NFIB

Managerial Makeovers
03/ 29/ 2002

by Alan Naditz

Sometimes, the obvious isn't. On paper, your business may have everything—-customers, a great location, a dedicated work force and ample sales every month. Then one day you realize that your sailing ship has some holes to patch: business isn't as great as you thought, your employees aren't all that productive and your bottom line is red, not black. How do you fix it?

For many small businesses, the answer is to "take a good, hard look at your business operations," according to business consultant Dan Andrews, president of Andrews Consulting in Saginaw, Mich. An introspective operations review can help you spot numerous problems that rob your company's profitability, lower employee morale and "take the enjoyment out of being a small business owner," Andrews says.

Need some examples? Here's a handful of once-struggling companies that took a moment to examine themselves, then perform managerial makeovers that turned them into success stories.

Profit Power

Gary Cosden and Donna Cottrell, respective president and office manager of Penguin Pools, couldn't believe what they were seeing. Another year of good sales in their Cape Coral, Fla., contracting business, yet also another one in which the company finished in the red. As they looked over their ledger one day in 1998, all the two could do was scratch their heads.

"We didn't know why we were constantly running out of money," Cottrell says. "Where did all the money go?"

It was during a business improvement seminar that same year that the bell went off. "The busier you are, the less you're watching what you do, and the more trouble you get into," Cottrell says. "We needed to take a good look at our business operations and find out exactly where our problems were."

In late 1999, the duo hired a financial consultant to review the company's finances. Cottrell says that after wading through several inaccurate and incomplete ledgers, the consultant issued a verdict: cut operating costs immediately and boost operating income.

So, Cosden raised his prices an average of 5 percent across the board, and cut operations costs by the same amount. "Raising prices was easy," Cosden says. "Customers hardly thought anything of it. Lowering costs wasn't as easy-but it also worked wonders for us."

Company profits were actually disappearing in hidden ways. For example, Cosden and Cottrell realized they could save tens of thousands of dollars annually by using a single subcontractor instead of several. "He gets all the work and gives us a better price than before, when we might have used four or five different people," Cosden says. "It makes it easier for us, because we always know who we're working with, and we've lowered costs significantly in that area."

The company also began purchasing from multiple suppliers. "In the past, to save time, we might buy all of our [swimming pool] pumps from one distributor," Cosden says. "But now we track every local distributor's prices and update them weekly to see who has the best deals on what we need."

Reviewing the company books also made it clear that the firm's long-time retail products store had to go. "We'd had the store for 15 years and it was barely pulling its own weight, due to so much competition down the street from other larger retail stores," Cosden says. "We realized our strength was in pool building, so we decided to put all of our eggs in one basket and close the store."

In its place, the company installed a swimming pool showroom, which helped increase pool contracts and required less overhead to maintain. "We're probably the only ones in this part of the country to have an indoor concrete display pool," Cosden says. "A customer can now come see and feel what we're talking about--we're not just dealing with photographs."

The duo's financial reworking has resulted in the company posting its first profitable year in "a long while," Cosden says. "It's made a huge difference-we can pay our bills on time now. We can do accurate cash flow projections every month, and we have a good idea of what's coming in over several weeks. It takes a lot of the drama out of running a business."

A Polished Rule

It was bad enough news for Leonhardt Plating Co. President Daniel Leonhardt when he heard that his longtime polishing foreman had died. Now, he had another dilemma: how to best fill the position? Like his father before him, Leonhardt had always run the Cincinnati-based decorative nickel and chrome plating business on the premise that the best employees move up the company ladder. But by 1997, this approach didn't seem to work as well as it did in his father's day.

"We were at a point where we had to decide if we should promote our best man and take him off production, or bring in someone else from outside as a foreman who doesn't know the business," Leonhardt says. "We opted for neither."

Leonhardt instead asked the polishing department's five employees what they'd prefer. They also didn't want a foreman from outside the company, nor did anyone want to take on the extra responsibility himself. So Leonhardt informally promoted all of them. "I let them all run the department, because each of them knows what jobs they're best at," he says. "They get a job, assume their tasks, and they get it done. It's a dream arrangement."

When a new order arrives, Leonhardt briefly reviews it with the entire staff before turning them loose. "The advantage I have is that all of these guys are very experienced," he says. "I couldn't do this with five new guys. I don't have to tell them, 'this is how you do it.' I merely say, 'here's what I want the finished product to look like,' and they take care of the rest."

Department members act as each other's supervisors, offering constructive criticism and making sure everyone's work is up to par, Leonhardt says. The rule-by-committee method also helps train new employees. Since starting the program, two of Leonhardt's original five department employees have left. The two newer hires quickly learned the ropes because they effectively had three trainers, Leonhardt says. And because everyone is considered on an equal level, new employees weren't intimidated and asked more questions about their jobs.

Ultimately, "committee rule" has helped boost Leonhardt Plating's revenues by 25 percent since 1997, a level that probably wouldn't have been reached under the traditional department-leader system, Leonhardt says.

In the Palm of Your Hand

Two words often filled Pure-Chem President Mike Schapansky with dread: customer service. When it came to dealing with the public, Schapansky's business, which provides swimming pool maintenance to Austin, Texas homeowners, had major problems. Customer service records, maintained in bulky binders around the office, were hard to find expediently, making for cranky, impatient callers. Pool service technicians often turned in reports that were nearly impossible to read because they handled pages with wet hands; some even occasionally skipped work and submitted reports with fake readings. And Schapansky had high employee turnover-a revolving door of service personnel who never established solid relations with their customers.

