WEBVTT

NOTE How Small-Scale Entrepreneurs Can Compete in (Heavy Industries) Markets Dominated by International Giants

1
00:00:00.000 --> 00:00:26.000
I am here because I'm just an average guy, but 30 years ago I got together with some gentlemen and some partners and we did start a company from scratch, from dirt, by mortgaging our homes and 30 years later the company is doing about $150 million in sales and manufacturing, so something we did over those years we certainly must have done correctly.

2
00:00:26.000 --> 00:00:31.600
What I'd like to do initially is just talk about some of my personal experiences because I am a pretty average guy

3
00:00:31.600 --> 00:00:36.400
and some of the things I learned so if I use I some in the beginning please forgive me.

4
00:00:36.400 --> 00:00:44.240
I remember the first job I ever had when I was about 13 or 14 I was raised up in the coal regions in Pennsylvania in the anthracite coal region area

5
00:00:44.240 --> 00:00:50.760
and it wasn't long after that that anthracite became obsolete and of course the movement was to purchase bituminous coal

6
00:00:50.760 --> 00:00:54.960
so you can imagine it was not a very wealthy type neighborhood.

7
00:00:54.960 --> 00:01:24.960
But the first job I ever had, I worked in a hobby shop, and in those days, the houses were heated with coal, so my responsibility was to stock the shelves, and then on Friday night, this owner of the hobby shop would go to a flea market and sell his goods, and I had one important responsibility, and that was to keep the stove full and the furnace full of coal and had a hopper on it. And Friday night, I had to be sure I put coal in that hopper. Well, one Friday, 13-year-old guy forgot to do that, and boy, it got really cold and had a house on it.

8
00:01:24.960 --> 00:01:54.960
When that man came home that night and I learned one reliable one thing then early on that you had to be reliable in your job responsibility that you could easily get fired and that still stuck with me today you remember your first job day you remember learning anything from the second job I had I learned something else going to college and sometime obviously I had to

9
00:01:54.960 --> 00:02:24.960
I work for a building contractor and obviously working for a building contractor the chores they gave me were the chores that they didn't want to do themselves and you can get pretty bored and tired in digging holes and trenches and I remember one summer we had a job digging septic tanks we were paid three dollars a foot so you dig this hole and my partner and I we started digging and you know the first day or two you did pretty well until you got down about 10 or 15 feet and then you only did about a foot every six or seven hours

10
00:02:24.960 --> 00:02:33.960
So I realized then that building homes could be challenging if you're the owner of the company, but being the labor, it really, really wasn't very, very interesting.

11
00:02:33.960 --> 00:02:41.960
So the third thing I learned though was when I went to work in Alabama for a company called Lockheed Space and Missile Company.

12
00:02:41.960 --> 00:02:52.960
This was after I got out of the service and I went to work and it was back when Sputnik first occurred and, you know, people were hiring engineers.

13
00:02:52.960 --> 00:02:56.960
If you had an engineering degree, you could easily, easily get a job.

14
00:02:56.960 --> 00:03:04.960
And the first job I had was they put me in a cubicle in this large building.

15
00:03:04.960 --> 00:03:07.960
And honestly, I'd go in in the morning and it was dark in the wintertime.

16
00:03:07.960 --> 00:03:10.960
I'd come home at night and it was dark. I never saw the daylight.

17
00:03:10.960 --> 00:03:14.960
Now just in this cubicle, working on differential equations,

18
00:03:14.960 --> 00:03:18.960
and I realized that there had to be a better way.

19
00:03:18.960 --> 00:03:22.960
There had to be some better way of making a living with some variety in it.

20
00:03:22.960 --> 00:03:26.960
It was totally ennui that just captured me.

21
00:03:26.960 --> 00:03:29.960
I just was so bored. I said, I have to find something new.

22
00:03:29.960 --> 00:03:33.960
It made me realize that in my subconscious, I was starting to learn things.

23
00:03:33.960 --> 00:03:36.960
I was learning from mistakes. I was learning things I didn't want to do

24
00:03:36.960 --> 00:03:41.960
and led me on the path of being what Mark calls an entrepreneur.

25
00:03:41.960 --> 00:03:46.960
I remember when my daughter graduated from Auburn University four years ago.

26
00:03:46.960 --> 00:03:53.960
She was an English major, and she came home, and it was May, and she sat up in her bedroom. She was almost crying. She said,

27
00:03:53.960 --> 00:03:58.960
Dad, you know, I really don't know what I want to do. I said, what's going to happen to me?

28
00:03:58.960 --> 00:04:05.960
So we sat down, and we started talking on the bed. I can remember it to this day. I said, well, let's list the things that you don't want to do.

29
00:04:05.960 --> 00:04:14.960
And I said, could you be satisfied working in an office or a building where you went to the same desk every day and had no variety?

30
00:04:14.960 --> 00:04:44.960
No Variety. And she says, no, I wouldn't want to do this. But there are many people that get enjoyment out of that. In my company, we had a structural engineer. And every day, he goes into his office at his computer and he works on structural formulas and structural ideas. And he's happy with it. And he's a major contributor to the company. But for Mary, my daughter, that's not what she wanted. So we listed all the things she didn't want to do. So we were left with one or two things that she did want to do. So that embarked her on her eventual career that

31
00:04:44.960 --> 00:05:04.960
If you've had a chance to look at these notes, what I've done is I've listed seven or eight suggestions that you might consider if you're going to be successful in business, and more importantly, if you're ever dreaming about having your own business.

32
00:05:04.960 --> 00:05:12.960
And suggestion number one is to be involved with as many people and as many organizations as you can.

33
00:05:12.960 --> 00:05:18.960
Obviously, I'm directing that towards someone like Dick, who's relatively young compared to the speaker.

34
00:05:18.960 --> 00:05:22.960
But I think there are so many ways you can learn what opportunities are out in front of you.

35
00:05:22.960 --> 00:05:25.960
You have to have wide vision. You can't be my optic.

36
00:05:25.960 --> 00:05:29.960
And I mentioned here that I learned a lot initially, you know, in a health club.

37
00:05:29.960 --> 00:05:36.960
A health club, you can go to a health club and you can talk about someone and learn about the experiences that they have.

38
00:05:36.960 --> 00:05:38.960
Another good place is church.

39
00:05:38.960 --> 00:05:44.960
I'm not suggesting you go to church for anything other than sacred reasons, but there are really some wonderful people at church

40
00:05:44.960 --> 00:05:48.960
where you can learn about the experiences of so many different people.

41
00:05:48.960 --> 00:05:52.960
I collect antique cars, and you never stop learning.

42
00:05:52.960 --> 00:06:22.960
I just met somebody a couple of weeks ago who, in Birmingham, started off, he and his wife, with a gasoline station, just a simple little gasoline station, and today he has the franchise rights for BP Oil and Chevron, I bet he's a multimillionaire starting out with just a little gas station, the nice thing about the gas station business is it's cash, and that's a nice feature if you have responsibility paying taxes, I've always

43
00:06:22.960 --> 00:06:31.880
Dream of having a bar where people pay in cash, I think that would be a nice opportunity.

44
00:06:31.880 --> 00:06:37.000
In this suggestion number one, I do make one profound suggestion, that is, if you are thinking

45
00:06:37.000 --> 00:06:43.680
about getting into something for the first, into something for sure, you really need to

46
00:06:43.680 --> 00:06:48.840
have worked in that field prior to it.

47
00:06:48.840 --> 00:06:54.000
It would be a tragic mistake to go into some type of a business having never experienced

48
00:06:54.000 --> 00:06:56.600
what it's like to work in that business.

49
00:06:56.600 --> 00:07:02.120
I think one exception might be is if you're looking at getting into a franchise business

50
00:07:02.120 --> 00:07:08.480
then you are paying a franchise fee for the experiences that they can pass on to you.

51
00:07:08.480 --> 00:07:16.840
The second suggestion is to really recognize your weaknesses and to do something about

52
00:07:16.840 --> 00:07:17.840
it.

53
00:07:17.840 --> 00:07:23.160
When I was about 22 or 23 years old, having graduated from engineering school,

54
00:07:23.160 --> 00:07:26.960
you can imagine that engineers have a pretty limited vocabulary.

55
00:07:26.960 --> 00:07:30.720
Technically, I had a good vocabulary, but boy, I could not write.

56
00:07:30.720 --> 00:07:35.440
I couldn't write a paper or a report worth a darn.

57
00:07:35.440 --> 00:07:39.520
And I recognized that I had to do something about it.

58
00:07:39.520 --> 00:07:42.800
And I found the most enjoyable way to correct that weakness

59
00:07:42.800 --> 00:07:47.640
was to start reading novels, because in college, I never read many novels.

60
00:07:47.640 --> 00:07:55.080
I read technical books. I enjoyed books about Einstein and theory of relativity, but never many novels.

