The year is 1991.
Bonita (“Bonnie”) Richter, one of the owners and finance manager for Troutman Industries Inc., studied the financial statements and sales backlog report for the family-owned CNC precision machining contract job shop.
It was the second straight month of a loss. Sales were trending down, and the dollar value of the backlog of work was quickly eroding.
Typically, the company was fortunate to have work booked to meet sales goals four to five months ahead. But new purchase orders that had once flowed unabated from customers had turned into a trickle.
“The recession has finally hit our company.” Bonnie thought.
As she looked at the numbers on the financial statements, a pit of fear grew in her stomach. “We need new orders because we’re burning too much cash. The way future sales look, we’ll lose $30,000 to $40,000 a month, and the economy is still in a recession with no signs of easing up.”
Bonnie knew her father, Gerald (“Jerry”) Troutman, president and founder of the company, would be concerned when she reported the financial results to him for the month. Yet she wasn’t afraid.
“He’s always so calm.” Bonnie thought. “He’ll know what to do.” Thinking about her father and how calmly he handled things gave her a sense of relief.
The recession wasn’t a surprise.
For months, the company had been receiving liquidation sale notices from other companies like Troutman that were going out of business.
So many notices came in the mail each day that Bonnie’s father had started saving them in a box. To him, it was a daily reminder to be grateful for how fortunate his company was, as well as to stay sharp and keep running a tight operation. Troutman had a strong balance sheet. But not for long if changes weren’t made.
There was no denying it was a scary time.
Operating a CNC job shop like Troutman was very capital intensive. There were a lot of overhead costs. With forty-nine employees and two buildings to support, wages, insurance, utilities, maintenance, and state-of-the-art CNC machine tools, costs were steep.
“It’s times like these that make being in business not so enjoyable.”, Bonnie thought to herself.
Her thoughts then went to the staff. “What if we have to lay off employees? What about their families? How will they be able to pay their bills?”
Wages for the machinists were the company’s largest expense. It would make sense to layoff employees and cut the wage expense, being there was barely enough work to keep the machinists busy.
Normally, they operated sophisticated, high-speed equipment. Now, they were being assigned odd jobs and tasks, like running errands, waxing and polishing the tiled floors of the shop, and even putting a fresh coat of paint on the walls.
Soon, there would be no odd jobs left to do.
Bonnie thought about the steps they’d already taken to manage costs.
Yet, additional actions had to take place to stop the company from bleeding cash. Otherwise, they’d risk going out of business just like was happening to so many other CNC job shops.
It was time to make more tough decisions.
Bonnie got up from her desk and walked into Jerry’s office to discuss the growing critical situation.
The next day, Jerry called a meeting of the company owners: himself, his brother David, and two daughters Patty, and Bonnie.
A sense of apprehension fell over everyone as they sat down at the oval boardroom table. The purpose of the meeting was to decide the company’s next steps so it would remain in business, and avoid becoming another casualty of the recession.
Many options were laid on the table and discussed:
Laying off employees (the most logical option).
Decreasing work week hours from 45 to 30.
Selling assets to bolster cash balances.
Looking to see if any more operating expenses could be cut, and other creative ideas.
The family weighed the pros and cons of each option. Jerry listened intently, carefully considering what was being discussed.
Then he spoke.
Bonnie was told to schedule a mandatory meeting for all employees. She made a notice and posted it up on the cork bulletin board at the time clock.
Two days later, as employees filtered into the second-floor meeting room in the Portland Avenue building, Bonnie could see the concern on their faces.
They knew the purpose of the meeting was to talk about the lack of work, and how the company planned to deal with it.
Naturally, they feared the worst. Rumors of layoffs had been triggered by the meeting notice.
“To keep trust, morale, and productivity intact it’s important we are having this meeting.” Bonnie thought to herself.
Jerry took a commanding stance at the front of the room, placed the first transparency on the overhead projector, and began explaining what was going to happen to the group. The decisions shared that day were pivotal in changing the company’s future trajectory.
Key actions the company took that day:
Wages were cut by 15% for salaried employees. This included the owners of the company, as well as the managerial staff who led the quality control, production, and engineering departments. This action would decrease overhead expenses.
Requests for quotes were to be priced to break even, and not a dollar more. This would price work at a level to be attractive to customers. It would also cover overhead and variable expenses, and not put the company in a financial loss position.
Wage-earning machinist employees would be kept fully employed. They would take part in training and development classes to learn about new tooling technologies, lean manufacturing, and other subjects to build their skills. This action would increase the company’s competitive strength.
Even though laying off the machinist workforce was the most logical place to decrease expenses (and the action many other CNC job shops were taking), Jerry chose not to lay off because skilled machinists were short in supply. Risking losing these highly valued employees was unacceptable to him.
The company would invest in capital equipment. Even though there wasn’t enough work for the company’s existing equipment, almost-new, state-of-the-art machine tools would be purchased that were being sold at liquidation “going out of business” auctions. This equipment could be purchased at a value of pennies on the dollar for what had been paid. The company was able to take this action because the strength of the balance sheet had been preserved.
To say the employees were elated and excited about the direction of the company was an understatement! Instead of cowering behind the recession, Jerry, David, Patty, and Bonnie decided to courageously face it head-on, with Jerry at the helm.
Each of these bold actions would put them in a strong position when the recession ended to capitalize on the expanding economy.
Even though Jerry didn’t have a crystal ball to see the future to help him make these decisions, what he had was foresight, courage, and unwavering faith. He knew the recession would end because he’d been through them before during his thirty-plus years of being CEO and president of his own company.
He knew if he made the right decisions, the company would not only survive the recession − but thrive after it broke.
He was right.
Between 1992 and 2002 (when the family sold the company), sales grew at a double-digit rate every year, in an industry where the average company grew only two to three percent per year. The company’s net profits were 15% and higher, which was almost unheard of in the highly-competitive CNC machining industry.
The year is 2014.
I’m reflecting back on that experience. A deep sense of appreciation washes over me as I think about how blessed I am to have had Jerry as both my father and the most influential business mentor in my life.
He taught me how to brilliantly and masterfully guide a company through extremely challenging financial times.
Most of all, he demonstrated to me how to have a clear vision for a desired future, how to take calculated risks, and to have unwavering faith and belief in myself.
Thank you, Dad, for what you’ve taught me about being a person of integrity, forward-thinking, and how to be a leader.
The way I live my life, and “do what I do” to help others succeed in business is because of what I learned from you.