“The fence guys are here!” I exclaimed to my wife incredulously one March morning. They had shown up two days in a row and the surprise was clearly in my voice. The “fence guys” had been a frequent topic of conversation on our hobby farm over the previous several months. The “fence guys” were the fencing contractors that were building the white plank fence around our horse pasture and our farmstead. Believe it or not, this had all started nine months earlier when I selected this contractor over two others after receiving their proposals. The owner of the company was very credible during the sales process. His proposal was the highest of the three, but the way he described the materials he would use, the care his crew would exhibit, and his guarantee of satisfaction, was all very compelling. July and August were fairly wet and we were doing some road work, so the project kick-off was in September when the owner showed up with two crew members and put in the first 96 feet of fence. At the end of that first day, he surveyed the work they had accomplished and pronounced that they would finish in about a week or two. (There was a total of approximately 1,600 feet of fence and gates to be put in place.) I was elated that they would be finished by mid-September.
But, here we were in the month of March — some seven months later — and the fence was only 80% or so complete. What we had observed as a family had been almost comical, except the fact that it had interminably delayed our acquisition of horses and cattle and that it spelled doom for the owner of the fencing company. There were many good lessons for me to teach my children about entrepreneurship through this experience:
- Wrong Compensation Structure – We were paying the contractor by the foot for the fence, but he was paying his crew by the hour. This misalignment meant the crew had no incentive to work hard and work fast, but merely to drag things out at a leisurely pace. And given the bad economy, the crew was likely intentionally stretching out the project to continue on the payroll. If the crew had also been paid by the foot (or the “job”), the owner would have been able to lock in a margin and the crew would have worked as hard as possible to make as much money in as short a period of time as possible.
- Lack of Supervision – The company owner had only shown up one or two other times in addition to that first day, so his two-man crew had worked unsupervised all that time. What that meant was late arrivals, long lunch breaks, and early departures as no one was “pushing” the crew to finish the job. Their typical day (when they did come) was to show up at around 7:30 a.m., take a lunch break at around 10:30 a.m. — they then would take off to town for an hour or more — and then leave for the day at 12:30 p.m. This problem would not have been so bad if the compensation had been by the foot instead of by the hour, but combined with the wrong compensation structure, this was a disastrous situation for the owner. Given the structure in place, the owner should have at least come out with the crew at the start of the day and come at the end of the day to review their work and quickly correct any issues. Most contractors in his position would have spent their day driving around from job to job to check on their crews.
- Numerous Delays Due to Poor Planning – While the weather had been challenging with a good measure of cold or wet days that would make the work difficult, the crew did not show up on many of the best, sunniest work days. Whenever I called to check on their absence, the excuses I got ranged from “the equipment is in the shop for repair” to “it’s hunting season” to “one of them had a dental appointment”, etc. Many of these delays could have been avoided with better planning.
- Lack of Organization and Focus – The crew only showed up one or two days a week at most and in the month of January and February they had only come one day each month. When they did show up, they spent the first hour or so just walking around talking, trying to figure out what to do next. They appeared to always do the easiest remaining portion of the fence and leave the most difficult portions for later. This has them bouncing around from one end of the farmstead to the other with no apparent method or plan. The owner should have mapped out a work plan in terms of what section of fence they will work on next so there was less wasted time in getting started each day.
- Lack of Communication – We never knew from one day to the next if the crew would show up to work because the owner rarely ever called to “manage” my expectations. Usually after several days of no shows, I would track him down on his cell phone or at home and try to pin him down on when they would show up next. I tried to coach the owner a few times on the issues that I was observing, but he had staunchly defended his system without taking in the entire picture. He was anxious to get the job finished and he said it was the only job he had going on at the moment and he needed the money. But there was clearly some sort of breakdown between what he wanted and what his crew was doing. The owner had claimed to only be two days from being finished each time we’d talked in the previous three months, but yet the work stretched on. The owner should have been contacting me each day that the crew was not going to be there so I clearly would have known what to expect. And, he should have clearly communicated his expectations to his crew for the work to be performed each day. Given a good grasp of what work was left, the owner should have been able to realistically forecast a completion date.
The good news for me was that I was making progress payments as they completed defined stages of work, so the owner did have the incentive to finish the job (if he could make it financially through the end of the job), but there were clearly several issues at work here that provided good lessons for any entrepreneur.
The bad news for the owner of the fencing company was that the project was grossly unprofitable for him and if he continued like this for long, there was no way he would be able to remain in business.
Sure enough, one day the Bobcat they were using disappeared and never came back. In our next conversation, the crew told me it had been repossessed. Finally one day the crew never returned and after several calls and a threatening legal letter, the owner finally came out himself to finish the job. He told me he had let the crew go due to the business’s struggle with profitability. I was later told by a an acquiantance that he had indeed gone out of business. I really felt bad for him, but at the same time, his business problems were self-inflicted.
- Hiring and Firing Documents Kit (includes several documents and agreements for dealing with employees)
- Startup Financial Model (to help you understand your business model and its profitability)
Ask an Expert:
- Venture Academy (especially the Human Resources section)