Wednesday, November 10, 2010

Feels Like Work

It's been about a month since I arrived in Texas City. I called my sister as I was arriving and learned that her and her family were at a fund raiser the bakery was participating in. I went there first. It was a pretty big occasion, with a band, booths selling various stuff, an auction, and a dunk tank. Nina was selling goodies. The fund raiser was for the benefit of a little girl with a rare disease. She was the daughter of a guy I'd gone to school with. Since I hadn't taken a shower in two weeks I decided to volunteer for the dunk tank. Apparently I was the first adult to do so. My nephew and his friend hit the target four out of six times. My five year old niece then surprised me by telling me that she was going to be a big sister. Nina was due at the end of February. After the fund raiser ended I went to the bakery, where I found my mom hard at work (we'd hired her earlier in the year) making our best selling product, cakeballs.

I spent the first couple of days figuring out what I should be doing at the bakery over the next fews months. The bakery was in a pretty different state from where it had been a year ago. Year to date sales were 5x where they'd been at the same point last year. The number of regular employees had grown from one to five. The business was self supporting. Nina had taken some of the profits, used them to hire a couple of professionals, and to buy a larger commercial freezer and fridge. Nina had done a good job keeping up with the growth and re-investing the profits wisely. Sales were no longer our biggest challenge. Our focus now would be to improve profitability, with higher sales as a secondary goal. Our cash reserves have been rather flat. We wanted to get cash on a good, steady, growth rate and use it to fund further sales growth.

I'm the bean counter for the bakery, so it fell on me to figure out where the money was going and what to do about it. Being an engineer, I went straight to the data. After some quality time with Excel I was able to glean some things from it. Labor, followed by ingredients is where most of the expenses were. As a fraction of the total pie, fixed expenses (expenses that don't change with sales) had dropped quite a lot from a year ago. It made sense given the higher sales we now had, and was to be expected. Ok, primary contributors identified and quantified, now what? It was pretty evident that our financial metrology and controls were weak. By the time we knew what our sales and expenses were it was too late to do anything about it. We've known this for a while, but we hadn't done anything about it. With the sales growing like it had just getting all the orders out the door was enough of a challenge. I wrote some software and developed procedures which allow us to measure sales and labor expenses on a near realtime basis. We set a goal for labor expense as a fraction of sales, and did some communications with the staff (been a while since I'd made Powerpoint slides). We reorganized a bit, giving employees primary roles which better align with their natural talents, and have delivered some direct feedback to individuals. An employee manual has been assembled to document standard procedures and best practices. It should also help bring future new hires up to speed more quickly. We're now tracking labor expenses and sales on a daily basis and have set limits which we are managing against. It's been a couple of weeks since we deployed the new systems. We're still ironing out some kinks but early indications are that the new systems and controls have helped. November will be telling since it'll be the first full month in which we've used the new controls. We still need better controls for ingredients (the second largest piece of the expense pie), so that's next on my list for the bakery.

Besides improving profitability we're also working to keep our sales growth going, although with less urgency than a year ago, and at a lower target rate. We're now shipping cakeballs (our best selling item). This past Sunday, for the second year in a row, the bakery walked away with the Best of Show award at Taste of the Town, an annual event put on by the local chamber of commerce. I can't really take any credit for this. Nina and the ladies at the shop are just flat out great at what they do. They can make a pile of garbage look like a work of art. It's pretty amazing what they can do with cake and icing. The orders have been piling up this week, so it seems Taste of the Town was worthwhile. Fortunately we have employees who are eager for more work. They may not be so eager in a couple of weeks.

That's the bakery stuff. I'm also spending time on the software business. I hit a hiccup with a derivative product. I had submitted the derivative to the publisher just before leaving for Texas. Halfway to Texas I learned that the publisher had rejected it. The publisher insisted that I sell it as an expansion pack for the first product, instead of selling it as a separate product. I was pretty upset with them. I submitted an appeal, but it was denied. They called me a couple of times, I think in an attempt to appease me, but they still refused to give in. Gradually, as much as I hate to admit it, I came to realize that selling the new features as an expansion pack was a better way to go. Last week the new rev was finally released. Last week's revenues were double the previous record. I guess it was for the best after all.

Also last week one of my customers contacted me to ask if I'd be interested in developing custom software for his business. I was reluctant. I felt like I had a lot of projects already. There was a long list of things I wanted to get done at the bakery before returning to Oregon. I quoted a price that I thought he'd say no to, but he ended up saying yes, so now I'm working on that too.

I guess things are going pretty well, but it feels like I don't have much in the way of free time. I've only gone kayaking once since I arrived. I have at least maintained the habit of commuting on a bike.

It has been fun learning how to operate a business. It's certainly been a good challenge, and something I've always wanted to try. I realize that I'm treating it as an engineering problem, which perhaps is to be expected. Figure out what you should be measuring, develop a way to measure it, and set targets. If you're not hitting the target figure out what the main reasons for not hitting the target are. Go after the big contributors first, working your way down in order of contribution until you hit the target. The main difference, which really isn't much of a difference, is that I'm measuring financial parameters instead of technical parameters. In the end it's just some number that you chase after.

The biggest eyeopeners for me, at least with the bakery, have been on the customer facing side. Turns out there are a lot of people who desire things which look nice, even when it's something that's going to be eaten. They like it when someone pays attention to them and is responsive to their desires. The bakery does make nice looking products, which also taste good, and we are very attentive to our customers. We screw up every now and then, but we go out of our way to make it right for the customer. I think customer service has been a big reason for the sales growth we've had. The best advertising is a happy customer with a good looking and tasty cake. They tell others, and the guests at their events see and taste the product, which generates more customers.

The photo at the top is from White Sands, New Mexico, one of the places I visited after my last post.

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