Deck 16: Professional Small Business Management

Question 1

Family Matters
Accurate Perforating Co. punches holes in sheet metal- LOTS of holes. The company, founded in 1940, perforated 40 million pounds of sheet metal annually (and, we assume, accurately) for industrial and architectural purposes. Accurate's president Larry Cohen had a meeting scheduled with his bankers at the Chicago headquarters of Cole Taylor Bank, but he was not looking forward to it. The Chicago-based metal company owned by Cohen's family had run out of operating capital. Cole Taylor had loaned Accurate $1.5 million two years earlier. In that dreaded meeting, the bank gave Cohen two choices: liquidate the business or find a new lender. Cohen was shocked by the ultimatum. "They were basically going to put us out of business," he says.
For decades, Cohen and his father, Ralph (the company founder), had focused on one thing: putting as many holes in as many sheets of metal as possible. They bought the metal from steel mills in the Chicago region, punched holes in it, and sold it in bulk to distributors, which then sold it to metal workshops. There the metal was fabricated and finished-that is, cut, folded to specification, and painted-and sold to manufacturers of products like speaker grilles and ceiling tiles. "We were really just selling tonnage," Cohen says. "We stayed away from sophisticated products, and as a result we wound up in a very competitive situation where the only thing we were selling was price."
Accurate's business model became increasingly unsustainable due to a worldwide glut of steel forcing prices down. The costs of manufacturing steel climbed while its prices stayed flat, shrinking once-healthy profit margins. Most competitors found more profitable niches in fabricating, finishing, and selling metal directly to manufacturers, but Accurate survived through militant budgeting. "If we couldn't pay cash, we didn't do it," recalls Cohen, who was unwilling to invest in the equipment required to become a fabricator. While times were so difficult, employees built perforating machines from scratch-repairing them only when absolutely necessary-and used outmoded manufacturing processes developed by the Cohen family way back in the 1940s. Annual revenue stayed between $10 million and $15 million for more than two decades. Accurate was decades behind the competition in terms of both technology and business strategy.
Aaron Kamins was the only member of the family's younger generation working at the company. Kamins was the 36-year-old nephew of Cohen who took over dayto- day operations as general manager in 2001. Even though decades behind competition in both technology and business strategy, Kamins says, "There was a culture here that resisted change. Everyone was comfortable with what they were doing. We were making a living and that was that." Kamins, who had worked on Accurate's factory floor since graduating from college, hoped to steer the company in a new direction. In 2002, with Cohen's approval, he borrowed $1.5 million from Cole Taylor Bank to purchase Semrow Perforated Expanded Metals, a business in Des Plaines, Illinois, that produced and sold fabricated products. He hired two of the company's top executives, Mike Beck and Mike Zarnott, to oversee the division, along with 10 of Semrow's 40 factory workers.
Selling fabricated metal directly to manufacturers generated $1.5 million, but Beck, Accurate's director of new product development and engineering, and Zarnott, the company's director of sales and marketing, had bigger aspirations. They begged Kamins to break from the 1960stype marketing. Kamins refused, being worried about diverting too much time and money away from the core commodity business, and Cohen agreed. "Everything I said about marketing Aaron thought was rubbish," says Zarnott, who struggled with a marketing budget of $15,000 a year- split between Yellow Page ads and a listing in the Thomas Registry. Beck and Zarnott were not amused.
Spring of 2003 was a downturn period for Accurate. The Iraqi invasion made customers skittish. Orders fell by 50 percent. The bank "strongly recommended" that the company hire Stonegate Group, a turnaround firm in Deerfield, Illinois. Their primary recommendation was to renegotiate payment schedules with vendors. Meanwhile, Cohen liquidated half a million dollars in personal real estate to pay overdue bills. To cut costs, the company laid off 13 of its 85 employees.
Even with Stonegate's stellar advice, Accurate lost more than $500,000 in 2003. Then came the meeting with Cole Taylor that December; the bank agreed to give Cohen a few weeks to devise a plan. He immediately began looking for a new lender but was able to borrow an additional $400,000 in loans from friends-just enough to purchase three months' worth of steel. That meant that the company had 90 days to make some serious decisions about Accurate's future.
Liquidation seemed too dramatic because Cohen believed that Accurate could thrive with the right business model. Another alternative was to continue cutting costs and hope for a rebound in steel prices-a strong possibility due to growing demand from China. Beck and Zarnott's idea of scaling back the commodity business to focus on selling finished metal seemed like the smartest long-term strategy. But that alternative would take huge amounts of time and money to perfect the new manufacturing process, retrain factory workers, cultivate new clients, and revamp Accurate's nuts-and-bolts image -time and money they didn't have.
Cohen wrestled with the most difficult question: Should he replace his nephew with a more seasoned executive? Kamins had little formal business training. Was he the person to lead a turnaround? "I worried that we would just continue repeating all the mistakes that we had made," Cohen says. An outsider would offer a fresh perspective, but hiring a CEO would be expensive and time-consuming. Cohen felt like the owner of a baseball team with a losing manager. "I didn't know if a new guy would do a better job," he says. "I just knew the old guy wasn't doing a good job."
What do you think? Does Aaron Kamins deserve one last chance to save the company?
What do you recommend Cohen do to save Accurate Perforating?

