The Exponential Cost of a Bad Manufacturing Employee

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We all know that a bad employee can cause problems with production, company morale, and more. I’ve heard it said that nothing disillusions a good employee more than an employer putting up with a bad or arrogant employee. However, there is a potential cost that could be worse than all other problems combined brought on by a bad employee. There is an exponential cost of a bad manufacturing employee that you probably haven’t thought of.

Why Do Manufacturers Put Up With Bad Employees

First, let’s look at the reasons manufacturing entrepreneurs put up with bad employees. Here are the most common reasons I’ve seen in the last 30 years of working with manufacturers nationally:

  • The skills gap – the employer is afraid they won’t be able to replace the employee.
  • The employee has access to sensitive company information.
  • The employee performs a function that the owner doesn’t know how to do or doesn’t want to do.
  • Fear that other employees will leave.
  • Fear of or desire to avoid confrontation.
  • Fear of change.
  • The bad employee is a family member.

The Truth Is, Nobody Is Irreplaceable

All of the above are very valid concerns, but they are not without solutions. The bottom line is that no employee, absolutely no one is irreplaceable. In my 30 years of business there have been many times when an employee thought they were overly important to the operation or irreplaceable. In every instance, the ones who thought that were arrogant and had a negative impact on other team members. In EVERY instance, their departure brought stress relief, better employee engagement and dedication, a more cohesive team, and new employees that far outshined the one who departed.

I recognize that it takes strength and courage to do what needs to be done with a bad employee. Most people are change and confrontation adverse. Here’s a reason for promptly dealing with a bad employee that you perhaps have not thought of. The cost could be exponential for putting up with a bad or arrogant employee, and it could affect your retirement.

A Real-Life Example Of Why You Need To Take Action

Sometimes, the best way to make a point is to provide a real-life example. Imagine that you are ready to retire after 40 years of manufacturing entrepreneurship. You built a company from scratch. You’re well respected in your sector and you’ve grown your company to very healthy sales and EBITDA margins. With no next generation to pass the company to, you must sell to ensure your retirement and the company’s continuity. You find an expert manufacturing M&A team, and their valuation of your company is in line with your expectations. They procure several offers on your business within a short period of time that you can choose from. It seems like this would be smooth sailing, right?

The Manufacturer Was Hiding Something That Would Reduce His Retirement Funds

In this real-life story, there was just one problem. The seller hid a key component of the business from the M&A team and the buyer they chose. The plant manager was critical to the business. He ran machines that no one else knew how to run and, for years, had refused to train anyone else in his functions. The owner had been semi-retired for years with no desire to come back into the business. The plant manager took a two-hour lunch every day, came back drunk, and was abusive to other employees. He was apparently the reason several quality employees quit.

The disclosure came after due diligence was complete and just before contract signing. Because the plant manager was critical to the business, the buyer needed to know that he would continue to be engaged after the business was sold. At the buyer’s request for a conversation with the manager, the owner could no longer hide the truth. In addition to the plant manager, it was disclosed that another key employee in the office would likely leave at the time of closing as well.

The Exponential Cost

At the time of this writing, the buyer has reduced the purchase price by several hundred thousand dollars. The entire deal may be in peril, costing the seller millions of dollars. There could possibly be future litigation over the due diligence cost the buyer incurred under false pretenses.

A Better Path

Had the seller been honest about the challenges he faced, we could have helped him navigate a difficult situation by recruiting replacements for the key staffers. Going into an M&A process with a strong team is critical to success. In lower middle market transactions, quality buyers are seeking to buy a business, not a job. They expect a strong team in place. If you have that, you’ll get more money for your business. If you try to hide problems like this it will not only affect the price you achieve for the business, but it could also land you in litigation. Choose the Better Path!

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