Last week in Episode 8 of The Hollow Men, Fifi Murphy is found, things change and Drew comes up with an initial plan for "getting out while the getting is good."
If you like to read things from the very beginning feel free to start with The Cold Days of Summer, the first collection of not quite true tales of Texas. Each episode of The Cold Days of Summer and The Hollow Men contains a link to the previous and next episode so you can easily move through all of the episodes.
Mordida
Mordida is Spanish for a little bite and it is something that Matt and everyone at SouthWestern Tank taught me. A little profit is all you need, as long as you keep doing it, day after day, week after week. That's what we were doing at VP Tanks, a little profit off everything. You keep doing that and you can't keep from making money.
Our original goal was to aim for a 15% profit off every job we did, but as we went along we saw other ways to make a little money, off engineering services, off getting the right people to talk to each other, on taking a small deal and turning it into a larger deal. We handed all the arrangements and all we took was a little off the top. No one minded, in fact, in most cases they were happy for our presence, we took care of the details and all we asked for our effort was to make a reasonable profit.
Take enough little bites and it adds up, sometimes it does more than add up, sometimes you get a multiplier effect as the original request from a customer turns into more jobs down the line.
The flip side of Mordida is to take a little bite out of your assets, only when necessary. We did that too. We kept our expenses low, we were thrifty. Outside of the rent for our shop, paying the utilities and paying for gas as we drove all over West Texas looking for the next job our next biggest expense was our weekly lunches with Matt Johnson. The week after our first lunch, Matt and I met at Manuel's, he picked up the tab that time and I asked if Rick could come along the next time. Matt was more than glad to have Rick join us. Other than a few short run-ins at SouthWestern Tank he and Rick hadn't done much more than say hello. The following week Rick and I both met Matt for lunch and from that point forward the three of us met for lunch every Thursday. It was a good deal for Ray, at least from a money out of pocket perspective as the three of us alternated who picked up the tab, me one week, Matt the next, and then Rick. From our perspective Rick and I knew we were getting the best of the deal, every Thursday we had the chance to tap the mind of one of the best businessman in West Texas.
Rick and I began meeting my Uncle Bill for a monthly lunch in April 1979. He always asked how business was going, but he already knew. We had been making our regular monthly payment on the loan and he also knew we were making regular deposits to our business account. One thing he did was how we were being compensated. We didn't really have an answer for that. We just worked, closed the deals, set up the work, followed up with the customer, got their check, paid off everyone who had been part of the job and took what was left and deposited it in our business account. Truth is, we weren't doing much outside of work, playing golf on Sundays and drinking too much during the week. Andrea was gone so I wasn't dating anyone and both of us were focused too much on work to do much else. We both lived at home, our vehicles were paid for so our expenses were few. Uncle Bill suggested we start paying ourselves a salary, nothing big, but that would be another expense and in the long run would help reduce the taxes that VP Tanks might have to pay at the end of the year. As for our 1978 taxes, he recommended some local CPA's who could help us with the paperwork.
“One of the things you're going to learn is how you report the money, on what side of the ledger the money is on, will determine how much taxes you pay in the end. The goal is to be legal, but to pay as little taxes as you can. Talking with a CPA could really help you see how best to structure and arrange the money as it comes in.”
Seemed like a good idea, so we wrote down a couple of names and telephone numbers. As the meal ended Uncle Bill asked about my measures.
From April to May the price of oil increased but there had been a drop in both the rig count and our work buffer. I'll admit, that made me a little nervous. Were things already on the downward trend?
Uncle Bill suggested we take a long term view. “That's only two months worth of data. It's good to be aware of it, keep an eye on it for now. Remember, you're relying on all three measures and there may not be a perfect cause/effect behavior. The increase in the price of oil might be a harbinger of things to come, or it might not. You boys are still making money, right?”
We were. April had been a good month and May was looking better. After it all was said and done we had deposited a little over $11,000 of pure profit in April, and as of May 19th we had deposited $9,000.
“As long as you're making money it can't be too bad. Keep your expenses in check, keep an eye on your measures and we'll see how things look in a month.”
The trial of Steve Fife
Steve Fife’s lawyers were convinced that holding his murder trial in Ector County would be unfair to Steve. They were able to get the trial moved to Ft. Worth.
Fife’s lawyers filed motions for a psychiatric evaluation of Steve Fife. In these motions, the lawyers requested additional information related to the murder charge.
On May 7, 1979 the murder trial of Stephen Patrick Fife began in Tarrant County.
On Wednesday, May 9, 1979 Steve Fife plead guilty to the murder of Fifi Murphy. He was sentenced to not less than 5 years but no more than 50 years in prison.
The war room
At the core of VP Tanks was what we called our war room, our main office.
