Mark Smith On The Business of Home Built Cars

Cutting the Jetta...the beginning of the fun

2011-11-14T10:36:00.010-05:00

So you have followed the project, bought into the concept of a very slick car being made out of the pedestrian jetta sedan, you have an old donor, and you are ready to start the beheading. Lets go.


most of the parts that come off the car

What has to come out before you start with the saws all:

The cuts are simple but you have to clear out a few things so you don't hit them with the big saw. Most of these items have to be removed to build the g3f anyway so there isn't much duplicated work.

Environmental tip: While the car is together and mobile have an air conditioning shop drain the refrigerant/oil from the a/c system. If they have a mobile system great but most need to have the car for 15 mins to do the job, this is so much easier when the car is mobile.

1. The seats front and rear need to come out. Follow the bentley manual and pay particular attention to the instructions regarding air bags. In each front seat there is an airbag on the outer side...disconnect the battery on the car and make sure all the harness plugs are removed from the seat before you fiddle.

the final result of the rough cut

The rear seats are much easier just follow the book...no air bags.

2. Remove the rear axle and fuel tank. Follow the bentley. Keep all the brake lines in tact if you can but separate them from the body metal clips and the calipers so that a cutting saw can't hit them...we will be cutting under the rear seat area where the fuel tank is. The fuel lines have special connectors on the ends...there is a button you push to release the line from the joint...don't force this...you either press the right button and they slide away or you are doing it wrong...good pics in the bentley..go slow here as it is a royal pain to replace the lines.

3. The aluminum heat shields and the exhaust also come down. This clears up the underside of the car all the way to the engine up front.

the nose with the engine still in

4.Remove the all four doors/front fenders/hood and headlight surrounds/bumper cover/ bumper from the front of the car. A couple of guys have asked if the doors can stay on...I guess they can be cut while on the car but alll the inner panels and the plate that holds the motor etc needs to come out..as well as the glass.

5. Remove the engine/trans/radiator according to the bentley.

6.Remove the computer and wiper assemblies from under the windshield area...this is where we are cutting so clear it out well. You don't have to disconnect every wire and connector if you don't want to but the stuff all has to be out of the area before the saws all is used for the cut.

7. remove the windshield(or at least the lower foot of it. You are going to need to reach behind the dash.

when loosening the dash bolts there is one really tough one to get to...if the windshield is gone it is easy...we just poke through sometimes

dont mess with the strut tower...we use the whole thing with just a bit of trimming

this is what is behind the dash on the passenger side

the passenger lower corner of the jetta windshield

the seam running left to right about 4" from the bottom of the windshield is where we cut

This stamped support is in the way and must be unbolted(black part)

Also you have to remove the brace above the pedals under the dash...this little brace runs over the two pedals and keeps the dash from dropping low.

this steel stamping and aluminum crash section comes out...I trim the front two sides of the tab and bend it rearward

At this point you have to look at the mileage of the car and decide whether you want to change the heater core...much easier to do now while all is apart. In general the go about 180k miles or so...then they begin to put a haze on the inside of the windshield.

9. Make your rough cuts at the front base of the windshield first, the door shut pillar area second, and the rear seat area and remove the top/rear of the cars sheet metal. When you cut the rear seat area have a jack under the rear of the car as it will want to fall rearward

Inside view of center door shut pillar rough cut

Rear box section under seat rough cut...notice the nut retainers and doubler plates that you want to stay clear of

after the car is level move the laser up to the top of the door hinge area


Front door hinge area final cut..the inside sill is straight down and on the inside of the door pillar...flat area where the trim was and a great spot to measure from


Dash top side area final cut line...this is inside of the door hinge top area

the three bolts are the main dash supports

we provide a laser cut top for the strut tower area box section

Dash trough final cut

Make sure you have disconnected all the wires that go to the roof area like the radio and sunroof controls..lights, etc. you may decide to use some of these circuits in your build. I cut as little wiring as i can...you just never know when the ground in the roof was used for something else...keep the harness in tact.

10. Remove the trunk surround and the trunk. The cut for the trunk surround is tricky at the top by the base of te rear window. I find it easier to remove or smash the rear glass to get it out of the way for the cut. The pictures are good but that cut under the top area is a bear. Go slow. The saws all eats metal well...no need for speed here. A nibbler or die grinding wheel would work well here as well. The rest of the trunk is easy.

The white line shows the final cut we make in the trunk hinge area...below this line are doubler plates etc. that support the side..we trim away the sheet metal above the line

A view of the lower side of the trunk surround while it is on the jetta. the rear bumper cover covered this area under the closed trunk

This is the forward corner of the trunk. The white line is at the top of the bend exactly where the rear window lower edge used to be...cut along this edge with a shallow cut at a flat angle.

Another shot of the leading edge of the trunk area under the rear window(now removed), the white line goes left to right at the top of the bend

This is how the final lower section of the trunk surround looks as it will be installed on the g3f...we use the 1" flange left on the lower edge to mount it to the car.

This is the rear seat area and the largest cut. The rough cut needs to be above the white final cut lines. Yellow lines are dimensions not cuts. cut straight along left above the final cut lines a few inches.

11. Fine cut the front/middle/rear. Laser level the floorpan left to right and front to back using the bottom of the doors sill.


the inside markings of the 1.75" final door jamb cut this cut is about 1/4" higher than you need but you can always trim more later...dont go below that top edge of the inner stamped plate with the big hole!

The marking of the final door jamb cut outside surface...use the centerline of the door bolt holes as the base point

There is no Social Media. There is Facebook.

2011-09-20T10:49:00.001-04:00

As a guy who pretty much launched his new business and brand on facebook and a discussion forum(www.ffcars.com) I am in a position to relay my learnings from the experience and it boils down to a simple change in our society...Facebook.

I am watching the transformation as you all are of how we keep in touch and it is facebook. I am watching how we learn about brands and new products...and it is facebook. I have created a niche in the car world and reached out to that specific group of guys and I did it on facebook. I watch my kids and their friends swap pictures and their everyday lives and it is facebook that enables it.

O.K. for me it wasn't all facebook...the forum had something to do with the launch of the brand, but even the forum guys are on my facebook page now since I just don't have time to log on to every discussion group that mentions the new Smyth car. I am forced to talk in one area and that area is facebook. I am forced to reach out to my prospects in the kit car world and that reach is done using facebook. I have over 10,000 fans and the effort was basically a thousand bucks and a series of interesting updates on the facebook Smyth Performance page. www.facebook.com/smythperformance

If I am not proof that the world of business has changed I don't know who is. The brand is out there now, the discussions are taking place as the customers decide if I am worthy, and I didn't use much in the way of magazines or traditional media. When the old school news ran a story about the effort such as when the Boston Globe's Scott Kirsner ran a piece last year, it was the blog traffic that was reposted on all the auto sites that generated the interest..not the globe. The same thing has happened with every news piece that Smyth Performance has been mentioned in. What an interesting shift. On one hand the traditional Sunday newspaper was spread around the world in a week using the miracle of "social media", while locally the story died the same week. The daily papers need to get paid for there investigative reporting that builds these stories and the raw material that the web is taking for free as a link. These reposts are great for the subject(in this case Smyth performance) but don't really benefit the originators of the content. There will be some interesting movement in the news field is my guess just as there was in the music business.

So if you are a laggard and not joining facebook out of some fear of privacy being invaded you are spot on...but you are coming into the world of facebook eventually just like you did when cell phones came out....you bought into a service plan from a wireless carrier even though you swore you wouldn't. The benefit of knowing what people/companies/friends are up to in one 5 minute sit down session on facebook is just too powerful to ignore. So welcome to the present. It will never be the same. So far I like it. So far it is allowing me more time with loved ones. So far it has made my work day more efficient. So far. I will let you know if that changes.

I will talk to you later....on facebook.

Mark Smith

Getting Dished and Dishing it out.

2011-09-15T10:55:00.000-04:00

Its easy to pontificate when you think you know what you are doing in a technical field. Self praise flows easily on these pages as I have convinced myself that I actually am pretty good at building interesting machines these last 20 years or so. I openly congratulate my company Factory Five Racing or Local Motors when they have wins in this fun business. I am also openly critical of my brother Dave's decisions at Factory Five when I feel things are going awry and the core successful business is at risk of not making money. The kudos as well as the reminders of good tactics are my way of helping from the outside as an owner and director.

As an on the ground founder of Smyth Performance though, I have to listen to the critics and that is not as easy. The other day I posted a picture of Smyth's young welder/all around employee Eric welding the last of a positioned tube on the welding fixture. Everyone(including me) loves the cameo inside progress shots that I have been sharing on facebook so it was just another fun shot that documented the evolution of the prototype into full production.

After a few cool comments I received several critical ones re Eric welding in short sleeves....wait a minute....you guys can't criticize me...I am Mark Smith the fun and interesting 20 year car guy in a shop sharing all this great stuff with you. My first thought. Honest. I even posted a bit later in the thread that Eric was just tacking and that is why it was O.K....

Right. Way to go Mark. Your first employee who is at the start of his working life and you are justifying the young man welding in a t-shirt. Well the power of constructive criticism, if you can get past your stupid ego, is just that...constructive. It is actually pretty rare for smart people to give bad advice...the problem is that some smart people have trouble taking the advice.

Eric is working on the Alpha car this morning because he came to work in shorts again. Now I get to step up and become a mentor and a better boss. Just because I am psycho busy with my own work at Smyth is no excuse...we are going to wal-mart before lunch and we are getting the full set up of work clothes. We are headed over to the Welding Supplies place and fit the leather arm/chest guard like I should have on the first day. I have been running companies that join steel with fire for years...I knew exactly what he needed and I was too busy to do it. When are you ever too busy to watch out for the safety of your people. Should Eric have done this himself...maybe. But I definitely have the responsibility of making sure he is safe at work.

The absolute power of an enthusiast base like we have at Smyth Performance on facebook is that out of over 10,000 fans we have thousands of really experienced and knowledgeable folks who are willing to share their life learnings with us. I have been doing this a long time. I love what I do and will never retire. I really like the reminders that I am not so fancy as I think I am.

People who know me well will tell you that I never shut up when the topic turns to my passion of building machines...hopefully they will also tell you that when I do quiet down I am listening carefully to what you say.

Mark Smith

Old News is Good News. Front Wheel Drive turns into mid engine sports car, a history(1970-2011)

2011-09-15T10:53:00.000-04:00

At the end of the 60's the boys at Fiat cars took what was to become the new Fiat 128 front wheel drive economy transverse engine and gearbox and put it in the back of a show car. The Fiat x 1/9 was born. Front wheel drive is a tight packaging problem for an engineering group and the europeans were the real innovators in the field. Our idea of front wheel drive i the U.S. was a big block toronado...not exactly the economy car and efficient package europe needed.

So Fiat put the whole front drive transverse engine/trans/driveshafts/brakes/spindles from the front of the 128 and put it ito a little sports car. If you lock down the steering tie rods fwd works like a charm in the back. A 2000 lb car with maybe 85 horsepower was still a hoot to drive. A terrible car, but no car tried any harder than the x 1/9.

Next up was the new x-car platform from GM and the chysler k-car platform around 1980. These new front drive cars were designed to save the companies and usher in the era of frugal front drivers to america. Pontiac eventually did what Fiat did in 1970...they took the 2.5 liter iron duke 4 cyl econobox engine and front wheel drive transmission/suspension/brakes from the x-car platform and moved it to the rear of a little mid engined sports car. Over 300,000 of these cars were sold...not bad for a two seat commuter that looked and performed like a sports car.

There have been a few fwd to rwd conversions in the kit car world as well but none of them ever sold well. Either too expensive like the k1 attack or just not thought out well they never caught on. I really think that if they had launched some of the early 4 cyl mid engine kits today with our 4 buck a gallon fuel prices they would have done fine. But fuel stayed below 2 bucks a gallon all the way into the new millenium....so why go small here in America...cobras were king of the home built universe...heck they still are really. We had our trucks, we were not even thinking global warming, we were in the good old U.S.A where cheap gas was our birthright. That didn't take too long to turn around.

The car business today is really simple. We all know that if fuel isn't 4 dollars a gallon now it will be soon. We all agree that burning it all and putting it in the air is probably not the best thing for the planet. Efficiency can be fun at three levels ...you can zip around in tiny nimble cars AND save the planet AND save you bank account. Most of us are keeping the v12's in the garage for date night.

For the last three years I have been publicly sharing the fun i am having building this little G3F sports car out of a jetta sedan. I proves that fun is contagious. V8 guys love the car, japanese car fans love the car, vw/audi guys can't get enough since the old beetle projects really are not around anymore, and we all are having fun with a kit that actually blows cold air or hot air into an OEM quality cockpit and dash. The simplicity of an MG, Jag or Cobra from the 60's is what makes those cars so very special...but a daily driver is not a race car...it has to have a bit of comfort to sell well.

So here we are about to ship number 2 and 3 frames that will be bolted on to the unframed Jettas waiting out there in the kit car project world. Our version of a hybrid doesn't refer to the drivetrain...it refers to our frame for an unframed car hybrid frame concept. This is our contribution to the front wheel drive to mid engine story that started with Fiat in 1970...but we are keeping the econobox instead of making a new platform by and adding a frame to the rear of an existing car. Time will tell how big a financial success the G3F is, but huge volume or just a few hundred doesn't matter to us cars project guys...we just want to build and drive then repeat the process.

A huge thanks to all those VW, Fiat, Chysler and GM engineers who made the front wheel drive economy cars so very easy to work over....without you we wouldn't have all these ultra compact engines/trannies to play with. I will stick to making frames and bodies that use all that fabulous engineering and let VW engineer and manufacture the parts for the drivetrain...too rich for my blood...its more fun that way.

Mark Smith

Are You Really Working? Why an "Effort Ethic" doesnt fly.

2011-09-13T15:42:00.000-04:00

I had a great conversation with my operations gifted father on Sunday that revolved around the concept of work. As he was asking me how my long days were going we dove into our real definitions. I am not talking about effort here...I am talking about work. If you remember from physics, Work is a product of force times the distance moved. I am sticking to this definition literally for this discussion. Work is not force or effort...work is force multiplied by the distance moved. If you push all day you have put in a solid 8 hrs of effort, but if the block or project you are working on didn't move...you guessed it...you didn't do any work at all. Many people in management forget this simple formula or never think of it this way. This is why we hold fancy mba's and managers to task for the results they get in business. 20 hour "effort" days without tangible results are definitely an amazing feat and require huge sacrifices...but you will probably be looking for a job if you don't figure out how to get some actual work done. Work requires real progress toward your goal. Effort is just that...pushing.

In an r&d environment we cheat this rule all the time and can get away with calling effort "work" since the tangible progress is hard to measure in the early days of a concept or project. But eventually, even the brain trust r&d guys have to come up with something sale-able and with impact for the business. They can't just push all day. They, like all knowledge workers have to produce a work product. If you are digging ditches all day you can see the work you do piling up that dirt...you used effort and moved the flippin dirt a distance....and you got paid to do it...check...all good. As a manager of an organization of effort you have to deliver the numbers over time. If you don't what are you doing all day with all that effort? If you are not adding value to your organization and you are getting a managers paycheck there can be big problems despite the effort ethic that you have.

The disdain some people have for the legal profession or any bill by the hour service provider is based on this as well. Look, a lawyer provides a valuable service in my opinion, accountants too....they save you enormous pain if you have a good one helping you in this complex regulatory and legal world we all do business in. But in the end they get paid even when they push on the rock all day...even when no "work" has been done. This is what ticks people off and it is why the choice of these service providers should be one of your most thoughtful decisions as you start a new business or manage your mature one. Get someone who delivers tangible results and a work product. If your law firm constantly delivers more questions than it answers, get a new one. If they eliminate problems and clear your plate of issues that are distracting you...keep em. If your accountant delivers tax advice that saves you money, bingo, work was done. If the receipts are all organized and trouble free, your bookeeper did work too. It is not the hours they spend on the task but the results they get you. If they can do the job in half the time and spend the rest with their families they probably can charge high rates and have happy customers...don't be afraid of expensive help..they might just be that good.

I am always very cautious when someone works very long hours at their job. Over the long run a quality thinker and worker gets amazing amounts of real work done in the allotment of time in a workday...super human effort is only temporary even in highly charged environments like start ups. If I am putting in 20 hr days day after day my bet is that there is a lot of effort and not much work being done...a disaster in the business world as well as in your family life since you are never home. Worse yet is the fact that you are never home AND you have nothing to show for it. Ruin defined.

So if you find yourself working incredible hours and never quite getting the reward or praise that some get who are home early...think about the work you are doing, the real work. Stop efforting so much and get to work...it pays really well and is easy to spot.

Mark Smith

Welcome to the Small Time: Sub-car Innovation

2011-09-09T09:55:00.005-04:00

Coming up with something truly innovative in the car business is a real challenge. Millions of people are passionate about cars and the various things we enthusiasts do with them. This leads to many brains working on the same theme...making most models of the modern automobile "better" and different. I put better in quotes because from some views the improvements may not look like a step up to some...but that is the point...making the car into what YOU want it to be.

I have been lucky enough to come up with two real breakthroughs in what I call the sub-car business. This small part of the car business caters to the home builder. Our guys that I have been selling car kits to for 15 years have been reading those small ads in the back of Popular Mechanics magazine since they were kids...you know the ones....usually an ad for a mini desktop drill/lathe/milling machine(the ad still runs today I'll bet). I am proud that I own the largest kit car company in the history of the genre but am brought down to earth when I look at the actual volume of kits we make. At 500 kits a year(even our best years in the early 2000's we were still just under 1000 per anum) pale compared to the real car business. Chevy sells more vettes in a week than the entire kit car industry as a whole probably delivers in a year...and the Corvette is the epitome of a niche ultra low volume car for GM. We are not even on the car world map if you look at the volumes. The sub-car business defined.

