**A Forbes Best Business Book of the Year, 2015**
**Winner of the 2015 800-CEO-READ Business Book Award in Entrepreneurship**
When columnist Paul Downs was approached by The New York Times to write for their “You’re the Boss” blog, he had been running his custom furniture business for twenty-four years strong. or mostly strong. Now, in his first book, Downs paints an honest portrait of a real business, with a real boss, a real set of employees, and the real challenges they face.
Fresh out of college in 1986, Downs opened his first business, a small company that builds custom furniture. In 1987, he hired his first employee. That’s when things got complicated. As his enterprise began to grow, he had to learn about management, cash flow, taxes, and so much more. But despite any obstacles, Downs always remained keenly aware that every small business, no matter the product it makes or the service it provides, starts with people. He writes with tremendous insight about hiring employees, providing motivation to get the best out of them, and the difficult decisions he’s made to let some of them go. Downs also looks outward, to his dealings with vendors and to providing each client with exemplary customer service from first sales pitch to final delivery. With honesty and conviction, he tells the true story behind building and sustaining a successful company in an ever-evolving economy, often airing his own failures and shortcomings to reveal the difficulties that arise from being a boss and a businessperson. Countless employees have told the story of their experience with managers—Boss Life tells the other side of that story.
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Paul Downs started making custom furniture in 1986, shortly after graduating from the University of Pennsylvania with a degree in engineering. Downs has only one line on his résumé but he has a wide variety of skills gained in twenty-four years of running his business. His clients range from individuals and small businesses to Fortune 500 companies, all branches of the military, and foreign governments. Downs lives with his wife and three sons outside of Philadelphia.Excerpt. © Reprinted by permission. All rights reserved.:
I’ve been living the boss life since 1986. I own a small company that builds custom furniture. I started fresh out of college, with no experience. Ever since, my business has been my life, my education, and my struggle.
When I began, I had no training as a businessman and no mentors to help me. I just wanted to make stuff and have fun. I found that I was good at designing products and making sales, and the business started to grow. In 1987, I hired my first employee, and soon found myself struggling with management, cash flow, taxes, and all the other details required to keep a business running. After globalization and the Internet brought new competition and new opportunity, my company experienced unsustainable growth and, in 2008, a devastating crash. But we’ve endured—and even had one very profitable year. I am a survivor, but not a financial success.
In 2010, by sheer luck, I was given the chance to write about my experiences in The New York Times for their “You’re the Boss” blog. I became a regular contributor. I’ve used that forum to describe the shabby treatment that business owners suffer at the hands of large and powerful institutions, in particular the health insurance and credit card industries. The main focus of my writing, though, has been my own company.
I decided to tell the difficult parts of my story, concentrating on my deficiencies as a businessman. I have written about fighting with my former partner, struggling with cash flow and unhappy customers, firing employees, and dealing with a rapidly changing economic landscape.
Many readers have written to tell me of their own struggles, and thanked me for publicly airing my many failures. Apparently a humble and honest look at small business life is rare. But I’ve found myself struggling with the limits of the blog format. Complex and sensitive situations must be oversimplified or omitted.
This book will be an opportunity to dig deeper into my experiences. It is an accurate portrait of a real business, the boss who leads it, the people who work in it, and the challenges we face. I hope that I can promote a better understanding of the factors that drive the behavior of small business owners and, by extension, show how a significant part of our economy functions. There’s a lot of chatter about “job creators” from people who have never created a job. Politicians make rules, but aren’t required to follow them. Employees complain without understanding why bosses act the way they do. And prospective entrepreneurs gamble their future without a clear picture of the challenges they will face. All these people need to know the other side of the story. This book is for them.
Some disclaimers: the world of woodshops is almost entirely a male domain. I don’t know why this is, other than tradition. I have hired women whenever I found one who was qualified, but they are a very small percentage of the total workforce. In order to simplify the language of this book, I use the male form of certain common nouns, “craftsmen” and “salesmen” in particular. Please do not take this as a denigration of women who perform those roles.
The names of some people and customers have been changed, and the quoted dialogue is my best recollection of what was said at the time. That said, all the events in the book happened. If this account offends anyone, my apologies in advance.
If this were a standard business book, I would tell you all the smart things I did to achieve financial success, and maybe trot out a few mistakes to show some humility. Unfortunately, I’m no business genius and I’m not rich. My story has neither tidy conclusions nor a triumphant ending. So this book will be different.
