Chapter 24: Getting Our Schiit Together
Astute readers will notice I swapped a new chapter in here. As to why, it’s simple—I realized that the “Song of Ten Thumbs” chapter actually came a lot earlier than I had it pegged in the timeline…and that it really isn’t just a story of incompetence, but a story of making big changes that set the tone for our company well into the future.
But don’t worry—Ten Thumbs will make an appearance here.
Let’s define the game first, though. The summer of 2012 was one of the most transformative times at Schiit, and it was largely due to Alex helping us pull our heads out of our rear ends. It was the first time we started actually trying to predict demand and buy ahead to meet it, rather than simply looking at the shelves and saying, “Hmm, looks like we’re out of Asgards, we’d better order some more.” It also meant major changes on the employee side, the shipping side, the operations side, and on the facilities side. In many ways, it was when we moved from being a “hobby business” to a real company.
In the Beginning (of Summer, That Is)
At the start of summer 2012, we were still operating pretty much as we always had, except for the fact that we were operating out of the Schiithole.
Now, we only had part of the Schiithole (about 1000 square feet) at the time, not the entire building. It was just as crappy, dusty, and miserable as I’ve described. And, as an added bonus, the Santa Clarita summer was on us, bringing 100-110 degree temperatures during the day to a building with no air conditioning and no insulation.
Yeah, Alex pretty much cooked. Eddie, Tony, and I only came in during the evening when we could prop the doors open and run some big industrial fans to circulate the cooler air outside. Alex stayed there pretty much all day, to keep the shipping going.
Alex tried to combat the heat with a portable air conditioning unit, but it really struggled in the uninsulated space. We mostly used it to keep the products on the burn-in racks from going full Chernobyl. Indoor temperatures of 90+ were common.
It was bad enough that we ordered a larger wall air conditioner, but it was delayed, then cancelled for some unknown reason. The delay was good, though, since that was when the landlord came by.
“I’m thinking of sprucing this building up a little,” he said. “Putting in heat and AC, painting, doing the floors, stuff like that.”
“Great,” I said, a little suspiciously. Because landlords don’t do things like that just for the fun of it. Usually such pronouncements are followed by, “And we’ll bill you $X thousand dollars for it.”
“It’ll make the building more attractive to tenants,” he continued.
I sighed.
Here it comes, I thought.
“And I was wondering if you wanted to take the rest of the space,” he said, looking at me expectantly.
“At the same rate?” I asked.
He laughed. You know, that landlord laugh. The one that says.
Oh, you silly boy, do you think anything in this world is free? Why don’t you just buy a bunch of buildings and sit back and collect money like I do?
Aside: I have nothing against landlords in general. I’m just not cut out to be one. I’ve got enough on my plate without having to deal with crazy people on a day-to-day basis. No. Wait. Nevermind.
“So what are you looking to get for the whole thing?”
He named a price. A surprisingly reasonable price. A silly cheap price, in fact.
Now, I know that in Biz 101, they tell you to never look impressed, to press any advantage you have and try to grind people down to the lowest possible price, but, you know what? That’s also called “being an ******.”
Actually, let’s expand on that a bit. Haggling to get a lower price is one of those things that I’ve done in the past—and I was pretty good at it. But I never liked doing it. It felt bad. Wrong. Slimy.
Because when you haggle, you’re saying, “I think what you’re doing isn’t worth what you’re asking.”
It also says:
- I don’t trust you
- You don’t know how to price things
- You’re incompetent in general
- I think you’re trying to screw me
And it says:
- I’m a cheap-ass
- I don’t have a lot of money
- I’m going to be a difficult customer
- I might not pay you
When a customer starts haggling, a truly good and competent supplier does one of two things:
- They reiterate the value of what they’re offering, and stand firm.
- They walk away.
Yes. That’s right. I’m actually advocating for
non-negotiation.
Well, that’s nuts, some of you are saying.
There’s a ton of companies out there who are set on screwing you, and will quote silly prices. How the hell do you know if you got a good deal?
First, by knowing the general price of the product you’re looking for. If you’re looking for a knob you’ve bought in the past for $2.25, and you’re quoted $1.80 by someone who’s genuinely eager to make it, guess what? That’s a fine price. If you’re looking for an industrial space and Loopnet says the average rate in your location is $0.65 per square foot, and you’re quoted $1.10, you’re probably getting screwed.
Second, by doing your research if you don’t know the general price. This could involve putting parts up on MFG.com to see what kind of range you get, or getting multiple quotes from different distributors.
Third, by knowing if something is either “too good to be true” or “worth paying a little more for.” If those same $2.25 knobs were quoted by a brand-new business for $0.35, guess what? It may be too good to be true. But, at the same time, if your reject rate on the $2.25 knobs was 35%, it may be well worth your time to take a $3.10 quote.
Fourth, by knowing when to say when. If the quote you get meets what you expect to see on your bill of materials, and it’s from a trusted vendor, stop. Don’t grind. Just take it. You’ve accomplished your goal. Put your feet up, relax, and listen to some good music.