So what are my personal contributions to this sub-car world? Way before my work in Wareham these last 15 years or so the true kit car business was born with the Meyers Manx in the 60's. Bruce Meyers took a VW beetle and removed the whole body, cut out a foot of the middle of the frame and put a new fiberglass dune buggy body on top. Sure there were a few kit cars made as early as the fifties...but we are talking insignificant volume before Bruce. With the meyers manx and all the copycat dune buggies that followed, a few weekends later you as the kit customer were driving a wacky VW dune buggy on the street or off road. A simple idea that Meyers made work as a business for a while. Sub-car but far from sub-par since the transformed car delivered on the promise of fun on the cheap.

Throughout the 70's the proliferation of VW beetle framed kit cars in almost any design was what defined the category. T buckets, Bradley GT's, Kelmark GT's, porsche 356's, as well as the ever popular dune buggies became real business. Still the sub-car business of course since volumes probably never exceeded a few thousand a year, but a business nonetheless. With a few exceptions these cars all used the VW beetle frame and kept all the mechanicals in their original locations...rebodies but still a VW beetle frame underneath...not exactly hi performance hardware. Several guys used the performance aftermarket that had flourished for the beetle, but over 150 horsepower was pretty rare.

Later on mid seventies we saw the advent of the first Arntz cobra replica. Even though Steve Arntz and his replicas fizzled as a business, he was responsible more than anyone else in ushering us into the high performance fully framed kit car. The cobra was a perfect choice to replicate and started a market that is still the backbone of the kit car industry. Note..the term Cobra is owned buy Ford and licensed to Shelby for his cars...Factory Five and Smyth Performance are NOT connected to Ford or Shelby. So back to our discussion...when you talk replica vintage roadsters or a historic view of cobra replicas you will see that everything changed in 1993 next to a transmission shop in Framingham, Massachusetts.

In 1993 after business school and while still working as a Chemist/product manager at Avery Dennison(markers and inks were fun too), I finished the first prototype car for what became Factory Five Racing. By taking the popular 5.0 liter mustang and using all the mechanical/suspension/wiring components off the car and designing them into a brand new full frame with a replica body the birth of the one donor cobra replica or "roadster" was complete. Cobra replica kit cars had been around for years but were made from the parts of many different cars...jag rear ends, ford big block engines from the 60's custom wiring, suspensions/wheels/brakes from all sorts of cars such as the pinto and assorted MG's. They had become the most popular kit car in the world by the 90's because they were the first kit car to deliver the goods...they looked fast and drove really fast. My twist was driven by the fact that these kits were a bloody fortune to make if you wanted a nice car. I took the 5.0 Mustang from the late eighties that I knew well and had been beating up for years, disassembled a wreck 5.0 in my sisters garage, and swore that I would use every nut and bolt I could from the car and make a replica cobra that had the quality I wanted at a price I could manage.

The most popular kit car of all, an FFR roadster on the Dyno

I was able to squeeze all the parts from one v8 hi-po car into that custom engineered round tube frame platform that I designed and welded up specifically for those 5.0 parts. When I was done you could take a wrecked mustang for 3 grand and finish a bona fide street race cobra replica for another 10 grand. The time searching for parts became one purchase of the donor car. The aftermarket for the v8 mustang was enormous. I got a B- (maybe even a C)on the project a few years before as a last project for my Bentley MBA in 1992 and that sealed the story of the launch of Factory Five in 1995 when I invited Dave out to start FFR. He has run FFR since I left in 2002...one of the best feel good fun small business stories around.

The domination of the kit market by FFR is small time kit car history though. Only a handful of kit car enthusiasts even care about the lineage of these bastard cars so it really isn't too big of a deal in the business world. The fact that we used EVERYTHING from the mustang was ground breaking AND a big deal innovation wise...who would have thought you could use the instrument cluster turned backwards, or remove and cut the plastic gauges from the cluster and remount them behind a vintage looking aluminum dash while keeping the entire computer controlled wiring harness and engine controls in tact? Who would have thought that you could take a strut front suspension from the mustang and convert it into a double wishbone high performance front end with nothing but a coil over shock and a clever welded conversion mount? Sub-car business innovation at its very best in my very slanted opinion. My first contribution to the car world is still a pretty good one and all the quality folks over at FFR work tirelessly today to ship the best home built car kits in the world.


Seatek Diesels 750HP

That Bio-Diesel sticker always elicits Q's

As most in the industry know I left FFR for Dave to run in 2002 after we survived the ford/shelby trademark case. I went totally diesel crazy for my next venture Smyth Performance while keeping my half of the company even today. After repowering a 50' scarab with twin 750 hp seatek diesels and surface drives, I realized that the economy wasn't quite ready for a big expensive kit boat project. So back to cars I went and bought the jetta wagon diesel as the test bed in March of 2008 for what became the current Smyth G3F diesel sports car. After 6 years away from FFR I finally found my next true contribution to the car world. Designing a frame add-on for a frameless car(VW jettas are sheet metal unibodies in design like most modern cars and have no frame) and moving the engine to the rear from its position in the front, a new category of car was born. We transformed a frameless econo box jetta into a fully framed/reinforced mid engined sports car. It was a wild idea from the start with absolutely no support from even my fellow engineers at FFR, let alone from Dave. Dubbed the franken VW by my brother in the early concept days in 2008 his skepticism remains today and is understandable...a four door economy car cut up and turned into a sports car while using the entire sub structure and floorpan of the donor jetta? Really?

I remember showing up at shows with the first FFR fuel injected replica and hearing the other cobra replica companies say"no one will buy a fuel injected cobra". I think of that today as I launch a very interesting G3F to a part of the home built market that has not been served. The fuel injected FFR segment of the replica market ended up being bigger after a few years than the entire market was initially, and I am hoping the same thing happens again here with these little VW's. I have a feeling that this car as the greenest car you can possibly drive(doesn't hurt that it peels rubber for a city block) will change the kit industry for the better and usher in a wave of interesting small car kits. It still amazes me that the hybrid framed G3F came out as cool as it did.

The innovative part of the Smyth idea was the reuse of so much of the donor car. It goes beyond the mustang donor concept since it preserves the whole floorpan and the mechanicals while becoming the ultimate recycled car. It even stays a Jetta since the VIN is still there along with all the pollution control/crash equipment as well as all VW suspension parts. At 2300 lbs and tuned up to 300 horsepower with a turbo gas or diesel engine the Jetta based kit creates a new kit category that builds on the legacy of the first VW kits in the 60's. Add a frame to a frameless car and move all the parts around and presto...value added sports car that deserves the money you will put into it and delivers the performance of a mid-engined car. Good bye econobox and hello sports car special...all for 7900 bucks and an old jetta. Bingo.

Special and fun doesn't have to cost 30 grand IF you build it yourself. And that is the real power of the kit car industry, finding ways to build amazing machines in the sub-car universe that all us car tuners/builders live in. If you spend your time in the little ads in the rear of the magazines...join us for some 60mpg, 14 sec 1/4 mile, 1.0+g cornering fun for 10 grand.

http://www.facebook.com/smythperformance

Mark Smith

KISS and DELL

2011-08-11T12:38:00.000-04:00

A home built car is the most complicated consumer product in the world. Your customer has to build or re build an automobile at home and you have to engineer some big boxes of parts that enable him/her do it. The other side of the equation is the personal taste of each builder. How do you combine the product into an offering that makes several segments happy and delivers on the manufacturing motto of keeping it simple to make?

KISS (keep it simple stupid) is a widely known engineering term that reminds all the creative tech folks in business to not let their abilities get the best of them. Engineers these days can do amazing things with the tools we have available. Even low budget operations can design intricate machines and products that can be realistically reduced to practice and sold commercially. This is the problem. KISS reminds us to keep it make-able and profitable. Complexity is the enemy of any production operation. If you want to go out of business just expand without adequate capital and talent. My dad the operations management guru has a rule of thumb that has saved me every time I want to do a new project. going from one platform to two platforms does not double the complexity. The details and tasks/follow up of a new platform is 4 times as complicated. You can mitigate this by making the new platform as simple and as similar to the existing platform as you can...but complexity is the bugger that will sink your margins.

I will use my FFR experience as the perfect example of this. In the beginning we had one platform and one product ...the ffr cobra replica that killed the category in 1995. After a few years of the usual tough growing pains and investment we started cranking in the cash. By 1998 the profit coming in had seven digits. Time for a new product...the coupe. Even though the coupe was a new car it was really our first car with a new body and a stretched frame. 90% of the parts used were the same as the first car. Even though it was a new car it was made the same way with the same cuts in the tubes, the same wiring, the same engines, the same transmissions, and the same rear end. Operationally it was STILL a challenge to incorporate it into the line though. The complexity add to the organization still was tough to manage even though the car used so much of the same material and methods. In my estimation at the time with my dad we figured we had increased complexity about 50% organization wide by 1999. 50% sounds high for just adding a new version of basically the same car but it was accurate. What saved us was that the new car had a higher price. This balance between complexity and pricing is the key.

Next we tried the launch of the coupe convertible. A coupe with no top. Complexity not too bad buit still had a few new parts. The car never sold well and was quickly discontinued. Good move. Without sales there is no excuse for keeping a low volume product. The "its good for the brand" story works once...identify your brand image/loss leader and keep it if you really feel it helps...but if you find yourself with more than one...you are addicted to new products...not new profitable products. Break the addiction to the new and trim the product line.

Fighting the KISS principle is the customer. KISS applies to the making of the car but it also applies to the marketing of the car as well. Even if you keep it simple in manufacturing you still can be undone by the sales guy in your organization that wants to offer all the options that will make everybody happy. Complexity rears its ugly head again. Dell does this well. However you want to order a computer DELL will let you do it. I am not Dell and either are you. KISS. Unless you charge big.

The key to adding complexity is to charge for it. You can't always pull it off since you may be in a crowded market without the power of soapbox to define the category...but if you are the leader in your niche you want to use the position you have to make sure that you price for the complexity.

Lets look at the three new products we had at FFR in the 2001 to present time frame.

1. the spec racer.

The spec racer is the FFR roadster converted to a full race car. 90% of the parts are the same as the stock raodster and the process is the same to make it. Though I am dissapointed with the volume we ship of the car it fits the coupe path above...a good new product try that increased compleity a tolerable 50% or so when launched. It was a decent attempot at a new product but only if the volumes are above 1 a week like the coupe. Even though the car is valuable as a positioning tool for the brand, over time you only have room for a small positioning product and it still should at least carry its weight sales wise. Great for the image of the company, low complexity to the organization, but the low sales keep it from being an a student. Worth a redo to try to increase sales...but never a leading product.

Assessment: Grade is a B. Redo the configuration to try to increase sales, keep/raise price at least 3 grand over a stock roadster with the same content.

2. The GTM

The GTM is a stunning looker, a world leading supercar on the track and on the street. All the words that describe it are extreme because it is so very extreme by design. Jim created one of the fastest cars in the world and the kit sells for 20 grand. For around 50 grand you are done with it. Amazing car. Complexity is the fatal flaw in the GTM business wise though. Most parts are different from the coupe/roadster/spec racer. manufacturing metods are the same but the design and raw material is different for the plant. With high design goals came high complexity. The kicker is that even at a low 20 grand for the kit, 2 a week is a good sales week. Since the car is a bit more complicated to build and source parts for, the tech support team spends time helping customers through their builds and they are good at it.

Assessment: grade is a C-. The redo bumped \sales and fixed a few of the launch issues the car had, but sales are still low and complexity to the organization is enormous. Raise prices on the GTM at least 5 grand and reduce volume or discontinue. A great car but bad business at 20 grand.

3. The 33 Hot rod.

The 33 is a hit. It looks great. It handles great. It is easy to build. The added complexity of a totally new platform is worth it if the car has the sales volume to support the manpower nexcesay to support it. And FFR has that manpower. We passed on the hot rod launch in 1998 for a reason. It would have killed FFR back then. How can a hit kill a company then and not now? Maturity. FFR is 15 years old now and can do a new product like the 33 even if it is a new platform. But only if it is a hit sales wise. If the 33 did not sell so well it would not be able to pay for the complexity it adds to the organization. But it does. In spades.

Assessment: Grade is a solid A. A hit with a potential to more than double sales when you add a chevy engine option. Keep the car simple to build and make, let the customers add the options and charge another couple thousand dollars now that the quality of the car is world class.

The Smyth Grade.

Mark Smith

Tools, Rabbits and First Rides

2011-07-26T17:14:00.001-04:00

I use Margery Williams' "The Velveteen Rabbit" and Dr Seuss' " Oh the places you'll go!" all the time both as a parent of five children and in business.

Velveteen rabbit moments are rare in life but you know when you have one. They are those times when it dawns on you that you have become "real". The birth of a true car guy is usually after removing and reinstalling an engine in a car. Your first major car repair or project whether brought on by necessity as a broke 20 year old that blew up an MGA engine in college or as a fun hobby at the age of 60 makes you a car guy and you become "real". You can't fake real...you just are at a certain point. Changing your own brakes or bolting in a new alternator is a good start...but you are just beginning the process. You will know when you are a true car guy after you are one, that's how it works. At that point the signs will be there. Dirty fingernails as you go to the Hospital if you are a doctor. A bandaged cut on your hand as you go into your law firm. Staying late at the car dealership to work on your own car even though you put in a full week working on customer cars. Tools that take on a familiar feel in your hand instead of still being in the original plastic holders. Paint and bondo in the creases of your hands from sanding and spraying...they all are signs you are a real car guy. Normal people and the want-a-be crowd can't really play in this league...you know things about machines and how they work from doing it yourself.

I gave my old 1999 Navigator to my Dad a few years ago since he drives quick trips around town as a deacon and needed another car. The car promptly broke and cost my Dad a thousand bucks to keep it going...nice gift eh. The car then served its purpose and went unused for a bit when my 16 year old spotted it idle in the driveway one holiday. All Brendan saw was the super stereo I had put in years ago when it was my daily driver. The classic "i gotta have it" look that all 16 year old boys have regarding their first ride emerged. My Dad said sure since it had been sitting for a while. Well to get the car home I had to go up to Wellesley and get the car with him. We went to start it...nothing. Battery dead...no problem. The first c-note of many and a new battery was in...my gift to the new driver and his new car. The old truck fired right off for my son as if it had been waiting for him. The truck was so excited that when Brendan stepped on the brakes all the brake fluid came out from some over rusty hydraulic line down underneath the middle of the car. Being an hour from home and after autozone had closed for the day we packed it in and headed back to Dartmouth discouraged but hopeful that the next trip would see a quick spliced brake line fix and a ride home for Brendan in his Navigator.

A few days later I grabbed the boy and we drove back up on a school night after I had grabbed the fittings and sections of hydraulic line. I went into my Dad's garage to get the the tools and was hit like a truck with the familiar layout of my Dad's craftsman red tool box. Each drawer was as it was the last time I used it back when I lived at home. Each tool familiar and in a comfortable place. Certain tools you use all the time fixing cars and they get worn in to your hand and show wear from use. You can't fake being real. My Dad's tools were also my tools as a young man with too much project courage. They and my dad had nursed me through the fixing of each of my many rides. Vw Baja Bug, VW autostick Bug, Pontiac grand ville 455, MGA, Jaguar E-type, Jaguar xk120(never finished), Jaguar XJS... all possible because of the hours spent with those tools. Real has many signs. Without his love of the right tool for the job I probably never could have started messing with cars as a 15 year old dreamer.

Brendan and I cut and flared the brake line with a quick lesson...it is still hard to do a bubble flare even after you have done it a hundred times by the way...and we filled up the reservoir with brake fluid. Smiles all around. Off we went around the block to test. The brakes were not the best as we wore off the rust on the discs but they got better after a few stops and we decided the car was ok to drive home. We parked and went in to say our good byes to grampa and grandma, triumphantly got in the Navi and...nothing....wouldnt even crank over.

Looking deeper the terminals and the whole starter solenoid were corroded and the starter needed replacement...another trip home without the car since auto zone was closed. There is no easy way to learn the meaning of a free car than to try to get a free car home. Three days later we returned to the car and my dad, Brendan and I replaced the starter, fired the truck up and finally said goodbye and rolled out the driveway. The grin on my son's face is exactly the grin we all had with our first car...priceless and full of potential.

Bren's ownership experience continues to teach through broken rear control arms, brake leaks, and the amazingly poor mileage that a Navigator from 1999 can achieve. He is not a car guy yet. He may be some day, but he is just starting out. I love watching the replay of my own life through my boys. The car experience is about the freedom it gives these budding adults and there is nothing quite like it for a young male. I am helping with the control arms tonight when I get home and I can't wait. Timmy called to me in to his room the other night...he is looking at older jettas on craig's list...1.8T versions...with a certain look in his eye....he is 16 in August:)

Mark Smith

Smyth Performance and the end of life

2011-07-13T15:22:00.000-04:00

My VW jetta is approaching the end. Since I have used it not only as a test bed for the new Smyth kit cars but also as a truck for hauling, it is a tad on the rough side. Numerous scars of a great life are everywhere...cooper's fastball always gets away from someone and "thump" another dent in the side...Brendan missed a three pointer and somehow the ball bounced off the windshield at just the right angle...cracked. The tan seats have been slid into a couple hundred times too many by a guy who is welding up a new kit car...tan doesn't hide dirt and grime after all. A very large SUV(hey I have 5 kids)gently bumped the front wheel of the parked Jetta...leaving the wheels aimed at the curb when the steering wheel is aimed straight ahead. Another luxury truck took out the passenger mirror.

