Tips on Starting an Automation Business
“I have been doing machine modifications and automating/upgrading machines for many years . I really am at a point of starting my own business and would appreciate any advice getting started. Thanks”
This is a really good question, and one I wish I had asked when I started my first business. At that time there was no Google, so the only real resources I had to answer that question were books and advice from others.
Now there are a lot of resources on the internet for those who want to start a business, so I am going to mention the standard stuff only briefly. Things like getting a business license, writing a business plan, budgeting, taxes and hiring are already on everybody’s list of tips, so I am going to skip over those. A couple of things to add to your budget that is specific to the automation business would be software licenses and liability insurance. Most of the larger companies will want to see your insurance info before giving you work.
There are also a lot of good books out there, too many to list. I will mention one book that had a big effect on me early on, that’s “The E-Myth: Why Most Businesses Don’t Work and What to Do About It” by Michael Gerber. There are also lots of good resources on the details of business management, bookkeeping, time management both on the web and in local bookstores.
I think Barry’s question was more on automation related businesses specifically though, so I am going to relate a few of the things I have learned over the past twenty or so years.
The first thing I’d recommend is Don’t Borrow Money. When I started Automation Consulting Services in 1996 I already had three or four jobs in the pipeline. Most entrepreneurs are very optimistic, and I was no exception. I figured I was going to make a big bang in the market; after all, I had been selling automation products and services in the area for the past three or four years, and I knew a lot of people and companies.
I had been building panels in my garage and had most of the tools I needed. I even had a laptop with some PLC programming software for Allen-Bradley (APS) and Omron. I also had a credit card.
I rented a small shop in Knoxville and bought some office furniture, more tools, a better computer and various accoutrements I thought might be nice. I also put an ad in the paper for my first employee, somebody to run the shop, build panels and answer the phone when I was out.
In retrospect, I could have stayed in the garage for a while and built up some cash before leasing a shop and doing any hiring. As it turned out, I serviced that credit card debt for the next several years. My employee also did a lot of sitting around after the workload got light and I went out to find more work. Which brings me to my next tip:
Hire Carefully, If At All. My first employee was a young guy who was attending ITT Tech, a vocational school. While he had a little bit of electrical experience, most of what I had learned over years of dealing with industrial machinery was brand new to him. It honestly took me as long to teach him to do a lot of things as it would have taken to do them myself. In one case he misread the drawings for a panel and punched all of the holes in the door upside down, with the door hinge on the right. I knew the customer would not have accepted the panel, so I had to spend a lot of time and money fixing it; the job actually ended up costing me more than I made.
Over the next ten years I hired over thirty people; the company maxed out at about 15 in 2005 when I had morphed into a custom machine builder. While some of the guys I hired became excellent engineers, many of the more non-technical guys were only there for a paycheck. This is an important thing to remember as you grow a business; nobody will ever value your company, your baby, as much as you do. I had guys that would clock in, sneak out and take a two hour lunch break, and sneak back in. Another guy quit after a week, just didn’t show up, and then filed for unemployment. Yet another was caught stealing tools.
Hiring is an art, and when you don’t have the time to investigate people and do it properly, results are not good. Also as a company grows, things tend to average out; eventually you end up with an average group of people trying to do exceptional work. This is unlikely to happen. There is also not enough margin to be able to pay more for better candidates, at least not at the beginning when you are small.
After about three months in business I realized I needed to bring in lots of new work to stay afloat. I tried a variety of things from cold calling to mailing out a thousand brochures. I had a Tennessee Manufacturer’s Guide and targeted all of the plants in my area.
To this day I have never been able to trace a single sale to a brochure or cold call. I’d like to relate a story that might help explain why.
When I worked for the local Allen-Bradley distributor I was sitting in the office talking to my boss one day. His phone rang saying that there was a guy who wanted to talk to him, he had the receptionist send him on back. The guy introduced himself, said he was new to the area and did programming and integration work. He handed my boss a business card and asked him to keep him in mind if he heard of any work in the area. After the guy left, my boss dropped the business card in the trash and we continued our discussion. When I asked him why he had trashed the guy’s card, he said that guys like that came in a lot. Since he already had quite a few contacts that did the same thing and who he knew their history, new integrators who hadn’t even set up an account with the distributor weren’t worth his time.
That being said, outside salespeople from vendors gave me some of my best leads. The difference between this and the story above was that I already had a relationship with the vendor and the salesperson. They knew what kind of work I had done and trusted when making recommendations to potential customers. So my next tip would be:
Network, network, network! As I mentioned before, I can’t trace any customers to a brochure or a cold call. The same goes for websites: it is necessary to have an online presence these days, but don’t count on it to generate any leads. A website should simply serve as a resource that you can point to and show people your work. You will probably end up being introduced to your customer in some different way.
Here is a list of where my biggest customers came from:
1. NAS (Nalle Automation Systems) 1996-2005. Met Tom Nalle at Bertelkamp, a vendor who sold components to both of us.
2. Mills Products, 1996-2006. Met the Maintenance Manager while working for the Allen-Bradley vendor.
3. Howmet-Alcoa, 1996-2006. Met an engineer in 1994 while working for a controls vendor. This engineer introduced me to a new engineer, David, who started using my company as a go to source for controls projects and new machinery.
4. TRW Toyoda, 1999-2005. Met an engineer while doing an NAS job. Did a lot of controls only projects for the next several years.
5. TRW Koyo, 2002-2006. Introduced by a salesman from Bertelkamp.
6. Automation Training, 2013-Present. I contacted them after finding their website online. So websites can help…
7. ABD, 2014-Present. Introduced to company owner by Automation Training instructor.
8. Automation nth, 2012-2014. Met principals through Wright Industries contacts, where I worked from 2006-2011.
I have had many other smaller volume customers over the years, many of them introduced through vendors, NAS or Automation Training. It also goes without saying that if you do a good job, you will get repeat business.
Of course there may be exceptions to the points I have made previously. Though I don’t recommend borrowing money to start a business, a line of credit from a bank may be necessary if you do capital projects. Machine building (or rebuilding) can be capital intensive: though you will be able to ask the customer for some money up front, it usually won’t cover the full cost of materials and labor. You may need money to cover the difference. If you can keep a reserve without going to the bank, that is ideal though.
If you ever plan to sell your business, you will have to grow it into something that stands on its own, without you. This means employees. While I am very happy doing consulting work and having no employees, I know that my current business ends with me. This will not be true with everyone. Be aware though that as your business grows you may find that you no longer do the work you love, instead you supervise people that do it instead. That and close deals and take care of everything else that falls through the cracks. In my case, for the last five years or so of ACS I worked seven days a week.
Anyway, it is nice to have control over what you do, though you will find that your new boss, the customer, can be even more demanding that your old one. Good luck, Barry, in your new business venture, and keep me informed!