People and pennies
This week, while I watched Geoffrey repair the damaged ceiling in our house, I have been thinking a lot about business, specifically, small and medium family owned or individually owned businesses. These are the places that I particularly commit to frequenting, as they are fast disappearing.
What started me thinking about it was the premiere of the new Food Channel series “Save my Bakery” hosted by Kerry Vincent, a well known master cake and sugar artist. The series takes viewers on a tour of a string of long-time, family-owned mom&pop bakeries, starting off in Pennsylvania.
Now, as some of my followers may remember, I spent time working as an apprentice in a bakery years back, in NY. I was also trained in baking school, so I have a good idea of what baking is all about. When I was involved in all this, a master Swiss baker took me under his wing and discouraged me from opening a specialty bakery, which had been my original idea. He convinced me that very few people can make any kind of food establishment survive, let alone make money. It may be the quickest way to lose your shirt. He and his wife ran a Swiss bakery in Upton, California for 30 years, increasingly at a loss, and was only able to keep it open because the family chocolate conglomerate subsidized the smaller business.
Why is that? Well, for one thing, the large chains do things on a massive scale and there are economies as a result. For another, few people are really masters of the art of decorative pastry making. When I was in the training program, the best pastry artists were the Hispanic-Americans. I know that sounds as if I am making some sort of sweeping generalization and categorizing a particular ethnic group as being skilled in something they may or may not be flattered to be tied to. But, it is just a fact. These talented kids, most of them in their late teens, could decorate flawlessly, intricate designs, rapidly, one after another, while the rest of us were struggling to make one or two. Theirs looked so uniform and even, as well as beautiful, that you might have thought they were machine-produced. All the big supermarket and hotel chains snap them up the minute they graduate from culinary school. No one else need even bother trying to get those jobs, so well known are the best candidates — that is literally the first thing you learn when you hit baking programs these days.
Another reason bakeries fail is this: the profit margin is less than 2%. And the most profitable item in the average bakery? Not the $50 fancy cake, but plain Italian or French bread. The biggest losers? Doughnuts. Why is this. Raw materials costs and time expenditures. It takes very little money and time to make a loaf of bread and everyone who wants fresh baked goods, is likely to pick up a loaf of just (and professionally) baked bread. There is a standard formula for making bread, and every baker knows it: 67% flour to 33% water, 2% yeast and a pinch of salt. There are two secret ingredients that distinguish Italian from French (and every other “lean” white bread). Once you know these two ingredients, you can make every lean bread there is. And, if you are in the right place, with the right foot traffic, in the right size establishment and if you work almost around the clock and keep the unit spotless, you might be able to pay yourself and one other person a living wage. Nothing more than that. I guarantee you, out of every 1000 bakeries, 998 fail within a few years.
There is something else. The people who make the baked goods are not always good sales people. Being a successful salesman/woman/person is an art. Rarely does the baker also a great promoter of his/her products make. Thousands of 100-year old bakeries are failing all over this country. If you want to see why, watch the series.
That made me think about my dad’s admonition to me, based on his long and successful career as a small business owner. Business, he said, is only this: people and pennies. If you don’t understand those two things and master them, you will fail, no matter what your business is. It also helps to master the art or service you are selling, yourself. So buying a business you know nothing about is probably not a good idea.
This morning I decided to get Psyche some new toys. It isn’t easy to choose them for an African Grey. First of all, Greys have measured IQs equivalent to a four to five year old human being. They also have the maturity level of a three year old, permanently. In fact, I like to think of them as I would an autistic human. That is the kind of personality they have most of the time, and if handled correctly, they are very affectionate and cheerful. But they are also powerful foragers and chewers. In the wild, they spend their day scouting food and shelter. So, they become quickly bored in a cage or sitting on a stand and it is cruel not to provide them with diversion. We have few bird specialty product stores nearby (the last one went out of business in late 2013). I have been getting all my bird supplies online. The supplier is in Ohio and he clearly has his work cut out for him. Nothing works properly on his website, even though he has a great line of products, reasonable prices and free shipping. Reaching someone to get customer service is difficult and today his shopping cart didn’t work. I was buying about $200 worth of merchandise and was getting frustrated because I didn’t have the time to waste. Then I thought about his profit margin. I would guess, it is akin to that of bakeries: very low. Given that he is competing with big box stores like Petco and PetsMart (who do not have a vast array for parrots), it is a miracle that he is in business at all. One thing I will give him, he did call me personally and walked the sale through. At least he has some customer service sense. But, it is minimal and the whole model of his online presence is flawed.