On top of these day to day happenings I was leaving the driveway a week ago and I heard a "ka-tung" sound that was different from the usual "ka-tung" sound in that it ended with a clank...a piece of the front spring was laying on the ground under the car...I knew the strut bearing was making sounds, but a broken spring top?...never seen that before....alright then. The car seemed to still work fine so I did what any car guy does and kept going to work.

Normal people would have had a new car 6 months ago. So yes. The saws-all will be coming out in a few months and this Jetta will become the second Smyth Performance demo car after the white one being finished now. Perfect donor really, even with all these problems, the parts of the car I need are in decent shape...plenty of life left. As Capt. Jack Aubrey said,

"Would you call me an aged man-o-war, doctor? The Surprise is not old; no one would call her old. She has a bluff bow, lovely lines. She's a fine seaboat: weatherly, stiff and fast … very fast, if she's well handled. No, she's not old; she's in her prime."

The entire strategy behind Smyth performance has been to make an incredible car out of an ordinary one, a Jetta needs a bit more of a bluff bow to deserve a second shot. Ordinary cars are thrown away after a couple hundred thousand miles, incredible cars are always rebuilt. This is the key to our green story that is ringing true in the car community. Sure a tdi diesel powered Smyth car gets 60 mpg and rips through the quarter in under 15 seconds...fun...but the key to the long term strategy of the company is taking cars that are not worth rebuilding and giving you a reason to rebuild them. Is this the kit car business, not really.

A used Jetta is just not worth the money it takes to rebuild. If you are a real environmentalist I guess you would rebuild the boring car because it is the ultimate environmental act short of riding your bike...but like it or not we don't drive for completely rational reasons...we drive because it is fun. And if we are going to drive we usually want our chariot to reflect our personalities, egos and income as well as our day to day transport needs. Sometimes this mix is a bit off...I enjoy the low key(OK a bit toooo low) wrecked tdi wagon with the diesel clatter instead of the Italian super cars in the garage...go figure. I use the ferraris often in these pages since they represent much more than cars. As art they are a joy. As cars they are a blast to experience. And you never throw them away...ever. This is the key for Smyth Performance and any car that achieves immortality. If I can provide a package that puts a bit of passion into that old car, you will rebuild it.

Without this added emotion or passion the car is on its way to the crusher...a huge waste of all that engineering and value that is just sitting there ready to be rebuilt and enjoyed. V8 mustangs, vettes, Porsches and specialty performance cars have this immortality if they are not completely abused. Sedans and utilitarian cars/trucks do not. Even fancy Bmw's, and Audis end up in the scrap yard when they hit 200k miles or are in a minor accident late in life...people are done with them...just not special enough to spend the 5-10 grand it takes someone to rebuild a car. There are exceptions of course, anyone can attach some sentiment to a car for any number of emotional reasons, but in general...cruncher.

The other day I posted a picture of the new Smyth car we will start working on in the fall. We are building a $3500.00 kit that will transform your old Jetta into a 40+ mpg pick up truck. Not just any truck...a truck that will get people to ask you questions at the gas pump...and if you are a car guy/gal that is the ultimate goal...the gas pump "I didn't know the Jjetta came as a truck" line of questioning. Motorhead heaven. The G3F and the truck make a real statement not only by being exclusive(you can't have one if you don't build one) and stylish, but by being home grown green. The prius crowd wishes they could be this responsible....and we get to lay rubber living our green lifestyle. Passion comes from the building of the car yourself combined with a nifty ride in the end. If you build a car you take care of the car...immortality.

As a car builder I like the ability to tell a story that has balance to it. We drive fast on the track. We waste some gas doing it for fun. We spend countess hours on these machines that we love for single moments of joy on the weekends. I have been known to have a cup of coffee and just look at the mechanicals of a fancy piece of engineering in the garage. The analogy is the mechanical Swiss watch...thousands of moving parts ticking and turning away on your wrist...simply amazing. You either appreciate that amazing feat of micro engineering or you wear a quartz watch just to tell time. All we tinkering souls need is an emotional reason to redo our boring cars and we will jump right in. The fact that you can use the Smyth jettruck and the Smyth G3F sports car every day just makes them fun and practical. The real story in this company's strategy is that we are giving a car the second life it never had.
Go Green, Go Fast, Repeat.

mark smith

It's a Miracle

2011-07-13T09:50:00.001-04:00

This week marks a huge milestone for the Smyth Performance G3F kit car. It is always a little stressful when the hand made prototype is converted to computerized tooling and parts. Making things by hand is very time consuming as you all who have followed the project on the Smythperformance facebook page can see. The last months have been a two pronged effort as we work toward the shippiong of the first kits. First we were driving the hand made car to assess the basics of the car's handling and braking, and concurrently we were drawing the car parts on the computer so that they could be replicated and manufactured easily. It may take a year of feverish creativity to nail a design in practice, but once you document the work on the computer you can make as many of them as you want fairly easily.

This is where the miracle happened. After spending two months working with Rick drawing the parts we had to pony up and order the steel from the laser cutter and the tubing supplier. A laser cut tool was also ordered that was drawn to hold all the tubing in place. If the drawing is wrong, all the tooling and parts are wrong....it is a big deal.

The parts came in...I tacked the steel together in the computer cut jig...and it all fit perfectly. Phew. The miracle of computer aided manufacturing is still cool to me after 15 years of seeing it happen live. To the right you are looking at five plates, three tubes and a lower vw suspension part that all came together the first time...a miracle.

You hear in the press about full digital design and fast prototyping in the new product world today....and it is legit...it is a great way to get there. But in my world of products with a bit of passion behind them, I can't do it. The art side of the product has to be done by hand to me...and then digitized at the end. The number of running changes to the car over the last year and a half has been staggering. We changed more each week than most companies do in months. If we waited each revision for laser cut prototype parts rather than just cutting what we want with the plasma cutter here, we would be sitting around doing nothing half the time. In house laser cutting or a small cnc plasma is great...but you still have to draw the parts in order to use the cnc tools and cutters....time that I think is better spent "playing" around with the actual car in front of you. Cut, tweak, grind, use foam, wood, whatever you like...just prove the concept works aesthetically and functionally before you digitize.

The result is an intant transition from hand built prototype to full production kit. The first two customers have started cutting their jettas already, and I will ship them the rear frame assemblies shortly after test fitting them both to my car. Since all the items that make the car function are off the shelf vw items we don't have the "will it work" risk that most guys do...we started with a running car and we simply moved a few things around which was the key to the business model. Our job is to provide a front and rear frame extension and a nice body that allows our guys to transform the boring economy car into something special. Since the frame is the guts of the car we are thrilled that the parts now go together for our welders like a nicely cut puzzle. So after a fun development ride you will only see crisp clean parts being assembled out back in the pictures... The foam and creative mess of the last two years transforms into a real professional operation that will be fine tuned to deliver consistent and reliable welded and molded parts. The show changes a bit now from "what the heck is mark doing today" to "what an interesting car and process".

Making the same car parts every day is not as fun as the wild man an a warehouse so the emphasis going forward will be a focus on the people and cars they are building. So look for Clint and John's builds out there as number one and two customers and have fun, I know they are...and even though they can drive the cars every day if they want, in the toy car business the fun building with family and friends is the real goal.

Mark Smith

Diesel and gasoline mix just fine.

2011-06-27T16:14:00.001-04:00

The debate over the diesel vs. gasoline Smyth G3F is starting to get underway if my inbox is any indication of the next few months of conversation. As the first 1.8T car goes under the knife in July we will have the opportunity to watch Clint's gasoline Smyth car and John's diesel G3F being built at the same time. My driving impressions so far have reminded me how important this 800 pound steel cut diet is making to the performance of the car. I am still sold on the seat of the pants feeling of the TDI of course, but the 250hp gasoline crowd is coming on strong.

For those of you who don't know VW's like us fervent followers of the brand, both the 1.9 liter turbo TDI and the 1.8 liter turbo gas engine found in the mark 4 jetta/golf respond incredibly well to computer chipping upgrades. The electronically controlled turbos in both engines are transformed by nozzles and a chip to the tune of about 30 or 40 horsepower added. In the 1.8T or the TDI the difference in performance will blow you away for a few hundred bucks. In the TDI the 130 horsepower and huge 220 plus lb feet of torque let you peel rubber for a block if you wish...who knew that the lowly 90 hp stock diesel could be slapped into shape so easily. Chipped 1.8T's are equally if not more impressive as they routinely get 205-210 horse at the wheels with nothing but a chip...remember these are at the wheel horsepower numbers...a mustang 5.0 from the late 80's was running silmilar v-8 level power for comparison. Talk about cheap performance.

When I enter an exit ramp in the stock 90hp TDI without the chip and injector upgrade I am driving an econo-dog...nothing really fun. The car feels like it handles great of course since all cars with no power feel like they handle. Put the chip in and the car blasts out of the apex at 1600 rpm with almost full torque available. It is this low end grunt that I am now officially addicted to. As fun as the turbo gasser will be for many G3F customers it is the unique feel of that diesel pull that has me in a trance. I have said it before but it bears repeating, in the rpm range that you use 90% of the time the diesel feels faster and pulls harder. I can't keep up with a full howl 1.8T once it gets going...that 210 hp is too much and pulls away, but around town and on the ramps of life I play racer all day long at 2500 rpm.

The rear drive configuration of the Smyth car is proving very kind to the diesel version of the car as well. With the weight now transferring to the rear wheels when you launch, the diesel torque does not have to be wasted in wheel spin...it digs in and goes. I am balancing the fun of the firm shocks and springs vs the ride of the factory struts and the firmer car is just superior when matched with a tuned engine. The lower weight of the 1.8T unit is the wild card here as it will be almost perfectly balanced with a savings of 100 lbs in the rear...we will see fairly soon as Kim is considering a 1.8T G3F for her ride this summer that I build next. When you combine the agility of the lower weight car with the traction of the rear drive layout either version is a joy to toss around. So the question remains for all you potential builders...rubber band acceleration of the 1.8T or instant stump pulling speed from low rpm in the TDI. Decisions, decisions...and if I can keep the price under nine grand like it appears we can...even more fun for everyone.

Mark Smith

Obama and Local Motors

2011-06-25T09:39:00.008-04:00

I watched a live feed yesterday of Jay Rogers the CEO of our home team Local Motors talking to President Obama about the LM Darpa project vehicle, the XC2V. As I texted Jay a congratulatory word it was a moment of real awareness for me about what Jay has accomplished with the Local Motors team. Jay has always been an enthusiastic proponent of his new company(at 4 years old though they are starting to look like veteran car guys now). He has faced the challenges of starting a car based company in the midst of the chaos that we call the modern business climate. He has managed to raise millions in investor money with a clear and compelling value story. If I showed you the list of investors in LM you would be impressed not by their big names(there are a few) but by the sheer bulk of business experience he has been able to "rally" for the Local Motors launch.

Photo ops are just that...opportunities to shine. And both Jay and the LM Darpa vehicle did a great job highlighting what a nimble and talented team in a small manufacturing company can do for this country. To recap, DARPA approached LM to test the crowd sourcing methods and concept development in vehicle manufacture that Jay and Local Motors invented. They gave LM 6 months to design and build the army's next fast extract vehicle...Jay showed up early in Washington to meet Obama after the prototype car drove to DC from Phoenix. On time, under budget and ready to pull our troops out of a bad place at 120mph safely. Well done.

When I posted the picture and video of Obama on facebook I also had a few critics....hey, its the wild west when you communicate publicly after all, and I am now very used to it...but I was surprised at one of my friends' tough take on Obama and Local Motors. Look, I voted for the other guy last election, no hard feelings here, the people have spoken. But even a republican like me thinks it is not just a little kind of cool when the company you helped co-found, and your good friend and CEO of that company, is held forth as everything right in American innovation. My facebook pal couldn't see past the millions it took to launch a class company...go figure. Now this guy has built a bunch of factory five cars over the years and is the definition of a passionate and loyal customer of mine.....so why the anti Obama/LM vibe? I will chalk it up to the difference between the frugal Smyth/FFR business model and the more expensive and sophisticated business model at Local Motors. Jay spends real money going after aggressive business goals, and that makes some people nervous when you compare the cash burn to a cash based mature company like FFR. Growing with cash and retained earnings won't let you explode in growth...only relatively large cash infusions will let you do that.

In my personal world of new products I work as the R&D guy with budgets under a million per project...most often funded by yours truly. It is what I know, I have a bit of a following in people who respect my machine making abilities and creativity, and I am rewarded with being able to sell a few interesting projects to the marketplace in the form of car kits. I am one step above a back yard hot rod builder...a few more tools and resources in the way of computers and design capabilities....but still fairly dependent on my own skills. That is what started FFR and it is what started Smyth Performance....it is definitely not what started Local Motors.

Jay started by raising money and forming strategic partnerships into what is becoming a world beating organization. At least that is the goal. After meeting with Jay for a feverish few months while he was finishing Harvard business school, I worked with the last of my influence and whatever informal clout I had left to convince Factory Five to invest our valuable car design expertise in Jay and Local Motors four years ago. It was worth it to push very hard for the deal. Guys like Jay just don't arrive at your doorstep that often, if ever. I believed in Jay and wanted two of our young engineers to help him next door and take the company wherever he wanted to go. The talent that Jay assembled and the team of investors was amazing. His ability to refine the LM story over the first years combined with a skilled car and web team has delivered real results creating both a vehicle and a community of designers. This allows Jay to continue to raise millions in capital as he needs it.

To Dave's credit, he finally went along with the deal and Local Motors was born. Jay quickly raised a million or two in that first round and he was off and running with a little building and two talented engineers that had cut their teeth in the FFR kit car design world...off he went at a rate that we could never envision since we just never had access to that kind of investor base.

This is not how we do things at Smyth Performance or Factory Five. You either want a big piece of a small company(the driving force behind FFR and Smyth) or you want a smaller piece of a big company(LM high growth strategy). LM has a chance to be a scalable and significant company that can make a difference in the world of product development. Will they make it? Maybe my pessimistic friend on facebook is right and it will fail in a few years and the millions invested will be lost.....but a fairly large group of sophisticated investors are voting with their money on the opposite story...one of real and sustainable growth. Time will tell of course, but I have learned that you never bet against smart guys like Jay that are executing to a plan...ever. I know where I have placed my bet and participating in this fun and serious game is more rewarding than the financial or business risk.

So when I look at the founder page in the Local Motors corporate documents, I can't help but smile at the story behind the three names. Jay Rogers, Jeff Jones(his HBS class project partner) and Factory Five Racing. The story of the start-up I will write with Jay's blessing someday since it is mostly his story to tell, but for now....congratulations on a very public small business victory Jay, and great work Local Motors. We all share President Obama's view that you are leading a terrific effort to change the way products are designed and made.

Mark Smith

Moving on Without Moving Out

2011-06-24T10:59:00.018-04:00

Well it is true. There is no realistic way to sell a company in this credit environment unless the buyer has cash. It makes sense really...if people can't buy houses in this restrictive money climate why would you be able to finance a company acquisition? As I had mentioned a few months ago, Dave and I have been working on a way to get me out of my ownership of FFR so that I can move on and continue to make my way in the car world with my new venture, Smyth Performance. As I finish up the move into our new building I am reminded that it sounds easy to step out in theory...I have shared much of my experience on these pages...but in practice it is really hard. The 50/50 closely held company structure that so many company founders start with may work to make everybody feel "in" and vested in the early days but makes it nearly impossible to sell the company. In the end Dave and I will figure something out and see if I remain a passive 50% stockholder or if there can be a purchase of my half. If I had to buy a company right now I sure couldn't do it. The good thing for you the small business owner is that I will share the experience so that any of you on the same path can learn from it.

This really is not about good guys or bad guys in the buy sell stage Dave and I are probably in for the next year or so...it is about the 50/50 structure and the lawyers that allow their clients to enter into a business marriage in the early days without an adequate framework for the sale of the company later. A little effort on your lawyers' part in the writing of the corporate documents to allow for clear conflict resolution methods and a formula for a buyout and you can save a lot of grief later. Dave and I will work out my exit over the next year but having a better set of corporate docs would have been so much easier. This is really the most important thing you can do before incorporating. Conflict and spirited discussion are good things and useful if resolved, but you need a mechanism to break a deadlock if you happen to have one. Dave and I are both good guys. We are part of a great family and each have enormous talent, energy and business strengths. We each want the best for our families as well as our extended network of stakeholders at Factory Five Racing. We have argued, discussed and gone through many business struggles together over the years and built a great little company in FFR. Now I find it time to move on...so why is the buyout so hard? I want to sell and Dave wants the company....perfect.

Its about Valuation:

The quick review. Without talking about FFR I will speak about generalities that we all are faced with in the 50/50 business world. All of us closely held company owners face an interesting valuation dilemma when we want to sell and that general concept is what this note is about. So how to begin? Start with each person stating what they want. The value of the company has to be said out loud by the buyer and seller to get started in my opinion. Easy right? Wait till you hear what each of the owners think the company is worth and why. A fascinating and eye opening discussion.   If there is logic behind your pitch it will lead to a discussion where the two(or more) of you are within a few million. Time to stop and regroup since you are close. So let's look at how you can get close.

