of themselves, but long term it usually catches up to them. And then there is that karma thing. I've been in business 30 years this year and still trying to figure this out.
 
Kevin,
If you find out the answer, you can sell it for billions.

I have watched competitors go out of business. 2007 and 2008 was bad.

I know that you have to work hard and do good work. I think one item that is undervalued in the minds of many is creating a nest egg for your business. When things are gangbusters money should flow into this. During normal times, money should be added, at a trickle. During slow times, no one gets laid off and everyone enjoys 40 hour weeks painting the shop, cleaning, etc. Too often when things are good too much extra equipment, company cars and non-essential items are bought.

I know I am a mess with paperwork. If I had to write a business plan to have this company, it would have never happened. I am too stupid to think I could fail? Although I am always worried that work will dry up and I will go broke. Maybe I am too scared to fail?

I know one thing I have seen is things getting fat and happy, then the owner plans that things will continue to go in the same way permanently. They start planning finances based upon what is now "normal". When best case no longer exist everything is screwed.

During the recession I got really lucky and picked up a job that took me through the whole of 2008. I think there was some luck involved. Luck favors the prepared and all, but still feel like I have been very lucky over the years that everything has held together so well.
 
By being told you need to have X machine to do X job and Y machine to do Y job and believing the salesman. We run so much work in machines some shop owners would laugh at while still manage to have stellar years one after another. We have been able to upgrade machines every year but we now have the ability to pay cash instead of finance. There is no better sleep aid than no debt.

Playing to your strengths is a rule that cant be ignored. If you are good at big heavy stuff don't waste your time doing small dainty stuff. If you are a production house, dont do small lot.

If you don't diversify you are really only as good as one market. If that takes a hit you're DOA.

Keeping current with information is a huge thing. The fact that I know solid works and can make a part from a solid model makes me a go to with many of our customers. Some of the older guys don't know how to deal with young engineers and that's killer. Half the engineers I work with are under 30. They produce some really terrible drawings but I can still make the parts where some shops would end up offending them.

There's no one big thing that will kill a shop but a bunch of small mistakes can leave you circling the drain.
 
I have wondered why some businesses fail when they seem to have all the right things in place. Why does a shop that has all the equipment and all the man power tank. Why do shops that seem to be run by morons succeed? I have been to tons of going out of business meeting with shop owners and most of them had all the right skills and equipment yet they still went under.

Two words: Cash Flow.

The large corps who use your shop as a bank by stretching out account payables forever are using your cash to THEIR advantage--not yours.

"But that's how it's always done" cries the shop owner. "If I do not do that, I will never get any work."

Back 25 years ago, I used to be able to put gas in my car and then pay for the fuel. That's how it was always done since day one. Can you do that anymore? No fucking way. Why? Because of people driving off and not paying for the fuel or the occasional I forgot my wallet.

What are you going to do? Suck the fuel back out with a hose? Nope. Gas stations got screwed many times so THEY changed the rules. Pay first. Done. This prevents drive offs, forgot wallet and everything else. The minority of customers were untrustworthy. A small percentage of drive offs is enough to put you out of business.

Same thing should happen for machine shops. Here make me this custom widget and let me take it for free until I feel like paying for it (if at all).

Pay on delivery is not the answer either. What are you going to do with a bunch of useless widgets that were never paid for and are only good for one customer? He found another shop to make them for $.05 cheaper. Looks like a whole pile of scrap, not to mention lost time, expenses and labor. Nice.

Solution: Pay up front 50% so customer has a vested interest in you completing his parts. Remainder is paid before parts leave your shop and customer inspects parts and everyone is satisfied.

Any variation is just blind trust, which ultimately ends up putting the shop out of business.
 
This is timely. Yesterday I had a conversation with my previous boss who retired earlier this summer. His building and property are for sale, and have been for about 2 years now. Coming up to the end of the real estate contract at the beginning of October, he's got an offer on the building, a business owner who wants to lease for a year, and another offer from a shop down the street who it looking to consolidate their operations. Three potential avenues for action after 2 years of silence. His sentiments mirrored those above: life isn't predictable, there's no formulaic process and business ownership never gets any easier.

Even though life is unpredictable, there are several contingencies you can plan for with minimal effort. You just need to:

1- Try not to take on debt, especially that caused by rapid over-expansion that isn't well planned. Toyota's business model was built on making decisions carefully by consensus and then implementing rapidly.

2- Never buy a machine for a single job.

3- Promise of work is not a PO.

4- Just because you build it, does NOT mean they will come. The best equipped shops are nothing if not for their ability to market themselves.

Regarding the "drunks" running shops, I'd say it make sense. The alcoholism may or may not be an effect of dealing with more than they can handle. Humans have an insatiable desire for drama- regardless of how successful you are, there is still a need to feel grounded. There's nothing to be gained in terms of happiness from the knowledge you have a McMansion and a white picket fence. I've known more than one wealthy man who's had their share of alcohol problems, barely functioning families, resentful children or a healthy appetite for adultery. Not everything is what it seems, don't feel too bad for yourself.

I'm reminded of Milan Kundera’s novel “Unbearable lightness of being”. 'Modern humanity craves gravity. We have an intense need for a drama with real consequences to which we can bind ourselves. If we can find or fabricate a story that is meaningful, we can hope to secure meaning for ourselves by participating in it. If no such authenticating narrative presents itself, we try to invent one, however pitiable, or bizarre, to suit our need.'

OT, but IME, if you can understand how the above few sentences pertains to women, you're miles ahead of the rest of the pack.
 