61
00:07:55.080 --> 00:08:01.200
So I started reading by an author called Taylor Caldwell. Have any of you ever heard of Taylor Caldwell?

62
00:08:01.200 --> 00:08:09.880
You had that? Boy, I'll tell you, she wrote probably 12 or 13 or 14 incredible, incredible books.

63
00:08:09.880 --> 00:08:14.640
And the first one she wrote, of course, as I mentioned, the paper is Captains and Kings.

64
00:08:14.640 --> 00:08:21.280
And I sat down, I read that book and I read about five or six pages and there were three or four words I never, I didn't understand.

65
00:08:21.280 --> 00:08:29.920
So what I did was I would write the words down and I'd write them on a little notebook and I'd keep the notebook with me.

66
00:08:29.920 --> 00:08:40.520
And every day I'd review the notebook and after about three or four months I realized my vocabulary was increasing and that I was correcting a weakness.

67
00:08:40.520 --> 00:08:50.920
So I think it's absolutely imperative if you're thinking about going into business or even if you're going to be a businessman for some other large company to recognize your weaknesses early on.

68
00:08:52.920 --> 00:09:01.120
The third suggestion is, as I mentioned, is don't venture into something that you haven't been in before.

69
00:09:02.320 --> 00:09:06.320
I feel like I've always wanted to own an Italian restaurant.

70
00:09:06.320 --> 00:09:16.800
I love Italian food, but it would be impossible to have a successful Italian restaurant if you'd ever worked in it yourself.

71
00:09:16.800 --> 00:09:25.720
You have to have, if you want to get into a business like that, obviously, Jeff, I'd have to go in and have a partner who knew how to cook because I can't cook.

72
00:09:25.720 --> 00:09:27.440
So he would be a key employee.

73
00:09:27.440 --> 00:09:36.440
And if you're going to try and structure a company like that, you would want that key employee to be locked in with you for the life of the business.

74
00:09:36.440 --> 00:09:55.440
And that's where you'd want to improvise and possibly make the chef a part owner in the company or give him some type of a pay package where you know he's never going to leave you and compete with you.

75
00:09:55.440 --> 00:10:06.640
Suggestion number four is to realize that in starting a business, it does entail combining different skills and diversities of different people.

76
00:10:06.640 --> 00:10:12.600
And to start a business, you have to start it with a business plan.

77
00:10:12.600 --> 00:10:25.120
And I guess, speaking to economic students and economic professors, you've obviously done a business plan before, but in case you haven't, can I just go over a real simple one with you?

78
00:10:25.120 --> 00:10:29.120
Somewhere, you should have that business plan.

79
00:10:29.120 --> 00:10:31.120
Yeah.

80
00:10:31.120 --> 00:10:35.120
Yeah.

81
00:10:35.120 --> 00:10:38.120
I remember my dad, when he retired from Pennsylvania,

82
00:10:38.120 --> 00:10:41.120
came down to Alabama to be with the grandchildren.

83
00:10:41.120 --> 00:10:44.120
He had a dream of having a hot dog stand.

84
00:10:44.120 --> 00:10:47.120
So I said, Dad, let's just do a little simple business plan.

85
00:10:47.120 --> 00:10:51.120
And he went through his business plan, and he forgot to include his salary.

86
00:10:51.120 --> 00:10:54.120
So the guy actually, my dad actually would have gone into this business,

87
00:10:54.120 --> 00:10:58.440
Business, and it would have failed because of the fact that he didn't do the business

88
00:10:58.440 --> 00:10:59.440
plan.

89
00:10:59.440 --> 00:11:04.400
Again, being an engineer, what I've done here is imagine a company similar to the one

90
00:11:04.400 --> 00:11:08.400
I had, and it was involving steel fabrication.

91
00:11:08.400 --> 00:11:11.080
I'll talk a little bit more about it later on.

92
00:11:11.080 --> 00:11:19.440
But when we put our business plan together 30 years ago, it didn't take a lot of cash

93
00:11:19.440 --> 00:11:21.320
to start a business back in those days.

94
00:11:21.320 --> 00:11:33.800
I remember to this day, I still have a copy of the $5,000 check I wrote to the bank to get the business started, but it does require some collateral, some going to the bank and borrowing money.

95
00:11:33.800 --> 00:11:39.600
In order to do that, you have to know how much money to borrow, and that's where the business plan comes in.

96
00:11:39.600 --> 00:11:46.960
And again, I apologize if it's too fundamental to you, but it's a simple business plan involving something like our business, which would be steel fabrication.

97
00:11:46.960 --> 00:11:51.560
and I did it for one year and you notice under January I have projected sales.

98
00:11:51.560 --> 00:11:54.860
If you're envisioning putting a company together,

99
00:11:54.860 --> 00:11:58.220
chances are you're not going to book business and ship products

100
00:11:58.220 --> 00:12:02.700
the first month you're in business. It may take two or three or four months.

101
00:12:02.700 --> 00:12:06.800
Then the second thing I have is the cost of sales.

102
00:12:06.800 --> 00:12:09.740
In our business we had a steel manufacturing plant, so we had to buy

103
00:12:09.740 --> 00:12:13.480
steel, we had to buy welding rods, we had to pay welders.

104
00:12:13.480 --> 00:12:28.200
So you have to have some costs associated with sales in the first month even though you're not manufacturing anything because you have to have a plant superintendent, you have to have foremen, you have to hire people, you have to set up equipment, you have to set up your building and so forth.

105
00:12:28.200 --> 00:12:33.400
So the first month in this example, you actually do have some cost to sales.

106
00:12:33.400 --> 00:12:37.080
Your G&A is your general administrative cost, the cost that's fixed.

107
00:12:37.080 --> 00:12:42.160
That's the cost of the president, the cost of the salesman, the cost of advertising,

108
00:12:42.160 --> 00:12:45.040
the cost of the office, the telephone, the secretarial cost.

109
00:12:45.040 --> 00:12:45.840
It's always there.

110
00:12:45.840 --> 00:12:51.800
So in this particular example, the first year we've lost $30,000.

111
00:12:51.800 --> 00:12:55.400
Pretty much the second month went on the same way as I would envision our company.

112
00:12:55.400 --> 00:13:01.440
You're just simply not going to sell a product and ship it until some period of time

113
00:13:01.440 --> 00:13:02.640
elapses.

114
00:13:02.640 --> 00:13:06.200
So it's not uncommon for a business like ours to go two months before you actually

115
00:13:06.200 --> 00:13:14.200
The first month you start shipping a product, but you do have continuing costs, so now by the end of the second month you already lost $60,000.

116
00:13:14.200 --> 00:13:24.200
Now the third month, we finally start having booked business, recorded business, manufactured and shipped it out the door.

117
00:13:24.200 --> 00:13:31.200
So the first month we have shipment of $40,000, cost of sales $30,000.

118
00:13:31.200 --> 00:13:35.800
In this particular example, the gross margin is around a 25% gross margin.

119
00:13:35.800 --> 00:13:40.000
Are you familiar, Dick, with what I say by gross margin?

120
00:13:40.000 --> 00:13:48.700
The gross margin, in my interpretation, is the percentage of cost to manufacture the product.

121
00:13:48.700 --> 00:13:56.800
So if you have a, you're manufacturing a $40,000 machine, if it costs $30,000 in the plant to manufacture it,

122
00:13:56.800 --> 00:14:02.800
Your laborers, your material you have to buy, your welding rods and so forth, that's your actual shop cost.

123
00:14:02.800 --> 00:14:08.800
So what is left over is the gross margin, which in this case is 10%.

124
00:14:08.800 --> 00:14:15.800
This month, the third month, I envision the fact that the company now is going to start growing.

125
00:14:15.800 --> 00:14:22.800
So by then you probably would have hired some additional people, some salespeople, you may have done some advertising.

126
00:14:22.800 --> 00:14:32.080
So your G&A jumps up and for once now, instead of losing $30,000, we've only lost $20,000 that second month.

127
00:14:32.080 --> 00:14:39.120
And this continues on with the same type of pattern and you can see by the end of the first year,

128
00:14:39.120 --> 00:14:46.600
this company would have lost about $65,000.

129
00:14:46.600 --> 00:14:50.000
Now, in addition to this, you have to have other cash to start the company.

130
00:14:50.000 --> 00:14:51.880
You have to have start-up costs.

131
00:14:51.880 --> 00:14:54.640
You have to be able to go out and rent a building or buy a building.

132
00:14:54.640 --> 00:14:56.960
You've got to buy manufacturing equipment.

133
00:14:56.960 --> 00:14:59.400
You have to hire people and so forth.

134
00:14:59.400 --> 00:15:03.960
So this has to be the absolute beginning point if you're envisioning

135
00:15:03.960 --> 00:15:07.840
and starting any type of a business.

136
00:15:07.840 --> 00:15:10.880
Why does everything fall off in December here?

