Jimmy’s House

Last week I got a chance to put to use what I’ve learned from Dave and what Ira Glass shared with us in my last post.

In business you get to make choices every day that steer your ship. Some of them end up making you money and some of them have the potential to cost you money. It’s not always a very clear decision.

I’ve spent most of the last two years trying to fine tune my pricing. Most companies in my industry (service and manufacturing) aren’t real scientific with their pricing. Now, I’m talking about small manufacturing companies like all the cabinet/countertop companies in the area.  If you are a Mary Kay salesperson or maybe own a small collectibles shop it’s not too tough to decide how to price your products. You know what you’ve paid for your products and you just have to decide what margin you want to make and you just tack that on.  That doesn’t guarantee anyone will purchase your products but at least if your sales are low you can adjust your margin and see if your sales activity go up or down.  You can keep doing this until you find the sweet spot.

Most business in my industry don’t price their work this way.  It’s not very easy.  You have to figure out ahead of time how long a job is going to take in labor and materials and add your margin on top of that.  It’s taken me most of the last two years to to get my pricing as accurate as it is today.  Whether it’s cabinet installing or countertops when I bid a job I figure out my labor hours and materials cost and multiply that by the margin I want to make on that particular job and that’s how I get my price.  Before, I would just charge so much per part that we had to handle or so much per cabinet.  This worked okay but it still wasn’t based on exactly how much expense I would have in that job.  I’ve even been advised to just ‘add thirty percent to every job and ‘hope’ to make a profit at the end of the year’.  I can’t believe someone told me to do that.  That’s pricing your product by the ‘guess method’.  That doesn’t sit very well with me at all.  I’m done guessing.  I’m ready to actually aim at something specific and try with all my ability to actually hit it.

How does this tie into the ‘Choice’ concept from Dave?  Well, I’ve chosen my profit margin.  I’m not willing to deviate from that number on purpose.  Now, I may misfigure a job or run my expenses so tight that we could miss our margin target but at least I’m intentionally aiming at something.  I’ve also chosen to believe all the experience I have in this industry and I can trust my judgment on how long something is going to take.  Once you’ve picked your profit margin and decide to live by it you have to actually focus on the rest of your business.  You have to focus on your effeciency.  You have to focus on your customer service and customer satisfaction.

Now for the ‘Crap’ side that we learned from Ira in my last post.  This is where I ran into trouble last week.  I got the chance to bid a very large project.  This project is worth thousands in revenue.  The problem is that someone undercut my price.  They didn’t just undercut me slightly either.  You see, if I lose a job by ten to twenty percent then I can go back to my numbers and see if I can trim something or if maybe I overestimated how long the job may take.  No, I got underbid by fifty percent!  Well, for someone to underbid me by that much is a warning flag to me that this other operation has underestimated the complexity of a job.  They aren’t very likely to make money on this work.  The money that the do make will be short lived as they get their 1099 at the end of the year and have to pay an extra seven to ten percent in taxes.  I probably won’t have to fight them next year that’s for sure.  This project turned into crap that I had to kill.  I made a decision that I wasn’t going to get into a bidding war with this operation.  I knew what I was going to have to charge to make a fair profit on this job.  Getting underbid by that much told me this whole situation was crap and it was okay to walk away from the fight.

That’s one thing I’ve learned to accept this year.  I’m not going to be cheaper than everyone else on every job.  Between my dad and I and all my installers we find ourselves with over sixty years of experience in this work.  I’ll trust that experience over some other two-man operation whith obviously little to no experience.  I labored over this decision for a week.  I finally realized that all I can do is just give MY best price.  I can’t control whether or not my competitors make smart decisions.  I have to believe in the choices I’ve made for my company.  Eventually you have to decide that there’s more to your company than just price.  You are never going to win in the long run if you are going to spend all of your time trying to be the cheapest.  That’s a battle that no one wins.  It’s my belief that you win in the long run by building your reputation beyond price.  How else will you be able to bring in new products and services if you haven’t proven that you can provide your current products and services above and beyond just a fair price?  No, you have to be good at every area of your business if you are going to build a world class company.

Last month Rob over at ElectroLund introduced me to Ira Glass of This American Life.

Well, I love radio story telling so I went and did a youtube search for Ira Glass. Now, why I went to youtube to find out something about a radio guy is beyond me but I’m glad I did. I found this really good video of him talking about story telling and how they find good stories and how hard it is to find good stories. Let me share his video with you and then comment on it.  Pay special attention for his commentary from the 1:45 point and on.

Ira talks about being able to kill something that is not going to live up to the standards they have set for their show.  He says that all radio productions are trying to become crap and without failure there is no chance for success.

After hearing him say this I felt an instant connection with him.  He’s a small business guy too.  If you own a business with less than 500 employees then you are considered small business.

I believe that everything wants to become crap.  Without constant work and attention to everything my business wants to become crap.  Without a daily walk with God my faith wants to become crap.  Without care and upkeep my home wants to become crap.  Without working on my marriage it wants to become crap.

