In this episode Josh talks with Adam McKee from Contemporary Woods Furniture. They discuss how lean manufacturing works in smaller businesses.
Adam McKee is the owner of Contemporary Woods Furniture for over 7 years, helping people and businesses craft your custom spaces.
Adam started practicing LEAN Manufacturing a year ago, and has decided to turn his business into a success, and is looking to grow into the leader his company needs to meet long term goals.
In todays episode you will learn:
- What we can learn from the Toyota Production System?
- How to implement LEAN manufacturing in a small team?
- Where can changing one small thing every day lead?
- How to improve your business with less time and a lot less effort?
Narrator: Welcome to “Cracking the Cash Flow Code”, where you’ll learn what it takes to create enough cash to fill the four buckets of profit. You’ll learn what it takes to have enough cash for a great lifestyle, have enough cash for when an emergency strikes, fully fund a growth program and fund your retirement program.
When you do this, you’ll have a sale ready company that will allow you to keep or sell your business. This allows you to do what you want with your business, when you want in the way you want. In Cracking the Cash Flow code, we focus on the four areas of business that let you take your successful business and make it economically and personally sustainable.
Your host, Josh Patrick, is going to help us through finding great thought leaders as well as providing insights he’s learned through his 40 years of owning, running, planning, and thinking about what it takes to make a successful business sustainable and allow you to be free of cash flow worries.
Josh: Hey, how are you today? This is Josh Patrick. You’re at Cracking the Cash Flow Code. To name my guest is Adam McKee. Adam has a custom furniture company. They make all sorts of fun stuff. I’m sure we’ll get into what it’s about. He bought the business seven years ago. I always find it interesting to hear the stories about how people buy their businesses so that’s where we’re going to start today. But we can’t start to bring Adam on so let’s do that.
Hey, Adam, how are you today?
Adam: Hi, Josh. I’m great.
Josh: Thanks a lot for joining me today. I really appreciate it. Let’s start with buying the business seven years ago. How’d that come about?
Adam: Kind of a crazy story. The short of is I’d never worked here. I’d never been in their showroom before. I didn’t know anything about their existing business. But I knew a guy that knew them that said, “Hey, they’re selling your business selling contemporary woods and you might be interested in buying it. So I looked into it and I ended up buying it.
I’ve been a lifelong woodworker ever since high school. I’ve been wood working on the side all the time building cabinets and furniture for myself and for other customers. I find woodworking as really a huge passion of mine.
Josh: That’s cool. So I’m assuming that you do really high end stuff.
Adam: Yeah, we do mid to high end stuff. I’d like to get us into the more of the higher end Echelon with count pumpkin plan in our business and other ways.
Josh: As you know, we have a very long intake form that we ask people to fill up before we have them on the show. The reason I do that is it always gives me some interesting things to talk about. One of the things I found really interesting was the fact that you’re using lean manufacturing in your company. Your company only has seven people.
Seven people it’s not like nothing but lean is actually the Toyota Production System, which I’m sure you’re well aware of. Toyota has thousands of people that work in the plant and it’s really designed for how they run their company. How have you modified lean to make it work in a company with seven people that doesn’t do long runs?
Adam: First off, I got invited into the lean culture by Paul Akers and his book 2 second lean and which is kind of a watered down Cliff’s notes version of the Toyota Production System. That’s really the lean that we kind of practice. We don’t five s. We three s. We don’t worry about the six pillars of lean and all the other hierarchal stuff. We just want to recognize waste, find ways to eliminate the waste and document our improvements.
Josh: Basically four major schools that people worship at when it comes to process improvement, or I called W Edwards Deming where lean comes from total quality management. From the most complicated, we go from six sigma then we go to lean manufacturing or Toyota Production System. From there we go to Scrum and the simplest is the theory of constraints, which I call whack a mole for business.
You’re sort of world, it would almost seem that the Theory of Constraints, which is you wait for a bottleneck to appear and then you kill it and you wait for the next one to appear. It would be a very efficient way for you guys as simply in the process improvement. Have you ever looked at some of these more simple opportunities?
Adam: A little bit. I think when you say on [inaudible 00:04:24], I’ve read the book, the goal by—
Josh: Eliyahu Goldratt.
Adam: Yeah, which was eye opening to me—that little bit like the Theory of Constraints.
Josh: It is the Theory of Constraints.
Adam: That’s kind of what we try to do every day is how can we make this process simpler, how do we level out our workflow so that we’re not just waiting for everything to be in one area and wait for others to catch up.
