Do Drillers Need a Business Education?
I usually write about drill pipe, since that is where my experiences lie. But along the way, I also spent a lot of time in management. This month, I discuss my concerns about how I managed the companies for which I was responsible. Was I doing it the right way?
Most of us have no business training. We might have learned how to drill on the job. You may have gleaned the business aspects of the industry from your father or your boss. Maybe our college degrees are technical — for example, in geology — or totally unrelated to what we do now. I have degrees in mathematics. Point being, most of us do not have a formal education in business.
My question is this: How do those of us managing our businesses without formal business education know if we do things the right way? Are we holding our companies back? Are we foolishly taking unneeded risks?
I went to my first national water well convention in 1976 — my first visit to Las Vegas. I am not a gambler. My father-in-law gave me $50 and told me to play blackjack and either bring him back $500 or nothing. I walked by the Las Vegas Hilton’s $20,000 table and sat at a $2 table. After an hour, I was up. The dealer told me that, had I wagered better, I would have won a lot more. I was lucky. I used my probability knowledge and, admittedly, did a little card counting. I was moderately successful but, to use a gambling term, left a lot at the table.
My point is that I worked the table but could have done better with better knowledge of wagering approaches. When I found myself running a manufacturing company, I often wondered if I was doing it the right way. Was I leaving money on the table? Was I taking too many high-dollar risks?
The nearest I came to making a major purchase like a drill rig was when we bought our first CNC lathe in 1983. I had visited a competitor and seen what type of machinery they used. I ended up with a totally different type of machine. I like to think I made the best decision. I relied on the machine tool salesman, who had earned my trust, and a machinist familiar with our product range to advise me. I spoke with a finance guy about whether we could afford the purchase ($240,000 in 1983). And I decided.
A manager with a business education might have looked at this decision and engaged return-on-investment (ROI) techniques. We all have our own language. Drillers might use BHA (bottom hole assemble) or WOB (weight on bit). Manufacturers might use OD (outside diameter) or S-S (shoulder to shoulder). Business people use things like ROI.
The formula to calculate ROI spits out a percentage. You then decide if that percentage is worth it, or you compare the ROI of several potential options to see which is best. When I bought that CNC lathe, I had never heard of ROI. I based my decision on knowing we needed to go the CNC route, my knowledge of what our products cost before and after the purchase, and the advice of those I discussed earlier.
So, in 1983 we purchased a Pratt & Whitney CNC turning center. A what? Who knew Pratt & Whitney made machine tools? My deciding factor? Weight — almost twice that of the others. What was my ROI? I have no idea. I may not know the percentage of return, but I do know it put us on a path for growth. We now made six tool joints an hour instead of two on any of our manual lathes. Some subs were taking 20 minutes instead of 2 hours. We kept pricing the same.
Like most of us deciding on major purchases, we look at the options, their cost and their features, and decide based on what best fits our needs. Trade in that older rig or keep it? Major purchases are risky. A bad decision can have you making monthly payments on a piece of equipment sitting in your yard. A good decision can see a sizable bump in your revenues. Our decisions can be right, but based on projections that do not materialize.
There is an option to tap into formal business knowledge: your accountant. When my daughter, Amanda, decided to open a salon, she and her business partner had experience and knowledge in the mechanics of the business. They did not have formal business educations. Amanda sought my advice on several issues but I think my advice on accountants was most important. If you only get tax returns and payroll from your accountant, you need to find one that will give you financial advice on expansion, capital purchases, end-of-the-year spending, and so on.
Business is complicated. You have production, sales and marketing, finance, inventory, accounts receivable, hiring, firing and so on. We are certainly not knowledgeable on all of these facets. Heck, some aspects of business we just do not like to do. I did not like sales, so I hired a sales manager. Maybe you think it is most important to do the quoting and attain contracts, and you hire a driller to run the rig.
To help answer my question, I went to one of the owners of a local drilling company who has degree in business administration. I met Neil Negley and his son, Dustin, several years ago at trade shows. As we chatted at a Pennsylvania Ground Water Association winter meeting, Dustin had just received his degree and started with the drilling company. I knew Dustin was smart, because he was learning the business aspects first (it was winter) and moving to rig duties later (in the summer).
Ten years ago, Neil retired, and Dustin was one of the buyers. How did they do it and did that business education help? I called Dustin to explore these questions.
When Dustin graduated high school, his father suggested that he go to college and figure out what he wanted to do. At the time, taking over for dad was not etched in stone. Dustin earned a bachelor’s degree in business administration. Being around the family business and listening in on conversations about the drilling business helped in class. He could relate what was said at home to what was being taught.
I knew Negley’s Well Drilling recently expanded into geotechnical, requiring a capital investment in a new drill rig. I asked Dustin to walk me through the decision process. First, they analyzed the market looking for opportunities to support their decision. They spoke with potential clients and discussed what work those clients outsourced, and what clients thought was missing from their current contractors. They weighed whether to promote from within or hire personnel to support the purchase — from managing clients to even operating the rig. How would this fit into their business culture?
Then they made some projection ranges and crunched the numbers. They wanted to see a break-even point within a set number of years. I asked Dustin if he reached into his formal business education to do an ROI analysis. The answer was, not really. His process was not as exact or as in-depth. But, in general, he said the business education provided a solid base.
This answer brought some closure to my questions about decisions I made in the past. In buying that CNC lathe, I went through a similar process even though that decision was a lot simpler.
When we go off to college, we decide a course of study without knowing where we will end up. If we knew what we know now, would we have taken that same path? When Dustin first started working “in” the business, he thought a mechanical engineering education would be a better fit. As he transitioned into working “on” the business, that business education gained value.
Speaking with Dustin was refreshing. His focus, insight and determination were like an old master. He has a saying that keeps him on the right path: “Sometimes, you have to get out of the way.” We are not the best person to do everything. Sometimes your business grows better if you let others run certain aspects, and you step aside and let them shine.
Thank you, Dustin, for your time.
So, did I do it the right way? If I had an MBA instead of an MS in mathematics, how would that have changed my approach? It is not like I used partial differential equations every day at work. But those math courses, along with extensive computer programming, helped form my thinking process. Give and take.
I think I did all right, because when I was manufacturing I relied on people who did have the knowledge. Part of being a good manager is to know when you do not know something, and look for help. My lack of business education was partly filled by our financial advisor/accountant, Jim Johnson. My lack of education in engineering/metallurgy was aided by Nels Wickander and Richard Melvin. To make up for the lack of time to properly manage drill pipe production, I relied on people like Bill Thurman and George Lambert. It takes a village, and these are just a few residents of my village. We are not experts at everything. We need to know when we don’t know enough. Like Dustin said, don’t let your limitations become roadblocks for your business.