I’d like to tell you what happened to my company in 2012, as we struggled to replicate profits earned in the previous year. We started strong, but then sales took a puzzling turn for the worse. The vast majority of our clients were delighted with our work, but a couple of them weren’t satisfied with reasonable efforts and cost us huge amounts of money. I presided over a very good crew, except for a couple of workers who gave me serious trouble. We made some money, then lost a whole lot more, then clawed most of it back. Meanwhile, my complicated family life couldn’t be ignored. This is real life. The triumph and tragedy of small business. The uncertainty and challenges of being the boss.
What do I mean by “boss”? It’s commonly understood to mean someone who’s in charge of others, but that could be a middle manager in a big corporation. Instead, I’m talking about bosses who both own and run their businesses—small companies with fewer than twenty employees. More than seven million American businesses, employing nearly thirty million people, are in this category. These bosses answer to nobody and are responsible for everybody. Their own money is at risk. Every problem goes straight to them, and they have to come up with the solution, figure out how to pay for it, and then implement it. The position guarantees long hours, hard work, and overwhelming stress.
Every day, these bosses wear multiple hats: managing employees, keeping track of the money, dealing with bureaucrats, negotiating with the landlord—the list goes on and on. Larger companies, with more resources, can hire individuals or create whole departments to do these jobs, but a small company can’t generate enough cash to cover that expense. So these tasks land in the boss’s lap. No matter that the boss may have little or no training, and no desire to spend time on them. Done wrong, the company fails, either slowly or quickly. Done right, the boss gets to do them again. A sudden crisis—a cash shortage, or an equipment breakdown, or a personnel crisis—requires even greater effort. Even if the business survives, there is never a guarantee of easy sailing ahead. The situation goes back only to the routine level of toil and stress.
That’s not to say that being the boss is relentlessly terrible. Inventing the processes that enable successful operations is like solving an intricate puzzle. It’s highly satisfying to see your business running well, delivering the product or service that inspired its creation. There is no thrill like receiving payment from a satisfied client. Most workers try hard to do a good job, and most people are good to work with. Consistently meeting a payroll is a real accomplishment. A business can provide for the security and growth of both boss and employees. It might be able to expand and enter markets all over the world. It might even make a healthy profit. The boss can take delight in each small victory and, over the course of a career, be proud of all that has been accomplished, whether it added up to fabulous wealth or not.
Every business has a dual nature: the real-life version with its countless imperfections, and the ideal theoretical business the boss imagined when he started, where everything works as it should and money is made. Good money. Steady money. Maybe even outrageous money.
Money is the unavoidable scorecard. Any business can be great at making a product, great with its employees, great with the customers, but if it doesn’t make profits, it isn’t considered a success.
While recounting the events of 2012, I’ll concentrate on four subjects: Sales focuses on how my very small company interacts with a wide variety of clients, from enormous institutions to individuals. Operations is about how my company makes its products, how I manage the people I employ, and my attempts to move our workshop from a nineteenth-century model to the twenty-first-century version. This transition is an incredibly complex problem and the solutions we find (or fail to find) have implications for the whole economy. The third theme, Money, describes how cash flow, or lack thereof, affects my decision making. And finally, I’ll describe how I exercise my Powers as boss, balancing those demands with my duties as a father and husband. The details of this story are particular to my company and my life. The lessons, I hope, are useful to everyone.
The shop floor from the southeast corner.
The Company S table on the shop floor for final inspection.
The Downs family: Hugh, Paul, Henry, Peter, and Nancy.
Paul Downs with a set of chairs he made in 2013.
The table that started it all, built in 1999.
Paul on a shop walk, inspecting the base of a scissoring table.
DATE: MONDAY, JANUARY 2, 2012
STARTING BANK BALANCE: $137,154.32
CASH RELATIVE TO START OF YEAR (“NET CASH”): $0
NEW-CONTRACT VALUE, YEAR-TO-DATE: $0
Nine a.m., January 2. Paul Downs Cabinetmakers, custom boardroom table maker, starts its twenty-sixth year with a meeting. We are on the fourth floor of an old factory in Bridgeport, Pennsylvania. I stand at a battered table, returned to us for storage when our client, a New York bank, downsized in 2008. Thirteen sleepy workers, sitting, wait for me to speak.
We meet every week at this time. The usual agenda is a review of our progress toward meeting monthly and yearly sales goals, a review of projects in progress, and a report on our cash reserves. I’ll get to all that, but start with a surprise: good news—2011 has ended on a high note. We have a record amount of cash on hand and a full order book to take us through the next two months. I confidently state that we have achieved success at last. The business has finally done more than build tables. It has also made good money.