We will assume you have a generic 10 million annual sales company with a generic 10% net income that we have talked about before. When I say generic I really mean just that, it amazes me how different companies of the same general size, have almost identical financial statements. I will bet almost every 10 million dollar manufacturing company can relate to these ratios we use here. So am I talking about FFR...of course not, but these round numbers give you a rough idea about small business realities that we as owners face every time the topic of value comes up. So back to the math. As one of the thousands of closely held subchapter S corporations in the country you sell $10 million of widgets or services a year and you split the 1 million(10% net for discussion) in net income between the shareholders while holding some percentage of the cash for investment back into the business over the years as retained earnings. This formula is key. How much of the net income goes to new products? How much of the million goes to facilities or new productivity enhancing equipment? Valuation has to take into account the profits and the future...that's why you see huge valuations over the 5X number for real growth companies and 3 X or less for flat or shrinking margin/sales firms.

The goal in the business world(not the lifestyle business world but real business) is the growing company. A company that grows steadily at any rate is valued at future earnings instead of historical earnings. A big deal. If you see a company sell for 5 years of earnings and they are looking forward the total starts looking brighter. This is where the sweet spot is. Show no growth or small growth below 5% a year and you are relegated to the 3-5 X historical earnings rule...bummer. I will take the 5 X future earnings please:) So grow your business. It makes a dramatic difference.

For discussion purposes let's stick with the rule of thumb for a flat/no growth business. 3 to 5 years of earnings and the assets that are in the company are used to value for the "average" business. If you are like me, you are a bit of a heady entrepreneur though, "average" is not you. You are a maverick, a risk taker, you have worked harder and for longer hours than anyone can imagine building this company. No one understands but you about the blood sweat and tears it takes to start a small business...to guys like me the company is like a child. Well wake up all you owners and captains of small industry. Your company is worth 3 to 5 times profits if you stop growing, and you may get some of the cash from those assets only if you are lucky. Madly in love with your accomplishment? Don't sell...seriously...don't. I am in the end phase of asking myself these questions too. I love FFR. Can I really sell it? If you want to move on and chase the new company drug again...then yes should be the answer. So let's talk turkey and see what things sell for in the real world. You can do it too.

Once you find out what other people sold their companies for you will either feel better or worse about your exit. So in our pretend generic company "z, inc." we have a 3 to 5 million dollar income side of the deal(3-5 X 1 million) and lets say that there is a million in assets and retained earnings over the years that have been invested in the company. 4 to 6 million for a typical company that is not growing much but has some good will and the a reputation thrown in to close the deal. You didn't borrow over the years because you made money. Not bad. Now you are not even valued at 1x sales or even close to the 10 to 15X sales and valuations you hear about on the stock market....but those companies are growing fast supposedly and have a market for their stock with transparency in their financials...you don't...you are a generic 50/50 closely held small company. 80% of the small company equity sales that closed before the financial melt down probably followed this path.   Summing it up: You pay the 20% capital gains on your half of the total and retire or move on with some kind of deal worth half of 5 million bucks minus a half million in taxes. At the end of the process in the sale of 50% of a 10 million dollar company you get 2 million in your bank account if it was an all cash deal.

But it is rarely an all cash deal:

If your partner that wants to buy you out doesn't have 2.5 million in cash.....and they rarely do....hey, we started the American dream to live the American dream. We didn't sock away all our money under the mattress, we raised families, took vacations, bought houses(yes, maybe a bit more on the toy side if you are nuts about machines like me) ....life happened to you, the small business owner.   A million....sure...we can probably get our hands on that if pressed so lets start there. Heck, start with whatever cash you can reasonably raise for the buy out whatever the number is. If I was buying out my partner I would go to the table and talk framework possibilities again with the million bucks in hand and a firm grip on reality with regard to what is possible. I need 2.5 million to fairly reward my 50% partner and we have a million bucks. Let's say the company makes a million a year if all the earnings are taken out...but the company has to invest something over the next years, so lets say half of the million a year in income is available for me to buy out the other holder of stock. I can probably get some kind of loan and lever myself up a bit and the possibility of a deal starts getting closer. I give her a million up front, a half a million in payout for 3 years and an extra year of payout to reward her for taking risk on the payout(a cash deal is 2.5 million remember...a deal involving risk we will call 3 million). The company pays me a salary after I buy it of a nice 250k a year, I can retain 250k in earnings to grow, and there is a half million a year left to pay off the debt. Done.

Before the world financial mess a few years ago you could have probably financed the whole 2.5 million total...but not anymore. It took us eight months to sell a 150k condo, what are the odds with a softer asset like a business...you be the judge. Future payouts are tough because anytime a closing is held without wrapping up payment, there is an increased chance for conflict...what do you do as the seller if I have a couple bad years and can't pay you the half million next year? Yikes. So be careful with future payouts. Word them well for both parties. Set a minimum payment and a bonus for me if I pay you early. Keep me excited to be on my own rather than a prison sentence where I feel I will never pay it down.

The best examples of a fair buy/sell that I have seen revolve around an offer for the company that goes both ways.   If I offer my partner 2.5 million for his/her half of our generic 10 million company then he/she has the option of buying ME out for the same amount. This only works if both of you actually want to run the place...but talk about getting on the same page quickly...that works! It really skips all the bologna when you know that your offer can be turned around and used to buy you out...nice. This is my favorite way to enter into a buy sell and the way lawyers should word corporate partnerships and the bylaws/documents in my opinion I love it.

Bad times and value shift:

If times get tough in the future or have been tough for a few years in our fictitious company(lord knows it has been hard at FFR) it changes everything. Even a single year of poor profit performance before the sale ruins the 3 to 5 times earnings rule as you are valuing earnings going rearward remember? Lets say we are just like every other company that got hit hard with the economy and made it through the last few years with 200k of profit per year instead of the usual million.   3-5X this new rate is now 600k to 1 million and the assets are still worth a million. Now we are talking about TOTAL company value of 1.8 million. Your half is now supposed to sell for 900 grand if a cash deal. 20% capital gains comes off to the tune of 180k so you are left with 700 grand for your half of your American dream....right.

A half a million bucks is not going to buy a ten million dollar company that will probably make a million a year again when things pick up in the overall economy...so the deal is dead and no one is to blame. This is why poison pills and a few years of poor financials don't realistically reduce the value of the company as much as you would think...just like my situation after a few hard years at FFR, I will wait the bad times out since I see such incredible potential going forward that really can't be valued accurately right now. As I have said before...wait a year or two and try again. So if you may not be able to sell yet, what do you do? You move on without moving out.

Here are a few tips as you try to move on while still owning the company. Unlike company "z, inc." I have plenty of real world decisions I have made in the past few years(some good ones, some not so good) that I can share from my own experience with the Smyth, FFR and Local Motors threesome.

1.Be honest and open about what you are moving on to next: The Power of going public.

In my case two years ago I went onto a big forum and announced my next project...the diesel sports car. No secret behind doors r&d work this time. Wide open and take your hits. You better have a thick skin because people say what they think these days on the net. During these last two years anyone who has followed my public Smyth facebook page or ffcars.com has been privy to an exciting launch of a new vw based kit car that uses the vw jetta almost in its entirety as the base for a re-bodied and reused green sports car concept. The use of a modern economy car with a stamped steel body and no frame was unique. Adding a partial frame to a frameless design(modern compact cars are a shell and have no frame) was a different and a really new idea. You can determine how novel your idea is by how many people criticize or don't understand what you are doing...we had lots of this in the beginning. VW beetles in the old days had a solid frame underneath that made the dune buggy kits easy to make since the major structure was there in the Bug floor and frame. In the Smyth car we added a frame to a car that had no frame...and it worked out fabulously and it worked out publicly.

By keeping the project open and public I avoided(or rather faced head on) the potential conflict that could have arisen over any overlaps between my new company Smyth performance and the companies I share ownership in FFR and LM. Jay and Dave have and had access to every detail of the Smyth project live as it was being built. All three companies have strategies and products that they hold as valuable. Publicly talking about the positioning of the new company has allowed candid feedback and processing between us. There may not be agreement but there is discourse. When a Boston Globe article came out on Smyth Performance a year ago, Dave did not pull any punches...he told the reporter of his concerns. This is a perfect example of the benefits of this open and public communication: Dave was openly and publicly upset with a car that was "GTM like".

In the early days of the Smyth diesel sports car project I used a mold from the trash at FFR to lay up parts of the GTM. These pieces were then cut up and placed in some areas of the car to see what a cut jetta could look like with a low sporty body on it. At the time the idea of the "mini me" GTM was a fun way to describe a new smaller sports car being built down the street. When the conflict became real, I was able to change the project scope by designing a new body without GTM shapes. I even put the Jetta trunk on the back of the car with the huge VW emblem in the middle. By the time the car was done we had a Toyota inspired front end, a Dodge Neon windshield and a Nissan/Cobalt/VW rear end. Without a public outlet to identify this conflict early it could have been a disaster. Stay open and stay honest(public if you are able) in your new venture if you are keeping the old company. Now we have three companies doing executing three very different product strategies and though there may be some bruised feelings about how we arrived here, we all can get along since that will be good for business.

2. Don't take employees from the other company you own:

When starting a new company it is tempting to surround yourself with people you trust. Those people usually have worked with you in the past and you are familiar with them and how good they are...that's why you hired them at the other company after all. Even if you don't actively recruit the people from your other company, many will seek you out for a job in the new place. If they seek you out I am sure you are ethically OK...but don't do it. If you value the other company you own you should keep them there. In my case I want FFR to succeed wildly and grow...FFR and LM are my two biggest assets. Now if someone gets laid off I think you actually have a moral duty to keep them gainfully employed, but if the original employer wants them back and ends the layoff you should honor that. Resist the urge to get competitive, it is about supporting all your assets...not one over the other.

I put a survey up on the Smyth Facebook page a while ago and I asked Smyth fans if they were doing an FFR after the Smyth car.   Almost half of the respondents are planning on a factory five build after cutting their teeth on the simpler Smyth Jetta kit. 15% are VW all the way and will never do anything but VW/Audi. around 35% say the FFR kit is too rich for their blood. By appealing to a new base of customers in the VW segment of the market I am able to grow FFR, LM and Smyth at the same time. Synergy is real. You have to have the discipline to make products that complement the other companies. It is a fine line but one that will pay huge dividends when you go to harvest your companies in a sale. When I go to sell Smyth performance the product line will have a vw sports car, a super high mpg pick up kit and another high mpg aero van or car someday. Why launch a v8 powered hyper car when FFR already has the positioning in the market? If you find yourself tempted to go after your other company you have personal issues that you must resolve...you own the other company...help it succeed.

3. Don't use your assets from the other company unless you pay for them.

This one is easy to say but hard to do. Look, if your company has a corporate truck and you need to bring a new washer home go ahead...I have done it myself. I have moved boats with company trucks. Dave drives a company leased Honda or a Factory Five car home every night. Owning a company has great perks. Owning a car company is a great lifestyle for a car guy...half of the things you do for fun as a real car guy are done at work...the perfect day job. But don't take the company truck when the guys need it. Use it on the weekends or off hours. It is yours after all...you still own the other company and it is still a closely held firm...but don't get in their way. Your employees have a job to do and you don't want to put them on the spot. You are the owner but you are the one that has to be respectful.

In my case I can still use the trash...the trash? Yep. The trash. The guys laugh at me as I crawl through the bins in the reject pile. In the manufacture of heavy machinery there is an amazing amount thrown away. Use it if you want. When welders, broken compressors or other machines are no longer usable in a company they are usually perfectly suitable for home use. Document the things that go home of course for tax reasons(hard to do trust me)...but most of the stuff is junk that is fully depreciated and has to be repaired before you can use it anyway. I grab metal scrap and laser pieces all the time. The reject pile at FFR has had some great parts in it over the years. I may not use them as they are but I sure might use the stuff in mock ups or test parts like I used the gtm parts. Tubing, plates,body parts you name it. If it is valuable it is not thrown away in my opinion. So to me it is perfectly ok to grab and go to town with it. Have fun dumpster diving.

The other big asset is usually customer lists and data. Though there are many cases legally about employees in an investment or insurance company taking unprotected data and starting a competitive investment firm, I believe you are in a different category as the owner. Sure you have a right to move on....heck you have a right to move on and compete outright with the other company if you want...but don't take the customer lists or hard earned prospect databases etc. In starting Smyth performance it would have been easy to send a mailing out to all the prospects on the FFR mail list. I think we must have a half million names and addresses from 15 years in business. Don't use it unless you do it above board. By above board I mean paying for it. Lists are sold every day. If you use it without paying the owner I don't think you are being fair. If I want to use the list I will ask FF licensing(our company that owns all the IP for FFR) for a price and I will pay it.

4. Embrace ownership not management.

If you are moving on without moving out you need to get one thing through your head. Though you can try to run both(or more) of your companies, it is best to run one. Steve Jobs might be able to be CEO of a few companies at the same time but you are not Steve. Run one place and run it well. I own half of Factory Five Racing and I currently can't take 20 bucks out of an FFR account. That is called letting go. I don't recommend going that far as every officer should have signing authority, but you see my point. I have no say in the day to day operations of the company other than my informal observations and criticisms you see here on these pages, if the management of a company can't take a bit of constructive advice from an old pro like me then they shouldn't be running anything. A great example is FFR pricing. My view for years(well publicized)has been that FFR is giving away their cars and not keeping up with the real costs of doing business. I push hard for these price increases because I want the best for FFR and all of its stakeholders. But that is all I can do and it is by choice. If you excuse yourself from running the business like I did in 2001 or 2002, you can move on....if you control the business you may be opening yourself up to conflict. If Dave makes an extra million this year and has happy employees and customers with good benefits and a bonus...well, he gets an A plus from me as an owner. He will have done it on his own and he should be rightfully proud. If FFR struggles and the opposite path occurs he owns that too. By backing out of the managing of the business you are free to move on without moving out...it is your company...but let it live or die on its own.

5. Offer your existing business the chance to invest in the new business....and do it again every year or two.

I know I said I was moving on, so why offer ownership to the old company? As famously documented last year in Scott Kirstner's Boston Globe article, Dave is not the biggest fan of my new diesel car project. I have been public with this Jetta kit idea for years, rejection is nothing new to anybody who has tried to explain a new approach to any business. But Dave's rejection over the years of Smyth Performance is a big deal, not because I take it personally, but because with rejection comes the freedom to do what I want to do.   After I ship the first cars this summer and things get going and are a bit easier to see, I will offer a stake to Jay and to Local Motors as well. Since I own a part of Factory Five, Local Motors and Smyth Performance , it is a natural thing to do...offer them again a piece of the opportunity. If they bite and go along this time(it will be LM's first shot)you can probably cut a deal and get to the state of active synergy rather than the passive synergy you get without cooperation. Three companies working together with mailing lists and other overlapping hard and soft assets is a much more effective way for small companies to go out into the world's car market. Small firms excel when they focus on a niche and dominate it. If Smyth performance tries to be everything to every car enthusiast we will fail miserably. If I stick to the Jetta platform and the cars that are derivitives of that platform I will experience the wild success that comes from simplicity of message, simplicity of design, and simplicity of operations...and that is the plan.

Go ahead and make your offer directly or indirectly but then let them decide. In my case I was free to move on after the rejection of the idea from Dave a few years ago...but I will offer again. I will be meeting with Dave in August to go over a few FFR and FFL related issues(like when I might see a buck or two to feed the kiddos and send them to college...this "taxes only" level of FFR profit is not really sustainable...after 3 years of the "recession" 8-10 cars a week is our reality at FFR...restructure and get profitable in THIS business environment is my consistent advice) Either way Dave gets another crack at participating in Smyth Performance then I can call Jay and Sergio right after to give them a shot...all good either way.

So now the crystal ball.

In closing I will predict some fun tidbits.

Factory Five Racing: I will be keeping my half of FFR while finally being able to step down as an officer and maybe even as a director now that I am convinced they are paying Licensing and their quarterly taxes. I think FFR will have success with a small car project but will continue to struggle making money with the complexity of a product line that will have five platforms. I would have never gone with such a wide line and believe it or not I would raise prices at least 5 grand on the Coupe, GTM and Spec car. I am proud of the fact that the success of the Smyth concept/diesel on facebook and ffcars.com helped pave the way for FFR to start their own version of a small 4 cyl subaru kit car.   Jim is a talented R&D guy with a budget and is a real Subaru fan. Don't be surprised if the Subie powered car is faster than the high line GTM. I will continue to press for a Chevy(ls engines are the bomb) powered 33 kit from FFR and I think they will see huge success there since the hot rod market is 80% Chevy guys...maybe making the 33 a ten a week or more kit for FFR. Replica Cobras are always a great project and will continue to be the ultimate toy for big boys. FFR is about 33's and Mark IV's with regard to profitability...focus on those two cars, raise prices to keep up with the consumer price index(see "the price is right") and enjoy your success guys. Laser wins, shotgun loses in this business climate that is our new reality.

Smyth Performance: I will do well in the sporty diesel/1.8T/VR6 VW commuter car that we invented with the mixed frame technology(unibody plus a frame add on), and I think that the VW Jetta sport truck kit will take off and make Smyth Performance a 5 million dollar company within 18 months...and that is just the pilot launch. Since it is a titled car the talks I am having with potential investors revolve around the manufacture of the Smyth car in a new company with all remanufactured parts as a completed car in 2013. Local motors and their microfactories may play a nice role in this or if the fit is not right we can begin making limited test batches of finished rebuilt cars/trucks. Jetta four door cars at the end of life come in, and a "new" G3F or Jetta truck comes out for 20 grand. The greenest car manufactured in 2013 is really to be a Smyth remanufactured car that has enough added value to justify the money. I can smell another few hits here as well as the real opportunity to expand into car manufacturing instead of just building kits....and we don't need to hold our breath and wait for the laws to change. Kim and I are investing all the available assets we have to capitalize on this opportunity that will need all the money and more to grow quickly(goodbye Ferrari collection). Once the proof of concept is accomplished through the execution of the Smyth kits we move to making finished cars. Since we are using the Jetta as the base and not manufacturing a new car frame we are drastically adding value,but it remains a VW titled vehicle.   I will wait till I am at that point later in the year to ask for the help but that is the plan for real growth. I want to make a difference by re using all these old cars...the aircraft guys do it all the time...why not cars?

