Fixturing & Tooling
Back to the Fundamentals
What a disorienting time to run or operate a business. Someone asked me and Jack on a call the other day how we felt about everything going on around us and in one of those frazzled-hair, five-o’clock shadow, bags-under-our-eyes moments we both awkwardly laughed and said ‘depends on the day.’
Some days we come in so rip-roaring-and-ready-to-go that we talk over each other for twenty minutes until we settle down enough to process what the other one is saying. We’re like two excited kids the first time they visit the museum of natural history. Other days we lumber up the stairs feeling a total sense of doom and gloom and with the unshakable feeling that the ground underneath us is sand.
Whenever I have this feeling, I try my best to simplify and plant myself in the fundamentals. I’m blessed that my formative professional years were in a manufacturing plant. I got my butt kicked on the shop floor, with weld arcs flashing in the background and the smell of coolant wafting through the air. I learned most of my mental frameworks by being wrong, and by being called out by a level III welder with a handlebar mustache.
These days, one of the lessons feels particularly relevant. We were on this one program with exceptional margins and as a manufacturing neophyte, I couldn’t figure out why this little shop could have this program with such incredible margins. Surely the cost information was inaccurate or some inputs were missing. I couldn’t make heads-or-tails out of why markets weren’t functioning and how this little contract manufacturer could protect these margins.
We didn’t own the design or IP of the end product, we didn’t own the assembly, hell we didn’t even own the system that was installed on the eventual ship. Instead, our part was a component in an assembly, that assembled into a system, that was installed on the end product. There were approximately seventy-five of these ships in the world and each ship had roughly six hundred of our components. We sold each component for a few thousand dollars.
Well before my time, the first RFQ (request for quote) that the shop received was for a small order, perhaps only a few dozen of these components because the end customer only needed to refit some components on a single ship that was docked for repairs. The shop made some money on the project, but margins were not that high, because volumes were simply too low.
However, the next RFQ was for a larger order and the team improved the manufacturing process, which included designing a jig for the component that held the part on what looked like a BBQ spit with a locking mechanism. This allowed the team to machine one side, unlock the part, rotate it, then lock it back in place, and machine the other side. This allowed for smaller lot sizes and faster production with less overall set-up time.
The third order was as large as the second order, but this time the fixturing and tooling could be reused and because the team had now manufactured hundreds of these components, they were well down on the learning curve and significantly more efficient. The margins on this third order were high, higher than any other product this shop produced. And the question we, as newcomers, kept asking was why no other company would compete with us for these parts.
The answer: because who in their right mind would invest all the time, energy, and fixturing and tooling for a component with no commitments on quantity? Who in their right mind would take the risk without knowing how many units they might produce? Our little shop was all the way down the learning curve, our jigs were built, and so our margins were fantastic.
I learned that margins are not simply a function of price, material cost, and hours. Margins were also a function of investment. And our margins were our moat. Our little shop had built one hell of a moat.
Through years of learning, through iteration on order after order, through investment in fixturing and tooling. Through the hundreds of small improvements over time. A minute shaved here, a step eliminated there.
Fixturing and tooling is a capital investment; it’s a deliberate choice to spend up front in order to reduce per-unit costs later. The return on this investment only pays off with eventual volume. No volume, no return. And this is why our competitors couldn’t just waltz in and steal our margin, they simply couldn’t justify the upfront spend without knowing the potential volumes.
Digital Jigs
This concept of upfront investment and fixturing and tooling is not reserved for manufacturing. For those of us not on the shop floor, fixturing and tooling looks like templates, checklists, standardized processes and workflows. It looks like software and systems. It looks like training content and tools to make future work faster. Every time we build something on a spreadsheet or in a workbook that helps us do something better or faster the next time, we’ve built a little investment in our process.
And the ‘unit’ in the professional services world isn’t a machined component or subassembly, it’s a deliverable, an engagement, a client served. At Ballast we call it a ‘rep.’ It’s the whole process start-to-finish: run bookkeeping and accounting, run the controlled close, run the FP&A process. All from the beginning of the month until the end, delivered in context of a financial briefing for the client.
For years, software was a high-end investment in fixturing and tooling. It’s just a digital fixture or tool, allowing us to do higher quality work, more efficiently. And this is one reason those businesses that built software moved to subscription-based pricing models, because it allowed the purchaser to better match the spend with the benefit over time.