Two years ago, as 2010 began, I was not so confident. A decade of my incompetent stewardship, capped by two brutal years of recession, had left the company at death’s door. We had shrunk from twenty-three employees to six, and I had just $16,239 in the bank—enough to operate for three days. A small business lives or dies on cash. It is the fuel that pays the rent, buys the materials, funds the ads, and makes the payroll. If I ran out, the shop, the tools, the Web site, the trained employees, the catalogue of designs: all would sit idle. The business would be dead.
I desperately needed clients with cash in hand. This is the perennial cry of the incompetent boss—if we just had more sales, everything would be great! But for me it was true. Before 2008, I had been very bad at cash management. Then, as the world slid into recession, buyers disappeared. My partner and I fought about the money we had left, and one night he took our cash reserves and paid down our line of credit. Eighty-eight thousand dollars of the $105,000 I had on hand was gone. I immediately laid off half my people. With a shrinking order book, a demoralized workforce, and a hundred thousand dollars in past-due bills, I had one question: how soon would I have to shut the doors? QuickBooks couldn’t tell me, so I wrote a spreadsheet that gave me a running bank balance, taking into account all income and expenses, for as far forward as I cared to look. I could move transactions from one day to another to see how delaying or accelerating payments affected my bank balance. As long as it never went below zero, I was in business. My sheet was a new way to see my cash situation. Unfortunately, it showed that I’d go broke in three weeks.
I barely survived the terrible year 2009. Customers purchase our product, custom conference tables, when a business moves or expands. As 2008 ended, we still got a few orders from projects initiated before the crash, but sales volume soon took a huge drop. I took any job I could find, but I had to lay off five of my eleven remaining employees. I cut all my workers’ pay by 15 percent and set my own salary at just $36,000 a year. I rarely had more than a week’s worth of cash on hand. The stress of wondering whether I would have to close the doors was relentless. I experienced shooting chest pains and sleepless nights. But I never quite failed. By juggling incoming and outgoing payments, I managed to pay off my vendors and survive to see another year. The year 2010 started with no relief—in January, I came within a day of running out of money. But in February, buyers started calling. By March 2010, with orders appearing at a sustainable rate, I was able to restore everyone’s pay to previous levels and rehire some laid-off workers. By year’s end, I had ten employees and a bank balance of $106,777.
The favorable trend continued in 2011. I added more people and completed more jobs. At the end of the year, we got a large order that generated a huge payment. Our bank balance topped out at $303,834, and I was able to distribute big bonuses to my workers and to myself, totaling $166,680. I was a happy man. I had survived the worst of the recession and learned how to manage cash flow. In three years, I had gone from nearly bankrupt to reasonably secure, paid off a pile of vendor debt, and was looking forward to further growth in 2012.
Does compressing three years of disaster and regeneration into dollars communicate what it was like? Do those numbers really depict my own stress, my workers’ fear for their jobs, and my debtors’ doubts that I would pay them back? Definitely not. But those balances are an objective measure of the success or failure of a business. In the end it has to be about the money. Numbers don’t lie.
Back to my meeting. On this day I have $137,154 on hand, but my other numbers get reset. Inquiries, sales, profits: all zero. Every year I start from scratch, worrying that this time the phone won’t ring, orders will stop, and my cash will dry up. I don’t believe that the things we do to generate sales will suddenly stop working, but I’ve been through bad times and it’s hard to have faith in the future.
THE NUMBERS THAT TRACK our expenses also start at zero, but increase with every passing minute. Rent, electricity, and equipment leases never stop. Payroll and material costs start the instant someone shows up to work. It all adds up. Operating the shop, including pay for fifteen workers and a decent salary for myself, costs about $9,000 a day.
We generate cash to cover those costs in two ways: write new orders, or ship product. Our usual terms are to get half of the money on order placement, 35 percent before we ship, and 15 percent within ten days of delivery. If we sell and produce at a steady pace, we receive many payments each week. Our goal is to take in more than we spend, but every table we make generates significant costs. So even when things go smoothly on the shop floor, most of our cash is paid out to cover the rent, materials, payroll, and other expenses. Our plan is to have a little bit left over and to steadily accumulate that surplus over the course of the year. This is known as “positive cash flow.”
You might assume that that is the same thing as profits. Not so. You can have positive cash flow without profits, and profits without positive cash flow. How? Profit, for a manufacturer, is a technical term that describes a particular situation: when the value of product shipped exceeds the costs incurred during a given time period. “Sales” does not mean what you think it does, either. Again, the accounting definition, as it applies to a fa...
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