So, I have some desire to one day run a bootstrapped company focusing on a very small and tight niche, and to avoid a total disaster, I ought to actually read some books on the subject. I hope to read a variety of aspects of this from the accounting and financing to management strategies, and I thought, “Hey, libraries have books.” So I stumbled across Boss Life by Paul Downs.

Brief synopsis is that Paul covers 2012 from a month-by-month perspective for his solo-owned business selling custom furniture (mainly focusing on commercial tables). He details the successes and failures of his management, marketing, customer relations, consultants, and sales strategy all while being a husband and father.

While I definitely don’t agree with what Paul did on every decision, I really enjoyed seeing his thought process and thinking how, if I were placed in his situation, I would not have the magical answer to any particular issue. I don’t have any particular insight that isn’t in the book, but I wanted to highlight a few things that I felt were particularly notable.

  1. The challenge of a third party dangling “huge amounts of work” but demanding some upfront investment to ensure you are committed.
  2. The challenge of balancing variable revenue and sales with a (nearly) fixed payroll.
  3. The challenge of mediocre employees and their impact on a small business.
  4. Wage arbitrage and the global market

Third Party Partner Whales with Caveats

In the book, there is a firm named Eurofurn that is a major European-based furniture manufacturer that has had major historical capital investment allowing them to purchase and maintain specialty equipment. They are struggling in 2012 due to market slowdowns in Europe, but they are wanting to expand into the North American market. They are trying to decide to partner with an existing manufacturer instead of the enormous capital expense of launching directly. Eurofurn is dangling a large volume of work in front of Paul to encourage him to do some upfront commitment to get

[pg 48] Nigel and I discuss the prices we have quoted him for custom work. Why did we charge so much, he asks me, when he was getting much lower pricing for similar items from his factory in Asia? I tell him that there are two problems: we don’t really have good information about exactly what the details consist of, because haven’t been provided with any engineering drawings. And we also get no opportunity to produce anything in volume, so we cannot operate efficiently. I assign our highest-skilled works to Eurofurn jobs, as the look they want is difficult to build without some very sophisticated machines that we don’t have. He admits that his Asia factories are actually running an assembly line and took several years to arrive as low prices. But he can’t give us large quantity orders until we bring the price down. I can’t bring the price down without more orders. I’m not going to borrow money to buy the extremely expensive machines we’d need without some commitment on his part. I ask him straight out: “What kind of order volume do you anticipate per year?” He answers: “I think we could be doing at least two hundred and fifty thousand dollars this year, and one million in 2013. Can you get your plant up to speed by then?” Frankly, I think his numbers are preposterous.

[pg 104] Nigel is evasive. Eurofurn is excited to have found me. Eurofurn wants us to work closely together. Eurofurn needs the highest quality, and we can do that. Eurofurn needs the lowest prices, like it gets from its other foreign partners. Eurofurn would like me to show my commitment by assuming the costs of the next phase of our relationship by myself. Maybe Eurofurn will formalize the relationship at some point in the future. Eurofurn is also, as an organization, not sure that it wants to work with foreign partners at all. The Eurofurn management team is not entirely behind the decisions to send work overseas.

This seems to be a common trap in this world. I’ve seen this play out in my own professional life where the larger company demands a monetary sacrifice to demonstrate commitment but the smaller company does not have sufficient legal (or otherwise) protection to guarantee that the sacrifice is worth it.

In my opinion, after my experience and reading what happens with Eurofurn in the book (i.e. tiny and sporadic volume), it seems that the only correct solution is to either have a true partnership agreement or for the larger company to just invest into the smaller. But dangling future work (and lots of it) with caveats that no one is willing to agree formally or put their money where their mouth is just wastes everyone’s time. I am not sure why the people from Eurofurn did not feel they were acting unethically, but I hope to never do that.

Variable Revenue, Fixed Costs

Paul spends much of his book lamenting the challenge of cash flow where payroll is mostly fixed cost (exceptions are time off, overtime, and changes in labor rates or number of people working) while revenue and sales are all over the place.