Local Motors: After seeing Jay and the DARPA car with Obama it is clear that Jay has the ear of some really smart investors and supporters. They will be a driving force in the co-creation of new car/truck related product and concepts and Jay Rogers will continue growing the valuation of Local Motors beyond the 30 to 60 million dollar mark within the same time frame. This is Jay's exciting story to tell so I will end it there. What a great triple play.

Moving on without moving out indeed. Sounds like a plan.

Mark Smith

Victoria's not so secret

2011-06-23T14:02:00.003-04:00

It was not long ago that when you wanted to talk to your customer base you sent a letter in the mail. It still works. Judging by the sheer mass of Victorias Secret catalogs that arrive daily it still really works. I trust these folks that send dollar catalogs daily to sell $50 items to have their marketing and sales team running at peak performance. Metrics run that business of mail order. But there is a not so secret change underway. The facebook revolution(and it is a revolution of the highest level) has turned things upside down for most marketers.

Struggling with where to spend your precious ad money is nothing new...what is new is the lack of real knowledge out there on what works. Our experts at Victorias's Secret are moving fast on all fronts...they are seeing the real results of a huge increase in reach. Closer to our level you can see all of us small company folks trying to tell their company stories on facebook too...with some pretty wild results, not all of them good. It sure is working as far as brand awareness goes...but is it replacing print and mail?

Only a moron abandons the old methods of communication that work to chase the next new thing right? I am not so sure now. I still think humans like to read and digest information from paper and something tangible in their hands, but what do you do when the effectiveness of the new medium such as facebook is so good that it starts gobbling up all your ad budget dollars? It is not that the old mediums don't work, magazines are incredibly efficient at communicating a message to a target demographic, it is rather that facebook works
better still.

The answer to the sales budgeting dilemma is not what you think. If you have a compelling story for your product then sure, facebook is a the golden goose. People "like" your business because it is interesting...good for you...make the most of your brand and story and connect away. Smyth Performance is proof that if you are working on a cool project or company launch people will watch for fun...and then buy in because of the tight facebook bond...we are "friends" after all. So for some companies, Smyth in this example, you may just be intriguing enough to pull off firing the mail man. But it is a gamble. With massive budgets like those at a retail giant like Victorias Secret they are expanding the budgets for ads since all avenues are leading to sales...the pie is getting bigger and they can take advantage of scale in advertising. If you have an ordinary product the challenges you have always had to stand out are still there, facebook can't make you something you are not....it will probably even be a complete waste of resources. People don't "like" ball bearing companies. If you have a restaurant though...wow. Local targeting with filters for demographics and gende, you bet. It is not cheap,every other company is now trying to figure out how to use it too, but it is an amazing way to stay in front of your customers every time they log on and all withouit a single piece of paper.

In my case it is an easy move since I have the "go Green, Go Fast" mantra to live up to. Cutting trees to contact my customer base would work like it has for years...but kind of flies against the core strategy we are launching here. If I am trying to get car guys to justify re-using and re-building old cars by making the redone ride interesting enough when they are done with the build...how can I use the mail to preach the Smyth story...no way. So for us here it becomes a multi sided e-media campaign/blitz to tell the Smyth story via twitter, facebook, blogs and the various powerful discussion forums. A perfect fit for now as the guys building the cars are very educated in the way of car building and they seek us out because the crazy r7d guy in the warehouse made for an interesting read.

Committing to this path is tough since you are writing off a solid half if not more of your potential customers that are not super active on the net...but that penalty will lessen over time as almost everybody joins the facebook tea party. The uptake of facebook with the over 60 crowd is explosive...a sure sign we in for some changes. There are still a few people that won't use facebook, there are those that still have dial up modems too I'll bet...but my guess is that the tool is now a long term part of our culture that 90% of the public will use effectively to improve their lives and stay in touch. Not so for twitter and the rest of "social media", I think they will just get swept in or away with the tide, but I am a car guy not a web guru...we will see.

If I am wrong and the U.S. mail has a resurgence, or magazines start growing sales exponentially, I lose quite a bit of opportunity for my business. But if I am right by letting all my chips ride on facebook for this launch the rewards are enormous. The sheer power of focus means we can do our work and not worry so much about ad materials and structure in these early pre-production days. Oh that will come eventually, but in the launch phase of a new product we can substitute our day to day struggles and turn those efforts into story based "reality tv grade" advertising. The investment in a web site and the formalities of running the business can be delayed until after we are already up and running with the early product.

No mail, no printed product information or catalogs...the paperless launch. Let's watch live. Facebook for the interaction and conversation, a web site for reference and relatively stable information and a blog to see how the guy running the place thinks. Between the three you the customer will get a great picture of who you are sending your money to and what they can provide you. Posers and fakes in this new candid world are ferreted out quickly and simply fade away over the next years. People and companies with a real value story that are not afraid to share the good and the bad in their business experience the velveteen rabbit moment of becoming "real" in the eyes of their customers. And "real" translates directly into sales success.

So ditch your futile efforts to control all this wild west marketing change and focus instead on the basic message of who you are as a brand or company...and let everyone who is interested inside the place for a look at who you really are. They will probably like what they see if you are good at what you do.

Mark

Made in America*

2011-06-22T07:34:00.000-04:00

As we approach the launch of the Smyth G3F to the first customers we are hard at work tidying up all the loose ends in the bill of materials for the kit. The bill of materials is the master list of every piece on the kit whether it be raw material like steel tubing or parts we buy such as coil over shocks pictured here. This is where the rubber meets the road...how much is it all going to cost. Labor we can engineer into the process and by being clever we can keep the total hours spent organizationally per kit to a minimum. The parts we buy and raw materials have to be purchased from the outside... and this is the show when we talk manufacturing in the U.S. If the car is great but ends up costing 30 grand to make, all ten guys who buy it will love it....if we can keep the retail price of this kit near or beolw ten grand then the volume likely goes into the thousands. Like most companies making goods for sale we are faced with the inevitable dilemma of choosing the best and most reasonable suppliers based on cost/service/quality. Unfortunately for some U.S. suppliers it appears that the Chinese are beating them up pretty badly and yes, guys like me running companies that actually want to turn a profit are part of the problem. How we balance this reality of China in the supply chain affects everything we do these days.

In my smaller world manufacturing cars in new england it works like this. We give the domestic supplier a solid chance to compete by establishing a framework for their success before we even start.   All these guys selling more than a few parts to companies like mine are fixated on china as the price floor. The quality coming from the non japanese far east( China and India) used to take massive amounts of time and energy to manage...now it is one email and specs followed by a sample. The time it takes is the penalty. Getting a sample is fast but getting that shipment landed in boston takes 6 weeks.

Lets take the part above that sells for about 150 bucks like the single coil over shock pictured. If the part at the same quality is delivered here for 100 bucks by the Chinese vendor, and the Detroit crowd can do it for 150% of that 100...they get the gig. I will spend 150% of the landed cost of the Chinese part to stay local... but that is it. If you are more than this in the U.S. you lose. This is neither blind patriotism nor undue harshness on my part. I have a better line of communication with the vendor in Detroit. It is just easier to do business here in this country. In the car world I probably went to school at Michigan with the lead engineer or the owner of the supply firm etc....just easier relationships. But the rub is that I can't stick with companies that are more than 150% of the cost from China. I cann be nice but I can't ignore the price point pressure we are under.

So coil overs....lets look closer. We are selling a kit for 10 grand...do you think we have room for the $1500 coil over setups from Europe...no way. I am sure the "quality" is first rate....but please...almost 2000 bucks for a set of coil over shock absorbers..one fifth the price of our car...we will let the elite 1% of the market buy that stuff. Remember the selling to ten guys or selling to a thousand...so the Euro/U.S. guys don't get the nod,..not this time.

The guy in china has a rep that speaks broken english in a few emails...they will send you the samples..nine misunderstood communications later. Compare the samples you get air shipped to the parts you have purchased from all the major coil over houses....and low and behold you see the same markings etc on the valve bodies and shock frames...it is the same manufacturer...the Chinese guy is making them for everybody...even the high end shock guy from Europe.... and yes they are about 50 bucks a piece in large volume...case closed. When it comes to shocks it is china 1 U.S./ E.U. 0. I am using China as the foil to the story but it used to be Mexico, India, you name the emerging supplier base of the day. China is different. They are making things better and less expensive than anyone on earth and if you are in the business of making things you should take a good look and plan for this amazing worldwide shift in manufacturing power.

Now this is not the case with laser cutting, steel tubing, or many of the other fine vendors that supply the Smyth G3F with parts...but the far east suppliers do much of the work for almost any car company large or small like it or not. 50% on top of prices from a company that has to ship stuff halfway around the world is a good rule and works really well for me...if our guys in the U.S. can't compete when they have that much of a leg up...then it is the business climate in this country that has to change. My bet is that it is not the small companies to blame for this lack of competitiveness....it is structural such as the legal environment in the U.S.   The legal system in our country is enemy number one and the topic of the next note. For now don't blame the Chinese for making parts for a third of what you can make them for...find out how they are beating you(no it is not slave labor) and compete with your strengths and ingenuity. Raw materials are made into products in much the same way all around the world...do your best to keep making things here...I will give you a 150% head start while I weld up the rest of the car here in Wareham, Mass. I look forward to shipping Smyth kits to the huge emerging hot rod VW market in China.

Mark

The First Cut is the Deepest

2011-06-20T12:50:00.002-04:00

Saturday morning after Kim and I dropped off the older boys at a Boston College football camp, we headed to Jupiter Florida to attend John P.'s beheading party for his Jetta. Jupiter is a beautiful city on the east coast of Florida just north of Lauderdale and this time of year it is hot...

Had a nice dinner, crashed hard, then woke up and off to the early morning saws all event. This is a day of note since John is the first guy other than me to actually cut his own jetta tdi in half for the smyth diesel kit car project. When you cut a running car up you are officially committed(there is a great play on words there that definitely applies to both John and I) to the new life the jetta will lead as a sports car. At over 250k miles on the clock, John's car is the perfect candidate for a reboot. I have talked before about the core strategy that drives Smyth Performance...we create a product that allows people to justify rebuilding these old "end of life" cars. Cars that would normally be winding down and headed for the scrapyard(who spends 7 grand rebuilding a 300,000 mile car?) are given a kit makeover and are worth it to rebuild since the new transformed car has enough panache to justify the rebuild.

The basic environmental and fun factor in these transformations are not lost on my customers. An incredible statement from gearhead straight to the so called greenies thinking they saving the world with production of new products....rebuild the old diesel, run it on biodiesel maybe, get 60 miles per gallon...and most importantly have a bloody ball building and driving a rippin fast sports car. A magical story that is just now real since John cut his car...Kim and I wouldnt miss it.

The car is cut, I didnt pick up a saw, and the learnings I took away were perfect...I was too close to the project and had to see a smart guy like John do the cuts on his own. As all firsts go there are surprises. I thought the front where the windshield was would be tough...it was not...plenty of stamped holes and guide points for the laser/scribe lines to follow. I thought the rear would be easy...it was not...I am home as I write working on more detailed drawings for the rear cut under the car. All around education for the win. John has put a bunch of pics up from the event here http://g3f-jlphil.blogspot.com/2011/06/john-and-mark-two-sweaty-guys-jeff.html

So a quick mod of the rear directions and a few more sections typed in the build manual and we are good for Clint to do his car in Ohio. John has plenty of clean up and prep to do as I make his frame out here out of the first production batch of laser cut steel. I have plenty to do finalizing the new tube steel cutting station in the new building here...and we all will be building our cars together in july as Kim wants to be driving hers in short order...hey its summer after all. Good times around here indeed.

Mark

A sports car and a truck? Really.

2011-06-18T08:28:00.004-04:00

As I prepare to head off to Florida to witness the beheading of the first customer jetta as it begins the transformation into a Smyth G3F mid engine car, I took a look at the survey results from the other day on the www.facebook.com/Smythperformance page. Are you building the G3F at 11 grand, or the truck bed kit for the jetta at 3 grand? Sure we will execute fully on the mid engine project before work even starts on the truck...but wow...a truck without any promotional help is pretty popular...and I don't think it is just the price point.

The popularity of a cut up jetta tdi truck kit should not take you by surprise. We love trucks in the u.s. Because we all have so much stuff. A tdi 45 mpg truck kit that is made from a 4 door jetta for 3 grand? I am in. Trucks are about getting yourself and your goods around town, across town, or from one state to another. The realities faced by people that drive over 100 miles a day are revealed in the visa bill every month for fuel...face it...we are now Europe when it comes to fuel. In this country we always thought we were immune from the high fuel prices we saw in the e.u., they were the ones trapped in their mini cars and tiny taxis...we had cheap gas and drove suv's.

My son drives my old navigator to school and it keeps his miles driven to a minimum...a parental win/win of the highest order. He is safe in a 6500 lb truck with 32 airbags and he can't go far since at 12 mpg he is broke. And trust me...when I am done with a car after using it for work for ten years, nobody wants to be in the back seat. Which brings us to the jetta truck and the g3f comparo. John P. said it best when I talked about the idea with him on facebook a few months ago..."I want one of those too!". So why do rational guys in the second half of life like John and I want a cut jetta truck?

It's about hauling our stuff without hauling 5000 extra pounds of truck with us. Why does it take a 6000 lb truck to haul maybe 400 lbs of windsurf or bike bulk? It doesn't. I will not be towing a mobile home with this thing..I will be driving my work bulk around or driving empty just as I do in my big trucks....perfect.

And of course for you guys that are true project hounds...you get to justify another car project..sweet. And like the G3F that we are finishing up...you can actually use the machine because it is stock factory reliable. We have to widen the scope of what we mean by "performance" around my factory as it appears the truck may outsell the sports car.

Mark

Missing Deadlines is Good for Business

2011-06-10T14:39:00.005-04:00

"Missing Deadlines is Good for Business"

by Smyth Performance on Friday, June 10, 2011 at 1:09pm

draft 1

2 years ago around this time in June I went public with the Smyth car project that I had been working on for about a year. The Smyth car was nothing more than an idea with a hint of testing on a diesel wagon and a big diesel speedboat. I was stuck with the jetta since it was the only reasonable diesel sold in the U.S. in any volume for 20 years. I went to all of you with the plan and decided to share my work. Now we are on the eve of launching the car and I must say it has been an amazing product development ride.

I bring this up not because of the two year anniversary ...but because I was looking back on what I thought at the time would be a 6 to 12 month project. Two years is not a year and I started looking inward and reviewing my notes as I prepare to write the story of the Smyth car in a book. I had a great boss in my early management career at Avery Dennison up in framingham, Ma named Lee Carlson. A veteran of managing a big R&D budget he always was helpful with me as a young upstart in a big company. His rule of thumb like many others in R&D is to just double what the director of the project says. You will still be off by a bit, but at least you won't cost the company tons of money with false expectations. As I moved into more of a new product manger role at Avery after getting my MBA, my mentor Craig Donaldson who was director of the office products group maintained my learning curve by putting me in front of the higher ups and allowing the young hot shot a bit of exposure. After showing him the first Cobra replica in 1993 (I rented the back of a transmission shop to build the first prototype after work)he said to me "I will hold your office for you in Pasadena for a while". The delays hold true even when the head of the company is in charge of the project...you just get so excited that it feels like you can hit your ambitious targets.

I am not counting scope or major project configuration changes in these dates...just the time for the idea to flow into something that can be shipped.

Delays and new products go hand in hand. Creativity has a schedule and it really can't be written by guys in starched white shirts that have never built anything....it can only be guided. No mater the budget R&D guys will always run a little late and your company is the better for it. Ideas are never perfect, it takes time to refine even a great idea. Timelines set by management(even in the car business most higher ups have very clean hands and have never actually built what they make) don't fly. Time lines set by the R&D staff don't fly either. One party is too disconnected to what it actually takes to get the job done, and the other is too close and emotional to avoid the inevitable excitement driven optimism.

So back to the G3F and the Smyth performance timeline. Six months would have been doable in a perfect world and a simple design without all the extras for five of my friends. As the project scope changed into a daily driver to avoid any potential overlap with the FFR line, it also made for a reboot of the body/frame design. If FFR was to do a "mini me" I did not want to compete against a company that I still own...I am in this for the real synergy and income from three completely complementary companies that can move along with customers as their tastes and budgets change. LM, Smyth and Factory Five do this perfectly in my mind. I wanted fertile ground where the NEXT car my customers built was an FFR or a Local motors project.

This change of scope and FFR entry into the small displacement market was a challenge but ended up working out really well. I was able to informally contribute to the marketing study that showed a real need for an affordable open track car and FFR was able to use the real time feedback thru the "time to talk" thread and justify the smaller "non V8" entry. FFR was also able to informally learn from Local Motors's new business model and run a competition for the new car's body(I still would have used the LM web site for this contest...but Grassroots motorsports is a solid FFR supporting bunch too). Jay saw early on the power of the FFR community, so you can see the very real cross pollination here working below the radar that most companies can only dream of. In the end all three companies are in high gear. FFR applies their vast knowledge of complete frame design on an ultra light subaru sport racer, I have the sporty commuter nailed with the G3F and the jetta based truck concept, and LM continues to be the ultimate worldwide car designer destination.