137
00:15:10.880 --> 00:15:15.520
Typically, in December is a period when not many orders are received.

138
00:15:15.520 --> 00:15:16.960
There's not a lot of activity.

139
00:15:16.960 --> 00:15:26.560
You have people taking vacations, you have Christmas holidays and so forth, so that pattern is pretty typical.

140
00:15:26.560 --> 00:15:30.460
I guess I subconsciously did it because in my business that actually did happen.

141
00:15:30.460 --> 00:15:30.960
Thanks, Mark.

142
00:15:30.960 --> 00:15:35.960
You sure wasn't Ford Motor Company.

143
00:15:35.960 --> 00:15:43.860
I wouldn't want to be involved with Ford or General Motors retirement programs right now.

144
00:15:43.860 --> 00:15:48.180
Once you put the business plan together, now you need certain people to have a company.

145
00:15:48.180 --> 00:15:52.260
Again, in my subconscious, I'm envisioning my company.

146
00:15:52.260 --> 00:15:55.900
And the starting point is to have to have something to sell.

147
00:15:55.900 --> 00:15:56.980
You have to have a product.

148
00:15:56.980 --> 00:15:58.900
You have to have an idea.

149
00:15:58.900 --> 00:16:02.020
And you certainly have to have a marketing plan.

150
00:16:02.020 --> 00:16:07.380
And in order to put this business plan together, Jeff, you need the marketing guy,

151
00:16:07.380 --> 00:16:12.060
because the marketing guy should be aware of the competition

152
00:16:12.060 --> 00:16:16.760
and should be able to predict the gross margin of the product you're going to sell

153
00:16:16.760 --> 00:16:20.960
because not knowing the gross margin, without knowing that you can't put the business plan together.

154
00:16:20.960 --> 00:16:25.260
You'd have to know your cost of manufacturing, what you can sell it for above that number.

155
00:16:25.260 --> 00:16:32.260
So the marketing guy is awfully important and you can be enthusiastic.

156
00:16:32.260 --> 00:16:37.160
I think every entrepreneur is enthusiastic and has a passion for it.

157
00:16:37.160 --> 00:16:42.240
But you must get into something like this realizing that there is going to be competition.

158
00:16:42.240 --> 00:16:46.640
And you're probably going to be competing against the well-established large companies,

159
00:16:46.640 --> 00:16:49.680
which is extremely, extremely difficult.

160
00:16:49.680 --> 00:16:56.480
Even if you have a unique product that you feel is unique, it may or may not be protected with a patent.

161
00:16:56.480 --> 00:17:03.600
But even if it's unique, believe me when I tell you, when people start observing your success, they'll be competing with you.

162
00:17:03.600 --> 00:17:09.120
So you have to envision this as a situation where you're always going to have some competition.

163
00:17:09.120 --> 00:17:19.360
The bad thing about competition is that it keeps your gross margins down.

164
00:17:19.360 --> 00:17:25.920
The fellow putting the ideas together then needs to absolutely be conscious and be well

165
00:17:25.920 --> 00:17:31.240
knowledgeable of the competition and the strengths and weaknesses of the competition.

166
00:17:31.240 --> 00:17:33.360
The second guy is really, really important.

167
00:17:33.360 --> 00:17:37.680
And I was blessed with a partner who was an accountant.

168
00:17:37.680 --> 00:17:41.620
And he's obviously very different from my traits.

169
00:17:41.620 --> 00:17:45.800
I'm enthusiastic, and boy, I go into him and say, we have to do this, we have to do that,

170
00:17:45.800 --> 00:17:49.160
we have to add another product, and say, let's do a business plan.

171
00:17:49.160 --> 00:17:52.840
Accountants, are there any accountants in the room?

172
00:17:52.840 --> 00:17:54.920
No accountants.

173
00:17:54.920 --> 00:17:58.480
I've really been blessed by having a good friend as an accountant.

174
00:17:58.480 --> 00:18:08.480
This guy is as tall as Mark, but he's very reserved and very quiet and very, very pessimistic about everything, I mean really pessimistic.

175
00:18:08.480 --> 00:18:11.480
I'm pessimistic.

176
00:18:11.480 --> 00:18:19.480
When we did put a plan together, as I mentioned in here, if you have a chance to look at it, I think it's a good idea to put two marketing plans together.

177
00:18:19.480 --> 00:18:26.480
And the sales guy, the marketing guy, the guy with the ideas on the products needs to work in unison with the accountant.

178
00:18:26.480 --> 00:18:41.480
And it's probably wise for the salesman, the guy with a lot of enthusiasm, to be a little bit weaker in personality than the accountant, and that was fortunately our situation, not because he was physically bigger, but he was knowledgeable from a business standpoint that I respected.

179
00:18:41.480 --> 00:19:00.480
So, the business plan has to be put together by the accountant, because you have to, and the accountant is critical also so that you continue to have good cost data, good sales data, good profitability data.

180
00:19:00.480 --> 00:19:14.480
Every month he would hand us a financial statement that not only told us what our profit was or what our losses were, but every month we had a statement that told us the gross margin of each product.

181
00:19:14.480 --> 00:19:23.480
So as the company grew, yes, it started off with one product, general steel fabrication, but today at $150 million a year in sales, there are endless number of products.

182
00:19:23.480 --> 00:19:34.480
We developed products over the years, but this accountant, every month we knew exactly where we stood from a cost standpoint, a manufacturing cost standpoint.

183
00:19:34.480 --> 00:19:41.480
I was asked to get involved with a company over in Georgia that's having some financial problems. They make rubber products.

184
00:19:41.480 --> 00:19:47.480
And the first thing I went and asked the accountant for is, let me see your manufacturing cost data.

185
00:19:47.480 --> 00:19:52.880
They had no idea how much it cost to manufacture their product

186
00:19:52.880 --> 00:19:56.080
and it was a 60 or 70 million dollar a year company.

187
00:19:56.080 --> 00:20:00.680
They just didn't have the accounting information to know where they stand.

188
00:20:00.680 --> 00:20:04.280
So in any company, whether it's a big company or small company,

189
00:20:04.280 --> 00:20:10.680
the accountant is absolutely vital, absolutely vital.

190
00:20:10.680 --> 00:20:14.780
The other thing you have to have when you're starting a business

191
00:20:14.780 --> 00:20:17.820
and some relationships with outside people.

192
00:20:17.820 --> 00:20:19.820
And by the time you get to this point,

193
00:20:19.820 --> 00:20:23.140
you probably have developed a relationship

194
00:20:23.140 --> 00:20:26.460
with some banker, an individual plus a banking company.

195
00:20:26.460 --> 00:20:30.940
Because in order to fund the start of this company,

196
00:20:30.940 --> 00:20:34.100
you probably are not gonna be able to do it on your own.

197
00:20:34.100 --> 00:20:36.180
You're gonna need some financial assistance.

198
00:20:36.180 --> 00:20:38.300
And the best thing to do is to go to a banker

199
00:20:38.300 --> 00:20:40.700
and develop a close relationship with him

200
00:20:40.700 --> 00:20:42.260
to see if he'll let you borrow the money.

201
00:20:42.260 --> 00:20:47.220
Now, back in the 1960s, 70s when we started this company, it wasn't this. The banking

202
00:20:47.220 --> 00:20:50.900
rules weren't as strict as they are today. Back then, you didn't have to collateralize

203
00:20:50.900 --> 00:20:56.340
everything. But I believe if you went to start a company today and you went to Compass Bank

204
00:20:56.340 --> 00:21:01.100
or you went to AMSAL, they would require you to provide collateral for every penny that

205
00:21:01.100 --> 00:21:07.500
you're going to borrow. One alternative to that is, if you don't have the collateral,

206
00:21:07.500 --> 00:21:25.500
is to go to a venture capitalist and venture capitalists are generally very, very wealthy individuals who have excess money that they'd like to invest in growing companies because their objective is to gain about 20% return on their investment.

207
00:21:25.500 --> 00:21:36.000
They're looking for a high return on their investment. So that's one possibility. I would discourage that if at all possible because as the company grows and as it becomes successful,

208
00:21:36.000 --> 00:21:52.000
The value of the stock is going to continually rise and it's going to be ever more difficult for you to buy your stock back, but it is one recourse to go to venture capitalists and you can go to the banker and the banker generally knows people who you can go to.

209
00:21:52.000 --> 00:22:03.000
I was really surprised at starting the company that we got very, very, very little, zero assistance actually from local governments, state governments.

210
00:22:03.000 --> 00:22:08.600
Realizing you're starting a manufacturing company, you obviously are going to be creating jobs.

211
00:22:08.600 --> 00:22:13.600
So you would think that the local municipality would give you some type, even a tax breaks.

212
00:22:13.600 --> 00:22:20.680
And I don't know whether we did it incorrectly, but we absolutely got zero help from government agencies.

213
00:22:20.680 --> 00:22:22.040
We had to do it all on our own.