In June 1979 we got serious about tracking all kinds of things and we bought three large blackboards for three of the four walls. One blackboard tracked out the week in detail, what quotes were due, the current state of every active job, people we needed to follow up with. On another wall we tracked the month in much the same way but in this case, instead of day by day, we tracked things week by week. Finally on the third wall we tracked the next three months, this is where we calculated our work buffer. We found this approach worked well for us. It only took a few minutes to assess the day, month and quarter and figure out what was the most important thing to work on. By being able to shift between the day, the week, the month and the quarter we found ourselves able to stay focused on the little things that had to be done but at the same time keep an eye out on the bigger picture, on the work that was coming up and on potential roadblocks or impediments that could slow us down.
In the middle of the war room were our desks and phones. Against the one remaining blank wall was my drafting table and our refrigerator.
We knew what was going on for the day, the week, the month, the quarter. We got in the habit of using part of our Saturday mornings to clean off the weekly board and update it for the week to come. At the end of the month we would clean up the monthly blackboard and update it for the next month. We would also “shift” the data on the quarterly blackboard, erasing the month just ended, then moving the remaining two months to the to the left so we could add on the new third month. We had become organized. We make things and people show up at the right place and time.
I kept a a standard accounting journal for our measures, it was . I tried out a couple of ways to track the measures and settled on a four column table with the leftmost column being the month and year, the next column listed the price of West Texas Intermediate for the month, the next column listed the monthly rig count and the final column listed the current work buffer. It looked like this:
I liked this format because I could scan down the page and quickly see trends and changes.
Things were looking better, all measures had increased. In May we had made close to $13,000 profit, June was even better with a profit of $15,000. We were paying our selves a decent salary, making our loan payment and putting more money in our business account. During our June lunch with Uncle Bill he started talking about ways to diversify our money, or as he said “get your money working for you, instead of you working for the money.” One easy suggestion was to start rolling some of our spare cash through large 6 month certificates of deposit. The current interest rates were over 10% if we were willing to lock up some portion of our cash for 6 months at a time. With zero risk, it seemed like a can't lose kind of idea. Starting in June we plunked $5000 into a six month CD, with plans to put $5000 into a CD roughly once a quarter. The kind of interest we were getting from the CD made us wonder about our own pricing scheme of “15% is enough.” That wasn't much better than what we could get from putting our money into a zero risk CD so we decided to slowly, month by month, increase our prices, with the idea being we would slowly find our way to the red line, the markup that customers could willing stand. It was an inflationary time, everything was getting more expensive, we just figured we could take a little large cut without anyone really noticing. Turns out we were right.
Uncle Bill had another suggestion for us.
“You too are lucky, you have got nearly zero expenses so unless you drink too much you got money to invest. Have you thought about buying real estate?”
We both shook our heads no.
“Real estate is almost always a good investment because it is something physical. You could look at buying some land, or a house. With a house you could make some income until you know what you're going to do with it. You could rent it out and probably rent it for enough that once you do your taxes you find out that you're buying a house for practically nothing.”
The idea of buying a house for practically nothing appealed to Rick so he asked for more details.
“Let's say you buy a house for $40,000. Your down payment would be $4000, closing costs another $1500 to $2000, so a total cash outlay of $6000. Your monthly mortgage payment will be about $350 to $400. You rent it for maybe a little less, let's say $325 a month. You will be paying out of pocket $75.00 a month for the house. At the end of the year you do your taxes, you get the interest from your mortgage payment and property taxes, plus you get to deduct what you have to do to keep the place up. When it is all over and done you're paying maybe $1000 to $1200 a year out of pocket, but you'll save that much on taxes. The result: you're paying pennies on the dollar for a house. That's the simplest way, but you can keep buying more over time, maybe more houses, maybe a small apartment complex, maybe a duplex, just keep them rented out and it will be hard to lose.”
If it had been anyone else other than my Uncle Bill telling us this I would have been sure there was some catch to it all. I had to wonder, it seemed almost too easy. Rick liked the idea and when he or I wasn't on the phone drumming up business he talked about it all afternoon back at the office.
A week later he walked in and said he had found a house to buy. He worked with Uncle Bill and Madison Real Estate on the details and by the end of the next month Rick had purchased a rent house in west Odessa, not far from Odessa High School.
I didn't jump into the real estate market as quick as Rick did, but I thought about it. I wasn't interested in buying Odessa property but I did think about buying some property in Austin. In the back of my mind I planned to go to UT Austin once VP Tanks was done. If I was serious about this idea it might make sense to buy a house in Austin now, rent it out, maybe see if Jack would be willing to keep an eye on it, then when it was time to go back to school I would have a place ready for me.
I had never surfed in the ocean, but imagined it must feel something like this. I felt I was riding a wave and I didn't want to get too far out in front of the wave and crash but I also didn't want to be too risk adverse and miss the ride.
Next week in Episode 10 the wedding of Sue and J.T., and Rick takes a break.