Does Anybody know who the “Okie Mechanic” Really Is? (Part Two)

by Chris Peil on March 1, 2013

» Part One

Adapted from The Entrepreneurs Manual, a book on entrepreneurship and startups by Richard White, published by Chilton in 1977.

The order for 10 units plunged our mechanic into a deep dilemma.  He couldn’t build 10 drilling rigs in his spare time and still search for proper work.  If he accepted the order, he might miss out on a safe job.  While he debated whether to return the order or not, another oil company (whom he had never demonstrated to) sent him a purchase order for 15 rigs, and so the mechanic’s company was born.

Of course, $8,500 wouldn’t have been nearly enough to build 25 drilling rigs without some sound money-leveraging principles. Here’s how our Okie made his money stretch:

  • He put an advertisement in the local paper requesting the cream of mechanics for top wages (75¢ an hour) provided that the candidates accept the following terms: (a) they would have to work 50 hours/week in a farmer’s barn (which he rented for $5/month); (b) they would be given only rent money and groceries until the rigs were delivered and payments were made; and (c) no interest would be paid on back wages. Five applicants for every opening showed up and he selected the cream.
  • Since this was a sizable order for both truck and hoist dealers, they agreed to supply him with 5% down and the balance when he was paid.  Of course no interest was charged.
  • He found several grocery stores which agreed to sell him all of the food his employees needed at 50% down, the balance when he got paid. Thereafter, every worker received a large sack of groceries each evening after work.
  • The scrap steel dealers drove a harder bargain. They received 25% down, 25% after two months, and the balance when he got paid.
  • Since excess inventories of paint, cables, chains, etc. existed, he rarely paid over 5% down and the balance when payments were received.

When the twenty-fifth drilling rig was delivered, his sock had dwindled down to $2,300. When he was finally paid, the company was in a cash-rich posture, a position which never changed until it was sold in the 1950s.

There were some problems which might amuse you.  The management organization consisted of just the mechanic for the first 15 months.  When government auditors came in to inspect the books, they were unhappy to learn that there were no books.  The record keeping system was very simple.  In the top right hand drawer of the company’s only desk, all unfilled orders were kept. In the upper left hand drawer, all unpaid bills were kept.  When an order was filled or a bill paid, it was pulled from the drawer and thrown in the wastebasket. “That way, we could always open a drawer and know what was coming in and what was going out.” All other records were kept in the mechanic’s head.

The auditors didn’t feel that this was an acceptable accounting system and give our Okie 30 days to develop proper records. He hired his first staff man, a cousin of one of his mechanics who was an educated man (he had finished high school and had once had a bookkeeping course). When the auditors returned 30 days later, they found a single sheet of paper which was a combined balance sheet, income statement, and miscellaneous additional items.  They were extremely unhappy and when they started to padlock the door, the president pulled out a dozen socks (filled with about $650,000 in cash) and told them to “take what you think is fair.”

When they took more than what the president felt was fair, he hired a qualified accountant, told him to leave his neckties at home, and to protect him the “next time those bandits come.”  The new controller was also given the following instructions: “Don’t put a penny in the banks. Put 10% of all cash into dimes so that we can melt them down for silver if we have to. Don’t keep any bills larger than a $5 bill because counterfeiters never work that low.”

For months, this controller was developing ulcers concerning himself about the vast amounts of unprotected cash he had to carry.  Then he started cutting out newspaper stories of holdups and left them on the president’s desk.  After several months and dozens of stories of how people had lost everything in holdups, the controller asked his president about the high risks they were taking with their bundles of cash. It was then that he learned that his president hadn’t read the newspaper clippings because he could hardly read. So the controller read him the clippings aloud, scared the president, and was allowed to place half of the company’s cash in five different banks. The other half had to remain in reachable cash.  When the controller retired 20 years later, he handed his replacement in excess of $4,000,000 in dimes, ones and fives.  The company had never been robbed.

From a production and service standpoint, this company also had unique problems.  For the first 250 units produced, the company never used anything but scrap steel.  This dictated the adoption of unique production practices.  Each rig was individuall y built built by a team that included one master mechanic and three apprentices.  Since the materials were scrap, each rig had to be engineered and built from supplies on hand. No records were ever kept and since serial number 131 was completely different from serial numbers 130 and 132, the field service people had to be extremely flexible and innovative.  However, since he only hired the best, this was never a real problem. When the Japanese government started buying all of the scrap steel that they could get their hands on, the prices rose so the Okie was finally forced to use new steel.

In the late thirties, the oil companies’ demands finally exceeded his master mechanics’ engineering abilities and he was forced to hire a real engineer. When the poor man first showed up to work, there wasn’t one blueprint or one written production instruction in the entire company (it now employed over 500 people: 1 accountant, 1 engineer, 1 woman who handled all the clerical jobs, 1 president, and 496 production mechanics). It took this engineer four years to convert the company to sound engineering control systems.

 

There’s yet  more to the Okie Mechanic’s story.  Stay tuned for “Does Anybody know who the “Okie Mechanic” Really Is? (Part Three).

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