Answer 1

Synopsis from the Case:
AP Company originated in the year 1940; the basic business is to punch hole in the sheet metals. CT Bank scheduled a meeting with LC to discuss about the running out of operating capital.
The bank gave LC two options. They are:
• Liquidate the business
• Find a new lender
AK becomes the General Manager:
The company has been running for decades, and LC finally thought they were an outdated business model. AK, a youngster in the family, took over LC in the year 2001 as a general manager. He found that the culture maintained in the company resisted change as he had been working in the company since graduation.
Future of AP Company:
In the year 2002, with LC's approval, AK borrowed $1.5 million from CT Bank. He purchased "SS Perforated and Expanded Metals Company"; he also hired two top executives from the company along with 40 factory workers. The top executives of the new company requested to break the 1960s marketing, which was rejected by AK. During the Iraqi invasion, LC liquidated half a million dollars in real estate to pay overdue bills. The company laid off 13 of its 85 employees to reduce the cost incurred. AP lost more than $500,000 in 2003; the CT Bank gave LC few weeks for constructing a plan. Later, they borrowed $400,000 from their friends as loan, which enabled the company to purchase 3 months worth steel. LC was deciding the future of AP Company and found that AK is not the best person to save the company.
Recommendations to AP Company:
• Appoint a mentor.
• Create investments from public issue.
• Removal of outdated business practices.
• Change the rules, regulations, and policies of the company.
• List the board of directors with the percentage of shareholdings.

Question 2

Give examples of efficiency and effectiveness in managing your everyday life.

Answer 2

Examples of efficiency and effectiveness in managing everyday life:
Efficiency is the effort or cost utilized for completing a task in an intended time period.
Effectiveness is producing an accurate result desired in a stipulated time period.
Efficiency and effectiveness seem to be the same, but it is not as it has a minute difference. Efficiency is producing an output with minimum waste ; including time, materials, and resources. But, effectiveness gives major importance to the accuracy achieved in the targeted objective through individual or team performance.
Example:
• Team 'X' decides its monthly deliverables and weekly deliverables in a meeting which is conducted at the beginning of production schedule.
• Here, the meeting determines the effectiveness the team carries forward in advance to avoid interruptions in the production.
• But the time spent on the meeting along with the time involved to communicate the minutes in other consecutive meetings is the inefficiency produced by the team.

Question 3

Refer to the chapter opening story. List two differing activities in which each manager engages.

Answer 3

A manager is a person who directs the business, controls the resources, delegates the job, and plans for the expenditures. Manager's style is the character, attitude, and the capability developed within an individual leading a group.
The two differing activities of a manager:
Manager C is the owner of Insurance Company
• Makes sales calls
• Deals with customer service issues
• Answers phones
• Utilizes social networking
• Plans his schedule
• Makes customer calls
• Business planning
• Financial planning
Manager M is the owner of Factory service agency
• Compilation of critical to-do list
• Delegation of tasks
• Designs equipment
• Works on the new proposals and quotes
• Calls the suppliers
• Business networking
Justification:
The managers running a small business need to understand the business. They have to conduct the managerial jobs along with the other jobs. These small business owners focus on the task until it is completed.

Question 4

Discuss some of the skills or characteristics that are needed by a manager in the start-up phase of a business, and explain how they differ from the skills or characteristics needed later to manage a larger, established firm.