Your odds of being successful probably has something to do with this:

1411410908-entrepreneurship-doesnt-cause-per-capita-income-growth.jpg


source ==> http://www.gallup.com/poll/175292/nearly-three-workers-worldwide-self-employed.aspx

The contrapositive to the Gallup assessment is that productivity demands an ongoing investment in capital equipment that is increasingly more difficult to amortize at the individual level, as returns increase.

.
 
Two things: good customer relations including price, quality and delivery; and conservative cash management. For my small business, I don't spend money I don't have. I use leverage by borrowing from a bank so that a major purchase is cash, but the loan is covered by liquid assets. I manage with the idea that tomorrow business totally goes away, that I and my shop are intact.

Tom
 
I have wondered why some businesses fail when they seem to have all the right things in place. Why does a shop that has all the equipment and all the man power tank. Why do shops that seem to be run by morons succeed? I have been to tons of going out of business meeting with shop owners and most of them had all the right skills and equipment yet they still went under. Last week I went to a shop with my old boss to check out some equipment and the place was beautiful they had great equipment skilled machinists and no work. I know of several shops run by barely functioning drunks who are up to there neck in work, the only thing I have learned is the world is not fair. What is the secrete sauce that keeps a shop alive. I should be out of business I am terrible with the money part my equipment is old and I am not an amazing machinist.

Why do some win the lottery and most don't. Even the very best require luck at some time. Being in the right place at the right time will probably always ring true.
 
One factor is that some shops are a lot better and faster at making shit than others. ( Even if they have inferior equipment) If one shop is just 10% faster than another, that's huge. Minutes add up into hours really quick, especially when you have a whole crew of guys working. Sorry, but there are machinists and programmers out there that can absolutely haul ass while maintaining high quality.
 
Million dollar question... Quite literally. As an aspiring business owner I can't say I know anything. What I do known is failure is easier than success.

Can we get some hot dog cart statistics going ;)
 
One of my theories, goes something like this.

A shop set's up, nice shiny new building and shiny new kit, with some of it on borrowed money.

Years 1 & 2, Shop does well, plenty of high margin work, promptly paid for etc etc. it's like they can't go wrong.

With good figures on the balance sheet, they expand big time all on borrowed money.

Life is not just still good, it's better.

Owners begin to believe they're invincible, at the same time they start ''having all the trappings of success''..........out of a heavily indebted business, - leaving little or nothing in reserve for a rainy day.

Everything's ok, as long as they can keep all the balls in the air, they can make the payments.

Something goes wrong - a customer fails, pulls out, major machine crash, cock up the pricing on a job etc etc etc.

Shop starts dropping balls and lenders don't like that.

Write credits, show over.
 
Money goes where money is. Most times the drunks running shitty shops got set up on the family's tab. They can't lose.

It's the same thing for farmers in this area. I hear stories all the time about guys who started out farming with only 100 acres. 100 acres free and clear. That's like starting a machine shop to support just your family with $1.5 million in the bank. How long could you keep going with a $1.5 million head start?

But, the biggest thing I see is shops refusing to change with the times. I went to an auction at a "mold shop" on time. They had 2 CNC machines. One was a desktop toy and the other was a CNC knee mill. He kept telling me about how all the mold work disappeared. It seemed more likely that all the easy mold work disappeared.

I go to machine shop locally and they say things like "we have a CAM system, but it's faster to write code by hand at the machine". Or shops full of hopelessly obsolete machines like gang drills and horizontal mills (not boring mills).

I have to say that I don't see many shops failing in this area. Most just kind of fizzle out when the owner wants to retire and figures out his baby is worth $.07/lb, or they get rolled into some other company or shop.
 
Company Porsche
Girlfriend as secretary or vice versa
Having all the debt anyone will give you
Keeping people you don't need when things slow down. I am really bad at this.
Settling when you hire instead of holding out for the best.
Having a customer base that is too narrow.

Plus what they said above. IMHO great answers from a bunch of folks who really know what they are talking about.
 
One of my theories, goes something like this.

A shop set's up, nice shiny new building and shiny new kit, with some of it on borrowed money.

Years 1 & 2, Shop does well, plenty of high margin work, promptly paid for etc etc. it's like they can't go wrong.

With good figures on the balance sheet, they expand big time all on borrowed money.

Life is not just still good, it's better.

Owners begin to believe they're invincible, at the same time they start ''having all the trappings of success''..........out of a heavily indebted business, - leaving little or nothing in reserve for a rainy day.

Everything's ok, as long as they can keep all the balls in the air, they can make the payments.

Something goes wrong - a customer fails, pulls out, major machine crash, cock up the pricing on a job etc etc etc.

Shop starts dropping balls and lenders don't like that.

Write credits, show over.

What Limi said is sometimes summed up on this side of the pond as the 4 stages of businesses:

Wonder, Thunder, Plunder, Blunder.



1) Wonder. I wonder why I am so successful? Every other owner I know also works 80 hours a week.

2) Thunder. I am successful, hear me roar. Charities, bank board of directors, professional organizations.

3) Plunder. I am successful, see my toys. Horses for the wife/daughter, vacations in Bali, twin engine speed boat.

4) Blunder. I don't have time to run my business. I used to quote this stuff off the top of my head. $6.565 each looks about right for 500,000 pieces. To bad material cost $6., and 10 minutes machine time.

The cash flow argument is wrong. Every business that ever went TU cash flowed right into bankruptcy court. Number 1 thing is profitability. Profit can't be thought of as a dirty word. Profit is what allows everything else to happen.
 
I used to think that success came from working hard and giving it your all.

These days,when I pick up a newspaper, it seems that if you are female, with no brains and a big pair, the money falls in your lap.
 
I used to think that success came from working hard and giving it your all.

These days,when I pick up a newspaper, it seems that if you are female, with no brains and a big pair, the money falls in your lap.

Q. How do women get mink?

A. The same way as mink get mink.
 








 
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