214
00:22:22.040 --> 00:22:26.640
You might think, well, why don't you go public with the company, sell stock?

215
00:22:26.640 --> 00:22:32.520
The cost to sell stock and to develop that type of a concept is very, very expensive.

216
00:22:32.520 --> 00:22:44.520
Generally, companies that go to a stock option or sell it go public are companies that are already established and they need funding to supply growth.

217
00:22:44.520 --> 00:22:51.800
Those are the companies that generally go public. I know HealthSouth did that, for example.

218
00:22:51.800 --> 00:22:58.360
In our company, again, we needed, we had someone who could envision the product, who knew something about the product,

219
00:22:58.360 --> 00:23:03.560
And we had a darn good accountant who could put the business plan together and control cost.

220
00:23:03.560 --> 00:23:09.560
And again, I've got to emphasize the importance of keeping your startup costs low.

221
00:23:09.560 --> 00:23:12.360
I saw Mark's office today and it's a beautiful office.

222
00:23:12.360 --> 00:23:18.160
I can tell you in our company, we had very, very inexpensive offices.

223
00:23:18.160 --> 00:23:21.660
My kids, as they were going through high school and college, they'd come down and they'd laugh at it.

224
00:23:21.660 --> 00:23:26.660
But we kept our initial cost as low as possible.

225
00:23:26.660 --> 00:23:28.160
And I think that's a good rule to follow.

226
00:23:28.160 --> 00:23:37.160
But in a company of this type, you have to have someone who can design the product, who can engineer the product, and who can manufacture the product.

227
00:23:37.160 --> 00:23:50.160
So when we started our company, we realized we had to have someone that could run the manufacturing facility, who could put it together, who knew where to go out and buy the used equipment to put the manufacturing facility together.

228
00:23:50.160 --> 00:23:53.400
and then we needed someone who could design the product.

229
00:23:53.400 --> 00:23:56.280
Now that doesn't necessarily have to be an engineer,

230
00:23:56.280 --> 00:23:59.160
but it has to be someone who can take the idea

231
00:23:59.160 --> 00:24:01.440
and put it on paper in the form of a drawing

232
00:24:01.440 --> 00:24:04.560
that it could go into the shop and be manufactured.

233
00:24:05.440 --> 00:24:07.120
Alabama is a heavy industry state.

234
00:24:07.120 --> 00:24:09.480
There's a lot of steel manufacturing in Alabama

235
00:24:09.480 --> 00:24:12.500
and the supply of these skilled people

236
00:24:12.500 --> 00:24:13.460
is really diminishing.

237
00:24:13.460 --> 00:24:15.520
It's getting very, very, very difficult

238
00:24:15.520 --> 00:24:17.800
to hire draftsmen anymore.

239
00:24:17.800 --> 00:24:19.120
So these are the type of people

240
00:24:19.120 --> 00:24:26.120
so that you've got to have the foresight to realize you can't have them leave once you get them on board they've got to be there forever.

241
00:24:26.300 --> 00:24:32.240
So those are the type people that you might give minority stock ownership to.

242
00:24:33.240 --> 00:24:36.700
Legal. Legal help is absolutely imperative.

243
00:24:36.700 --> 00:24:53.700
To put the company together, you have to have a lawyer draw up all the various contracts, the stocks and so forth, and he would draw up all of your legal documents, and he's going to be required ongoing as the company grows.

244
00:24:53.700 --> 00:25:14.300
I'll give you an example. We had a construction superintendent who hired a worker and he was from Poland and he had a safety hat on and he had Polak on the top of his helmet, safety hat, and one day I guess he got mad at the superintendent and he filed his lawsuit against us.

245
00:25:14.300 --> 00:25:18.300
Discrimination, the superintendents call me a Polak.

246
00:25:18.300 --> 00:25:23.300
You won't believe this, but our insurance company ended up paying $40,000.

247
00:25:23.300 --> 00:25:29.300
It's unbelievable the number of lawsuits that you're going to constantly encounter.

248
00:25:29.300 --> 00:25:32.300
Some of them are trivial, but some of them aren't.

249
00:25:32.300 --> 00:25:37.300
We had a situation where a large crane, from an insurance standpoint,

250
00:25:37.300 --> 00:25:40.300
we always rent a crane with the operator.

251
00:25:40.300 --> 00:25:57.300
We had a situation where the operator of the crane extended a boom too far and the crane collapsed and that was about a $400,000 or $500,000 lawsuit that we got involved with so that the attorneys are always there.

252
00:25:57.300 --> 00:26:03.300
In the steel fabricating business, the construction business, it's dangerous. It's one of the most dangerous businesses in the world. We've had employees killed.

253
00:26:03.300 --> 00:26:13.300
So, having a good relationship with a reliable lawyer, knowing him on a personal basis is an ongoing situation that you have to consider.

254
00:26:13.300 --> 00:26:17.300
Did you have a lawyer in your company or just someone on the outside?

255
00:26:17.300 --> 00:26:28.300
Just the outside. I think you really, Mark, have to get into billion dollar companies or 500 million dollar companies before you start affording a legal counsel.

256
00:26:28.300 --> 00:26:32.300
We never had an airplane either. I always went on an airplane.

257
00:26:32.300 --> 00:26:36.300
The accountant said no to the airplane.

258
00:26:36.300 --> 00:26:40.300
Again, suggestion six is persistence.

259
00:26:40.300 --> 00:26:44.300
Obviously,

260
00:26:44.300 --> 00:26:48.300
it is important. One of the prices I paid, though, was

261
00:26:48.300 --> 00:26:52.300
being in the sales end of it, I had required to travel quite a bit, and that

262
00:26:52.300 --> 00:26:56.300
can be tiring, that can be tiring, especially when you're raising

263
00:26:56.300 --> 00:27:26.300
and Small Children. In those days, the children were, you know, 3, 4, 5, 10 years old. And I always had a policy that when I did travel, boy, I worked as hard and as long as I could when I was gone so that I could get back and maximize the amount of time I could be back in Birmingham, Alabama. And that meant leaving 5 o'clock airline flights, coming in the last flight at night. That's one thing I absolutely

264
00:27:26.300 --> 00:27:56.300
I did as a necessity. It's something that, it's a price you have to pay. And it's difficult because I remember I'd come home, and Sue would say, boy, Sean, son, he's got a problem in school, you got to go help with his math, or they did something wrong. It's so stressful. You want to come home and you want to hug him. And all of a sudden, your spouse is saying you got to discipline him. And it really, it really is can be office stressful. I think also in persistence is

265
00:27:56.300 --> 00:28:03.420
that you must reduce your debt as quickly as possible.

266
00:28:03.420 --> 00:28:05.780
What you want to do is have a company that eventually

267
00:28:05.780 --> 00:28:08.120
is free of your banking responsibility.

268
00:28:08.120 --> 00:28:11.900
Well, you're not borrowing money to operate on.

269
00:28:11.900 --> 00:28:13.980
And again, that's where the partner

270
00:28:13.980 --> 00:28:19.180
of having a really strong accountant really is an asset.

271
00:28:19.180 --> 00:28:20.940
I like to spend money.

272
00:28:20.940 --> 00:28:22.340
I do.

273
00:28:22.340 --> 00:28:25.300
My partner likes to accumulate money.

274
00:28:25.300 --> 00:28:29.220
and that is really, really an important factor in why we succeeded.

275
00:28:29.220 --> 00:28:31.180
He wouldn't let us spend money.

276
00:28:31.180 --> 00:28:34.180
For the first 10 or 15, you know, $150 million a year company.

277
00:28:34.180 --> 00:28:37.020
Obviously, we had to be making money.

278
00:28:37.020 --> 00:28:42.340
And I know up until my daughter, my one daughter went to Auburn

279
00:28:42.340 --> 00:28:43.660
and the other daughter went to Samford.

280
00:28:43.660 --> 00:28:45.340
And when the older daughter was at Samford,

281
00:28:45.340 --> 00:28:48.900
she'd come home and we had an average house.

282
00:28:48.900 --> 00:28:49.940
I didn't drive Cadillacs.

283
00:28:49.940 --> 00:28:51.180
I drove Buicks or Chevys.

284
00:28:51.180 --> 00:28:54.200
And people said, why are you working so hard?

285
00:28:54.200 --> 00:29:00.000
Well, what was happening during that period of time was the fact that we were reducing debt.

286
00:29:00.000 --> 00:29:01.400
We were getting buildings paid for.

287
00:29:01.400 --> 00:29:06.400
For example, we kept our manufacturing plants as a limited partnership where the owners had them,

288
00:29:06.400 --> 00:29:08.120
so we collected rent from those buildings.

289
00:29:08.120 --> 00:29:11.680
Well, it took 15 years to get the buildings paid off.

290
00:29:11.680 --> 00:29:17.920
And it wasn't until later in life that I started realizing, you know, I'm making money.