Question 5

Ten years ago, Linda Turner was in an exercise class and saw a pregnant woman struggling through her routine. After class, Turner asked the woman if she knew of any products that would help her be more comfortable. Because none existed, she began developing a prototype of the BellyBra-a support device designed for women in their third trimester. The BellyBra has tank-top shoulder straps and fits snugly all the way down below the wearer's enlarged stomach area. Turner experimented with different fabrics, including white lace and CoolMax fabric that pulls heat away from the body.
The BellyBra prototypes tested well with consumers, but because Turner was a stay-at-home mom, she was not able to build a company at that time. She licensed the product to a company called Basic Comfort and became the firm's first employee. As the success of the BellyBra increased, Turner eventually left on friendly terms to go out on her own. She sold 1,000 units in her first year and 10,000 units in her second year. Some growth rate! She has now expanded her focus from obstetricians and gynecologists to selling on her Internet site (www.bellybra.com).
Linda Turner will face different challenges as her company progresses through the five stages of growth described in this chapter. Describe how you believe her business would change in each stage.

Question 6

This Concept Module described five stages a business goes through as it grows. How would manaagement style need to change from stage to stage?

Question 7

Ten years ago, Linda Turner was in an exercise class and saw a pregnant woman struggling through her routine. After class, Turner asked the woman if she knew of any products that would help her be more comfortable. Because none existed, she began developing a prototype of the BellyBra-a support device designed for women in their third trimester. The BellyBra has tank-top shoulder straps and fits snugly all the way down below the wearer's enlarged stomach area. Turner experimented with different fabrics, including white lace and CoolMax fabric that pulls heat away from the body.
The BellyBra prototypes tested well with consumers, but because Turner was a stay-at-home mom, she was not able to build a company at that time. She licensed the product to a company called Basic Comfort and became the firm's first employee. As the success of the BellyBra increased, Turner eventually left on friendly terms to go out on her own. She sold 1,000 units in her first year and 10,000 units in her second year. Some growth rate! She has now expanded her focus from obstetricians and gynecologists to selling on her Internet site (www.bellybra.com).
Business growth that occurs too quickly can present some significant problems and challenges compared with a business that grows at a slow, steady pace (of course, zero growth or decline makes for a whole new set of problems). Describe the challenges of hypergrowth that Turner could face, and explain how she should respond as a small business owner.

Question 8

Which exit strategy discussed in the chapter would you consider ideal? What would a downside of that strategy be?

Question 9

Review the five stages of business growth. Which of these five would you aspire to for your own business? Be prepared to justify your answer.

Question 10

How can the owner of a small business apply Maslow's hierarchy of needs to working with employees?

Question 11

What are positive and negative aspects of delegation?

Question 12

As a business owner, in which of the leadership attributes discussed in the text are you the weakest? How could you help yourself improve in this area? How could others help you? What is your strongest leadership skill?

Question 13

What is motivation? Can managers really motivate employees?

Question 14

Are you a good manager of time in your personal life? How will this affect your ability to manage your time as a business owner?

