June 17, 2015 | Vol. 65, No. 11
Dear PEI Member:
Every once in a while I have occasion to thumb through old PEI Directories. Earlier this week, I was reviewing the directory entries of distributors who were members back in 1971. As I encountered members who were no longer in business, I jotted down the reason—if I knew—that they were out of business. I went through the same exercise for companies in the 1981, 1991, 2001 and 2011 PEI Directories.
What I determined through my completely unscientific survey is that some companies did not survive for reasons we all feel good about, like their company merged with another or left our industry for even greener pastures. But scores and scores of PEI distributors/contractors did not make it for other reasons. What follows are the top reasons distributors and contractors failed in our industry, based on my observations over the last 36 years.
Didn’t know their costs. Some members could not turn a decent profit year in and year out because they didn’t know what was going on cost-wise. With bad numbers, or no numbers, companies flew blind. Some companies didn’t know they were going broke until their accountant told them the bad news at the end of the year. This used to be the number one reason PEI members failed—fortunately members have a better handle on their costs today and price accordingly.
Cared more about the top line than the bottom line. How many times have we heard a member brag that his company hit the $1 million, $5 million or $10 million sales mark and went broke soon after that? Too many. They concentrated their efforts on sales, not profits.
Employees checked out. Employees didn’t mentally
show up for work. The company’s checked-out employees conveyed a bad
impression to customers, made more mistakes and, worst of all, they became
models of disengagement for co-workers and new employees. The owner didn’t
recognize the problem until it was too late to do anything about it. Many
times, the owner was the last to know.
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Owner burnout. Priorities changed. As they aged, owners got tired, lost their drive, became bored and/or didn’t want to deal with the tough issues anymore. They did not spend a full day in the office like they did in the past. As a result, employees didn’t feed off the owner’s energy and excitement, and the business died.
Too many relatives. This is a toughie, but let’s face it: All relatives are not created equal. Our industry lost members who had too many people with the same last name on the payroll. Collectively, the family took too much money home. Sometimes it was the owner who should have retired long ago (see preceding paragraph). Most of our owners work in a lifestyle business. I get that. But there is only so much money to go around.
Inadequate cash reserves/access to capital. Bad things happened over time—the loss of an important customer or critical employee, inadequate bids for construction jobs, the arrival of a new competitor, employee embezzlement, involvement in a lawsuit, etc. These things stressed the finances of a company. The company—with no cash and very limited borrowing potential—turned to bankruptcy as its only protection.
Overreliance on one customer. Companies devoted all of their time and attention to one or two clients and put themselves in a very vulnerable position. When that business dried up or went elsewhere, the loss of income was oftentimes catastrophic. We haven’t had many of these, but they are doozies when they happen.
Illness/incapacity/death of the owner. Some of our former members didn’t have a deep bench. When a significant contributor was replaced by a person (or people) who got in over his or her head, the company took on lots of water.
Looking for some good news? We aren’t faced with a declining market. PEI members don’t serve book stores, music stores, film processing businesses or the printing industry. Instead, we are in a vibrant industry centered on liquids and fuels. Review the examples above and you’ll see that very, very few members lost their businesses because demand for their products and services went out the window. The demise of many members was not due to the market, but to mismanagement. And that’s something most members can control.
EPA RELEASES TECHNICAL GUIDE FOR PETROLEUM VAPOR
INTRUSION AT LEAKING UST SITES
NAVY TO IMPROVE USTS IN HAWAII
The proposed Administrative Order on Consent, reached under Section 7003 of the Resource Conservation and Recovery Act, commits the military to install additional release prevention and detection technologies at the Red Hill Fuel Storage facility on Oahu.
The agreement, announced June 1, also requires the military to conduct a feasibility study within two years for a range of storage tank upgrades that could be implemented, in phases, over the following 20 years. Other actions the Navy agreed to include are:
Comments of the proposed Administrative Order on Consent are due by July 1.
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The TulsaLetter (ISSN 0193-9467) is published two or three times each month by the Petroleum Equipment Institute. Robert N. Renkes, Executive Vice President, Editor. Opinions expressed are the opinions of the Editor. Basic circulation confined to PEI members.