291
00:29:17.920 --> 00:29:22.160
Rather than just looking at it on paper, I was starting to get my rewards simply

292
00:29:22.160 --> 00:29:27.720
because the accountant was really a strong guy, and he said, we're going to reduce that.

293
00:29:27.720 --> 00:29:31.040
We got to the point that we weren't borrowing any money.

294
00:29:31.040 --> 00:29:33.920
And that made it possible to do what was right.

295
00:29:33.920 --> 00:29:40.640
That was, as we grew the company, we hired young people out of college.

296
00:29:40.640 --> 00:29:45.120
And they stayed with us for 15 and 20 years and helped us grow there.

297
00:29:45.120 --> 00:29:46.480
They were part of the company.

298
00:29:46.480 --> 00:29:49.520
They learned, we all learned together.

299
00:29:49.520 --> 00:29:54.600
And by retiring debt then, we had an option that was ethically correct.

300
00:29:54.600 --> 00:30:00.000
Rather than selling the company to a large conglomerate who'd pay two or three times book value,

301
00:30:00.000 --> 00:30:06.720
we had the luxury of being able to pass the company on to these young people and let them pay us over time at an affordable price,

302
00:30:06.720 --> 00:30:15.560
which would not have been possible if the accountant hadn't been such a strong individual.

303
00:30:15.560 --> 00:30:24.140
As you reduce debt and as you grow, and as a company succeeds, Jeff, what happens is people start coming to you and saying,

304
00:30:24.140 --> 00:30:27.680
can I buy into your company? Can I have some stock in your company?

305
00:30:27.680 --> 00:30:33.240
And at that point, you don't want to sell your stock, but you have another good option.

306
00:30:33.240 --> 00:30:42.040
And that is the option to start satellite companies. We're a steel fabricating company, so obviously we had to buy millions of dollars of steel.

307
00:30:42.040 --> 00:30:47.480
So we found an individual who wanted to buy stock in our company,

308
00:30:47.480 --> 00:30:50.640
which already told me he wanted to be an entrepreneur, he wanted to have ownership.

309
00:30:50.640 --> 00:30:53.120
We said, well, but what started another company?

310
00:30:53.120 --> 00:30:58.720
By reducing debt now, we could go to the bank and borrow money to start a separate company.

311
00:30:58.720 --> 00:31:04.040
So we were buying steel, so we started a separate steel warehouse company.

312
00:31:04.040 --> 00:31:08.640
And we were building machinery that required high strength steel, a very particular type of steel.

313
00:31:08.640 --> 00:31:14.920
So, we centered this warehouse business around this particular high-strength steel.

314
00:31:14.920 --> 00:31:21.800
Today, that steel warehouse is one of the largest warehouse companies in the United States on that particular steel.

315
00:31:21.800 --> 00:31:28.920
Our company went to paper mills and power plants. We worked on boilers, so we had another individual come to us and say,

316
00:31:28.920 --> 00:31:34.600
you guys are manufacturing auxiliary equipment and repairing auxiliary equipment for large boilers.

317
00:31:34.600 --> 00:31:43.880
Boilers are pieces of equipment that Alvin Power has that they put coal in, they generate steam, the steam goes through turbines and generates electricity.

318
00:31:43.880 --> 00:31:54.880
In a paper mill where we are in the center of the paper industry, when you're making paper, the first thing you do is you go to the forest and you cut down trees and then you remove the bark.

319
00:31:54.880 --> 00:31:59.960
And the bark then is not used for making the pulp or making the paper, you have to dispose of it.

320
00:31:59.960 --> 00:32:15.320
So what the paper industry does is they'll take all this bark and they'll put it in a pile and they'll burn it in a boiler and they will generate high pressure steam to take the high pressure steam, expand it through a turbine and generate their own electricity.

321
00:32:15.320 --> 00:32:22.360
Then they will use the low pressure steam to go into what's called the digesters to cook the pulp.

322
00:32:22.360 --> 00:32:27.720
It's like a pot. So they cook the pulp and make what's called pulp that eventually goes onto the paper machine.

323
00:32:27.720 --> 00:32:33.080
So all around the South, or really all around the world, you have an abundance of boilers.

324
00:32:33.080 --> 00:32:38.720
Our company manufactured and repaired the equipment that was not what you'd call high pressure,

325
00:32:38.720 --> 00:32:43.680
not thousand pound pressure, the auxiliary equipment that worked at low pressures.

326
00:32:43.680 --> 00:32:47.160
So we had an individual come to us and say, can I join your company?

327
00:32:47.160 --> 00:32:49.560
And, well, we don't want to sell any stock.

328
00:32:49.560 --> 00:32:52.240
He wanted to have ownership. That's the key.

329
00:32:52.240 --> 00:32:53.960
So he said, well, we'll start another company.

330
00:32:53.960 --> 00:33:07.320
So, having the accountant who made us reduce debt, allowed us again to go to the bank and borrow money to start another satellite company, which was a boiler repair company.

331
00:33:07.320 --> 00:33:11.240
Today they're doing around 30, 40 million dollars.

332
00:33:11.240 --> 00:33:17.040
We also were buying a lot of welding rods and oxygen and acetylene.

333
00:33:17.040 --> 00:33:20.520
A gentleman came to us and said, look, I'm working for this welding supply company.

334
00:33:20.520 --> 00:33:22.880
I'd like to have my own business. Can I buy into your company?

335
00:33:22.880 --> 00:33:25.480
I'm sorry, but there's no stock for sale.

336
00:33:25.480 --> 00:33:29.040
Well, the accountant reduced debt, went to the bank, borrowed money,

337
00:33:29.040 --> 00:33:31.120
and started a welding supply company.

338
00:33:31.120 --> 00:33:33.800
Eventually, we had about five or six companies

339
00:33:33.800 --> 00:33:37.680
that really started that way by an individual wanting

340
00:33:37.680 --> 00:33:42.240
to have ownership in the company, but didn't have to know how to do it,

341
00:33:42.240 --> 00:33:46.760
nor did he have the finances, she had the finances to do it.

342
00:33:46.760 --> 00:33:49.560
Thank goodness for the accountant.

343
00:33:49.560 --> 00:34:00.560
Suggestion seven, without question, the most difficult aspect of managing a big company or a small company or your company or someone else's company is salary management.

344
00:34:00.560 --> 00:34:15.560
Extremely, extremely difficult. We had superintendents, probably the most important people on a company was seven or eight superintendents who would go out on the site and wreck the equipment and so forth, and there's a big demand for these superintendents.

345
00:34:15.560 --> 00:34:25.560
So, we would have a situation where the accountant and the sales people would say, well, we're about to lose a superintendent. We can't lose him. Let's raise his salary. He's going to get more money at the competitor.

346
00:34:25.560 --> 00:34:34.560
You just can't do that because if you raise a salary for one superintendent, you have to do it for the other six superintendents. And that doesn't work.

347
00:34:34.560 --> 00:34:43.560
I don't know what the solution is other than to be associated with someone in management who has some, again, some accounting background.

348
00:34:43.560 --> 00:34:54.560
I think the accountant by his nature is just so pessimistic that he's going to maintain keeping your cost at a very, very minimum.

349
00:34:54.560 --> 00:35:07.560
I talk about taxes. You read the paper so often about companies that get into financial trouble because they're in trouble with the IRS because they don't pay their taxes.

350
00:35:07.560 --> 00:35:18.560
Your accountant is going to have an outside accounting company that's going to audit your books and do all of your taxes, but you've got to be sure that every quarter you pay your taxes.

351
00:35:18.560 --> 00:35:25.560
I'm ashamed to say such a fundamental thing to such a bright group of people, but there are companies that don't do that.

352
00:35:25.560 --> 00:35:28.560
There are absolute companies that don't pay their taxes.

353
00:35:28.560 --> 00:35:34.560
There's an article in the Birmingham paper about one of the CFOs at Health South Corporation.

354
00:35:34.560 --> 00:35:46.560
He forgot to pay his taxes for two years. I mean, I don't know how that happens, but every quarter we paid our taxes, and we had money to pay our taxes.

355
00:35:48.560 --> 00:35:58.560
Near the end, I'm talking about a type of business, defining the type of business, and I talk about what's called an OEM.

356
00:35:58.560 --> 00:36:03.560
OEM. Do you know what I mean by that? An OEM is an original equipment manufacturer. Let's

357
00:36:03.560 --> 00:36:09.040
say that Dick Clark wanted to start a company. Like you're reading in a financial paper today

358
00:36:09.040 --> 00:36:13.100
about this company, a subsidiary of Ford that got in financial trouble. They made parts

359
00:36:13.100 --> 00:36:17.280
for Ford Motor Company. I can't think of the name of it. But I can understand why they're

360
00:36:17.280 --> 00:36:23.720
in trouble because they manufactured products for an OEM, which was Ford Motor Company.

