A Cautionary Tale

Continuing on from my previous article, I have a story to share about my oldest son and his electrician business. He’s a very good and honest worker, works really hard and really knows his stuff, but he’s not quite a businessman.

As a businessman, he was always trying to offer the best customer service to get the most clients. And he made two very crucial mistakes in these areas.

He would always be trying to provide the best service for his clients – and that’s great. However, he would do so at his own expense. For example, when providing an estimate on how much a job would cost the client, he would provide a very quick estimate, and use that for the invoice. Now, as an electrician or anyone involved in construction, it’s very difficult and time consuming to get an accurate estimate. It would take him several days to do it, and it would take him several more to actually get around to doing it, since he was always busy. So, in order to avoid the client getting a quote faster from someone else, he would “cut corners” and guess at some things to provide a faster quote. And many times, it would turn out to cost more in the end. In his line of business, jobs would be worth thousands and tens of thousand of dollars, so even “small” miscalculations would end up costing quite a bit.

Another mistake he made is that he would only take between 25% and 50% of the final cost as deposit. Personally, I always take 50%, but that’s only because most of my orders are in the hundreds of dollars price range. I’ve had it happen before that someone would pay the down payment and never show up to pick up their order and pay the rest – that’s a loss for me, but it’s very manageable. For my son, people delaying payments, or not paying, or anything else that would interrupt the payment process, that meant losing a lot of money. The bigger the cost of any project, the more you have to consider “well, what if something goes wrong?” My son went into a lot of debt as a result of these problems, and he didn’t even have the money to sue the customers who were late on payments.

This is all tied to the central problem, which is that my son was trying to get all the clients. That’s just not doable and you’ll be stretching yourself thin. If you are ever in a position where you have way too many clients to handle, I would suggest raising your prices, and/or being more selective about the jobs you take. The advantage of a small business is quality, not quantity. Even big corporate leaders such as Steve Jobs would talk about the power of saying “no” to many projects, in order to say “yes” to the ones that really matter.

Another central issue he had was the estimates. For someone in a similar situation, I would recommend getting a good accountant, or someone to handle the financial aspect of the business. Being able to get the estimates accurately, and in a timely manner is crucial to his line of work. Likewise, with large sums of money on the line, it would have been prudent to have a “pay as you go” system of payment – you divide the job into steps, and every step you get some money for it, so that you are never in a position where you’d be losing a lot of money if someone doesn’t pay. Taking someone to court is expensive, and takes a lot of time – you never want to be doing that. And while it costs to have a good financial assistant, in the long time it would have saved him more money in the long run.