Naturally, as all roads eventually lead to Beth and Geoff, 😉 I was thinking of our little enterprise, since he returned last Saturday. After a brief celebratory moment, we both had to plunge right back into our daily struggle as two middle class, small business people (micro, in my case). When the pipe burst and ruined the ceiling, Geoff set right to work to repair it.* It is not the kind of work he does in his urban redevelopment/restoration business (the pictures here are buildings his company worked on), but despite being a business major in school, over many years he developed the skills to take care of virtually any building or remodelling task. We rarely have to call a plumber or electrician or carpenter because Geoff can do it all and does so willingly. It made me think about profit margins in his business and mine, again, modest.
The most difficult aspect of both our jobs, we have learned the hard way and agreed, is dealing with people. The employees are a mixed bag. The minute someone sees you as “the boss”, a set of norms come into play that pits the two of you against each other, no matter what the circumstances. That employee could be a complete disaster, but if you don’t reward them in exactly the way they see fit, you become the enemy and thus starts a downward spiral. The hardest thing on earth is to motivate someone you have hired to do a job, and it doesn’t matter at what level, in my experience. When I worked with Geoff in his dad’s investment company, we were perceived as the devil incarnate. At the age of 30-something, I was called an “old hag” to my face by one of them because I dared to set rules and boundaries and tried to reinforce them. At first, both of us did this in a sort of egalitarian/democratic way, inviting all members of the office to sit down at monthly meetings and offer their input. We found that empowering a range of people that way did not help us run the business profitably. It only led to the impression that we were soft, easy, and could be rolled. It was amazing to me that people who were being paid royally and treated with total respect, could turn on us as they did (not all of them, naturally). I had no problem, for the most part, dealing with the clients, who were all educated professionals who subscribed to the same business ethics that we did. It was the employees and partners that were stressful to deal with. Eventually we had enough and moved on, each of us, Geoff and I, to our own work.
Few people emerge from business school having learned how to run a business properly. After graduating from one of the top programs in the country, Geoff still had to learn the people and pennies aspect by trial and error. I read biographies of successful businessmen, back when we were attempting to run his dad’s satellite company and learned that one of the distinguishing innovations that made John D. Rockefeller rise above his competition, was the fact that he learned that there was a specific number of drops of oil that would make a profit, per barrel. If you put even one more drop of oil in that barrel, you would lose money steadily and slowly over time and be out of business. That is the clearest illustration of the ‘pennies’ aspect of business that I have ever heard. Rockefeller was also a devoutly religious man and held himself and every employee to the highest and strictest standards of ethics. He was calmly and coldly profit-driven, but he did it with a clean kind of integrity that never wavered. In that respect, he distinguished himself from many other robber barons of his era. Another person in that same vein was Andrew Carnegie, whose biography I also studied. Both men were true philanthropists. Their dealings with people were always above-board and unsentimental. The 1200 billionaires running this country would do well to consider these early Republican traits. The same way my dad did in his business before he sold it. My dad is anti-union, but one reason he could justify that position was that he paid his workers far above minimum wage and gave them terms that even the unions couldn’t match. He never had union troubles (if one can see them that way, as a capitalist does) as a result. That was the ‘people’ part of his business philosophy. Treat people well, and watch every penny.
