The Brake Pad Economy
In early 2009, in the depths of the nation’s economic turmoil, Sean Fredericks, president of CodeShred, a Long Island-based mobile paper-shredding business, was faced with a dilemma. Several of his trucks were due for brake work while cash flow at the company was tight.
Codeshred’s trucks, the workhorses of the business, carry thousands of pounds of shredding equipment to job sites every day. Without well-functioning brake systems, Codeshred runs the risk of having their mobile money-making machines sitting in the lot. Even worse, poorly operating brakes could put Sean's drivers and CodeShred’s incredibly expensive trucks at risk.
On the other hand, at $1095 per brake job and nine trucks to service, these critical maintenance procedures required CodeShred to spend money it couldn't easily spare.
What Sean did could put him into a textbook for classic entrepreneurial behavior. The president of this scrappy enterprise learned how to change the brakes himself. By doing his own brake jobs on weekends, he saved the company money and kept the trucks on the road during the week when they were needed most. Pretty clever.
But it’s worth noting that, while Sean did what he had to do in order to maintain the health of his business and livelihood, he also played a small role in our contracting economy at that time, which quickly led to a temporary, but powerful economic tsunami. When Sean chose to do his own brake jobs in order to save money, he sent less work to the local brake repair shop. Since Sean wasn’t the only one doing his own repair work during a slow period, undoubtedly, the brake repair industry—along with other related service sectors—saw less activity themselves. As a result, the local brake repair shop probably postponed or came up with their own solutions to pressing maintenance needs, perhaps painting the shop themselves or repairing their own lifts.
And so it goes, rippling down the line. That’s how shrinking economies hurt everyone, like a slow-motion concussion grenade.
The Brake Pad Re-Emerges
Fast forward about 14 months later and brake pads appear again as a leading economic indicator in a recent conversation I had. This time, with the famous Jack Stack, the father of “open book management” and the chief executive behind SRC Holdings, the industrial conglomerate based in Springfield, Missouri.
I asked Jack if he was able to tell, from his sales volume, whether the economy was headed up or down?
“Up,” he responds.
“How can you be so sure?” I say.
“Brake pads. We’re selling lots of brake pads for trucks. When trucks are wearing down brake pads faster, it means the trucks are being driven more. More trucks on the road means more goods being sold.”
Brake pads. Again. Right in the center of the economic looking glass. Who knew? What are your favorite economic indicators?
Looking for Data In All The Right Places
I learned about Sean Fredericks brake pad story at a CEO Roundtable conversation we held on July 13, 2010 at Inc. magazine headquarters. Five esteemed entrepreneurs from the New York entrepreneurs community—including Sean—joined David Kaufman, a partner at CPA firm Rothstein Kass, and myself here at 7 World Trade Center to discuss our mutual business progress and projections in 2010.
We chose the halfway mark of the year because--according to David Kaufman, who advises hundreds of small and medium size businesses--it's essential to take a break at this point in the year to look at how our projections held up. From there we can make crucial revisions to our plan.
Our participants included:
LEWIS SCHIFF | Inc. Business Owners Council
Lewis Schiff is the executive director of the Inc. Business Owners Council. His latest book is Business Brilliant: Surprising Lessons From the Greatest Self-Made Business Icons.