361
00:36:23.720 --> 00:36:29.280
In my 30 years, I could never figure out how to make money selling a product to an OEM.

362
00:36:29.280 --> 00:36:30.280
I really couldn't.

363
00:36:30.280 --> 00:36:36.760
Because if you go to the OEM, the OEM has polished purchasing agents who do nothing

364
00:36:36.760 --> 00:36:40.800
but buy equipment, and they'll just knock you down and knock you down to the lowest

365
00:36:40.800 --> 00:36:43.000
dollar possible.

366
00:36:43.000 --> 00:36:51.080
We had a competitor of ours who really caused us terrible problems early in the creation

367
00:36:51.080 --> 00:36:58.560
Company, because he somehow was selling at a price lower than what we could, and we finally

368
00:36:58.560 --> 00:37:04.960
figured out he went bankrupt, but he had a position in marketing that he was spending

369
00:37:04.960 --> 00:37:07.640
most of his time calling on OEMs.

370
00:37:07.640 --> 00:37:11.640
Now, in our industry, that was the boiler manufacturers, companies like Babcock, Wilcof,

371
00:37:11.640 --> 00:37:13.160
combustion engineering.

372
00:37:13.160 --> 00:37:18.720
But in Dick's business, if he's going to start a small machine shop and he is going to manufacture

373
00:37:18.720 --> 00:37:27.720
for a product for an automobile. It might be, let's say, a steering wheel. I mean, that's a simple case, or a gasoline pedal or something like that.

374
00:37:27.720 --> 00:37:36.720
He has two choices. He can go to Ford Motor Company or General Motors Company and hope he can get a contract to supply these components for that automobile.

375
00:37:36.720 --> 00:37:40.720
But believe me, Dick, you're not going to make a very high gross margin if you do that.

376
00:37:40.720 --> 00:37:47.720
Your alternative would be to go and sell that product as a replacement product to the end users.

377
00:37:47.720 --> 00:38:17.720
One of my partners, who I love very dearly, came to us about 8 years ago and said, I want to build a church. I want to sell my stock. So we bought him out. And he started an incredibly, fabulous, huge Baptist church up in Birmingham. And after he built the church, he fulfilled his dream. He wanted to do something. So in his church, he got to know some of the medical professors down there.

378
00:38:17.720 --> 00:38:47.720
UAB. And they had come up with a formula for a vitamin or a nutritious pill, a vitamin essentially. So he came up with this pill and he went to a company in Georgia. He manufactured it. And by this time, my partner didn't have much money left. He gave it all to the church, to be honest with you. So he did, was not financially strong. So he had this vitamin and he's figuring out how to sell it. Now, one thing, the easiest way to sell it would be to go to CBS or Rexall or Walmart. So look,

379
00:38:47.720 --> 00:38:49.720
How about you selling this for us?

380
00:38:49.720 --> 00:38:52.720
But you know that they're not going to give you anything for it.

381
00:38:52.720 --> 00:38:55.720
You're going to be working on a pencil-thin gross margin.

382
00:38:55.720 --> 00:38:59.720
So he's trying to sell it through manufacturer's reps.

383
00:38:59.720 --> 00:39:02.720
You know what I mean by a manufacturer's rep?

384
00:39:02.720 --> 00:39:04.720
You do this? You, Jeff?

385
00:39:04.720 --> 00:39:13.720
Well, there are individual people in different geographical locations

386
00:39:13.720 --> 00:39:16.720
that represent a number of companies.

387
00:39:16.720 --> 00:39:46.720
and they work strictly on a commission and the idea is if you're going to go with them it's really a smart idea initially because you don't have the cost of hiring and training your own sales force all you've got to do then is train assist these people so that's the concept that AT is going to try and do is get these people to go out and sell but I keep saying to myself AT your big obstacle is how do you know how do you evaluate the benefit of this you know that to me is the

388
00:39:46.720 --> 00:39:50.800
The challenge, if they could do a blood test or something, you take your vitamins and after

389
00:39:50.800 --> 00:39:54.280
so many months you find that your immunity system is improved, I guess.

390
00:39:54.280 --> 00:39:59.520
But I mean, he really, really has a problem in trying to market this product from this

391
00:39:59.520 --> 00:40:02.520
new company.

392
00:40:02.520 --> 00:40:07.240
I also had one other creed that I followed, that was to be in a position, if I was working

393
00:40:07.240 --> 00:40:11.440
somewhere whether it was for me or for someone else, to be in a position where I was constantly

394
00:40:11.440 --> 00:40:15.920
learning, constantly learning.

395
00:40:15.920 --> 00:40:21.200
Lockheed, that first job I had sitting in the cubicle doing theoretical calculations,

396
00:40:21.200 --> 00:40:27.200
Mark, I wasn't learning anything. I was miserable. And I said, I've got to get out of this. I've

397
00:40:27.200 --> 00:40:32.760
got to do something else. So for 35 years, I made a point of being in a position where

398
00:40:32.760 --> 00:40:38.880
I learned something, where you can learn constantly. I think if you're not learning at a particular

399
00:40:38.880 --> 00:40:43.760
position, Jeff, you've got to change. And I always taught my children, don't quit something.

400
00:40:43.760 --> 00:41:13.760
In closing, I made some highlights. If you're thinking about becoming an entrepreneur, I don't like to use that word, but if you're thinking about becoming self-employed, you better have an accountant as a good friend, and you ought to put together a good business plan. Retire debt as quickly as possible, minimize start-up cost, and have a good business plan.

401
00:41:13.760 --> 00:41:18.760
Handle the most difficult aspect of the company and that's manage salaries properly and wisely.

402
00:41:18.760 --> 00:41:22.360
Pay taxes promptly. I'm sorry, but we have to add that.

403
00:41:22.360 --> 00:41:24.960
And you've got to grow the company strategically.

404
00:41:24.960 --> 00:41:29.760
You have to realize that every day if you're not growing, your manufacturing costs are increasing.

405
00:41:29.760 --> 00:41:34.260
People are going to want cost of living raises. Price of steel is going up.

406
00:41:34.260 --> 00:41:38.960
So you've either got to increase your gross margin each year or you've got to increase your sales.

407
00:41:38.960 --> 00:41:42.260
And increasing gross margin is extremely challenging.

408
00:41:42.260 --> 00:41:49.460
So in your company, you've got to look at constant growth to take account of constant cost.

409
00:41:49.460 --> 00:41:56.580
You've got to train key employees to take over the company because you don't live forever.

410
00:41:56.580 --> 00:42:01.060
You never compromise your ethical beliefs, never.

411
00:42:01.060 --> 00:42:06.020
In a private company, of course, you think, well, you may not be tempted, but we did have a situation

412
00:42:06.020 --> 00:42:11.060
after about two or three years, if you recall, most everyone in this room is too young to recall,

413
00:42:11.060 --> 00:42:19.060
I guess, but there was a period of time about 20 years ago, interest rates were about 18 or 19 percent. Does anybody remember that?

414
00:42:19.060 --> 00:42:23.700
It was really difficult. The banks came to us and said, I don't know how you guys are going to do it.

415
00:42:23.700 --> 00:42:31.500
So we had a time where we would be required in those days to give the bank our monthly financial statements.

416
00:42:31.500 --> 00:42:38.020
And it would have been very easy, I guess, to be tempted to forge some numbers on those financial statements.

417
00:42:38.020 --> 00:42:41.620
but the five of us would never ever consider anything like that.

418
00:42:41.620 --> 00:42:43.860
We had to come up with our own money at one time

419
00:42:43.860 --> 00:42:45.980
rather than cheat on the accounting statement.

420
00:42:45.980 --> 00:42:51.060
So I think ethics, what can you say?

421
00:42:51.060 --> 00:42:51.980
It has to be with you.

422
00:42:51.980 --> 00:42:53.140
It has to be ingrained with you.

423
00:42:53.140 --> 00:42:55.820
You have to be consistent with it.

424
00:42:55.820 --> 00:42:58.700
And then finally, you've just got to enjoy it.

425
00:42:58.700 --> 00:43:00.500
It's supposed to be an hour, but I've run out.

426
00:43:00.500 --> 00:43:01.860
There's no participation.

427
00:43:01.860 --> 00:43:02.360
That's OK.

428
00:43:02.360 --> 00:43:03.820
We'll have some questions for you.

429
00:43:03.820 --> 00:43:04.780
Thank you very much, Bob.

430
00:43:04.780 --> 00:43:05.280
OK.

431
00:43:05.280 --> 00:43:35.280
Before we actually see if you've got any questions, I've got to say that I appreciated the part of your story where you talked about how your father didn't include his own salary in his business plan, his opportunity cost of going into business because that's one of the things we teach in principles of economics classes is if you're going to go from a salary to self-employment, you have to consider

432
00:43:35.280 --> 00:43:37.380
the cost of your time.