Back to bakeries. When we lived in San Francisco, there were upscale specialty bakeries practically two to a block. I am not sure they are still there. But, SF is an affluent area, loaded with sophisticated, educated professionals who want a good loaf of fresh bread every day. I learned that most of the European-settled world is accustomed to purchasing bread daily in small bakeries. When I was in South America, these were literally holes in the wall, probably no bigger public storefronts than a typical American bathroom. You would go in first thing in the morning and pick up long baguettes of what I would call classic French bread, for pennies. They were coming out of the oven while you waited. Those niche bakeries would open at 5 am and be closed by noon. The bread was flawless and thus, at the time, very little bread was sold in the hypermarkets (markets the size of Walmart are all over Brazil, for example, part of a handful of giant chains owned by Lebanese descendants — more on that some time).
Here in Valencia, few m&p bakeries survive. We do have Panera, a chain known for treating its employees rather poorly, but one that makes very good bread and soup and serves them fresh in clean environments for low prices. If I were to advise someone contemplating opening a bakery today, I would suggest making it a pocket facility with a window only to the street, fronted by a few attractive high, backed stools. The majority of the space should be devoted to the production surfaces and equipment and I would allow them to be visible from the seating counter. Just make half a dozen regular products: two breads (French and Italian), two pastries (Danish and doughnuts), and two cookies. Special days could bring tarts and hand-sized pies. Have only stainless steel and wood inside, paint all of it a fresh white with chocolate accents. Serve coffee and tea. Price everything but the bread high. Sell the bread at 2% over cost. That’s it. Otherwise, you will not survive.
Geoffrey still has employees, I am my only staff. Geoff has infinite patience and is a quiet, low-key person. Everyone trusts him and yes, some of his employees have taken advantage of his kindness and generosity. He also believes every word they say, to a fault, but he is working on it. I am the skeptic and draw a sharp line with everyone, once they have pushed toward my boundaries. I make a great employee but being an employer or manager is not something in my DNA. The counsel I would give everyone working in any kind of professional environment is the one I offer teachers: be friendly, fair, but firm. [For parents: be affectionate, fair, and firm.]
If you own a business, you need to do ‘job costing’ to calculate your pennies above overhead, i.e., your profit. If you continue to miss your projections for your profit margins, you will fail. You also need to understand human behavior and the best way to do that, outside of years of experience, is taking classes. Everyone needs to understand the nuts and bolts of money as well as man.
Geoffrey’s work is in a range of venues from ordinary renovation to fancy restoration. Which do you think is more profitable? Hint: they are exactly the same. So, it all depends on which you prefer to spend your time doing and whether you can relate effectively to the people above, beside, and below you.
One last anecdote that is somewhat germane. Both Geoff and I have worked in big organizations and I am not sure that is any better than being chief cook and bottle washer. Those structures come with their own hierarchies and stresses and they rarely offer any real job security nowadays. I so vividly remember having a conversation, years back, with a brilliant guy who taught the best astrology classes in Los Angeles. He was a scientist who did astrology on the side. He worked for a huge company as a relatively lower manager, doing a lot of tedious grunt work, including some physical labor, believe it or not. He had been an Olympic hopeful runner, went to a top honors high school, then got a full scholarship to complete his higher education. Why, I wondered, did he stay in such a dead-end job? He told me — and it tells you where my head was at the time, that I had never heard anyone say this before — that he just didn’t care about getting ahead or making money or a name for himself. He loved running and he loved empirical astrology and that is where he put his energy. In fact, both he and his wife gave classes in their home that were astonishingly complex and sophisticated; nothing like the sillyness in the newspaper. Both Geoff and I were impressed with the information and with this couple. After thirty years working for that company and being overqualified and overworked, they let him go when Wall Street et al. tanked the world’s economy in 2008. He was summarily dismissed with barely a thank you.
These are some of the reasons I choose to work for myself, with only myself to thank or blame as things progress or regress over time.
All this was set in motion this week, watching my husband repair the ceiling in his calm and adept way.
*By the way, the last photo of the ceiling was taken in the other corner, because G. finished it first and I wanted to get this post to press, so to speak, lol!
Images: Beth Byrnes archives