It’s human nature to want something for nothing.  It’s hard for us to not do nothing and hope for positive results.  When we do nothing things become crap.  If I ignore my marriage it will become crap.  If I ignore my spiritual walk it will become crap.  If I ignore any area of my business it will become crap.

Ira believes that by fighting against crap you will get lucky.  This is the only thing he says that I’d have to disagree with.  I don’t believe in luck of any kind.  Isn’t there a quote that says luck is opportunity meets preparation?  I don’t belive that hard work produces luck or increases your chances to receive luck.  I think luck is for the faithless.  Luck is for those who spend $1 a week hoping the lottery will save them from financial doom.  Luck is for those who believe life is the spin of the wheel of fortune.  We don’t do luck at my business, we do hard work and preparation and then look for opportunity.

I think we can learn something from Ira that is applicable in our personal and professional lives.  Fight the crap!  See it coming and kill it, even if it is your idea and you can tell it’s crap.  It’s ok to admit to your failures.  If you fail then it means you were willing to take a chance.  It means you weren’t willing to just stand on the sidelines and hope things would work out in your favor.

Kill the crap and learn from it!

Every year over 1,000,000 people in America start a business of some sort.  Statistics tell us that by the end of the first year at least 40 percent of them will be out of business.  Within five years, more than 80 percent of them, 800,000, will have failed.  The rest of the bad news is, if you own a small business that has managed to survive for five years or more, don’t breathe a sigh of relief.  Because more than 80 percent of the small businesses that survive the first five years fail in the second five.

In 1999 I went back to work for my dad.  At that time he and I decided I would try to purchase Alco Cabinet from him.  Ever since then I’ve had a desire in my heart to own my own business.  Purchasing Alco from him never happened but I have, with dad’s help of course, started my own company.

From the first day I started my business I knew that I didn’t want to spend the rest of my life making countertops.  My passion was to own a business, not be stuck working in one.  As I looked around I saw only a few examples of what I wanted my business experience to be.  Most of the business owners I knew spent ton’s of hours weekly working for their business.  The trim guys I knew who owned their business also trimmed houses.  The plumbers I knew who owned their own business plumbed houses.  The re-modelers I knew who owned their own business also had to work remodeling homes.

Well, if you aren’t thinking it to yourself by now I’ll say it for you.  James doesn’t want to do physical labor.  There, I’ve said it out loud.  It’s the truth.  If starting a countertop business means making countertops for the rest of your life then why start your own business to do it?  I can go to another countertop company in Kansas City and get a job making countertops.  Sure I can make more money owning it myself but not that much more.  It sure won’t be enough more to make up for the difference in stress.  If I’m going to own my business then BUSINESS is what I want to do.  I also want owning my own business to translate into at least 3-4 times as much income as just working in that industry would pay.  Otherwise why do it?  Do you want to know something?  There isn’t anything wrong with thinking this way.  Do you want to know how I know that?  I know that because I read The E-Myth Revisited.

E-Myth has taught me that it’s ok that I feel this way.  This simple reinforcement of what I already felt in my heart was enough to re-energize me in this business that I own.  It has given me new hope in what I’m doing on a weekly basis.  Let me give you some points from this book.

Let’s first look at the definition of E-Myth.

The “E-Myth,” or Entrepreneurial Myth, is the flawed assumption that people who are expert at a certain technical skill will therefore be successful running a business of that kind.

Through the course of this book I’d say you will read that line or one very similar to it at least a dozen times.  It is the core message of this book.  The fact of the matter is that most business owners are drowning in the stress of trying to own their own business.

The introduction of The E-Myth contains four ideas that, according to itself, if you understand and take them to heart, will give you the power to create and extraordinarily exciting, and personally rewarding, small business.

Idea #1 - There is a myth in this country-I (Michael Gerber) call it the E-Myth - which says that small businesses are started by entrepreneurs risking capital to make a profit.  This is simply not so.  The real reasons people start businesses have little to do with entrepreneurship.  In fact this belief in the Entrepreneurial Myth is the most important factor in the devastating rate of small business failure today.  Understanding the E-Myth, and applying that understanding to the creation and development of a small business, can be the secret to any business’s success.

Idea #2 - There’s a revolution going on today in American small business.  I (Michael Gerber) call it the Turn-Key Revolution.  Not only is it changing the way we do business in this country and throughout the world but it is changing who goes into business, how they do it, and the likelihood of their survival.

Idea #3 - At the heart of the Turn-Key Revolution is a dynamic process we at E-Myth Worldwide call the Business Development Process.  When it is systematized and applied purposely by a small business owner, the Business into an incredibly effective organization.  Our experience has shown us that when a small business incorporates this process into its every activity and use it to control its every activity and uses it to control its destiny, that company stays young and thrives.  When a small business ignores this process - as most unfortunately do - it commits itself to Management by Luck, stagnation, and, ultimately, failure.  The consequences are inevitable.

Idea #4 - The Business Development Process can be systematically applied by any small business owner in a step-by-step method that incorporates the lessons of the Turn-Key Revolution into the operation of that business.  This process then becomes a predictable way to produce results and vitality in any small business whose owner is willing to give it the time and attention it requires to flourish.

