Editor’s note: Mal Mixon, former chairman of Invacare Corporation and a well-known entrepreneur, will regularly share his business advice and experience with Smart Business readers. Ask him a question at [email protected], and your inquiry could be the inspiration for his next column.
Q: What is the greatest challenge you faced while having the least resources to face it?
A: By far, the greatest challenge I ever had was cash availability. Invacare in the early days of my leadership was growing so fast that I was constantly trying to get enough cash to keep growing. Inventory and receivables take cash, and the more you grow, the more money you need to sustain yourself. So I did two things — I went public, and I added a second bank to do business with (to share the risk). I really never had to look back.
When you are a private company, the availability of cash is crucial. Invacare made a profit but also improved the collection rate by 10 days, increased inventory turns and made capital investments that had a rapid payback. Our sales grew five times over, from $20 million to $100 million, without having to go to the public or the venture capital market for funds.
It is much more difficult today to borrow capital because there are stricter regulations for banks. If I were an entrepreneur running a company today, I would have to get a venture capitalist to invest or look at going public at a time much earlier than I did.
Q: What are your thoughts on automation? Isn’t it a clear decision to automate if it means saving money?
A: The issue is not labor vs. automation. The issue is increased productivity. You can get increased productivity by better methods or in some cases, through automation. But then you may necessarily eliminate associates.
Most of the ideas for improved productivity, either by an improved method or machine, likely will come from associates who have an idea. Let’s say you put in some automation equipment that improves productivity but eliminates 50 jobs. You will never get a second idea. If you let people go in favor of automation, you’ll never have any ideas submitted.
At Invacare, we told associates that if we improved productivity through automation, they would not lose their jobs, but they would be assigned elsewhere. We would locate them in another department or another plant — and we kept our word.
We always considered investing in an automation process if it had a payback in less than a year, meaning if I spent $1 million on the machine and I can earn an extra million dollars in the first year, then I am even. You calculate whether the payback varies from one year to four years, or six months to four years. You obviously have to cut it off at some point to control your capital budget. Thus, you might say if the payback is not 18 months or less, we’re not going to do it this year.
I’ve known some companies that blindly fell in love with automation, and they almost went broke. Automation is not necessarily the answer because it soaks up precious capital and improvements in methods might also increase productivity — and that also helps keep employees thinking of how to do something better.
In the end, if you get productivity improvements, share the improved profits with your associates by increasing wages or benefits and you will get more ideas.
Mal Mixon is the former chairman of Invacare Corporation and a well-known entrepreneur. A complete story of Mal’s rise from rags to riches is told in his book “An American Journey,” published by Smart Business Books. It can be found at www.anamericanjourneybook.com and on Amazon.com. Visit www.invacare.com
