So I run a small fabrication shop, about 12 employees. We were bleeding cash for two years. I couldn't figure out why. Sales were steady, but margins kept shrinking. I finally bit the bullet and brought in an outside operator on a six-month contract, with an option to buy in. The guy came from a larger manufacturing background. First month he just watched and took notes. Second month he started changing things. It was uncomfortable. He cut two long-time employees, renegotiated our lease, and killed a product line that I thought was our identity. The shop is profitable now. But I'm not sure I trust him. He wants to buy 30% and I'm nervous. Anyone else been through this? I'm not looking for a pat on the back, just real experience.
Operations
My experience hiring an outside operator to fix my failing shop
I haven't been in your exact spot, but the part that stands out is "killed a product line I thought was our identity." That's a classic operator move. They look at the P&L and cut anything that doesn't carry its weight. Often correct, but it can hollow out the brand. Did he explain the reasoning to you before he did it?
Six months is fast. Pretty fast to go from bleeding cash to profitable. What was his fee structure? I've seen operators who make quick cuts to hit short-term metrics and then leave the mess for the owner.
The lease renegotiation and employee cuts are the easy part. The 30% buy-in is where I'd slow down. What's his valuation based on? Current earnings or some projection?
Also, what's your gut saying? You said you don't trust him. That's not nothing. Sometimes operators are very good at what they do and still not the right partner.
I had a similar situation with a machine shop I inherited. The operator I brought in turned it around but then wanted equity. I said no. He left. Business went back to losing money within a year. Not saying that's you, but be careful what happens when he walks.
Did he document his process? If he leaves, can you keep the changes going?
What's his background? You said larger manufacturing. That can be a good thing or a bad thing. Big-company operators sometimes dont understand small-shop culture. They cut too deep.
I'd ask for a detailed accounting of every change he made and the result. If he can't or won't provide that, that's a red flag. Also, did you have a contract with clear performance metrics? If not, you're in a weak position now.
The trust issue is big. You brought him in to fix things, not to become your partner. There's a difference between a hired gun, and a co-owner. Maybe offer him a bonus structure instead of equity. Cash for performance. Keeps him motivated but doesn't give him a permanent seat at the table.
He's given me a spreadsheet with everything. I just don't have thhe bandwidth to verify it all. And no, I didn't have a formal contract with metrics. It was a handshake deal on the operator role. The buy-in was mentioned as a possibility but not defined.
Handshake deal with equity involved. That's tough. You need a lawyer now, not later. A 30% stake is a big deal. What happens if you disagree on something down the line? Deadlock?
The spreadsheet might be accurate or it might be cherry-picked. At this point, I'd bring in an accountant to look at it. Someone who doesn't have a relationship with either of you
What's the alternative? If you don't give him equity, does he stay? If he leaves, can you run it without him? Those are the two questions I'd be asking.
Sounds like you're in a position where you need him more than he needs you. That's not a good place to negotiate from. But it's also not a reason to give away 30% without doing the math.
Maybe there's a middle ground. Vesting schedule. He gets 10% now, more over time, and if he leaves early he forfeits. That's standard in startups, might work here.
Vesting onyl matters if you have a solid operating agreement. Without that, it's just a piece of paper.