"Seems like anything that can happen has happened to us over the years," Schapansky says. "We've had to deal with a lot of adversity and upset customers."

For Schapansky, the solution to his problems literally ended up in the palm of his hand. In February 2000, he gave his three service techs customized Palm Pilots to record all of their service data, including sanitizer readings, date and time of visit, and notes about customers.

"Some of our customers have specific requirements, such as a child safety barrier around their pool, a dog in the yard, or a combination lock on their gate," Schapansky says. "These were customer service items that we didn't address before. Just about everything you need to know about the customer and his or her pool can be stored on one of these units."

The Palm Pilots weigh about four ounces, are slightly larger than a pager and clip easily to a technician's belt-a far cry from the bulky, hundred-page binders carried before, Schapansky says. "This device makes [service techs] feel more like they're in the computer age," Schapansky says. "It's very 21st century. The unit is a fun, productive toy for them to play with."

And because technicians must enter a start and stop time with each service call, fake readings are a thing of the past, he says.

Each Palm's data is downloaded into the company's main computer at the end of every workday. Schapansky's office personnel now have instant access to customer records and can handle incoming calls in minutes. Schapansky can also upload selected data into a unit if he wants to work at home.

Schapansky's initial $5,000 technological investment has paid off in better customer service and happier employees. His next goal is to install Global Positioning System devices on his service vehicles to help new employees learn their routes faster—-and help cut employee turnover. "Learning all the routes puts a lot of pressure on the new guys," he says. "It's one reason we lose employees in the first four to six weeks after hiring. This system will display maps to customers' homes and make it easier for the service techs to find them. Hopefully it will cut down our training time from two or three months to two or three weeks."

Delegate the Details

Until five years ago, Ron Huston thought "taking it easy" meant working less than 60 hours a week. As chief executive officer and president of Advanced Circuits Inc., a circuit board manufacturer in Aurora, Colo., Huston thought working long hours was the way to make his $2 million business grow. The company was successful, but he was paying a price.

"My wife came to me one day and said, 'you're working so much, your kids aren't going to know you,'" Huston recalls. "That was the wake-up call-that's when I knew I had to pull back from the business and spend more time with the family."
Huston's concern was that the company would fall apart without his presence. But after taking a few Fridays off, "it became clear everything was still running smoothly, whether I was there or not," Huston says.

Huston rethought his role as manager and began delegating nonessential tasks to other employees. For example, handling sales calls are out of his domain, as are materials and supplies purchases.

"I became more of the head visionary, not the day-to-day operations guy," he says. "I don't handle the small details anymore."

Huston also stopped giving direct answers for every minor problem and encouraged employees to solve matters themselves. "They ask, 'What should we do?' and I say, ‘What do you think we should do?'" Huston says. "Your employees have the answers; by letting them come up with them on their own, you reinforce their decision-making skills and their faith in you on their abilities."

Now, Huston usually gets e-mails from employees along the lines of, "'This is what the problem was, and this is what I decided to do about it,'" Huston says. "You can be Joe Answer Man if you want," he adds. "But you won't get much else done."

Today, with annual sales hitting $25 million and the company busier than ever, Huston says he's still working hard-only smarter. He usually takes off half of Thursday and all day Friday. And every year, when he goes on vacation, he's gone for 10 days and never calls in. "That's different than it was 10 years ago," he says. "I now feel like I'm as replaceable as anyone else here. None of my friends in business can say that."

The Great Motivator

Finding qualified help in a men's clothing store isn't easy. Motivating your employees to do more than just work day-to-day is another challenge. Steve and Robin Silverman, owners of Silverman's in Grand Forks, N.D., solved both problems with dollar signs.

The Silvermans, third-generation owners of the 87-year-old haberdashery, admit they have good employees who usually give 100 percent to what they do. The trouble is, to remain competitive today, "you often have to give more," Steve Silverman says. "Encouraging employees to go that extra mile wasn't always easy."

Part of the challenge stemmed from the Silvermans' tradition of running the business like a household, with the owners calling the shots and acting as parents to the store's 14 employees. That philosophy had to change if they were going to motivate the staff to be "exceptional" instead of just "good," Silverman says.

In 1998, the owners went from treating their employees like family members to making them partners in the firm's success. Silverman's began a monthly profit-sharing plan in which all employees earn bonuses based on how well the store performs each month.

"Their commitment goes beyond just earning a paycheck every week," Silverman says. "Now, their success is directly tied to the company's. It always has been, really, but it's more obvious to them now."

Each employee is evaluated based on the type of work they do and how their monthly performance impacts the store as a whole. For example, a cashier might earn a bonus for efficiently ringing up customers or courteously answering a customer question, both of which are likely to generate repeat business. A tailor might score well for quickly altering a customer's suit on short notice, allowing the company to take additional orders.

"Before, there was no reason or incentive to produce more," Silverman says. "The tailors might say, 'We can't do it now,' or ‘We'll do it tomorrow.'"

The monthly bonuses have raised some employee's salaries by 20 percent or more. It's also kept employees on. Silverman estimates he's lost only two employees since the profit sharing began, reducing the company's need to look for qualified labor. "Over the years, we've made changes because we've had to," he says. "If you go through business only repeating what you've done before, you're going to fail."

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This article originally appeared in the March/April 2001 issue of MyBusiness Magazine, NFIB's member magazine.

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