Well, If I learned anything from this book it’s that owning your own business isn’t a simple process.  Not if you want to achieve something that blesses you instead of curses you.  Not if you want to create something that lasts.

I could go on for quite a while with everything I learned from this book but I don’t want to bore you any more than I already have.  Let me just say that I feel like The E-Myth has given me some clear direction in which I need to move if I’m going to make this thing work.  It’s time for my business to have a full time staff member working tirelessly to build a world class company.  I gladly take that challenge because I know it’s what I’ve been called to do.

E-Myth Worldwide is a company that Michael Gerber created in 1977.  Since then and as of the writing of this book in 1995 they have assisted over 25,000 small business owners with the implementation of their Mastery program.  The Mastery program provides you with a Mastery Coach to assist you in creating systems for your business to work with.  Compared to what it cost me last year to use IPA (don’t get me started) it’s pennies on the dollar.  It’s also NOT a crash course in business.  I can get 5 years of help from this company for the price of 3 weeks from IPA.

In my opinion the best thing I can do for the future of my company is educate myself.  It’s the business side of what we do that will move us past our competitors.  Yes we need to be good at what we do.  I have some of the best skilled people in the city, I truly believe that.  Unfortunately it’s going to take more than that for us to become a world class business.  We can’t just assume that because we are good at our products that we will outlast our competition.  We have to be good at everything business does.  We have to prepare for big, if we are going to be able to handle big when it happens.

You can visit the E-Myth site from my links on your right.

I promise that not all my posts will be some kind of rant from Dave but I just can’t resist this one at all.

I subscribe to Dave’s newsletter. Today his team included an mp3 from a show earlier last month. They edited it to a quick little listen. I’d like to share it with you.

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I’ve found out something interesting about myself since I’ve become a Dave fan. I’ve realized that while I don’t like being yelled at by Julie (she never yells at me but you get my point) I love being yelled at by Dave. There’s something about a complete stranger telling me I’m being stupid that I actually respond to pretty well.  Of course it helps that I respect the man’s opinions.

One thing that I’ve learned from Dave is to be pro active. I’m learning to quit blaming everyone else for my problems. Now, I’m sure many of you don’t think you blame others for your problems but now that I’m paying close attention to it I’m finding that everyone likes to play the blame game.  Right now the best target is the economy and fuel prices.  As Dave mentions in his rant, we can’t control fuel prices but we can control how we spend our money.

I am so thankful to have someone like Julie in my life.  I really believe that God has spent the last 15 years of our lives preparing us for the next few months.  Most of you here know our story.  At 3 years of marriage we decided to start having kids.  We tried for 3 years to have kids and it didn’t happen.  Now, we could have given up and decided that kids weren’t for us.  Well, you all know that’s now how we operate.  We decided that having a family was our God given calling so we decided to become adoptive parents.  Well, you know the story, we adopted two AWESOME girls and right after that we had two naturally.  Adopting those first two was NOT easy.  It was a battle that took years and a LOT of tears but we made it.  Julie and I aren’t afraid of the hard path.  We aren’t afraid of tough decisions, at all.  We have had some people look at us funny over the years because of some of the hard decisions we made.  There are plenty of people who would never have done what we did to start our family.

I guess what I’m trying to say is that after listening to Dave I’ve realized that Julie and I have been doing it right all along.  It’s OK to go out there and aggressively pursue what you feel God is telling you to go after.  He doesn’t expect you to just sit there and wait for Him to dump it in your lap.  It’s easy for us to get into a lazy faith.  I believe that a LOT of faith is sowing what God has told you to sow.  You may even have to sow something that seems so small and so insignificant that it can’t possibly grow into something large.  Maybe you have to plant backwards.  Whait, did I just say backwards?  Yes, that’s exactly what I said.  Right now I feel like I’m pulling out something big and going back to little things.  Now, you want to talk about not making any sense at all.  In my financial life right now I’m having to pull out things that look really big and really valuable so that I can lay a quality foundation for the future.  From the outside it makes no sense but from the inside, where I can see God’s direction it makes all the sense in the world.  Sometimes, faith is tearning down something huge and going back to something small in an attempt to submit to God’s plan and design.

Yes, we do have choices and I’d prefer to happen to my surroundings, not have them happen to me.

Well, a week or so ago Dave went on a huge rant. He doesn’t have ‘that’ kind of radio show. Dave’s show isn’t like many of the other daytime political talk radio shows. Dave doesn’t spend a lot of time making commentary about politics and so forth. He is much more interested in serving his customer base. That includes helping people with their financial problems.

When Dave decides to go on a rant they are usually worth listening to. A lot of the time I download these rants in MP3 format and have my employees listen to them. This rant was by far the best I’ve heard him make to date. I want to share it with you and maybe discuss it just a little bit. I’ll provide it to you in two formats. The first is audio, which is the one I’d recommend. The second is the written version which you can read if you don’t have sound or want to print it up to share.

I’ll warn you, this rant is very capitalistic. If you are a socialist, this may give you a headache.

Butt Scratching and Bass Fishing <—PDF File

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