Manage your business like the investment it is.

Management consulting is a funny thing. For starters, people tend to seek help when they are near – or at – the end of their ropes. Add a reluctance to do the same hard work every successful business owner has done, toss in a dash of ego and you have a recipe for disaster.

It’s as if such clients – let’s call them The Dreamers – expect me to wave a magic wand and fix everything they’ve messed up. (And while I’m at it, could I please make them rich beyond their wildest dreams?)

But every once in a while, someone comes along who truly is committed to doing whatever it takes to be successful. Rare though they may be, these clients – The Realists – give me hope that one day, everybody in our business will wake up and start making good money.

Now, it’s no secret to regular readers of this column that I’m a big proponent of cost accounting. It’s the first thing I ever wrote about for CWB back in 1994, and it has been a theme in this space ever since.

It’s the same story in one-on-one consultations. I encourage shop owners to practice cost accounting on every job as a sure way to improve the accuracy of their estimates, to discern between profitable jobs and losers and, ultimately, to become profitable on every project.

Talking recently with one of those rare Realist clients – I’ll call him Jim – I put together something that might help convert another reader or two into becoming a dedicated practitioner of cost accounting. Let me explain.

Over my years of writing this column, I’ve occasionally quoted passages from books written by people a whole lot smarter than me. (Three favorites are “Up the Organization,” by Robert Townsend; “Million Dollar Habits,” by Robert Ringer and “The One-Minute Manager,” by Kenneth Blanchard and Spencer Johnson.)

I recently came across another book, on a topic seemingly unrelated to business management and with no connection to woodworking. It really spoke to what I believe is many shop owners’ greatest obstacle: Their failure to analyze costs on a daily – that’s right, DAILY – basis.

The book is called “Rule #1.” Written by Phil Town, it is based on – and teaches how to apply – the investing strategy of Warren Buffett, CEO of Berkshire Hathaway and generally considered to be the most successful stock market investor of all time.

Buffett learned “The Rule” at Columbia University from Benjamin Graham, known to many as The Dean of Wall Street. In his book, Phil Town quotes Buffett’s neat paraphrasing of Graham’s teachings: “There are only two rules of investing: Rule #1: Don’t lose money, and Rule #2: Don’t forget Rule #1.”

The book offers strategies for becoming a “Rule #1 investor,” chief among them the idea of buying not stocks, but companies – based on research showing that the business is operating on sound financials and producing a product or service that will be in demand for the long term.

“I won’t own [any] business for 10 minutes,” Town says, “unless I’m willing to own it for 10 years.”

He also explains how the Internet has given everyone a great opportunity to become a successful investor. Once they’ve done the initial work (and it is work) of identifying “wonderful” companies, Town shows how to use readily available online resources to analyze, to invest and to build portfolios in just a few minutes each day.

That “few minutes a day” came to mind as I talked to Jim, my Realist consultee.

Months earlier, I had provided Jim with a spreadsheet I have developed. He had been very busy doing the countless things business owners must do in order to keep work coming in the front door and going out the back.

Still, unlike so many other clients to whom I had preached costing and provided the tools to do it, Jim was determined. And on this particular day, the light bulb came on for him in a big way.

Jim had finally had a chance to prepare the spreadsheet and had begun using it. He called with a couple of questions, wanting to be sure he was using the spreadsheet properly. He was, but had not realized that scrolling down a little would reveal one key piece of data. Once he found it, he fully understood how cost accounting is the key to success in every facet of his business.

Our discussion ended with Jim saying, “QuickBooks has always been my favorite program. I think this spreadsheet just took its place.”

That key piece of data is the total cost of the job in question at the end of each workday. Once the work of setting up the spreadsheet is done (and, like finding wonderful companies to invest in, it is work), getting that priceless information on any job going through your shop is as easy as entering a few numbers into the job’s sheet at day’s end.

When speaking about Rule #1, Town likes to explode the old myth about not putting all of one’s eggs in a single basket. He does so with a quote that’s been attributed to both Mark Twain and Andrew Carnegie, both of whom were pretty astute guys: “Put all your eggs in one basket and – WATCH THAT BASKET.”

Being in business for yourself is probably the ultimate example of putting all your eggs in one basket. Cost accounting is the ultimate tool for watching that basket – and increasing the eggs inside.

Keeping Good Employees

Tony,

How can I encourage independent-thinking and creative woodworkers to learn as much as they can and to appreciate what I’m faced with as a business owner – without risking that they’ll just go off and start their own businesses?

— Name withheld by request

This one is easy: Pay them what they are really worth.

In my experience, it’s the owners who complain loudest about employee turnover in general – and about former employees “leaving them” to start their own ventures – who also pay as little as possible and lack respect for their employees.

Workers care about how their actions affect the company in direct proportion to how much the company cares about them.

Too many owners believe that during the time an employee is on “their” clock, they own them. It’s somewhat understandable; a worker should, after all, be focusing on their work.

It’s also true, however, that while management can dictate its expectations to an employee all day long, it can’t control that worker’s thoughts. And just like an employee’s concern about the company mirrors the company’s concern for him or her, an employee’s thoughts will wander to the same degree that they feel mistreated or unappreciated.

Still – isn’t it reasonable to expect any employee to think creatively, to exhibit some drive, to show some inherent interest in their work and the company’s success?
Of course it is. And the best time to look for and harness those qualities is BEFORE you utter those two little words: “You’re hired!”

If you’ve been around other humans at all, you can probably differentiate between good prospects and bad ones. But if you are having trouble, here’s a hint: Without a sound reason (hopefully several) for offering a job to a particular candidate, you shouldn’t make that offer.

The creativity, drive and interest I spoke of should fairly ooze from a candidate’s pores. Until you find such a candidate, keep looking.

When you finally do, grab them with a good – not decent, but really good – starting wage, and challenge them to show you what they’ve got. Even if they are inexperienced in woodworking, tell them what you will be looking for: The ability to follow directions, to learn quickly and to apply what is learned in creative,
efficient or just plain proper ways.

If they come through for you, reward them generously and often.

Let them know they are an important part of your business.

This still won’t eliminate turnover; there will always be a certain percentage of people who think the grass is greener or who, if they are really good, will want to make a go of it on their own.

But here’s a worthy objective, and if you meet it, you will have all the happy, productive employees you will ever need: Do all you possibly can to ensure that workers who leave you to start their own shops do so because they really want to – not because they feel unappreciated, stifled or enslaved.

Have something to say? Share your thoughts with us in the comments below.