Question 15

Family Matters
Accurate Perforating Co. punches holes in sheet metal- LOTS of holes. The company, founded in 1940, perforated 40 million pounds of sheet metal annually (and, we assume, accurately) for industrial and architectural purposes. Accurate's president Larry Cohen had a meeting scheduled with his bankers at the Chicago headquarters of Cole Taylor Bank, but he was not looking forward to it. The Chicago-based metal company owned by Cohen's family had run out of operating capital. Cole Taylor had loaned Accurate $1.5 million two years earlier. In that dreaded meeting, the bank gave Cohen two choices: liquidate the business or find a new lender. Cohen was shocked by the ultimatum. "They were basically going to put us out of business," he says.
For decades, Cohen and his father, Ralph (the company founder), had focused on one thing: putting as many holes in as many sheets of metal as possible. They bought the metal from steel mills in the Chicago region, punched holes in it, and sold it in bulk to distributors, which then sold it to metal workshops. There the metal was fabricated and finished-that is, cut, folded to specification, and painted-and sold to manufacturers of products like speaker grilles and ceiling tiles. "We were really just selling tonnage," Cohen says. "We stayed away from sophisticated products, and as a result we wound up in a very competitive situation where the only thing we were selling was price."
Accurate's business model became increasingly unsustainable due to a worldwide glut of steel forcing prices down. The costs of manufacturing steel climbed while its prices stayed flat, shrinking once-healthy profit margins. Most competitors found more profitable niches in fabricating, finishing, and selling metal directly to manufacturers, but Accurate survived through militant budgeting. "If we couldn't pay cash, we didn't do it," recalls Cohen, who was unwilling to invest in the equipment required to become a fabricator. While times were so difficult, employees built perforating machines from scratch-repairing them only when absolutely necessary-and used outmoded manufacturing processes developed by the Cohen family way back in the 1940s. Annual revenue stayed between $10 million and $15 million for more than two decades. Accurate was decades behind the competition in terms of both technology and business strategy.
Aaron Kamins was the only member of the family's younger generation working at the company. Kamins was the 36-year-old nephew of Cohen who took over dayto- day operations as general manager in 2001. Even though decades behind competition in both technology and business strategy, Kamins says, "There was a culture here that resisted change. Everyone was comfortable with what they were doing. We were making a living and that was that." Kamins, who had worked on Accurate's factory floor since graduating from college, hoped to steer the company in a new direction. In 2002, with Cohen's approval, he borrowed $1.5 million from Cole Taylor Bank to purchase Semrow Perforated Expanded Metals, a business in Des Plaines, Illinois, that produced and sold fabricated products. He hired two of the company's top executives, Mike Beck and Mike Zarnott, to oversee the division, along with 10 of Semrow's 40 factory workers.
Selling fabricated metal directly to manufacturers generated $1.5 million, but Beck, Accurate's director of new product development and engineering, and Zarnott, the company's director of sales and marketing, had bigger aspirations. They begged Kamins to break from the 1960stype marketing. Kamins refused, being worried about diverting too much time and money away from the core commodity business, and Cohen agreed. "Everything I said about marketing Aaron thought was rubbish," says Zarnott, who struggled with a marketing budget of $15,000 a year- split between Yellow Page ads and a listing in the Thomas Registry. Beck and Zarnott were not amused.
Spring of 2003 was a downturn period for Accurate. The Iraqi invasion made customers skittish. Orders fell by 50 percent. The bank "strongly recommended" that the company hire Stonegate Group, a turnaround firm in Deerfield, Illinois. Their primary recommendation was to renegotiate payment schedules with vendors. Meanwhile, Cohen liquidated half a million dollars in personal real estate to pay overdue bills. To cut costs, the company laid off 13 of its 85 employees.
Even with Stonegate's stellar advice, Accurate lost more than $500,000 in 2003. Then came the meeting with Cole Taylor that December; the bank agreed to give Cohen a few weeks to devise a plan. He immediately began looking for a new lender but was able to borrow an additional $400,000 in loans from friends-just enough to purchase three months' worth of steel. That meant that the company had 90 days to make some serious decisions about Accurate's future.
Liquidation seemed too dramatic because Cohen believed that Accurate could thrive with the right business model. Another alternative was to continue cutting costs and hope for a rebound in steel prices-a strong possibility due to growing demand from China. Beck and Zarnott's idea of scaling back the commodity business to focus on selling finished metal seemed like the smartest long-term strategy. But that alternative would take huge amounts of time and money to perfect the new manufacturing process, retrain factory workers, cultivate new clients, and revamp Accurate's nuts-and-bolts image -time and money they didn't have.
Cohen wrestled with the most difficult question: Should he replace his nephew with a more seasoned executive? Kamins had little formal business training. Was he the person to lead a turnaround? "I worried that we would just continue repeating all the mistakes that we had made," Cohen says. An outsider would offer a fresh perspective, but hiring a CEO would be expensive and time-consuming. Cohen felt like the owner of a baseball team with a losing manager. "I didn't know if a new guy would do a better job," he says. "I just knew the old guy wasn't doing a good job."
What do you think? Does Aaron Kamins deserve one last chance to save the company?
Put yourself in Larry Cohen's position. What would you see as your most immediate problem? What are your long-term problems?

Question 16

Give examples of stress, eustress, and distress.