Fifth, by being up-front. Okay, so let’s say you have a new product that’s very cost-constrained, and you’ve been working with a vendor you’re very happy with, but you’re unsure if they can meet the cost constraints. Tell them what you’re looking for. Don’t make it a 16-quote guessing game. Their time is valuable, too. And if you have to look elsewhere, you’ll know right away. Also, give them a chance to comment on the part design—they may have a much better idea for meeting your price.
So what did I say to the landlord when he quoted a very reasonable price for more space that was literally next door—space that was going to be all shiny, polished, and air-conditioned?
I said “yes.”
Like, duh.
Enter Ten Thumbs
Unfortunately, our landlord was probably one of the biz school 101 guys who never grew out of the “grind until you’re sure you screwed the bejeezus out of your vendor.”
Why? Because he hired a guy for the renovation work who soon came to be known as “Ten Thumbs.”
I bet he got a great deal. Or at least I hope so. Ten Thumbs didn’t look much different than your usual itinerant handyman, but he was put in charge of the renovation of the entire building—interior and exterior, structural, AC, and electrical. This is something like giving a kid who’s just built his first CMoy set the task of designing the next Audio Research tube preamplifier. Not just scary, but possibly dangerous.
We should have known what was coming when Ten Thumbs started on the outside of the building. The old structure featured quite a bit of dry rot on the wood beams—something you’d normally remove and replace. Ten Thumbs? Nope. Bondo would be fine. He bought it by the five-gallon bucketload. Similarly, you’d normally relay the scaffolding under the holes in the the stucco. Ten Thumbs? Fill it with newspaper and wall putty, then stucco over it. Windows? Don’t bother masking them, scrape them off later. Roof? Well, you can’t see it, so why bother? Paint? Hey, it looks like Home Depot has a remnant sale. Let’s mix them all together to get something approximately the color of sick-baby poop. Spray that stuff everywhere. Only add a little lighter green and white accents when the landlord comes by and complains it’s ugly. Street numbers? Don’t need those. The few decorative trees outside? Cut them down. Trash? It can pile up in the back. If nobody can see it from the street, who cares?
You get the picture.
That’s when Ten Thumbs moved inside. Luckily, he started with the area that we weren’t using. In came spackling paste in 5-gallon drums. In came cheap white primer paint. Use a keyhole saw to cut spaces for the AC vents? That’s crazy talk. Just use a hammer. There’s plenty of spackle. And nobody will notice they’re about 5 degrees off true. Doors into our current space? Well, we had some leftovers that don’t really fit the hole that was cut, but if you sand about an inch off of them, they kinda fit. Of course, they aren’t hung on any beams—they’re just bolted to sheetrock. Floors? Well, the white paint can go all over it, because it’s going to get epoxy-coated. What, you say epoxy doesn’t stick to painted floors? Ah well, not Ten Thumbs’ problem.
I shook my head. It was crap work, but the space was still cheap.
That’s when we had to move into the finished space, so Ten Thumbs could work on the space we were already in. They told us it’d be done in a couple of weeks, so we went ahead and executed the lease and moved into the finished space, in expectation that we’d have the full run of the place on October 1.
And, you know what? We probably would have had it done in that short time. Except for Ten Thumbs’ little mistake: when he did the epoxy floor in the other half of the building, he didn’t mix the hardener in with the epoxy.
Those of you who know epoxy are groaning now. For those of you who’ve never used epoxy
, it doesn’t harden without the hardener.
So yeah, we had a big, sticky mess of a floor. Just walking over it caused the unhardened epoxy to lift off and reveal nasty, untreated floor.
After a humorous episode where the landlord tried to blame Alex for the floor not hardening (saying that he washed it down, as if water would change anything), he learned that “no negotiation” doesn’t mean “pushover.” Because if there’s one thing I will absolutely stand my ground on, it’s defending our employees.
The landlord caught me on the phone and tried not only to place the blame on Alex, but implied that Alex was sabotaging the job on purpose.
“I don’t believe that,” I told him.
“And you’re just going to take his word for it?” the landlord asked.
“Yes.”
“Are you calling me a liar?”
“No.”
“Then what are you trying to say?”
“I’m saying that you don’t know any more about this than I do. Neither of us were there. Alex was there. He saw what was done. Plus, he way the floor is behaving is what you’d expect if there was no hardener in the epoxy.”
“How do you know Alex isn’t deliberately trying to mess up the job?” he shot back, getting frustrated.
“Well, besides the fact that he’s packed in there like a sardine, and he needs the space, and we’re already a week late on completion, I also trust him implicitly.”
“So you’re not going to investigate this?”
“No.”
“I don’t believe this!” he thundered. “I demand you look into this for yourself.”
Aside: several clients have tried to pit me against my own employees during my time at Centric. They got the same response. Usually shortly before we fired them. Newsflash: in real, productive companies, you hire competent people, support them, and let them shine. If you have trust issues, you have the wrong person.
“Okay. I’m going to say this just once more. No. I will not spend a minute more on this. I hired Alex to run the show, and I trust him. What did or didn’t happen isn’t the issue. The issue is that you’re two weeks late on a lease that we’re already paying.”
