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Can you imagine a better
way to get rich than by building yachts? Think about it: You rub elbows
with some of the world’s richest and most famous people, building
what are arguably the most glamorous and exotic consumer goods ever conceived
by man. Yachts built by you appear in films and magazines all over the
world, and a good portion of the planet would die to spend only a few
minutes aboard one of your creations. And best of all, you’re manufacturing
goods valued in the millions of dollars. Imagine the markup!
Unfortunately the reality
of the business is not quite as seductive. In truth, building yachts,
while glamorous, is one of the riskiest ventures extant. In fact, not
a year passes during which a couple of yacht builders don’t go out
of business, slip into bankruptcy, or fall on hard financial times and
have to sell out. How can this be? How can one possibly not make a ton
of money building such an expensive commodity?
There are a number of
reasons, none of which involves a lack of customers. First, yacht builders
deal with people who are, by definition, the world’s most successful
capitalists. These people have reached the pinnacle of success by squeezing
every penny out of every transaction, and they have legions of lawyers
and accountants to help them. They can be very tough to deal with.
They’re used to
getting exactly what they want. Hence, when they contract for a yacht,
often they decide partway through construction that they’ve changed
their minds about a few things. These “change orders” can entail
everything from picking new wallpaper to adding 20 feet of LOA. The builder
and owner typically negotiate the cost of modifications and add it to
the bill. But too often the builder underestimates these costs and loses
money on the change. A typical project might involve tens or even hundreds
of change orders, so it doesn’t take long for a profit to become
a loss.
This is compounded by
the fact that some builders are superb at building boats and lousy at
keeping books. Building a yacht is an amazingly complex undertaking, and
absent careful cost management and monitoring, builders are often shocked
to learn that the contract price has been reached yet the yacht’s
not done. Here the builder is at the owner’s mercy. Some owners will
renegotiate, but some play hardball, meaning the builder must complete
the project out of its own pocket.
A builder is further
constrained by the fact that building a yacht ties up vast resources—maybe
all of the resources—so it can’t just work on another project
while sorting out a disagreement with a disgruntled owner. Often the yard
must complete the yacht so it can start another one on time, lest it be
penalized by that owner for late delivery. Likewise, the builder must
have a follow-on project to pay the overhead, which, of course, includes
salaries. If it can’t, its skilled crew may be hired by other yards,
leaving the builder without the manpower necessary if another project
comes along.
Admittedly, there are
many yacht builders that have enjoyed relatively uninterrupted success
over the years, and that success partly explains why each year successful
entrepreneurs become enamored with the thought of building yachts (“It’s
just another business! How hard can it be?”), often with dire consequences.
So if you’re thinking of building yachts for a living, my advice
is to keep your day job.
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