Meanwhile the customers that came in with the smyth concept were speaking loudly about the diesel commuter as a true daily driver. Sure it could be sporty...but I have to be able to drive it ...a lot. Many still wanted an ultra light track car and said so on the forums. I went full on daily driver and comfort while directing these "track guys" over to FFR. It works well still....true synergy. The pure sport open track car is FFR territory and the daily driver was my target. Can you imagine an FFR which is titled on the road as a VW jetta...no offense to the VW guys but FFR is a bit on the super special side with the whole 200 mph thing going on. By keeping to the VW weighted crowd I keep a loyal Audi/VW fan base and bring new people into the Smyth/FFR/Local Motors mix or great car projects.

I started looking around at other start ups since my only experience has been taking Factory Five from zero to ten million and helping Jay with the growth of Local motors as I sit on the small borad of directors. Jay is the man in charge at LM...this is his show and he is the majority holder...FFR and I are helping as we can but in a relatively passive role. It took me six years to get to 10 million in sales as the head of FFR...Jay took LM to multi millions in valuation within a year of starting and continues to multiply LM value every year.

In the world of product development as opposed to business development we are all in the same boat though. The Factory Five transaxle project for the GTM is a classic example of a great idea that has had huge delays but is just simply really worth it for the customers. Look, the ffr guys designed a performnce leading car around a donor transmission from a porsche 911...how long before FFR shipping 100 GTM's a year blanked every porsche box in the U.S.... ,yep about 2 years....we were a victim of our own success. The trannys are out there but FFR was spot on in developing their own box with mendeola...great decision since many porsche units are over 8 grand now.. Since guys that own 911's tend to take care of them, it follows that we ran out of cheap trannys...and the mendeola looks like a winner. Late, like all R&D projects, but a real winner and a better product for it. LM was late with the rally fighter, I was late with the Smyth car...I bring it up to showcase that as long as you finish with real customer wants addressed, you win the new product prize.

What if you are too late and delay too many times?

Ask Tesla. Ask Fisker.

Tesla and Fisker are in the middle of discovering the down side of too many delays. Sometimes no matter how much money is thrown at the new project it....just....never....happens....or thats how it feels. How many hundreds of millions will Tesla and Fisker spend before the companies are simply purchased by a big name to incorporate an electric vehicle in their lineup. We will see. But after over 8 years the crowd that expressed interest in these cars gets restless. Just a guess but I will bet the talks are underway now. The cars look amazing, should drive great, and we will all see if they can make a financial story that makes sense. A little late is OK..a lot late is maddening. Even more so with a product like a sports car that is a product of passion.

So as the FFR open house is tomorrow, let's watch LM, FFR and Smyth together as they launch these terrific new products. We may always be bit tardy on the launch pad but we always will aim high by delivering dreams that work.

Mark Smith

Full disclosure so you know where everybody sits in the three companies that make the best component cars in the world.

                         Smyth Performance, Inc. is
                         100% owned by Mark and Kim Smith

                         Factory Five Racing, Inc. is
                         owned 50/50 by brothers Mark and Dave Smith

                         Local Motors, inc. is
                         owned by many..Factory Five Holdings, Inc. is one,
                         Mark Smith serves on the board of directors

                         Factory Five Licensing, Inc. is
                         owned 50/50 by brothers Mark and Dave Smith

Factory Five Holdings, Inc. is
                        owned 50/50 by brothers Mark and Dave Smith

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2011-06-09T10:36:00.007-04:00

Secrets in the Boardroom...

by Smyth Performance on Friday, May 13, 2011 at 10:22am

Open the Books for the win.

In the early part of the 90's when I was finishing up my MBA at Bentley College there was talk of the "open Books" movement. The not so new idea was to show your employees the books freely in your privately held company so that they could see the real successes and the challenges of what it takes to run a company profitably. There is a reason that public companies have to disclose their financials every quarter...open is good when you have many stakeholders and/or stockholders. No secrets means no surprises. Steady growth is what we all want in our companies.(I am excluding lifestyle folks here as I don't consider that a pure business). The open and free access to a companies information enables the raising of capital since it reduces risk. Secrets are risky. Closed means no capital possibilities other than a line of credit...and even that requires you top open up to the bank.

The story and the reality.

The critics of open book management have a few points. The first is always that if you are a small privately held firm you don't want the competition seeing how you are doing. Right. Your super secret income statement and finances in your 1-50 million dollar company will make people change their business and hurt you in the market. You are serious when you say that? Why do you think you are a small company? You are small because you serve a small market. No one really pays attention to you other than your small niche and customer base. Your company enjoys success in that market because you serve it well...not because you are keeping your books private. The other issue raised is that the employees will not understand. They don't see the complexities of the margins and costs. All they will see is the sales number which is in the millions and they will not be able to handle it. Like many politicians that get voted out of office by assuming the electorate can't "understand" you are not quite right here. People love this stuff. Employees are incredibly loyal because you are giving them a good job and a good environment to learn and grow in their careers. Now if you are not treating your employees with respect and not allowing them room to grow in their skills and careers then you don't deserve their loyalty anyway. They really will understand....which maybe, just maybe, is what scares you...

So here may be the real secret if we are honest as small businessmen and women. You are keeping your books private because you are making tons of money or not making any at all. If you are making millions you don't want these people working for you seeing it since you are not sharing...if you are not making money you are embarrassed because you are acting like the almighty entrepeneur but are really not all that great as a businessperson. I have a friend who runs a nice 10 million dollar manufacturing company in Southern California. He is so secret I don't think even he knows how much he is making. You can see the detachment in the employees. My guess is that when times were good the millions were worth it since he didn't have anybody asking him to justify not sharing...but now that the chopper business is slow and the margins tight...he could really use the help of a loyal involved workforce. But it is not there for him. Simple reality of his choice of investment. He might not make it out of the slump but his odds would be better if the employees were "all in". If you are messing up and losing the business...don't you want some help from those that know you and your customers? My guess is that way before you implode you will have some warning signs brought to your attention by the very people that are able to fix them. A true small business win. Anything you can do to foster that trust and loyalty will be paid back both in the good times and the bad.

The standard way that small firms get advice and handle the serious issues of capital and investment are with a smart and involved board of directors/advisors. Directors take this strategic advice role very seriously. I relish the opportunity to serve on the Local Motors Board of Directors with Jay and Tom. In the start up phase of a company that has raised millions from knowledgeable investors it is never boring. It is the reason we start companies in the first place...to add real value to a firm and create something real. As valuable as a board is...I am thinking it is not enough for Smyth Performance. For me I think that opening the books creates an environment that shatters barriers of class and privilege in a company. The pecking order and status that an "insider" or "higher up" in the organization enjoys because of access to information is done away with. It may not be corporate socialism since skills and talent still get you to the top...but it definitely gets rid of the totalitarian manager when the shop floor has real access.

Secrets in business should be for new discoveries in R&D or a huge promotional plan that is targeting a competitor aggressively. Small companies need to take a cue from wall street and share their plans for the next year with the people that are doing the work...and that means looking at the results of the company financially as well.

So why not open up folks. If it works for the huge public companies it can work for you. Get over your grandiose CEO view of yourself. Admit it. You run a small company...embrace the smallness by sharing the struggles and wins with your people not just in words but in actions. Start with a profit share/stock ownership program today...and watch the reaction change the culture of your company for the better. Underneath it all you know this is the right thing to do...so do it. If they see the millions and you are not sharing they will get upset...rightfully. If they see your miserable margins after all the hard work you all put in they will start helping you change the way you make money...they may even see the need for a biut of trimming here and there. Either way you all are stakeholders with your livelihoods on the line. Most importantly the change to open books will prepare the company for a sale where all the employees get to see that when it is sold they will get a piece of the value that they helped create. You don't have to go public to make money with stock...but you do have to have a sale able company. Let your employees help you get to your harvest by including them. That is how real wealth is generated in this country. There are no secrets in business...it is one of the purest forms of work and reward. Open up and prosper.

Mark Smith

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2011-06-09T10:36:00.001-04:00

Build at your own Risk(or joy) draft

by Smyth Performance on Thursday, May 12, 2011 at 2:14pm

This section is still raw in draft form...

Modifying a factory car is a time honored tradition in this country and most others. Automobiles have always been big purchases whatever your budget...and always will be. It is also true that unless you have no sou, the decision about your ride is a pretty emotional one too. The purchase says much about you and your life. Like a home or apartment we spend an enormous amount of time and money in these cars. The car was an incredible invention that continues after a hundred years to allow practically anyone to work, travel and enjoy their world without geographical limits. A 16 year old newly minted adult(yes a 16 year old is an adult in the car space) from the midwest with 500 dollars in his/her pocket can buy a used car from ebay, fix it, and be 1500 miles away with their buddies on the beach for the price of a night out on the town. If you were not a gearhead in some way that trip cost you over a grand...if you were, that kid wanting to make the impossible road trip you always will be. The dream of the open road and freedom may start at 15 but lasts a life time for some of us. Later in life it just takes the form of Bikes, Planes, Boats AND cars. Even years later with all the successes and failures that a life of learning gives you....it remains there as part of who you are. You still have the power and satisfaction of being the one that can fix things and get where you are going. At 15 it was a 1968 baja bug(which explains my JC whitney product knowledge to this day) for others like my cousin a v8 transplant in a v6 nova...but all of us got our "car start" with a story that still elicits a smile that comes straight from a youthful heart.

With five kids my dad was always doing a flipping brake job. Every time the family was set to take a trip to Michigan or any other kind of significant car travel we would all wait for the inevitable last minute brakes off the car... literally packed up and otherwise ready to go. The dog, the kids, the stuff, everything. He was good at it too. Dad may not have liked cars...but he was not going to pay some guy 500 bucks for something that took him an hour to do. The brown Chysler Town and country station wagon was gonna stop well with his family in it. Being a man of ritual(he is now a deacon) I really do get it now. The trip needed that brake job just as it needed the late night playing of "mystery theater" on the car radio as we drove through Chicago late that same friday night.

But to do the work it took tools...and tools he loved...not cars...tools. When my grandfather Ted Smith died in 1972 the professional tools of a lifetime refrigerator man went from the basement of his Michigan home to my dad's in our suburb of Chicago. I was 10. With all those kids my dad had to go one of two paths....fixing things...or paying other people to fix things. If you want to use your cash for trips and adventure with the family as a true romantic...you fix things...and that meant brake jobs and rebuilding carburetors.

The smell of carb cleaner...not the gumout stuff in the can..but the 5 gallon pail of etcher/solvent you bought at NAPA in the days when we were just thinking up the idea of catalytic converters.... that stuff meant cars to me. Bad I am sure....corrosive....death in a pail. But a carb that come out of that basket was new again. The DDT of solvents I am sure. Dirt and mosquitoes were not a problem back then. I don't want to glam up the old days... but man that stuff worked. Now like most things that cleaned/did anything with this kind of vigor, it was probably just plain toxic and has no place in our modern world. We are better off without all the chemicals that were probably just dumped somewhere when you were done...they didn't have recycle days at the dump back then...the pails just sat somewhere. So good riddance of course...but the smell is fixed in my memory.

So here lies the rub. As any of us who have made the transition and become a "car guy(gal)" can tell you, working on these machines can be a risk. I am here to remind even the most experienced of you in this hobby of the obvious...that even the simplest project such as changing the rims and tires on a Jetta can be turned into a life and death situation down the road. Messing with these machines since I was 15, designing and making fast cars, boats, bikes and planes for close to 35 years, and I still make mistakes that can cost me my life.

An example of this occurred last week. Look, I can change a tire....first thing most people should learn after filling the car with gas, right? Well I did the quick front brake job on the jetta since like most car guys I let the brakes go a bit and just started to feel a bit of metal to metal wear....I even showed Rob at work the pad with maybe a shaving of material left....bragging about how close I came to the edge of nothing left. Pads and new rotors went on, wheels and tires back on...off I went home. A few days later I realized a bit of vibration on the highway.....then it got worse...bummer...more front end work I thought(this old car may prove my enviro slant but I have my limits...enough already). I went to check the front, ready for some new work to do, and the wheel studs were not tightened all the way. Rookie move that could have cost me a wheel flying into the woods and an accident. Not tightening wheel lugs! A lifetime car pro and race car guy. Nice. And I was going to fly my home built p-51....right.

Slow down.Be careful. Especially if you are a pro. The fear that a first time car builder has is the reason they do such a good job. The fact that modern cars are engineered so robustly with so many fail safe scenarios taken care of at the factory is a blessing that we all take for granted, and is the single biggest reason I am enamored with the one donor concept in kit car building. Even before there was a factory Five I loved using everything I could out of a donor car not just for the economy of the build...but for safety. The factory production car is a wonder of durability and low cost...and we want to use all we can in our projects. The hot rod and custom car market disagrees since they want beauty and function. The factory part are rarely pretty...function and cost control is death to car art. Smyth Performance says ok to this trade...we will sacrifice the elegance of the aftermarket part for the factory reliability and safety in a lower cost package by design.

At the end of the day it is about staying connected with the hands on side of the car business for me. To be in tune with your customers that build cars you have to build the carr just like they will. And the pure fact is that unlike my Dad, I have always enjoyed working on machines in my free time. If you always have someone doing the work for you the brain starts to forget and you make mistakes in design. We think through these designs with amazing detail and when you do the assembly yourself it is like an architect that builds a house with her own hands...I will bet the plumbing lines up a little better when the mistake in design costs you the builder a few extra days to fix.

New world of projects.

These days you can download a free CAD program from google and have a complete Harbor freight sourced shop in a week. Plasma cutters, welders, drill presses and bending brakes are half the cost they used to be if you only need limited use out of the tools. As we design and build hot rod cars, each change to a system is scrutinized with 100 variables and outcomes since we are professionals. The home builder sometimes spends even more time online making sure guys like me do a good job. Whole discussion threads are out there analyzing the decisions of designers and how they could have done a better job. The internet and the various discussion forums have created "experts" out of windbags and litigation over everything in our society often keeps true experts silent. I think the power of the car enthusiast crowd through blogs and forums such as FFCARS.com makes car projects much easier than years ago.

We had access to a handful of Petersen Publishing books like "How to Hot Rod a Chevy(Ford) engine" but that was it. The occasional issue of "Hot VW's" or "Hot Rod" usually had a tip or build section on something interesting while the JC Whitney catalog and classifieds in Hemmings taught us what cheap stuff was junk and what parts were worth it. All fun memories... but when you need information to fix a car....the forums are immediate and helpful in the extreme. You have access to a thousand people working on something just like yours every minute of the day. It is simply incredible. We all have a thousand wingmen ready to help at a moments' notice. A true game changer and a force that is driving the growth in the car mod business.

When talking about the kit car business model over the years I always mention the cul de sac rule. In every neighborhood/group of houses there is "the one" car guy. His garage door is up every now and then, and as you drive by you can't help but look at what the heck is in there. Sometimes a couple guys hanging out/ hanging in. But THE car house. In this life that is the person I serve. The forums have made us all able to talk to each other which just means that all the cul de scas are now connected. There are a few more of us project guys out there because of it. Smyth Performance is more than a cool sports car you make from a Jetta. We are quietly going to institutionalize the home built/rebuilt car as a viable option to buying a new car and these "car guys" are the ones who will lead the way if we succeed. You don't have to be 15 to start either...the chat rooms are full of new(at 50 years old) blood that always wanted to do this kind of project but went to grad school instead. Having kids and working for a living takes a bite out of your day after all. If you are late to the party, welcome.

So back to the projects and risk. If the design change from stock is drastic, such as a completely new suspension design, we think it through, we test and we usually strap our own fannies into the machine and test it. In the homebuilt plane business all home built machines that you can fly legally are labeled "experimental" by the FAA. When you get into a plane that reads"experimental" it reminds you every time you use it how serious an experiment you are conducting that day on yourself...it flies and you really want to be a good builder since you are the one strapping into what you created with your hands. Ultimate freedom and ultimate risk. The fact that you can still do this in America reminds me how valuable we all treat basic freedoms. A great example of an extreme form of freedom. Even though there is social risk we allow people to build and fly airplanes and cars that they built with their own hands and skills. Amazing really.

The tests and inspections that are supposed to keep unsafe cars and plane off the road and out of the sky are pretty good. Any local inspection station(most states have them) does basic visual and sometimes actual inspection of the cars that are registered in that state. If you live in a state where safety inspections are not done routinely in order to register a car you are living in the U.S. the way it used to be as a completely free car enthusiast. It probably won't last since regulation and legal action against this kind of freedom is everywhere. The same country that allows someone to sue a ladder manufacturer after falling off a ladder still allows us the freedom to make a car from scratch and drive it...contradictions abound.

The truth behind home built machines is that the risks are real but the actual claims are low since in general the type of people that build and strap themselves into something they created with their own hard work and money tend to really take care of the machine they made. It makes sense that the person who built a kit car or kit bike/plane spent an incredible amount of treasure time and love on the project. Then when it is done you find that you know more about that type of machine than anyone who just drives one....you built one after all....a different level. You are going to enjoy it, but more than anything I have found that you have a respect for machinery joys and perils like only a wrencher can have.

Lets go through some of the things that can go wrong so that I can remind you how dangerous the hobby can be. This section is a part of the build manual for the Smyth kit and will be written to remind you as you build the smyth car of some of the areas that can hurt or kill you while working on machines.