After some more bluster and spluttering, we agreed that Ten Thumbs would finish at all speed, and we’d stay out of his space. Two weeks later—exactly one month late—we had the full space, complete with a handmade soffit for a new air conditioning duct with runout that could be measured in inches, if not feet.
But the air conditioning worked…
…and it only took two more weeks to fix all the screw-ups in the electrical system
…and since it doesn’t rain much in SoCal in summer, it was a couple of months before the roof started leaking.
Ah, bargains.
The Real Work
Okay, so Ten Thumbs makes for some humorous anecdotes, but let’s talk about what we really accomplished that summer—taking the first steps towards acting like a real company.
And, for all the hellish renovation work, we ended up in a space that (except for the remaining sticky places on the floor) looked reasonably like a real company for the first time. People could come by and see us, and we wouldn’t be entirely embarrassed. It was still far from a palace, but hey, at least we weren’t cooking anymore.
But what changed most was on the process side. Now, Process is another scary word that conjures up images of big corporate flowcharts, meetings, and managers pounding tables while yelling, “We’ve always done it this way!” But, in reality, every business needs processes. They just have to be flexible enough to change as the business grows.
In Schiit’s case, Alex shored up five major things:
- Planning and scheduling. Like I said, the old method was “wait until we’re out of something, then start ordering again.” This really isn’t all that bad of a method when you’re very small. It conserves cash flow, and helps generate a perception that things are special, and in-demand. That’s why we used to go into back order so often. Cash flow is why we didn’t really bother addressing it for a good long time. But as we grew, we realized we had to look at what we were selling and place larger, timed orders that would help ensure that we had better availability. The only problem with that turned out to be rising demand. It’s hard to project forward when demand keeps growing. And that’s why the endemic out-of-stock problem lasted long past summer 2012 (in fact, it was so bad that we literally had zero stock at the end of December 2012, except Magni and Modi, which had just been introduced two weeks before. And those went out of stock just a couple of weeks later.) But planning is absolutely critical if you want to grow out of the one-guy job-shop model, and it’s worth trying to figure out what you will be selling, and placing larger orders with timed shipments from your suppliers. You’ll get a better deal—and you’ll have some wiggle room if you end up slipping your schedule a bit.
- Facilities layout and production flow. It’s one thing to have a small truck delivering a few boxes to your garage for one guy to test and another to work on. It’s a whole different thing to have multiple vendors delivering many different products at the same time, and having to move them through the shop. Alex set things up so we had a logical flow through the shop, including all the hardware needed to make it happen (you know, “dumb” things like carts, which aren’t so dumb when you’re handling pricey products, like the then-new Mjolnir and Gungnir.) He also got us set up to handle the anticipated flood of high-volume stuff, like Magni and Modi, and made sure everyone knew what they needed to do.
- Shipping logistics and relationships. If you are starting a business that will do volume shipping, you owe it to yourself to be very close with your shippers. Every shipper (besides USPS) offers significant discounts for their volume shippers, and they can tailor your discounts to what you’re actually shipping. Alex got us in contact with FedEx, our shipper of choice, and began the process of negotiating better rates…rates that we then could pass along to our customers. If you notice our FedEx international shipping is frequently only a tiny bit more than USPS (or, in some cases, even lower), this is why. We should have been in touch with them from the start. But Alex fixed this, and continues to be their interface to this day.
- General operations and vendor communication. Before Alex, vendor communication was pretty ad-hoc (meaning, I’d talk to them in the spare moments I had between running Centric and writing books.) This isn’t great. Especially when you consider the relative laggardness of many metal, transformer, and board vendors. An astounding amount of them still really only respond to phone conversations or in-person meetings. Email is treated as a secondary communication method, and can easily be ignored. Today, they’re paying more attention to our emails, as we grow and become an important customer, but having real phone time or face time helps. Alex provided a focal point for the vendors to talk to, and he knew much more about our day-to-day needs than I did in short order.
- Employee management, specifically hiring and training. Finally, Alex started laying the groundwork for both me stepping back from hiring, and for the coming Salary Apocalypse. Yeah, that’s right. As of summer 2012, everyone was still a contractor. Since nobody had set hours (and everyone came in at fairly bizarre times…hell, Eddie frequently worked from 1AM to dawn), we could kinda squint and get away with it. But I knew that, very soon, someone would say something about it, and we’d be in trouble. We also really, really needed to provide healthcare and all the normal job perks, since we were starting to have employees with families and such. Sounds simple, doesn’t it? Well, stepping into full-boat employee status, tax reporting, and benefits is a very big step. We didn’t make it until January 1, 2013. Alex also started hiring as we needed, bringing in someone to help him with shipping (another underappreciated job).
The sum total of this was a company much more ready to take on the coming Magni and Modi avalanche. How ready? Well, we’ve only had one or two short backorders on Magni and Modi since their introduction in December 2012. Which is pretty good when you consider that Magni/Modi volume was about 5-10x what we’d ever planned for in the past.
But all was not well on the planning side. Because sometimes you undershoot the needs…and sometimes you get a big surprise.
Like the one that came next.