Josh: Just out of curiosity, since you’ve been doing this, what has happened to your labor cost?
Adam: So we spent an hour a day between our meetings and make our improvements. It’s definitely net zero for sure meaning we’re not losing money now. A year ago, we might have had less production, but now we have the same amount of production. We’ve emptied 10 dumpsters out our shop and cleaned up our flow. Now we’re kind of getting to the point of the real meat potatoes, whether you’re talking Scrum or theory of constraints where we can actually see the workflow now.
We’ve gotten so much crap around it that we can see how things should be progressing through our shop. Now we can actually make the improvements that we need to make. So we’re still just scratching the surface even though it’s been a year. I think we’re just barely scratching the surface.
Josh: Well, if you’ve only been doing it for you, you spent the last year learning we might guess. What works and what doesn’t work. I think what you’re doing with lean is as smart as you’re taking the stuff that makes sense keeping it and letting the more complicated stuff, the Toyota actually uses because they’re producing 5,000 cars a day or whatever it is they do. Letting that go to the side, I would encourage you strongly to spend a lot bit of time with Scrum, and actually go take Jeff’s course in Boston become a scrum master.
The reason for that is what you’re doing with lean can be done in Scrum with a lot less time and a lot less effort. It would make more sense for the way you actually doing your job is that you wouldn’t need to have an hour meeting every morning. You would need a five minute meeting every morning. You would need a two hour planning meeting once every two or three weeks. When an order comes into your operation, when does the product actually go out the door? Like if I called you up today Adam, I said, “Adam, I would love to buy some furniture from you. When would I expect to get it?”
Adam: If we don’t have a backlog, it’s roughly two to three weeks for the average size order.
Josh: Okay, that’s pretty fast. So your backlog is generally less than three weeks.
Adam: It varies. Last year or two years ago, it was six to eight week backlog. We’ve reduced that a lot partly because of changes we’ve made to our business. We’ve had reduced revenue. We’ve reduced our amount of buildings. We rent and trying to simplify and cut the waste out of our environment and extra expenses. That made a lot of changes that I don’t have enough time to talk about today. But we basically have a two week backlog-ish, two to three week production time.
Josh: What could you do to improve your sales which kind of sounds to me where your bottleneck is right now.
Adam: Sales has always been a weakness of myself basically. I’ve always cared more about making sure that production happens effectively and efficiently. We’re tracking our time and not wasting time. That’s definitely something I’ve used as a crutch. I had a former sales employee that unfortunately parted ways with so now I’m learning that I need to be the salesperson because I don’t care who you are. The best sales person in a company is the owner.
Josh: It’s always the owner in the company or size. It’s sort of with the owner has to do because most companies your size can’t afford to put a professional salesperson on it.
Adam: I know and I’ve kind of learned that the hard way.
Josh: I’m going to give you a book which I highly recommend that you actually read and go through do all the exercises. I think it’ll help you out a lot is called The Illustrated version of Book Yourself Solid.
Adam: Oh, please.
Josh: You want the illustrated version not the regular book and the reason is the illustrated version will give you a self guided worksheets to do all the way through. When you get done, you’re going to have a marketing plan that will present you with lots and lots of opportunities. Because it’s great doing the process improvement stuff you do, but without a backlog, it doesn’t mean a whole lot. If I go and buy, say go to a furniture store and I say I want to buy a chest of drawers.
They’re going to tell me that is going to be eight to 12 weeks before I see it. Now, I’ve always wondered why they can’t get that down to four weeks, but it’s always seems to be eight to 12 weeks or 20 weeks or six months before you see it. That’s great to have that backlog, but if somebody like you came along and you took that six month backlog, you’re going to cut that down to three months, just because it’s a process improvement that you do.
You got to have the six week backlog assist here they work hard to become more efficient. I think this is a really important point. I hope you don’t mind me going on this tangent because it’s something that I think is really, really important, which is you have to look at where the bottleneck is in your company. If you’ve got three to four weeks or two to three weeks work that’s sitting in the shop, that means that you’re basically doing some standing around because there’s not enough work coming in the front door to make you become more efficient with goes out the back door.
I think you’re doing the really cool things. If you could fix your marketing and sales problem, you’re going to have a bottom line that’s going to be three to four to five times bigger than your competitors. So when you have that you have a choice. One of your choices is that if I can create enough business without lowering my prices, I want to go that way. In fact, if I can create enough business and even raise my prices because I can deliver on time and my quality is really high and all that kind of stuff, that’s great.