Question 17

Family Matters
Accurate Perforating Co. punches holes in sheet metal- LOTS of holes. The company, founded in 1940, perforated 40 million pounds of sheet metal annually (and, we assume, accurately) for industrial and architectural purposes. Accurate's president Larry Cohen had a meeting scheduled with his bankers at the Chicago headquarters of Cole Taylor Bank, but he was not looking forward to it. The Chicago-based metal company owned by Cohen's family had run out of operating capital. Cole Taylor had loaned Accurate $1.5 million two years earlier. In that dreaded meeting, the bank gave Cohen two choices: liquidate the business or find a new lender. Cohen was shocked by the ultimatum. "They were basically going to put us out of business," he says.
For decades, Cohen and his father, Ralph (the company founder), had focused on one thing: putting as many holes in as many sheets of metal as possible. They bought the metal from steel mills in the Chicago region, punched holes in it, and sold it in bulk to distributors, which then sold it to metal workshops. There the metal was fabricated and finished-that is, cut, folded to specification, and painted-and sold to manufacturers of products like speaker grilles and ceiling tiles. "We were really just selling tonnage," Cohen says. "We stayed away from sophisticated products, and as a result we wound up in a very competitive situation where the only thing we were selling was price."
Accurate's business model became increasingly unsustainable due to a worldwide glut of steel forcing prices down. The costs of manufacturing steel climbed while its prices stayed flat, shrinking once-healthy profit margins. Most competitors found more profitable niches in fabricating, finishing, and selling metal directly to manufacturers, but Accurate survived through militant budgeting. "If we couldn't pay cash, we didn't do it," recalls Cohen, who was unwilling to invest in the equipment required to become a fabricator. While times were so difficult, employees built perforating machines from scratch-repairing them only when absolutely necessary-and used outmoded manufacturing processes developed by the Cohen family way back in the 1940s. Annual revenue stayed between $10 million and $15 million for more than two decades. Accurate was decades behind the competition in terms of both technology and business strategy.
Aaron Kamins was the only member of the family's younger generation working at the company. Kamins was the 36-year-old nephew of Cohen who took over dayto- day operations as general manager in 2001. Even though decades behind competition in both technology and business strategy, Kamins says, "There was a culture here that resisted change. Everyone was comfortable with what they were doing. We were making a living and that was that." Kamins, who had worked on Accurate's factory floor since graduating from college, hoped to steer the company in a new direction. In 2002, with Cohen's approval, he borrowed $1.5 million from Cole Taylor Bank to purchase Semrow Perforated Expanded Metals, a business in Des Plaines, Illinois, that produced and sold fabricated products. He hired two of the company's top executives, Mike Beck and Mike Zarnott, to oversee the division, along with 10 of Semrow's 40 factory workers.
Selling fabricated metal directly to manufacturers generated $1.5 million, but Beck, Accurate's director of new product development and engineering, and Zarnott, the company's director of sales and marketing, had bigger aspirations. They begged Kamins to break from the 1960stype marketing. Kamins refused, being worried about diverting too much time and money away from the core commodity business, and Cohen agreed. "Everything I said about marketing Aaron thought was rubbish," says Zarnott, who struggled with a marketing budget of $15,000 a year- split between Yellow Page ads and a listing in the Thomas Registry. Beck and Zarnott were not amused.
Spring of 2003 was a downturn period for Accurate. The Iraqi invasion made customers skittish. Orders fell by 50 percent. The bank "strongly recommended" that the company hire Stonegate Group, a turnaround firm in Deerfield, Illinois. Their primary recommendation was to renegotiate payment schedules with vendors. Meanwhile, Cohen liquidated half a million dollars in personal real estate to pay overdue bills. To cut costs, the company laid off 13 of its 85 employees.
Even with Stonegate's stellar advice, Accurate lost more than $500,000 in 2003. Then came the meeting with Cole Taylor that December; the bank agreed to give Cohen a few weeks to devise a plan. He immediately began looking for a new lender but was able to borrow an additional $400,000 in loans from friends-just enough to purchase three months' worth of steel. That meant that the company had 90 days to make some serious decisions about Accurate's future.
Liquidation seemed too dramatic because Cohen believed that Accurate could thrive with the right business model. Another alternative was to continue cutting costs and hope for a rebound in steel prices-a strong possibility due to growing demand from China. Beck and Zarnott's idea of scaling back the commodity business to focus on selling finished metal seemed like the smartest long-term strategy. But that alternative would take huge amounts of time and money to perfect the new manufacturing process, retrain factory workers, cultivate new clients, and revamp Accurate's nuts-and-bolts image -time and money they didn't have.
Cohen wrestled with the most difficult question: Should he replace his nephew with a more seasoned executive? Kamins had little formal business training. Was he the person to lead a turnaround? "I worried that we would just continue repeating all the mistakes that we had made," Cohen says. An outsider would offer a fresh perspective, but hiring a CEO would be expensive and time-consuming. Cohen felt like the owner of a baseball team with a losing manager. "I didn't know if a new guy would do a better job," he says. "I just knew the old guy wasn't doing a good job."
What do you think? Does Aaron Kamins deserve one last chance to save the company?
Would you keep Aaron Kamins as CEO? Why or why not? If you fire him, who would do the job?