433
00:43:37.380 --> 00:43:39.520
And I always thought I was wasting

434
00:43:39.520 --> 00:43:41.220
the students' time

435
00:43:41.220 --> 00:43:45.500
with all of that analysis, thinking that everybody must realize that, so

436
00:43:45.500 --> 00:43:48.020
the fact that your father didn't.

437
00:43:48.020 --> 00:43:52.020
Mark, in economics class, do they teach students how to put a business plan together?

438
00:43:52.020 --> 00:43:53.860
Is that part of the economics class?

439
00:43:53.860 --> 00:43:55.940
No, not in economics.

440
00:43:55.940 --> 00:43:58.640
The business plan would

441
00:43:58.640 --> 00:44:01.480
come in management courses,

442
00:44:01.480 --> 00:44:05.020
certainly by the time you get to

443
00:44:05.020 --> 00:44:08.820
Strategic Management, for example.

444
00:44:08.820 --> 00:44:12.220
I would suppose the accounting classes would more than likely do that.

445
00:44:12.220 --> 00:44:14.140
I would imagine.

446
00:44:14.140 --> 00:44:19.260
Being an engineer, I can remember all I ever had was one English course, one

447
00:44:19.260 --> 00:44:22.780
economics course, and everything else was all technical.

448
00:44:22.780 --> 00:44:28.420
So I had to really rely on the accountant, as he was so important.

449
00:44:28.420 --> 00:44:31.620
But he had to rely on me, because he didn't have any vision of what

450
00:44:31.620 --> 00:44:33.260
the products would be.

451
00:44:33.260 --> 00:44:40.260
so we were totally dependent on each other

452
00:45:03.260 --> 00:45:30.260
Finally, a question coming from a man who married a banker, and the best man at his wedding was an accountant. You're sitting at the von Mises Institute, and your clothes was just perfect. Never, never give up.

453
00:45:30.260 --> 00:45:35.760
Never, never give up on your ethics or your moral standard.

454
00:45:35.760 --> 00:45:41.260
It seems to me like somewhere in there you want to address, and I'll be interested to hear what your comment is,

455
00:45:41.260 --> 00:45:44.760
it'd probably be nice to have a friendly politician.

456
00:45:44.760 --> 00:45:52.260
It seems like anybody today that wants to start up any business, whether it's a hot dog stand or building an automobile,

457
00:45:52.260 --> 00:45:59.260
the roadblocks that are put into place by the government are just insurmountable almost today

458
00:45:59.260 --> 00:46:03.700
as opposed to what they were 20 or 50 years ago and you know the stuff that I

459
00:46:03.700 --> 00:46:07.780
suffered at Ford Motor Company when I first went to work for Ford Motor Company

460
00:46:07.780 --> 00:46:11.700
the operating manual was about this big and you had a couple of warranty and

461
00:46:11.700 --> 00:46:16.020
policy manuals with cap regulations, emissions regulations, passenger strength

462
00:46:16.020 --> 00:46:20.180
regulations, I have no idea how young people get into the job that I did at

463
00:46:20.180 --> 00:46:23.980
Ford Motor Company and survive it's just so overwhelming. You didn't even

464
00:46:23.980 --> 00:46:29.980
Of course, well that and that had always been there, and of course they got worse as well.

465
00:46:29.980 --> 00:46:34.980
Well, I think you're right. In starting the business, we really got zero help from the government.

466
00:46:34.980 --> 00:46:39.980
I think we seeked the initiative. Well, there was no help. That kind of helped the Austrian people.

467
00:46:39.980 --> 00:46:48.980
But safety is such an important issue, and you have so many government regulations pertaining to safety, so many forms to fill out.

468
00:46:48.980 --> 00:46:52.980
And what's your advice to young people in dealing with those obstacles today?

469
00:47:18.980 --> 00:47:20.980
When I graduated from college, I went into service.

470
00:47:20.980 --> 00:47:22.700
I was a lieutenant, I had a platoon.

471
00:47:22.700 --> 00:47:26.540
Boy, that was so much fun to have responsibility for someone.

472
00:47:26.540 --> 00:47:30.820
So I think we all started a business

473
00:47:30.820 --> 00:47:34.060
because of dissatisfaction in working for someone else.

474
00:47:34.060 --> 00:47:39.260
Having someone else control how much money you're going to make.

475
00:47:39.260 --> 00:47:41.860
So I think when you start off, you're probably

476
00:47:41.860 --> 00:47:43.700
not worrying about these other obstacles

477
00:47:43.700 --> 00:47:45.980
that you're alluding to, but they manifest themselves

478
00:47:45.980 --> 00:47:47.300
pretty quickly.

479
00:47:47.300 --> 00:47:50.740
They really do.

480
00:47:50.740 --> 00:47:54.020
Having the outside accounting firm,

481
00:47:54.020 --> 00:47:58.260
having a good relationship with an outside accounting firm

482
00:47:58.260 --> 00:48:02.340
really, really, really, really was a big factor.

483
00:48:02.340 --> 00:48:04.300
My partner being an accountant, yes,

484
00:48:04.300 --> 00:48:06.380
I gave him a lot of credit for the business plan,

485
00:48:06.380 --> 00:48:09.740
but he also ran the manufacturing plant.

486
00:48:09.740 --> 00:48:13.700
So he had the problems, is it going to be union or non-union?

487
00:48:13.700 --> 00:48:15.260
That comes up.

488
00:48:15.260 --> 00:48:17.260
And our thought was, well, if they want to be union,

489
00:48:17.260 --> 00:48:22.940
in the Union. So, but the government obstacles are there, yeah, like I talked

490
00:48:22.940 --> 00:48:26.920
about the lawsuit over the guy because he said Pollock, I mean it's a true story, I

491
00:48:26.920 --> 00:48:31.500
bet, Ozzie, I bet you think I'm making it up, but I'm not.

492
00:48:31.500 --> 00:48:46.700
I have so many questions, so I'm just going to throw them all out, but two. One, I'm curious how the inflation of the late 70s affected you and your accounting standards, and how you dealt with that, and also to ask you about the

493
00:48:46.700 --> 00:48:57.700
The boom of the late 90s and your assessment of the impact of that on all the accounting scandals that followed.

494
00:49:16.700 --> 00:49:18.700
I don't know how you did it. You shouldn't have done it.

495
00:49:18.700 --> 00:49:21.700
But the way we did it was our salaries were very, very low.

496
00:49:21.700 --> 00:49:23.700
Our travel expenses were very, very low.

497
00:49:23.700 --> 00:49:26.700
I remember traveling in a car and going to a hotel.

498
00:49:26.700 --> 00:49:30.700
I didn't stay at Holiday Inn. I stayed at really, really cheap hotels

499
00:49:30.700 --> 00:49:34.700
where 4.30 in the morning the truckers would start their engines and they'd wake you up.

500
00:49:34.700 --> 00:49:38.700
So we kept our costs at an absolute minimum.

501
00:49:38.700 --> 00:49:44.700
And we eventually got to the point that we started getting some additional products developed

502
00:49:44.700 --> 00:49:47.700
that would carry higher and higher gross margins.

503
00:49:47.700 --> 00:49:52.700
So we are subconsciously moving in a direction where our gross margin was increasing.

504
00:49:52.700 --> 00:50:00.700
So we somehow weathered that storm, but we just weren't taking any money out of the company.

505
00:50:00.700 --> 00:50:05.700
And it was, you know, conservative management, I guess, is the answer.

506
00:50:05.700 --> 00:50:10.700
Now back in the 90s when they had the boom with the computer industry,

507
00:50:10.700 --> 00:50:15.200
Again, in Birmingham, being in the steeling, it really didn't affect us that much.

508
00:50:15.200 --> 00:50:21.700
It really, it really didn't affect us. What happened to us as time progressed,

509
00:50:21.700 --> 00:50:24.700
we got to the point where our sales costs started to come down.

510
00:50:24.700 --> 00:50:30.700
Well, we didn't have to go out and beg for business, not beg for business, but really work hard to attain business

511
00:50:30.700 --> 00:50:34.200
because people don't want to work with a fledgling, young, incipient company.

512
00:50:34.200 --> 00:50:36.700
They want to go to a well-established company.

513
00:50:36.700 --> 00:50:39.200
If you're a plant engineer in a paper mill,

514
00:50:39.200 --> 00:50:42.200
You make a bad decision over buying a product, you're going to pay for it.

515
00:50:42.200 --> 00:50:45.640
So obviously, they're going to want to go with a big established company where their

516
00:50:45.640 --> 00:50:47.360
risk is minimum.

517
00:50:47.360 --> 00:50:53.400
So where we started to experience some relief, Jeff, was as time progressed and our customer

518
00:50:53.400 --> 00:50:59.960
base enlarged, our sales costs essentially started decreasing.

519
00:50:59.960 --> 00:51:00.960
I think that's accurate.