I wonder, why do we not see companies that provide all financial details and ask people to take a “share” of the revenue? Perhaps you have different grades of positions where they have some fractional amount more or less share than another employee, but it’d eliminate this challenge almost entirely. Slow times = lower pay. Busy times = higher pay.

Are there just not way to interest people in such a job? Is it because there is too much information asymmetry (e.g. the internal value system of the owners that dictates what decisions would take place when the chips are down)? Is it because that runs counter to minimum wage laws? Or that it requires enormous trust of your coworkers that only exceptional groups of people could pull off?

Maybe it’d take too long to even do an interview since it would effectively be an interview between all stakeholders? Too similar to the challenge of soliciting for investors?

It sure would be interesting if this was more common in even early-established startups, but it sure seems exceedingly rare.

Mediocre Employees

Paul has quite a few paragraphs throughout the book about his challenges with employees, and while I don’t have much to offer on this, there is a theme that keeps coming up:

Do you keep someone who has some good qualities but is not pushing your company, practices, products, or some other aspect forward? One employee kept coming up who was a great craftsman but could not and would not work well with the boss, would not help his coworkers, and absolutely did not offer ideas or thoughts on how to improve things. If he was directly helping produce the product and contributing to the success of the company, at what point would you say that “isn’t enough”?

Sometimes, it can be really hard to evaluate the “second order effects” of a person - how they impact others either positively or negatively. If you refuse to eliminate someone who isn’t pulling their weight, aren’t you just bringing others down? But how do you define and measure whether someone is pulling their weight? Should you just be constantly stack ranking and pushing lower performers, even exceptional people when compared to the population, out?

I simply don’t know. From a business standpoint, I think being totally emotionless and wholly focused on the bottom line would make you more effective, but can we honestly do that? Can we truly turn off our ethical and emotional sides to maximize profitability? Should we?

At times, I wonder if I should, in my limited management purview, take such a hard stance. Be brutal, build no friendships, expect no friendships, have the most arm-length relationships with colleagues, be maximally and competitively cooperative, etc. But I feel like satisfaction in life can come from multiple areas, and business success alone may be hollow. Wouldn’t it be easier to sleep at night knowing that you balance the needs of the business and the ethics of employing other people?

Wage Arbitrage

In the software world, wage arbitrage has been everywhere for many years. With generative AI, it’s not clear what will happen next, but for the foreseeable future, wage arbitrage will continue. But in this book, wage arbitrage only comes up indirectly when doing international jobs. For Paul, after giving up on the Kuwait/Middle East contacts and the shrinking European orders, he didn’t have to compete internationally in his niche so wage arbitrage wasn’t something he had to deeply consider.

I don’t need to delve into this topic too much, but I do wonder if/when wage arbitrage will ever come to an end. Will it be when quality of life of all people are sufficiently equalized that a person living in the US, Switzerland, and Sudan are all living approximately equal lives? Will it be when the world has perfect global market access everywhere i.e. any good from any country can be found in any other country without sufficiently different overhead costs? Or will this be unavoidable so long as there are places on Earth where people would prefer to live over places where they would like to avoid?

How will AI impact this or not? Will human labor compete against generative AI? I suppose it already is in certain areas (e.g. translation service, entry level positions), and I wonder if the new paradigm will be constantly justifying and re-justifying why human labor is required and where that labor can be optimally located.

Final Thoughts

I really liked this book as it offered me insight into the challenges that a small business owner deals with. It seems to me that small companies are our innovation engines for the most part (unsure of what to think of firms like nVidia), but we as a society make it far harder to compete than optimal. Health insurance is an area Paul brought up and I’ve read online countless times that is a serious issue; if small companies either didn’t have to worry about it or could offer it at a rate similar to larger groups, it’d be easier for them to compete. But instead, I wonder if the combination of regulation, entrenched interests writing laws, and a lack of public knowledge around this topic prevents it from getting the attention it needs.