One Friday afternoon, C. Richard Cowan watched $600,000 walk out the door.

Cowan, founder and president of Power Lift Corp. (#2), which distributes and services forklift trucks out of four locations in the Los Angeles area, had already lost about 20% of his workforce over the past year. "Now I realized that I had a catastrophe," says Cowan, recalling that fateful Friday, when five of his prized mechanics quit. "Those five represented $600,000 in annual revenues."

At that moment the fear crystallized in Cowan's mind that continued hemorrhaging could threaten the survival of his company. But the incident also set him on an ultimately successful mission to create the kind of atmosphere that makes it hard for employees to leave.

In 1993 Cowan had been awarded a Caterpillar distributorship, although he had no previous experience with forklift trucks. But Caterpillar seemed impressed, Cowan says, with his aggressive plans to increase its market share in the area. It was the carrying out of those plans that got Cowan into trouble. After a year in business, he bought a competitor, Clarklift of Los Angeles, which distributed a rival line of forklifts and had about 7,000 accounts, compared with Power Lift's 1,000. Clarklift had been in business for 70 years, and Cowan says that three-quarters of its 200 employees had worked there for at least 15 years. "Here a young company was going to acquire them, led by a guy with only a year of experience in the industry," Cowan says. "About 90% of Clarklift's employees knew more about the industry than I did. That caused quite an uproar."

Soon a rival distributor began recruiting Power Lift's newly acquired employees. Rumors spread that Power Lift was experiencing financial problems. The exodus began. Over a period of five months, Cowan lost about 40 employees, many of them mechanics. Mechanics are critical to the business because they make service calls. "It was like a software company losing its top software writers," he says.

But Cowan soon realized that he shouldered much of the blame himself. "I didn't have a comprehensive plan to deal with the hostility," he says. What would he have done differently? "I would have personally met with every single employee," he says, to reassure each worker about the importance of his or her role. Calming the hostility required a number of initiatives all focused on bolstering employee morale and participation.

Even before the troubles began, Cowan had instituted quarterly meetings at which employees could see key information about sales and profitability. Now Cowan has added an employee council, comprising people from each department, that meets quarterly to provide feedback about the company's performance and what needs improvement. "Minutes are taken," he says. "At the next meeting we go over the minutes, and people see that their concerns have been met."

To get additional input, the company surveys employees twice a year. Cowan has also instituted a 401(k) plan and a series of monthly and annual awards for outstanding individual performance.

One of the most useful strategies, says Cowan, is walking the floor and talking with employees. "I ask them, 'Do you have a few minutes?' " he says. "We talk for 15 minutes and I hear about their concerns."

Cowan's measures have done more than stop the migration of skilled employees out of the company. Thanks largely to his initiatives, 25 of the 40 employees who left after the acquisition have returned to Power Lift, which last year posted sales of $43 million. Now Cowan is acquiring another forklift distributor. "We are out there talking with each employee," he says.