The Problem For a decade, employees at Patterson Fan, a Blythe­wood, South Carolina, manufacturer of industrial fans, had known nothing but fast growth and healthy bonuses. But in 2001, sales began to fall—and so did morale. CEO Vance Patterson noticed that some employees were arriving late, complaining, goofing off on the Web, and generally bringing the rest of the company down. Patterson installed time clocks and computer-monitoring software, and required salespeople to make 45 to 60 calls a day. Still, sales remained flat. In 2004, Patterson met with his managers and made a bold decision: to fire all of the bad employees. Twenty people, a third of his work force, were let go, a move that cost the company roughly $100,000 in severance. (Nobody sued.) Almost immediately, Patterson says, attitudes improved. “Once things settled down, it became a great place to work again,” he says.

What the Experts Said Alison Haugan, president of OptiStreams, a satellite Internet provider, praised Patterson’s courage. Harry Chambers, president of Trinity Solutions, a consulting and training firm, wondered how managers let the situation grow so perilous before they took action. Suzanne Lemen, CEO of Dynamic Corporate Solutions, a consultancy, predicted Patterson would eventually find himself in the same situation because he didn’t address root problems.

What's Happened Since The fired workers have since been replaced—and then some. Patterson plans to hire eight new salespeople this year; that will bring the company’s total head count to about 80. He is being very careful about who he brings onboard, subjecting applicants to thorough questioning and background checks. He and other managers now perform regular check-ins with employees and morale seems good. It doesn’t hurt that recent bonuses were as high as 10 to 15 percent of annual salaries. And better morale has helped the company become more efficient and creative, Patterson says. “We used to spend 75 percent of our meetings on problems,” he says. “Now, it’s on opportunities.” In 2006, sales were up 16 percent, to $8.6 million. Profitability also shot up, as the cost of labor per fan fell from $47 in 2004 to $22.50 in 2006.

What's Next One of the new initiatives has been the design of two quieter “green” fans that use up to 20 percent less energy. Patterson is currently in talks with Wal-Mart (NASDAQ:WMT). He also wants to get more fans whirring globally. They are already being used in Saudi Arabia to cool Muslims making the haj to Mecca, and Patterson says he is “poking around” in China.