Speeding through the rolling Piedmont hills on his Harley-Davidson one day last fall, Vance Patterson could barely concentrate on the road. Instead, his thoughts were on his business, Patterson Fan. Things had not been going well. Founded in 1989, the Blythewood, S.C.-based company, which makes industrial fans and coolers, had once been fun, energized, and profitable. Now, at least a third of Patterson's 60 employees seemed to be in a state of constant disgruntlement, complaining about everything. Productivity was plummeting -- and so were sales. Patterson was getting desperate.

He thought back to the company's early days. It was exactly the kind of place where he had always wanted to work. He supplied sodas and popcorn and hosted quarterly cookouts, where employees danced to mariachi and steel-drum bands. Each holiday season, he would hand out bonuses and fat profit-sharing checks; in 2000, when sales hit a record $8.5 million, those checks ranged from $7,000 to $35,000.

But after more than a decade of steady growth, revenue slipped to $7.2 million in 2001. Even so, Patterson had about $200,000 in profits to share -- but the checks came in smaller amounts than many employees had expected, which led to grumbling. And as the business climate continued to worsen, so did morale.

Employees seemed to be gossiping more -- about both one another and the company. Sales reps began accusing colleagues of encroaching on their turf. Soon, careless errors became alarmingly commonplace. In one case, workers reported that they'd performed some routine maintenance on the spinning machine that made the housing for fans. When the device broke down, it became clear the maintenance had never been completed.

Patterson had to contract with a manufacturer in Indiana, adding high freight costs that hammered the company's bottom line. Customers began complaining about flawed products, including fans with backward blades or missing bolts. The company's hard-working employees were affected as well. "People were going around saying, 'Slow down, don't listen to so-and-so," says James Ballentine, the company's capacity planner. "It was bringing the whole company down."

Patterson responded by becoming the kind of manager he'd always loathed. He demanded that salespeople begin making 45 to 60 calls a day, and managers monitored them by poring over phone records. When he noticed, say, eBay pages on computer monitors as he roamed the halls, he installed computer-monitoring software. And when he saw that workers were arriving late and leaving early, he installed time clocks -- both on the factory floor and in the business office. "We were spending all our time in meetings talking about the bad employees," he says.

By August 2004, Patterson felt as if he were spending every day trying to fix employees' bad behavior. Driving to work on his Harley one morning, he tried to clear his head. Somewhere between drinking a thermos of coffee at the Kings Mountain State Park and pulling into the parking lot of the Blythewood factory, he started to imagine what would happen if he just fired all of the grousing, underperforming employees. He had to admit, it was a pretty appealing daydream.

The Decision

The next day, Patterson had his weekly meeting with his three most trusted managers. He strode in and shut the conference room door behind him. "Let's get rid of the bad employees and replace them," he said. Thomas Salisbury, the company's vice president of operations, slammed the table with enthusiasm. The other two were more skeptical and asked for some time to think it over. But by the following week's planning meeting, the entire team was onboard.

Fortunately, the high season had just ended, making it a logical time to cut back. Patterson asked his sales manager to draw up a list of reps with bad attitudes or poor performance. He came back with six people. The production supervisors came back with 11. Patterson did a review of the business office and was shocked to discover that over the previous two years, an employee had charged some $10,000 in personal products to a corporate credit card. That employee had two supervisors, and all three were added to the list -- which now totaled 20, one-third of the work force.

Patterson planned for the firings to take place over the next two months. The first round began the first week of September. The dismissed workers were offered about two weeks' severance for every year served. Then they were asked to gather their belongings, hand over their keys, and leave the premises. The next round of dismissals began two weeks later.

It was a tough couple of months -- not only for Patterson and his managers, but also for the company's 40 other employees, some of whom began to fear their jobs were at stake as well. Patterson reassured people in informal individual meetings, but he never made a big speech about the effort. "I sound kind of cold, but I'd gone so long dealing with these folks, trying to make everybody happy, that I didn't care how people felt," he says. "My attitude was just 'Deal with it, we're doing it, and it's gonna be better."

Because the layoffs took place in the off-season, they were not particularly disruptive. Surprisingly, no one threatened to sue. Patterson began filling the positions immediately, though he changed his hiring policies. Now, new employees face a 45-day probation and a 90-day review; he's already fired a couple of new hires who didn't perform up to expectations.

All told, Patterson estimates he paid about $100,000 in severance. But he has no regrets. Since the layoffs, he says, Patterson Fan is a happy place. And many employees agree. "It's a different work environment now," says Robert Lucas, a shop-floor supervisor. "It feels more like a team." Patterson unplugged the time clocks and started ignoring the computer-monitoring software. Productivity is up. Last year, the company had 40 people on the manufacturing floor and shipments sat for as long as four weeks before being sent. Now 18 people are managing the same number of orders and shipments go out the next day. He's rewarded the most productive workers by raising their wages.

But for Patterson, the real proof that he'd made the right call came in April, when the company held its quarterly meeting. It turned into a raucous, '60s-themed party. Employees donned costumes, while a 130-pound pig, replete with apple in its mouth, roasted in a pit in the courtyard. Firing a third of his employees was drastic, Patterson says, but it turned out to be the best way to encourage those who remained. "I got rid of the unhappy people," he says, "to make room for the good ones."

The Experts Weigh In

It took a lot of courage for Vance Patterson to take the action he finally did. I'm happy he's back to where he is, and hope he'll step back and analyze what happened to make sure it doesn't happen again. He really needs to take a look at what his skill sets are and get some outside coaching to look at what he did to facilitate this issue."

Alison C. Haugan
President
OptiStreams
Fresno, Calif.

Where were the managers? Why did it have to get to that level before they took action? I'm amazed this guy didn't get sued because you can't fire someone for bad attitude -- you fire based on performance. One lawsuit can put a small company out of business, and that's the risk he ran here. The good news is, he's done it successfully and changed his hiring policy. He turned around this company, and that is to be celebrated."

Harry Chambers
President
Trinity Solutions
Atlanta

I predict he'll be in the same situation at some point in the future because he hasn't really addressed the things that were causing the problems. At a minimum, supervisors need management training and pay needs to be tied to accountability. On the other hand, having the pig roast and rewarding productivity gains and the fun things for employees are great for team building."

Suzanne Lemen
CEO, Dynamic Corporate Solutions
Orange Park, Fla.

What do you think? Did Vance Patterson do the right thing? Sound off at casestudy@inc.com