But you might decide to say, “I know I’m going to beat my competitors by 30% in labor. So if I undercut them by 10%, I’m still 20% ahead of where they are.” You can actually if you want to, I don’t necessarily recommend this, but you can compete on price and still make more money than your competitors. I’ve seen them looking at—we’ve had like a five minute conversation and you say, “How can you tell what I need to do in five minutes?” Well, by asking you the question, say, “Okay, it seems like you the back part of your business, the production part is not a bottleneck at this time.”
Adam: No, not at all.
Josh: Where your bottleneck is right now is business coming in the door. So that’s if I I’m in your shoes, that’s where I’m focusing. Do you sell your stuff just locally, or do you sell all over the country?
Adam: No, just mostly locally. We’ve traveled out of state before upon request. That’s not where we need to focus our time. There’s plenty of market availability. Our biggest year is $980,000 in the last seven years. Last year, with all the cuts and changes I made in getting rid of a 5,000 square foot showroom and cutting sales staff and making some big mistakes and fixing stuff. Our revenue got cut 30%. We only had about $600,000 a year. We had almost the same amount of profit.
Josh: That’s a pretty good place to build from so now you’re in a great place to build again. Do you talk to architects in general contractors?
Adam: Yeah, that’s what our big focus is. Also, the interior designers is another focus for us. We want repetitive clientele because the residential clientele who we service maybe 40% of our clientele are residential. It’s every 10 years they’re going to come back to you maybe.
Josh: If that?
Adam: Yeah, if that so—
Josh: We had a kitchen built 25 years ago, I think we’re probably 20 years away from you do anything with it, except for the appliances.
Adam: Yep, exactly. So we’re hoping that eventually will be the gravy on top, so to speak. The meat potatoes is the repetitive, “Hey, we got another kitchen this month. Hey, we got another remodel this month.” If we have 10 general contractors or 10 designers or mix that all do 50 or hundred thousand dollars of business with us, that’s a substantial amount of income.
Josh: Sure. How much is your average job produce?
Adam: Between 10 and 15,000? I mean, we did the math of the Pareto principle of 80/20 it’s pretty close. Unfortunately, 80% of our tickets were only 20% of our revenue. Those 80% of those tickets were like $2,000 smaller tickets, which aren’t terrible, but compared to the $2,000 enough was 80% of our revenue and 20% of our tickets.
Josh: You probably want to build at 80/20 switch the mix on that I would assume.
Adam: Yes, yep.
Josh: Which makes a whole lot of sense to me—by the way, the 80/20 rule for those who may not know is that 80% of your results come from 20% of your activities. What Adam is saying is that 80% of his business only created 20% of his sales. 20% of his activities created 80% of the sales, am I correct?
Adam: Yeah, approximately, yes.
Josh: Okay. So what he wants to do is at least in my opinion, is figure out who that 20% was then clone them. I call that cloning your best customer. Essentially, it’s really is. What are you doing psycho graphically and demographically that allow you to build your business in a way that’s appropriate and smart for you? One of the things I’ve learned in any business ever been in, it takes me just about as much work to sell $50,000 job as a $2,000 job. In fact, in some cases, it takes more work to sell the $2,000 job than the $50,000 job. I would never do any outreach on a $2,000 job.
I might accept something that comes in the door, but I’m not going to work one second to get that because if I work twice as long on that than I do in the $2,000 job, I’ve got a $15,000 job. So my sales costs has just been reduced by seven times. If I’m in your shoes, I want to find 10, 12, 15 partners who are going to buy 50 to $100,000 with a product from me a year. What you learn is after you do a couple of jobs and you build trust in them, is anyone bother going through all the garbage of give me a quote or give me a bid or they’ll ask you for a price but the sales part becomes really quick.
They’re going to say we need this and when can you get it to us. If your shop is known for being able to get stuff out the door in three or four weeks, as you know on the general contractor world, those guys can’t figure out. There’s still back in the world of waterfall planning. By the way, waterfall planning for those who are listening is when you plan your entire job all at once. If any dependency in that plan happens to go out of whack, the whole plan goes to hell. That’s why people use the Toyota Production System or Scrum or the Theory of Constraints or even Six Sigma why they wouldn’t unless you’re a math whiz is that it brings the time it takes to get something from coming into door going out the door dramatically down. In your world, those guys are always behind the eight ball.
