I Will Honor the Quote but I am Going Out of Business

I recently engaged a business to do work at my house. On arriving I learned that the owner was doing the work and by the way he was going out of business after completing this project for me. Over the next three days of work (not contiguous) I learned the reasons for the failure of the business and lessons learned.

My job was supposed to be completed in one day but after arriving the owner told me that the estimate was underbid. I was expecting to be confronted with a requote for the job but the owner, to his credit, said he would live with the quote but that he had fired his estimator. I wondered why the owner was not excited when I first called to schedule the work based on the quote.

I was impressed with the owner who worked hard and in an effort to complete the job well past 8 hours. When the day finished the owner indicated he was far from complete and needed another day which he would have to schedule for another day. That day came and again after well more than 8 hours on the job said he would need another day. That day came and after more than 12 hours was finally complete.

As he was cleaning up he asked what kind of consulting I did and I gave him my elevator message about helping small to medium sized companies improve their leadership, process, metrics and use their financials to manage their business more effectively. He said that he had invested in an accounting system to manage his business and projects more effectively.

Hearing this I asked the owner what he thought went wrong causing him to shut his business down. Even thought this was a very small business the owner had experienced what might considered to be a perfect storm of problems that I find much larger firms committing on a regular basis. Had the owner sought professional advice or had an experienced mentor he might have survived.

Even small business need to observe several basic rules necessary to keep the business on a solid footing whether you are an owner operator like this owner or running a small to medium sized business.

Staying in business is hard enough without handicapping yourself. In this instance a number of mistakes were made that created this perfect storm that ultimately forced this hardworking owner to shut his business down.

What went wrong?

Quality of People
Two mistakes were made here. 

1. First he partnered with a person it turned out was not capable of estimating profitable work accurately. The partner was not reliable and did not take personal responsibility for the quality of his work.
2. He employed a worker that had personal financial problems and the owner chose solve. In order to keep this employee he personally loaned him money which was not paid back. In addition, he trusted the employee to perform work while he was on vacation only to find out that the employee had hocked company tools and used the company credit card for personal purchases. Total loss exceeded $8,000.

The owner was too trusting. He did not put measures into place to validate that people were who they said they were. This is not uncommon as everyone wants to trust others BUT when running a business and facing personal liability you need to put in place measures to protect yourself.

As an owner operator the owner was overly involved in the operation (working in the business) and was not able to devote time and energy to make sure that the business the partner was quoting was good business (working on the business). Even though he learned of the problem and eventually took action he was on the hook for outstanding quotes that were still on the books. In hindsight he should have found a way to cancel the outstanding quotes or requote them with improved profitability and protect the profitability of the business.

It was surprising to learn that the owner had invested in an accounting system to manage project detail. On the other hand he overlooked the need for the employees (and partner) to provide proper information to effectively run the business. Although he could get project detail, employees would not plan ahead for jobs and consequently arrived onsite without the proper materials, tools and manpower. The result was work that was not completed on time, over the estimated quote and a negative bottom line.

While this is a micro example of faulty business management it is often repeated in larger businesses. What steps could this owner have taken to protect his investment (sweat equity) and business?

1. This was his first business and he could have benefitted greatly having a senior consultant or mentor to guide him.
2. For a relatively small fee a professional HR person could have provided input on the match of the partners and their chances of succeeding together and also screen employees that have established work history and credentials.
3. The owner needed to have time on a daily business to monitor that good business was being quoted, that proper business practices were used to insure that the jobs were completed successfully satisfying the customer and producing a profit.

When you start a business you may have the core competency to understand what needs to be done and can do it yourself. But in running a business seek help to make sure you have a solid business model and that you are taking the time to make sure it is operating correctly. Do not get absorbed working in the business and justify your long hours as a reason to not make sure you have the right people, process and economic return to stay in business.

This was a great example of the risk of just working in the business and not working on the business.

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