Wheels and tires lugs

Brakes pads/lines/leaks

Ball joints/tie rod ends

Steering linkages

Jacking

Explosion/fire from fuel or heat

Arms legs fingers toes

eyes

ears/hearing..grinding, exhaust bang,

Air Bags

Batteries...electric shock/heat/fire/fumes charging

seat mounts

Glass

Crash

Suspension settings

Distractions

Eye protection

cuts/bruises wrenches

to be continued...

Working on cars has come a long way but is still full of jacking heavy stuff up in the air and running high horsepower engines on gasoline or diesel. Have fun. Be careful. Save some money. Spend lots of money on those special projects. Share with the kids however old they are. After all, my Dad may not have liked working on cars, but I sure loved working with him.

Mark

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2011-06-09T10:35:00.007-04:00

Necessity is the Mother of Invention

by Smyth Performance on Thursday, May 5, 2011 at 10:44am

It has been a velveteen rabbit kind of month here at Smyth Performance. I say this because a prototype is a test mule and a nice reduction to practice but the "becoming real" moment is when you have a prototype AND you have the means to manufacture it. This means drawings, a bill of materials, a factory , a good network of suppliers and of course a solid and experienced team. As I call the vendors to get quotes for the various parts and raw material for the Smyth car, I am reminded of the basic discussion any student of business has regarding horizontal and vertical integration.

In a nutshell, vertical integration is when you are making cars and you bring steel making in house. In a vertically integrated company you follow the raw materials up the supply chain to your operation and you own the companies or process in the supply chain. Horizontal integration is when a company expands by buying a competitor in the same kind of business...Fiat buying Chrysler.

Most modern business schools are long on supply chain management and focus on the advantages of outsourcing and the concept of letting your suppliers do what they do best...which allows you to focus on those areas of your business that add the most value. Vertically integrated companies never get too much respect since they are viewed as old school turn of the century(19th to 20th) control freaks.

While watching and taking part in the raising of capital for several companies these last two years it is very clear that this anti vertical sentiment is not only still in place, but getting even more powerful. Manufacturing as a category is being viewed as a losing environment for venture capital. This has had some interesting effects on small growth firms in the U.S..

Back to my search for vendors. Let's look at steel.

There are a handful of steel cutting and plenty of steel fabricating companies in New England and any area of the world that has a manufacturing base. Metal is a wonder of a material since it is readily available, strong, and form able. Most of these suppliers are medium to small service companies that started out family owned. The competition is pretty intense at this level since anybody with a saw can start cutting steel tubes. The tubes for any car part tend to be cut at different angles and shapes and there are a hundred different tubes sometimes in a design. The fewer the better of course. The quotes you get when you send in the drawings of the tubes to a vendor come in two forms,. The first is the company who sees a high margin opportunity and quotes high because they don't know the car business and the tight margins we operate under. These guys are the ones that the Chinese are feasting on right now. You can see who they are at a glance...or after a quick phone call. There is no such thing in 2011 as high margin work that uses standard machinery....period. If you own a cnc band saw or mill and you are cutting steel for a living you are competing with 5 other guys(20?) within miles that are hungry....quote high and the email wont even be returned...the key is for you to stick with customers that will sell your service for you since you are doing a great job...without that, that credit line gets pretty hard to service doesn't it? Good luck...you know where I will be....buying a band saw.

The other guys are the suppliers that get it. These guys are working hard AND smart. They know you can get your stuff anywhere and they are candidly talking margins and what they can do for you. Unfortunately this country is running out of these guys. For now they are still out there, but it is getting harder to find them as they are getting destroyed along with the rest of the manufacturing base in this country. In Detroit as in many heavy manufacturing regions around the U.S. the real loss these last years was the closing of so many of these mid level suppliers that the rest of us in manufacturing depended on. A real shift in strategy is needed if you are to succeed here in smaller scale manufacturing. Enter the possible return of a vertically integrated company...Smyth Performance.

I went to a previously reliable vendor the other day and got a little push back. Interesting in this economy...something else must be going on. How much time do you think I spent worrying about it. Exactly the time it took to pick up the phone. Another vendor said "sure, I will do it" within the same day. I will still give the first guy a look if the price is right...but he has been relegated to a secondary supplier. In the end it dawned on me that it may not be that hard to cut some tubes in my new place...and I was honest with supplier number 2 in saying that I was looking into it. His response was great..."well if we weld up the sub assemblies for you then we will keep that business" ...the perfect professional opportunistic reply. Good business indeed.

But taking a look at the production efficiencies of an in line steel cutting operation has taken hold here. Lower inventory carried buy putting the cnc cutting operation just before the frame welding line should be fun to analyze after the launch of the Smyth G3F sports car. My Dad will have a ball with it if I can get a share of his brain. The reason Tom Smith Sr. will like the project is more than just an operations gift for him. In the eighties he was interviewed for the book "Re-engineering the Corporation". A great read that talks about designing the whole corporation by the real flow of information and materials inside the firm. I think of the book often as I set up the Smyth production line and decide how much to keep in house vs what to outsource.

By getting the cold shoulder from the steel cutter it forced me to think about cutting myself...which leads to other re evaluations of the value chain. Steel cutting is a good example of fertile ground since joining steel with fire is what we do...and I realized it wasn't that hard. Sure I have to go to band saw cutting school now(not really but there are plenty of cutting tricks of the trade I am sure) but we only cut one size of tubing and don't have to be a general cutting knowledge base...just 1" tubing experts.

The flexibility to control part of the very complicated process of manufacturing an automobile kit car will pay huge dividends in the end I think and makes for a nice old school vertically integrated operation. I had already designed the tubes with maximum 60 degree cuts(limit of most cnc band saws). Instead of 50 different bundles of steel tube coming in the front door that lay around waiting to be joined...we will have 1" tubing bulk 24 foot lengths that gets cut to order next to the welding/positioning station. We the employees of Smyth Performance add the value to the steel and capture the quality control that Henry Ford did. Not all things from the 1920's are bad. We can learn some lessons from the old guys...they vertically integrated by necessity since the supplier network didn't exist or wasn't good enough...same here in 2011 as the suppliers move overseas. This comes at a pretty good time since the machinery is getting less expensive. We will set up an inexpensive band saw and test the flow of material...if it looks good we buy the high quality machines and we are in business. So if you find yourself spending too much time describing what you want a vendor to do for you or fighting for a share of their time...think about doing it yourself and explaining the opportunity to your own people first...they already know how you think...give them a shot.

Mark

2011-06-09T10:35:00.003-04:00

Factory Five then and Smyth now..a brief history.

by Smyth Performance on Tuesday, May 3, 2011 at 2:27pm

I had the pleasure of creating and then running Factory Five Racing, Inc. for 6 years. From the first day in 1995 until a transition away in 2001...We went from 0 to 10 million in sales(and people think 0-60 acceleration numbers are tough). We survived a massive federal lawsuit from Ford and Carroll Shelby(Ford is a buddy now...go figure). It was terrific fun and a huge challenge to my car making and managerial skills as I didn't start this endeavor with enough of either. It felt good leaving on top and I went home to build more machines and help Kim raise our 5 kids. That was Sept 2001. The american dream attained at 39 years old.

Like many others I use the 9/11 attacks on the world trade center as a time-stamp in life since we all knew what we were doing when they occurred...My dad and I had already left FFR by then since we were on the phone from our homes as it happened. The transition away from running FFR on a daily basis was complete. Nice ride.

Those last days are very vivid for me since as the millennium came to a close FFR was selling around 10 million bucks worth of product and was bringing in about a million and a half in net income for the two families that owned it. Not a bad five year launch at all. In the crazy manufacturing rush to 10 million I had brought in not only Dave from day one as a co-founder away from his white collar job and porsche 944 turbo/California lifestyle that he had been enjoying for two years, but my operations genius father Tom Sr., my sister Jen who was a terrific learner on web site development and continues to this day to amaze me with her work ethic and intellect, and my brother Tom Jr. who nailed the complexities of purchasing and plant flow to a degree I have never seen since.

But in 1995 at the start it was Dave and I finishing the 2d cad work on a home assembled personal computer in a converted bathroom...FFR's first shop in Padanaram village where I still live(not the bathroom, the village). In 1995 it was a start up in the truest form, and the most fun for me I have ever had at work. We made and shipped the first production kits in Nov and Dec of 1995. Then we started to move fast. The kit business was not ready for us and we were eager to go after them. Dave and I nailed it. A few of the established kit guys lashed out with some weird tactics but in the end we persevered with a superior product and a personal connection to our customers that created a great company. Zero to ten million in the manufacturing world, financed by raw energy, good margins and great customers. By 2000 we were a real new england manufacturing company that had decimated the competition in the U.S. and took over the category. It took 6 years to do it.

As I mentioned earlier, by 2000 I had also involved most of my family in the business. The reason for this was simple. MBA car talent or not, the fast growth environment we were working in did not give me the time to find managers whose talents were absolute and without risk. It's all about the people my dad, experience and fancy MBA had taught me. Team, team and more team. Not only did I not have enough experience in this area of hiring talent, I already had an operations/management guru in my dad. When Tom Sr. came in the door, the entire organization was improved overnight. He had a lifetime of real management skills and the strategic level experience to fit in and help with a fast growing organization like FFR. We needed experienced boots on the ground. My brother Tom came out from his management gig in Chicago with his family around 1998 and had the opportunity to work and learn directly under my father as we all did. I may have been in charge as the MBA/CEO/car designer, and dave was there as co-founder, but Tom Sr. was perfect as the educator and de-facto leader of the whole plant. Turns out my dad in retirement had more than a few things left to teach us.

If you ask my dad about his time at FFR he will say that he "was just helping his boys". Nothing could be further from the truth...he RAN the plant, he TAUGHT everyone, he was incredibly demanding and respectful. He wanted excellence in thinking and treated candor and honesty as the payment for entry into his way of business. I will bet that some of the employees he supervised are still asking him for guidance to this day at his home ten years after he left. He is the kind of boss you never forget. I remember turning to him after getting served by Carrol Shelby who filed a ten million dollar law suit against FFR back in 2000. We were in a 5000 sq foot plant with another 3000 or so down the road in Wareham, MA. The new building was still quite far off in the future and I turned to my dad and said, "you have to get from 5 or 6 now to 10 cars a week in order to fund this battle...I don't know how you are going to do it...we can't move yet." Now at 5 or 6 a week we were already straining the facilities and people...that's why we had purchased the land and started construction on the new Tow road facility that FFR is now in. He didn't bat an eye. He just did it. Absolute pro. Now in the midst of this new threat to the company Dave and I were still arguing as we had been for a few years. Even though the course of the company was set for a while, our styles were very different and the in fighting was starting to take a toll on the family and the organization. A tougher environment for growth you can't imagine.

I told my Dad that I knew Dave and the front office could sell 10 cars a week if we raised prices and used the Shelby law suit as good car selling press. The FFR product was spot on for the times back then and was a true category killer. Our plan for aggressive but steady growth had to be stepped up if we were to fund the fight with Shelby. As the R&D head as well as the guy directing the business I thought a hot rod project was too much volume for the company to handle at the time and was scared to death of our growth getting the best of us. Our capabilities were higher than our maturity as a business. We decided to focus on selling more of what we had...no new products till Shelby was done.

In the rush to practically double production Tom Sr. and Tom Jr. created an excel spreadsheet for purchasing that I still look at with wonder. We didn't have time to bring in a computer systems person to implement a purchasing software system. My dad and Tom worked on the formulas in that spread-sheet for months while ordering just the right volumes to keep enough parts to keep making cars. Back-orders were high as Dave was tearing in sales with a price increase threat looming...we ramped up but the rate of improvement was steady. The structural problem of a supplier network that was used to small orders started to show cracks. We could double but they were having trouble keeping up. My dad was bringing the molding of the panels in house with a young engineer named Dave Riha(now at local motors), and my protege r&d guys were better than I was. Jesper and Jim were simply wowing our fans and critics alike with dazzling on track and at show performances. The machine was rockin.

Over the next years my dad always reminded me how people have so much to give if they are appreciated. He proved it during the Shelby case. We sold and shipped 10 a week. We beat Shelby in court and in the end it was Shelby American that had to reorganize...not FFR. I was able to hand over my company to Dave and his style of leadership after accomplishing something wonderful with a great team of family and loyal employees. I will bet that Jesper, Jim, Tom, Dave, and all of us there at the time will join me in saying that those days were the most difficult and rewarding days at FFR. The business that I left in Dave's hands pulled in close to 2 million a year and had terrific financials. Nice work for a company joining steel with fire in the U. S. of A. There is no tougher business than the car business, and FFR was doing great.

Stepping down and stepping out.

Dave and I had always had a bit of a testy relationship re FFR and its path for the future. To Dave's credit he is a perfectionist and the high growth, mistake filled climb from 1995 to 2001(you can't do ballistic growth without quality and other problems) was just too much. Before the Shelby suit ended we had a family FFR meeting off site in a conference room in Fairhaven, Mass and decided that Dave should leave while I continued to run FFR. Like most guys used to the excitement of the daily life/work at FFR he lasted 6 months at home. Since he was coming back I told him that I would go...he would be doing the job alone as I would be the one to leave to avoid the infighting that was simply not in the best interest of the company. I finished up the Shelby case duties I had managed and it was his turn at the helm. FFR was a well oiled machine pulling in good revenue with great R&D group led by Jesper and Jim that could come up with great new products for years to come.

A little later on I formed the boat company Factory Five marine after designing a 33' go fast fishing boat and asked Dave if he wanted to invest. We both had plenty of cash at the time so Dave and I each put 25k in the FFM checking account. Within a few months we were arguing about something small again...I gave him his 25k back to end it. Lesson learned...again...as much as we are drawn to do business together and are good people individually, I have no shame admitting that we just can't work together. As I continued to fund the boat business venture based on the 33' sport fishing boat hull, and began work on the next model by re-powering my 50' scarab with two 750hp bio-diesel seatek engines with surface drives...the timing in the marine market started to look wrong to me. With the kind of income FFR was generating these bills were not a problem...but I needed a new business, and it appeared boats were too risky. You know the joke right? How do you end up with a million dollars in the boat business....start with 2 million....

The birth of Smyth Performance.

So without the boats I started on a terrific single sided Harley based chopper kit design. This was the beginning of Smyth Performance and used more of my mechanical aptitude as a designer. My University of Michigan college bud Mike Voss was chief executive of Ultra motorcycles, a chopper manufacturer in California, and the market looked ripe for a high quality kit bike. After many trips to vendors, I tooled up and designed a great performance drag bike(still in the shop if you want to see it) and sure enough the market timing after an aggressive year of investment started tanking for bikes. Here I was sitting on over a hundred grand of stampings and parts and about 250 grand of engineering for the bike alone...tough call, but I again decided after tooling up for yet another machine that the economic and marketing environment was not good. Good move to hold off in both cases it turned out...the marine and bike businesses in the U.S. are still struggling as I write this. We will launch the products if they fit our Smyth branding...but don't hold your breath. Half of success in R&D is having the discipline to NOT launch. Plus the bio-diesel bug had bitten me hard.

Going Public.

As the economy was looking iffy by this time I started a two pronged business plan for Smyth Performance in 2008. I bought the jetta tdi wagon to see if my bio-diesel learnings from the scarab could be applied to the car business that i knew so very well. I also started a line of stainless racks for trucks as a boring but safe fall back if my big car plans didn't pan out. The racks launched to minimal fanfare and I went to the forums 2 years ago this June and asked people what they thought of the projects I had been working on. Remember I had been silently working below the radar for over seven years...many people on the forums didn't even know who I was since FFR had been effectively without my public presence since 2002. FFR was at the time and remains these days the Dave show by design...I was this guy that appeared in the background information.

This is where the change happened. By giving the forums a voice I could take advantage of the talents of the knowledgeable car guys. Since my friend and new business associate Jay Rogers was such a fervent believer in the power of crowd-sourcing at his start-up next door,Local motors. I decided to share the development of the Smyth car live online as I went through the various(and often ugly) steps of designing a car. Hanging your work out to be conversed about took some skills and learning. People enjoy sharing the good stuff...the mistakes and miss steps are not as easy. But to be real and credible you have to share it all if you are embarking on a social media based launch story. A key move that is paying dividends today with the success of the Smyth Performance line concepts as well as the success of the general machine building business book that this note will be a part of.

More on Smyth, Local Motors and FFR to come....

Mark

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2011-06-09T10:34:00.002-04:00

Smyth Performance and the end of life

by Smyth Performance on Thursday, April 21, 2011 at 7:36am

My VW jetta is approaching the end. Since I have used it not only as a test bed for the new smyth kit cars but also as a truck for hauling, it is a tad on the rough side. Numerous scars of a great life are everywhere...cooper's fastball always gets away from someone and "thump" another dent in the side...Brendan missed a three pointer and somehow the ball bounced off the windshield at just the right angle...cracked. The tan seats have been slid into a couple hundred times too many by a guy who is welding up a new kit car...tan doesn't hide dirt and grime after all. A very large SUV(hey I have 5 kids)gently bumped the front wheel of the parked jetta...leaving the wheels aimed at the curb when the steering wheel is aimed straight ahead. Another luxury truck took out the passenger mirror.

On top of these day to day happenings I was leaving the driveway a week ago and I heard a "ka-tung" sound that was different from the usual "ka-tung" sound in that it ended with a clank...a piece of the front spring was laying on the ground under the car...I knew the strut bearing was making sounds, but a broken spring top?...never seen that before....alright then. The car seemed to still work fine so I did what any car guy does and kept going to work.