520
00:51:00.960 --> 00:51:05.400
I think all of a sudden, people would start to come to us with inquiries rather than us

521
00:51:05.400 --> 00:51:08.960
going to them saying, would you be interested in buying this product?

522
00:51:08.960 --> 00:51:13.760
All of a sudden they started coming to us, where the real progress occurred was when

523
00:51:13.760 --> 00:51:18.720
the competitor, I mean we had about four or five competitors, we had one really key competitor

524
00:51:18.720 --> 00:51:24.720
who was driving our prices down and about six, seven years ago he ran into financial

525
00:51:24.720 --> 00:51:32.280
difficulty and when we acquired him then our margins went up and we almost had a monopoly

526
00:51:32.280 --> 00:51:41.480
on it to some extent, but that success in the 90s, it really didn't have much effect

527
00:51:41.480 --> 00:51:45.360
on our particular group of companies.

528
00:51:45.360 --> 00:51:48.280
We were getting our business from the paper mills, and the power plants, and the steel

529
00:51:48.280 --> 00:51:49.280
mills.

530
00:51:49.280 --> 00:51:50.280
Yes?

531
00:51:50.280 --> 00:52:13.280
yes well the closest I can come to is thinking that can a salesman could be a

532
00:52:13.280 --> 00:52:18.720
good sales manager and the answer to your question is no we didn't we didn't

533
00:52:18.720 --> 00:52:48.720
and Experience. All of the people in our company, we grew up as a family. We had young engineers and when we hired engineers, I didn't go to Auburn or Mississippi State to look for the brightest engineers. I didn't want an engineer with all A's. I wanted an engineer who was diversified, a guy with B's and C's who was active in different things and who could communicate, who didn't have to do what I did and read Captains and Kings twice. And those people stayed with us and we grew.

534
00:52:48.720 --> 00:52:51.720
I guess we did not experience what you're talking about.

535
00:52:51.720 --> 00:52:53.720
I guess I'm talking about Peter Pressmore.

536
00:52:53.720 --> 00:52:56.720
Yeah, I think that does exist.

537
00:52:56.720 --> 00:53:03.720
When I worked for a big company, well, when we went to work at Lockheed,

538
00:53:03.720 --> 00:53:08.720
I mentioned in that paper that, gosh, in 1964, if you had an engineering degree,

539
00:53:08.720 --> 00:53:11.720
you had a job, and the supervisor had a job.

540
00:53:11.720 --> 00:53:14.720
I realized I was working for a guy that knew, how do I say this,

541
00:53:14.720 --> 00:53:17.720
technically knew less than I did.

542
00:53:17.720 --> 00:53:23.320
But the Peter Principle does exist. I don't think we experienced it in our company.

543
00:53:23.320 --> 00:53:31.120
I think we controlled it. We had some people, for example, who wanted to be promoted to different positions and who they couldn't do it.

544
00:53:31.120 --> 00:53:37.320
Primarily, the specific one I'm thinking of is we had a particular salesman who was very, very good at selling.

545
00:53:37.320 --> 00:53:42.320
But when we put him into a regional sales position in charge of the Northeast,

546
00:53:42.320 --> 00:53:45.020
after about a month, all the salesmen and sales rep came to me and said,

547
00:53:45.020 --> 00:53:46.620
Well, I'm not going to work for this guy.

548
00:53:46.620 --> 00:53:50.540
I mean, he was a hell of a good salesman, but he didn't know how to manage people.

549
00:53:50.540 --> 00:53:52.580
He didn't know how to encourage people.

550
00:53:52.580 --> 00:53:53.580
He discouraged them.

551
00:53:53.580 --> 00:53:56.460
So that's probably the best example I could think of.

552
00:53:56.460 --> 00:53:59.660
But the Peter Principle is there, yes.

553
00:53:59.660 --> 00:54:00.460
Yeah, Jeff?

554
00:54:00.460 --> 00:54:02.500
Related to that, what makes a good employee?

555
00:54:02.500 --> 00:54:16.940
Well, I think he has to begin, he has to be ethical to start off with. He has to be an

556
00:54:16.940 --> 00:54:26.560
honest person. But then he is created. He's motivated. You develop him, I think. I think

557
00:54:26.560 --> 00:54:30.060
if he's a draftsman, and he's going in and he's doing drafting all the time, you've got

558
00:54:30.060 --> 00:54:39.060
You've got to go down and encourage him and talk to him and tell him he's doing a good job and tell him what he can do to be progressed, to be managing that department.

559
00:54:39.060 --> 00:54:49.060
If you can make that employee realize that he's not going to be in that position forever, that there's an opportunity for advancement, then you've got a good employee.

560
00:54:49.060 --> 00:55:01.740
One mistake I made was we had a gentleman who came to work for us, and he used the Lord's name in vain, you know, all the time, you know.

561
00:55:01.740 --> 00:55:05.620
That's not the kind of guy you want in your company.

562
00:55:05.620 --> 00:55:11.580
That's a bad employee. And what are you going to do about a guy like that? Encourage him to leave.

563
00:55:11.580 --> 00:55:17.260
But I think a good employee to answer the question is someone that's ethically honest, a good person.

564
00:55:17.260 --> 00:55:36.260
How did the steel tariffs, the pushed steel tariffs affect you?

565
00:55:47.260 --> 00:55:52.700
We were paying more or less for steel, then the competitors also were in the same position,

566
00:55:52.700 --> 00:55:57.180
and so our cost, the importance of our cost was how relative it is to the competition.

567
00:55:57.180 --> 00:56:04.940
So it didn't hurt us manufacturing-wise, but it did destroy a lot of the business, potential

568
00:56:04.940 --> 00:56:07.660
business we could get from the large steel companies.

569
00:56:07.660 --> 00:56:11.860
For example, Bethlehem Steel, they're no longer in business.

570
00:56:11.860 --> 00:56:13.900
I don't know if tariffs had anything to do with that.

571
00:56:13.900 --> 00:56:18.140
I think that was absolutely a case history of very, very poor management.

572
00:56:18.140 --> 00:56:19.380
I'll give you an example.

573
00:56:19.380 --> 00:56:24.340
Up at Bethlehem Steel in Pennsylvania, they built a new coke plant.

574
00:56:24.340 --> 00:56:27.620
What you do with coke is you take coal and you put it in this process

575
00:56:27.620 --> 00:56:29.700
and you drive out all the impurities.

576
00:56:29.700 --> 00:56:36.020
So you end up with almost pure carbon and you put that in the furnace and you make steel.

577
00:56:36.020 --> 00:56:40.820
We went up there and I was trying to sell them three simple fans and large fans.

578
00:56:40.820 --> 00:56:53.640
and what's your name? Lou. We went in there and they had four engineers from United Constructors.

579
00:56:53.640 --> 00:56:58.520
They were paying probably $150 an hour. They had a staff of about six people. And I went

580
00:56:58.520 --> 00:57:02.920
up there I guess four times to sell them. They must have spent as much evaluating the

581
00:57:02.920 --> 00:57:07.220
fan proposal as they did for the fans. And I said to myself, these guys aren't going

582
00:57:07.220 --> 00:57:34.220
Bob, is your company, would it be considered a small company within your industry?

583
00:57:37.220 --> 00:58:07.220
When you first started out talking about this subject, I was thinking, you know, this seems to me like an industry where the bigger you are, the more competitive you'd be and that you'd be able to drive out the smaller players in the market, and I was going to ask you about that, but it seems to me that a lot of what you had to say today was about the advantages

584
00:58:07.220 --> 00:58:20.220
What exists in a small company that don't exist in a large company, like the ability to, you know, pull in your costs at certain times and that sort of thing?

585
00:58:20.220 --> 00:58:30.220
Well, we were competing against very, very large companies, and we didn't always necessarily have the lowest price, but we probably had a better understanding of our costs.

586
00:58:30.220 --> 00:58:37.260
had a better understanding how to manipulate it and so forth but as we

587
00:58:37.260 --> 00:58:44.700
did have small companies develop that competed with us and and for a period of

588
00:58:44.700 --> 00:58:48.700
time those small companies do have a price advantage in some cases I guess and

589
00:58:48.700 --> 00:58:55.980
I'm trying to think I don't you know our company 150 million dollar a year

590
00:58:55.980 --> 00:59:00.940
probably you know it's broken up now but it it at one time was probably one of

591
00:59:00.940 --> 00:59:04.700
the largest privately held companies in Alabama I bet it was one of the ten

592
00:59:04.700 --> 00:59:08.620
largest but no one ever heard of us because we wanted it that way we never

593
00:59:08.620 --> 00:59:12.460
had our name in the papers and magazines because we didn't want competition to

594
00:59:12.460 --> 00:59:17.700
know what we were doing so the only way I could get to speak here was to invite

595
00:59:17.700 --> 00:59:22.180
myself no one ever heard of me

596
00:59:25.980 --> 00:59:27.980
Thank you very much.