Adam: We’re excited because I got into obviously the profit first and Mike McCalla [inaudible 00:15:50] obviously how I heard about you. I’ve done a little bit of pumpkin planning admittedly not as much I need to. I think we have probably two vines in our shop, new furniture from raw material and semi custom cabinets. That’s our property to vines that we’re working on. I decided today actually that I’m going to cut a third vine from our shop of refinishing work just don’t think it’s worth our efforts. But to grow either one of those vines, we’ve interviewed about 14 of our best clients.
We’ve figured out that communication is the worst thing. In the trade’s world, everybody is a great technician, but no one’s great leader or manager. The plumber is going to be here tomorrow and he never shows and people it resonates very much. Our new goal is to be, “Hey, we’re actually trying to roundabout way sell expert communication and expert on time, an expert making a project success. Oh, by the way, we make furniture.”
I don’t have quite my sales pitch down my elevator pitch, but when I deal with one client saying, “Hey, we’re going to be on the job or let’s you don’t have to every day. We’re going to play on a week ahead of the job. We’re going to give you update calls throughout the process and share more stuff and be more communicative so you can trust us.” We’re just scratching the surface on that, but I’m hoping that’s going to be our unique identifier in the market.
Josh: Here’s something which might be interesting for you, if the people especially the general contractors you’re working with adopted Scrum themselves and use it in their business, they would have a huge improvement in their productivity. One thing that you could do, which would be free for you and actually really pretty easy and probably fun and would also make your customers very sticky is that you could invite them to participate in a scrum process or your lean process while you’re building their stuff. You can say, “I want to teach you how we do it. And if you apply this to your business way we do, you’re likely to decrease your cost by 20 or 30%.”
As you know, the general contractor world is one that’s only a 5% 3% profit world. If they could decrease the labor costs, it goes into their projects by 20% that 5% becomes 10%. Now you become a really valuable partner with those GC’s that you’re working with or the architects or the interior design folks. They have the same problem that you did when you started his plan this whole job up and the plumber doesn’t show up.
They have to go back and re-plan the entire job, but if it’s only doing two or three weeks sprints, which is where Scrum is, and then lean has a different process, it’s easy to make adjustments. Because you can throw something into production that’s in backlog, and you know what’s in backlog and what needs to go in, in the retrospective which is a key part of Scrum, where you look back at the last couple of weeks for your sprint is a really big deal. Anyway, that’s an idea that you might want to play around with.
Adam: Fortunately, I’ve invited nine people to what we call three S with us in the morning. They come and do our half hour of improvements and they share with a half hour meeting. That’s been kind of cool to have other people experience it.
Josh: We’ll say, “This is why this company needs to get our business because one they’re teaching us how to be better and two, they deliver on time the way they want to and the way they said they would.” Those are two unusual things in your industry. So hey, Adam, unfortunately, we are out of time. I’m going to bet that I don’t know how— if you’re willing to have conversation with the folks about the path that you’ve been on and what you’re thinking is—
Adam: Sure, of course.
Josh: I’m going to bet there are some people listening to the show that may want to give you a call. So if somebody wanted to find you, how would they go about doing so?
Adam: They can email me direct at email@example.com. They can look up our website https://contemporarywoods.com/ or they can also find me on LinkedIn.
Josh: I have an offer for you also, one of the things that we’re doing now is we have a new program which called the Sale Ready Company. The Sale Ready Company means your company is ready for sale. It doesn’t mean you’re selling your company. If you get your company ready for sale, you’re going to have done things that makes your company great that other people are going to buy and part of the sale ready company is knowing whether you can afford to leave your business when you want to leave your business in the way you want to leave it in a way that—first step we would like people to take is that we have this little quiz.
We call it the Four Boxes of Financial Independence. It helps you figure out where you are on the road to financially being free from your business. It’ll take you about seven minutes to do it. You put some numbers in outcomes, your report and you may be surprised that you’re not as good as you thought you were or you might be better than you thought you were which is also a great thing. We get this is really easy. Just go to thecashflowcode.com that’s thecashflowcode.com. Click on the big orange button when you get there. Take the quiz and you’ll find out where you stand. This is Josh Patrick. You’re with Adam McKee. You’re at Cracking the Cash Flow Code. Thanks a lot for stopping by. I hope to see you back here really soon.
Narrator: You’ve been listening to the “Cracking the Cash Flow Code” where we ask the question, “What would it take for your business to still be around a hundred years from now?” If you’ve liked what you’ve heard and want more information, please contact Josh Patrick at 802-846-1264 extension 102. Or visit us on our website at www.sustainablebusiness.co. Or you can send Josh an email at firstname.lastname@example.org. Thanks for listening and we hope to see you at Cracking the Cash Flow Code in the near future.