Normal people would have had a new car 6 months ago. So yes. The saws-all will be coming out in a few months and this jetta will become the second Smyth Performance demo car after the white one being finished now. Perfect donor really, even with all these problems, the parts of the car I need are in decent shape...plenty of life left. As Capt. Jack Aubrey said,

"Would you call me an aged man-o-war, doctor? The Surprise is not old; no one would call her old. She has a bluff bow, lovely lines. She's a fine seaboat: weatherly, stiff and fast … very fast, if she's well handled. No, she's not old; she's in her prime."

The entire strategy behind Smyth performance has been to make an incredible car out of an ordinary one, a jetta needs a bit more of a bluff bow to deserve a second shot. Ordinary cars are thrown away after a couple hundred thousand miles, incredible cars are always rebuilt. This is the key to our green story that is ringing true in the car community. Sure a tdi diesel powered smyth car gets 60 mpg and rips through the quarter in under 15 seconds...fun...but the key to the long term strategy of the company is taking cars that are not worth rebuilding and giving you a reason to rebuild them. Is this the kit car business, not really.

A used jetta is just not worth the money it takes to rebuild. If you are a real environmentalist I guess you would rebuild the boring car because it is the ultimate environmental act short of riding your bike...but like it or not we don't drive for completely rational reasons...we drive because it is fun. And if we are going to drive we usually want our chariot to reflect our personalities, egos and income as well as our day to day transport needs. Sometimes this mix is a bit off...I enjoy the low key(ok a bit toooo low) wrecked tdi wagon with the diesel clatter instead of the italian super cars in the garage...go figure. I use the ferraris often in these pages since they represent much more than cars. As art they are a joy. As cars they are a blast to experience. And you never throw them away...ever. This is the key for Smyth Performance and any car that achieves immortality. If I can provide a package that puts a bit of passion into that old car, you will rebuild it.

Without this added emotion or passion the car is on its way to the crusher...a huge waste of all that engineering and value that is just sitting there ready to be rebuilt and enjoyed. V8 mustangs, vettes, porsches and specialty performance cars have this immortality if they are not completely abused. Sedans and utilitarian cars/trucks do not. Even fancy bmw's, and audis end up in the scrapo yard when they hit 200k miles or are in a minor accident late in life...people are done with them...just not special enough to spend the 5-10 grand it takes someone to rebuild a car. There are exceptions of course, anyone can attach some sentiment to a car for any number of emotional reasons, but in general...cruncher.

The other day I posted a picture of the new Smyth car we will start working on in the fall. We are building a $3500.00 kit that will transform your old jetta into a 40+ mpg pick up truck. Not just any truck...a truck that will get people to ask you questions at the gas pump...and if you are a car guy/gal that is the ultimate goal...the gas pump "I didnt know the jetta came as a truck" line of questioning. Motorhead heaven. The G3F and the truck make a real statement not only by being exclusive(you can't have one if you don't build one) and stylish, but by being home grown green. The prius crowd wishes they could be this responsible....and we get to lay rubber living our green lifestyle. Passion comes from the building of the car yourself combined with a nifty ride in the end. If you build a car you take care of the car...immortality.

As a car builder I like the ability to tell a story that has balance to it. We drive fast on the track. We waste some gas doing it for fun. We spend countess hours on these machines that we love for single moments of joy on the weekends. I have been known to have a cup of coffee and just look at the mechanicals of a fancy piece of engineering in the garage. The analogy is the mechanical swiss watch...thousands of moving parts ticking and turning away on your wrist...simply amazing. You either appreciate that amazing feat of micro engineering or you wear a quartz watch just to tell time. All we tinkering souls need is an emotional reason to redo our boring cars and we will jump right in. The fact that you can use the Smyth jettruck and the Smyth G3F sports car every day just makes them fun and practical. The real story in this company's strategy is that we are giving a car the second life it never had.
Go Green, Go Fast, Repeat.

mark smith

unknown vwvortex.com photoshop of a low rider jetta truck...I will stay a bit higher with mine and add some more window for a mini-extended cab look, but a fun photo of the concept

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2011-06-09T10:33:00.003-04:00

Dr. Seuss and the Valuation Of Small Firms

by Smyth Performance on Wednesday, April 13, 2011 at 11:01am

I have talked openly about the learnings I am aquiring as I go through the process of simplifying my Factory Five related companies and the issue of valuation is center stage. Before going on here it is time for a little disclaimer: In the following general discussion I am not talking about any specific deal or transaction....these are all thoughts on what I have seen to date over my 15 years in the car business. Please don't infer anything regarding the current operations of Smyth Performance, FFR, or Local motors in this discussion.

So where were we...right, valuation of the small manufacturing company post world financial crisis.

Before the economic crisis...back when you could get a loan for just about anything, it was possible to borrow and buy a good small company. Earnings were good to great, growth was pretty steady if you ran a well managed company, and people were not getting much in the way of returns in the stock market or money funds. A pretty nice environment for investing in the purchase of small companies. After the great credit freeze(that we are still in by the way) how do you buy or sell? For a year or two survival and profitability were your goal. Just keeping the banks from calling a line of credit was a win for most of 2009 for most firms. And now you want to sell?

The answer doesn't have much to do with credit as it does valuation. How do you value a company if the firm has had a couple of years with poor financials...let alone one that didn't react to the economic realities of the last few years and has a train wreck for a balance sheet. The usual 3-5 times earnings or some multiple formula won't work....good luck getting a business owner who knows she has a good basic business model to sell for 3x 2009-2011 profits. Assets? He/she probably used most of their liquidity to survive if they didn't reduce overhead fast enough in 2009....Even if management did a great job during the last two years and protected the core business from an asset drain, the top line suffered double digit losses of revenue. If you kept your profits in tact you did a good job...but it cost you in human capital and skills that left the company. All those people that were laid off represent a massive investment in training and skills. So how do you sell? You really don't.

A buddy of mine in the Ferrari business told me a year ago that all the guys who HAD to sell had sold...prices for vintage ferraris were solid again since the fire sale was over. Most of these wealthy clients knew they would be wealthy again and just buy another car later...so they sold at half what the cars were worth, cash was king. The prices are still down for most expensive toys like boats and ferraris but nothing like 2009. I was glad to hear this since I have been making plans for the growth of Smyth performance and my source of funding is in the garage. It takes 50 grand to start an ice cream stand, how much do you think it costs to start an auto related manufacturing business? Five kids with number one heading to college next year makes you a pretty conservative guy... two years ago the toys were about to be sold...no loans for smyth performance...cash is still king. A 69 dodge 440 charger and a couple of ferraris makes for a nice launch fund...I will raise capital if I need it next year after showing a nice year of sales for the launch of the smyth car.

The reason I bring this up is that selling a business is no different. If you absolutely HAVE to sell you are in the same boat as the fire sale guys were after the melt down...they sold $200,000 vintage ferraris for 80 grand. If you run a small business you are fully aware that even companies that have never missed a payment on their credit line can not get money from the line that was probably frozen in 2009. Banks are still hesitant to loan the buyer of a business money since they inevitably use the profits looking rearward to support the loan. If you have a large pool of assets you can use that I guess, but any business worth having has stable cash flow and/or growth....commodities that are few and far between in the small business community from 2008 to 2010.

The buyer and seller dealing in good faith are forced to look at predicted future cash flow since the rear view mirror doesn't reflect reality and both know it. If you try to use the last two years as a guide to valuation the doors to the company you are looking at will be slammed in your face. It can work if both buyer and seller understand and believe in the business...the deals that are getting done seem to rely heavily on payouts of future earnings which fits the model I describe here. More than likely even these deals will be shelved for a few years until the financials can be fixed with real profits from the leaner and more efficient operations most of us were forced to adopt...the sunny side if there is one. Then we will all sign on the deals with solid numbers and a good business environment...I doubt banks will be as big a part in these transactions as they used to be, but I think the sale can be made.

In the mean time the situation is analogous to a worker getting a job in another state and not being able to move. If his/her house is upside down loan wise, how can they move to a new town? In both cases you have to wait it out. Most people are not good at waiting. In my world I am trapped in the same situation as I try to consolidate the factory five related entities and prepare for my exit. Real estate trusts, licensing companies, holding companies, all support the factory five mini empire in a needlessly complex way. This will change over these next years as I work to simplify the organization into a sale-able unit. Whether my brother Dave buys my half of the various companies or not, they will be streamlined and an easier asset to value and sell. It is quite a dilemma that is probably shared by any closely held company owner. In a normal world Dave would have been able to buy the whole thing by now and I would have been solely focused on diesels and writing about home built cars in a cool little book.

In our new universe we move forward as if we sold the place even though I still own half....a little strange but it will work well if I continue to have the discipline to stay out of their way. I spend my time building the Smyth "green" perforamance brand while Dave can be free to take FFR where he wants to...hopefully on a multi year growth and profit rebound. In a few years the reward for his hard work is a shot at owning the whole place. All good if we maintain some balance and execute to plan. We all want FFR and Smyth to succeed and continue to dominate their unique product niches.

As these notes are a work in progress,I will sign off with advice from the Dr. Seuss book "Oh! The Places You'll Go! " There is a great two page spread that describes the "waiting place". Sometimes we all get stuck there. My advice to any small business owner is to know when you are in the waiting place and make a good plan to get to the next page...it may even take some time...but get to it. Dr. Seuss...Read the book...a great business read if you ask me.

Mark Smith

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2011-06-09T10:33:00.001-04:00

The Price is Right

by Smyth Performance on Friday, March 18, 2011 at 10:42am

After all 40 betas ship over spring/summer Smyth Performance will have to address the a real pricing strategy for the production kits. As a segue into this topic I am using my experience with FFR as a guide for discussion.

Pricing strategy is one of those topics that slips by the wayside in companies that have been around a while. It seems so obvious that it is not worth talking about at length. In business your products cost you x to make and you sell them for y...the difference is your gross profit. Every now and then you realize that margins are tight and you are already at rock bottom cost wise so you raise prices.

As the business matures and the brand strengthens it is easy to forget WHY your prices are what they are...cost plus pricing seeps into your mind as a business owner and you slide away from the value added model that launched the success of your firm and should still drive your business. Why are people buying your product? What are they really spending overall if it is a complicated product offering? Is your product the same as it used to be?

The FFR case study 1995 to 2010

My dialogue with the Factory Five guys over the years as the owner is the best example I have to show how pricing plays a strategic role in the growth of a small business and brand. It is no secret that I have been pushing brother Dave who runs FFR to raise prices on the cars we sell over these last years. Dave is right in his assessment that the market has been challenging and is committed to a policy of price maintenance and some discounts. From the outside and about to launch a diesel kit car down the street at Smyth Performance there is another way to look at it....a start up pricing methodology that makes a nice chapter in the book. So here is the rough start....remember these are my thoughts and are meant as a chapter framework and are not a reflection of any actual current numbers for FFR.

Cost plus is the starting point...the financials and income statement will tell you your real cost of doing business. You have to forecast a volume based on history and combine it with a sales forecast, but most basic managers find this a simple quarterly requirement...nothing new here. If you are not doing forecasts and proformas because you are "too busy" we can't help you here in this discussion...you are trapped in a reactive business mode that is hard to emerge from without a plan...learn a bit more and join the class later. Now for the rest of you using your forecasts and your income statement you know what your real costs of doing business are...ok. Now how do you know if your pricing is right? Your competition gives you an idea...but I am assuming you are doing something different or you wouldn't be the success you are...like I said, we are not talking commodities here. We will start with generalizations from my peers in the manufacturing "pack" and move on from there.

A side bar bit about pricing and a crisis...Once the economic meltdown occurred I made it a point to call about 5 guys I know who run or are high up in manufacturing companies. I would call once every few months and compare notes...we all needed the input since it was a scary time. We all made it through the year of challenge with different strategies(some way better than others) but those that made it reacted quickly to the crisis. Discount pricing was a key weapon. Price drops were temporary for the well run businesses and became permanent for the poorly run firms. Price drops didn't always work to build volume but for most it worked enough to survive. Getting through the insanity was the goal with all of us for about a year...reason had left the consumer. This crisis revealed weaknesses that were hidden by high margins over the boom times of easy cheap capital. All of us are lean and efficient now and most are gearing up for some growth. Now we can talk about real margins and real pricing again.

The basic rules for a manufacturing company that has a couple layers of distribution you are usually looking at around 5% net income on sales. We are talking about value added manufacturers that make a product with some form of differentiation. The distribution channels eat up 15% of your margin but provide a valuable network to move product. If you are a direct sales manufacturer like FFR, you get to keep that 15% but will spend 10% on selling....for an expected net of around 10% on sales...not bad for a manufacturer in the U.S. This 10% is when the place is doing well at good capacity utilization and proportional staffing. It feels good, you are making a bit of money from your generic 10 million dollar company, you have employees and systems that support the product...not a bad life. Cost Plus works when you look at it from this comfortable perspective.

In this installment of the pricing talk we will look only at inflation and the cost plus model. The next session will cover the value added story and a discussion of the real product under the fiberglass shell...this one is about establishing a pricing baseline...I will be very hard on your comfortable cost plus business in the next installment....for now lets look at bare minimum pricing tactics that will keep your organization alive and kicking.

My standard MBA speech to anyone I talk to over the years is that my company Factory Five Racing makes the most complicated consumer product in the world. Building an automobile at home combines leading edge product technology and engineering at every turn for the manufacturer...computers, wiring, anti corrosion chemistry, robotics, welding and plastics/molding. When you, the customer, embark on the project of making a car from parts in your garage you are starting on an amazing path...a car kit.. ie..."the most complicated consumer products you can buy". So does cost plus really reflect the value of the product when so much of the value resides in the experience you have building the car? No way, but lets finish the baseline talk.

Find your business in big business: The quick look

The big three GM, Ford and Chrysler know costs better than any companies in the world and we will start with them for a price study/comparo for Factory Five. 1995 is our baseline since that's when we launched the first FFR car kit for a fabulous 1995 price of 9900.00. We are going to use Ford and the Mustang as a price anchor since the product is one of the few that has maintained the same niche and price point relative to the target demographic that FFR goes after. Mustangs are still Mustangs and are as popular as ever after a 45 year run.

Product                            1995 price    2011 price

Mustang base v-6            15,030                     22,995

Mustang GT v-8 18,605    30,495

FFR Base kit                      9,900                       12,990

FFR Base Discounted         9,900                      11,990

Look, you are a tiny little 10 million dollar company...use Ford/GM if you make cars, use GE if you make big machines, use any large company that makes something close to what you do as a guide to real manufacturing costs and pricing...they have more experience and resources. Let's use the "car" weighted inflation adjusted pricing for the Ford Mustang as a guide. Both FFR and the Ford Mustang have upgraded their product over the last 15 years so the prices should be a bit higher than the cpi inflation rate since you are getting more product today than 1995. This can be in safety features or longevity....anything that relates to content...there is a bit more over the years, but since both lines have added features the slow change in product can be accounted for...lets do some quick numbers.

price 1995/price in 2011 is .65 and .60 for the two mustangs.

To be as fair as possible we will use the v-6 elemental mustang number of .60 as the ratio. A 9900 dollar FFR kit in 1995 should cost 15,230 delivered after any discounts etc. We are at a price of 11,990.   Over 3300 bucks a car is left on the table with a discounted FFR and that is just adjusting for "car" inflation. The cpi inflation number that accounts simply for overall inflation leads us to a 14,430 price point in 2011 for the base FFR car.

Here is the impact on the business. With these low margins brought on by noit keeping up with inflation, there can be is incredible organizational pressure and a constant struggle to stay alive.This downward pricing spiral over time is just as real as having to lower prices every 6 months. In our study here the quality of the engineering and manufacturing team at FFR is amazing...keeping costs low to keep the company going at a profit in a decreasing price scenario. Using a hard working team such as FFR's as a guide you can see a mirror for what is happening to manufacturing in America...they have kept FFR profitable for all these years in an environment of decreasing real prices. For some basic manufacturers this would be pressure from chinese goods. Kudos all around to the team at FFR and other manufacturers who are making it in a competitve world manufacturing environment.

However....we are NOT talking about commodity manufacturing. Lets take a look at where the margin pressure is really coming from. Ford has to fight the Japanese cars as well as the cheaper korean imports as well...so they get hit with the same pricing pressure. Is the pressure coming from the chinese imports or is it management not staying awake as real prices escalate. We have to at least stay with Ford and their price structure....then we can assess how we are doing on the value added side.

For FFR my suggestion is to mirror this Ford pricing model since the buyers and pricing environment is almost the same. At the very least we would all expect a 9900.00 car to go up with the basic CPI number right? So let's pick a sample 10 cars a week as a round number for some quick math. 3300 times 10 is 33,000 bucks a week or 1.7 million bucks a year in lost inflation based revenue. Think of what the company can do with that kind of EXTRA income. That is a new factory or complete robotization of a new product line every year. Remember at 10% numbers above they already making plenty of money as a lifestyle business...this is money they have earned that can be used for growth.

Now can FFR just go out and raise prices 3300 bucks...no way. But can they implement a pricing strategy that fixes this disparity and pressure on margins...you bet. I am the bad guy if you are a customer wanting to buy a kit at a lower price since I am pushing so hard for higher prices...but I will convince you that a healthy FFR is in your best interests as a customer...and that might cost you a bit more than what it costs right now. So go buy your FFR now if you disagree with me, but the reality of inflation can't be ignored.

If the Smyth car costs me 8 grand to make am I selling it for 9...probably not if I want to grow and take care of my employees. The number one way to grow the business is to pass a hunk of that extra revenue on to the people that will do the work here and invest the rest....magic.

In the next note I will try to convince you that the Smyth car should be 15 grand as well....with less in the boxes....and how you might just be ok with that. (Hint: paint)

Mark Smith

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