And until recently, building software has been a big lift. It required expertise, it required specific tools and resources, and it required time. Because of this, this digital fixturing and tooling was either generalized, meaning it was built for the masses, or it was very expensive. And this created a dichotomy in the business world. You were either a small(er) business that was using a generalized piece of software that was imperfect for your situation OR you were a large company with custom-built software that required a big up-front outlay.
This is no longer true. This dichotomy is collapsing. The recent advances in low-code, no-code, or LLM-interfaced code development mean that the barrier to entry to bespoke applications and programs has been lowered. And I’m not talking about shaving off a few feet of the dike, we’re talking about lowering this barrier by factors of 5, 6, 7x.
Additionally, it has removed the inefficient and frustrating layer of translation between those that will use the software tool and those building the software tool. In the old way of doing things, the architect and the bricklayer needed to be distinct functions. Both tremendously important crafts that one person alone cannot master. Today, the opportunity exists for one person to both design and build, and this allows for extraordinary speed on iterations and adjustments. This puts toolmaking capability in the hands of operators. The small shop can now build custom tools. We can all be our own architects and bricklayers.
Drowning in Possibility
This realization is dizzying. It’s a hit of pure oxygen; it’s exhilarating and intoxicating. To us it’s like being given wings and it’s freeing. But it’s also exhausting, because the opportunity is everywhere and the choices are damn near endless, which means you can drown in your own pool of possibilities.
Do you focus externally or internally? If externally, how do you ensure the client actually values the added contribution? If internally, do you focus on efficiency or do you focus on improving quality?
What about focusing on reducing overhead and G&A? Do you review your own software spend and start building solutions that are custom tailored and cheaper? For example, do you finally fire Hubspot, Asana, Notion etc., and save thousands a year by building your own software solutions? (If you think I’m off my rocker, I took a crack at it a few weekends ago and I’ve now built a pretty slick custom-tailored CRM with sales funnel tracking and contact tracking. We’ll be launching our custom-built CRM to replace Hubspot in a month or so).
Like I said, it’s dizzying, and there isn’t an easy answer to these questions. But again we’re trying to root our thinking in the fundamentals. We’re huge fans of the theory of constraints, and we’re huge fans of Goldratt’s The Goal. And so, we remind ourselves and each other that the goal of a business is to ‘increase throughput while simultaneously reducing inventory and operational expense.’ We remind ourselves to avoid ‘local optimization’ – a single process, a single workflow, or a single machine – because if it doesn’t generate more total output of the whole system, the improvement is not valuable.
Specifically, for us, we’re reminded that the goal of our business can’t be to build supporting schedules or improve documentation. The goal isn’t to build beautiful financial models. The goal can’t be to build structure and process to keep financials clean. The goal of our business is to help entrepreneurs, founders, and operators build great businesses. We measure value as a function of the number of businesses we help multiplied by the impact we have on each business. We balance going deeper and farther with clients until we hit a wall on our capability, and then expanding to help more clients.
With this as our north star, we’ve decided to build tools and processes to drive higher quality (cleaner delivery, fewer mistakes and escapes) and to reduce hours on the mundane but critical tasks. We’ve decided to take these newfound hours and invest them in more advanced critical thinking and support for our clients. And we prioritize the things that impact our bottleneck, which for us moves between the various resource roles and the sales function here.
Our Call to the Field
And so here we all are, in the land of the lower middle market, and we’ve been given this tremendous opportunity. The dikes of our larger competitors have been lowered. And we’ve been handed newer, better tools to build our own. As we see it, we have but two ways to respond: pick up these new tools and build our own future, or ignore them and watch while the others around us seize the opportunity and either fold us into their world or push us into the wasteland.
In Candide, the protagonist leaves home and spends years getting knocked around the world by events outside his control. He is reactionary and passive and gets his ass kicked accordingly. At the end of his journey he’s out in his field, exhausted by everyone’s opinions as to the why of it all, tired of being reactionary, and he picks up a shovel and says ‘we must cultivate our garden.’
We’ve never been the kind of people to sit back and be passive. And we’ve never been quite comfortable just responding and reacting. In the face of this new world, we’re waking up each day, walking out into the field, picking up our shovels and getting to work.
Kyle Benusa, Jack Allen