The state of the U.S. economy is on the minds of everyone; especially business people. And tire dealers, specifically, are ever vigilant to the peaks and valleys of the financial health of their own industry as well as the industries that support theirs.
Even in these challenging times, however, some of those dealers believe that opportunities still exist for growth.
These companies and their courageous leaders reason that now could be the right time to review expansion and acquisition plans. And two in particular Dan Hennelly Sr., chairman and CEO of Hennelly Tire & Auto in Florida, and Jim Enger, president and CEO of Enger Auto Service & Tire in Ohio are in states hardest hit by the financial meltdown.
“Acquisitions are more our focus today because of competition closing, and prices are good,” says Hennelly. But he cautions, “Don’t get me wrong, though. We are walking softly, tending more towards the conservative side, yet looking at a lot of deals right now. Some landowners and landlords still have not come to the realization of the current lowered prices of their properties. Some have, and those are the ones we are looking at.”
Enger offers, “We look for new developments, new growth and a new community, whether it’s new markets or new residential developments opening up. In these areas, people haven’t made a permanent decision on who will be their automotive car care provider. If you go into a mature area, the residents have already decided who will service their cars.”
But how does a dealer make an entrance into the world of expansion and acquisition? Even in less-challenging times, is there a good formula for success? In short, there has to be a strategic plan. “After all, starting or expanding a business without a written plan is like taking off on a road trip from New York to California without a map!” says Enger.
Hennelly suggests timing is a critical factor in selection.
“Things have changed over the last five years. Eight to 10 years ago we could find the site, get permits, build and open in eight to 14 months. During the huge boom in Florida between 2004-07 it took some stores four years from signing the lease until opening. This was mainly due to the permit delays in cities that expanded faster than they had infrastructure to handle the capacity. You must have the stomach to handle this.
“Some of the best deals and sites are the ones that mean riding out the obstacles,” Hennelly continues. “Some cities also put business owners through the ringer, with demands like restricting bay visibility, which is very important for a tire store’s success. And there are restricted use sites, which need to be challenged in order to get permits to build. You must also constantly challenge your builders and architects for efficiencies. This is very important because of the cost of construction; you only want to build what is needed, especially in today’s environment. The more cost in the building, the higher the rents and the lower your profits are for years to come.”
The Road to Success
Larry Morgan is a tire industry icon. In 2000, at the apex of his involvement, he owned 600 Tires Plus stores in 27 states the largest network of tire shops in the country at that time. Then he retired, and sold majority interest in his stores to Bridgestone Americas. “I played golf about three to four days a week, but got bored,” he says. He admitted that he just loved doing business, period. Today, in other endeavors, he carries with him the same scepter of success he wielded in the tire industry. The busy entrepreneur has several auto dealerships and is chairman of the board for a large hospital.
What was (and remains) a key to his success?
“It was two-fold,” he says. “We always had a real simple business plan that defined, from a strategic direction, where we wanted go: retail in major markets. The second key to success is a heavy focus on people. You have to hire the right people and then reward them appropriately.”
Morgan said he paid bonuses to his managers that exceeded the industry average. “I was a big believer in the profit formula,” Morgan says. “Some businesses keep their employees in the dark and don’t let them see the financial statements.” He also dangled in front of them the carrot of 25% of the profits from their store. “Then they really focused on making money.”
A testament to Morgan’s quality-people mantra is Hennelly. Hennelly was one of Morgan’s shining stars, but he wasn’t an overnight sensation. Right out of high school, Hennelly started work at a Goodyear company-owned store where he “learned a great deal about the business.” Then, at age 24, he managed his first store in South Holland, Ill. A few years later, he was given the responsibility of converting 28 Norton Tire Stores in Miami into Goodyear stores, but realized shortly thereafter that corporate life wasn’t his cup of tea.
That’s when he met Morgan.
“I’ll never forget that meeting in Lakeland (Fla.) at an Olive Garden,” he reminisces. “Larry said he had a dream of having 200 stores, and that he needed people that could help him grow the company.”
But Hennelly had to take a few steps backward. “He asked me to run a store and go back to rolling up my sleeves,” he says. While Hennelly was slightly hesitant, Morgan assured him that if he could do the job well, there were bigger and greater things for him in the organization.
Indeed, Hennelly received first-hand knowledge of Morgan’s growth/expansion template. “Between 90-120 days later, he (Morgan) bought another store, and he kept giving me the opportunity to take on more responsibility,” Hennelly says, “and that’s where I learned the entrepreneur environment. Larry had me do a couple of acquisitions and site locations…Go to city council meetings, etc. Those are things you don’t learn in a corporate world.”
Morgan taught Hennelly “step-by-step how to do the deals.” Then, the student realized it was time to graduate. In July 2002, Morgan informed him that he was getting out of the business. Hennelly, as they say, seized the moment. “I could have stayed with (Larry) and moved to Chicago or go out on my own,” Hennelly says. “But I turned to my wife, Diane, and sought her advice. Going on my own was a big risk, but I knew deep in my heart that’s what I wanted to do. So we decided to make the move. Diane was very supportive and she believed in me to take the chance.”
Using the formula he witnessed and refined with Morgan Tire, Hennelly not only dove into the entrepreneurial pool, but also scored high.
“The experience with the Morgan Tire organization gave me a great deal of exposure to acquisition and new store development,” Hennelly says. Today, his well-developed blueprint carried his The Tire Choice & Total Car Care domain to 25 stores in just six years, with plans to increase that to 35 locations by 2010.
His success formula includes a focus on developing leaders, then stores. Specifically, he follows these objectives:
First, ensure that your company is in a solid financial position. New stores (whether new buildings or acquisitions) are scary things to take on. It is very important to have a solid economic base to begin expansion.
Be obsessed with a quality infrastructure. Hire good people and constantly develop leaders. If you have a manager who is successful at the store level, he or she has the potential to be a district manager and operate multiple locations.
Relationships with suppliers including banks are very important. Grow and cultivate those relationships because you need their support, especially if you need additional or longer terms to pull off an expansion or an acquisition.
Thorough due diligence is critical to expansion. It is very important in dealing with local governments to ensure that the locations match your objectives, licenses are transferable, etc.
Buy or lease? Some landowners don’t always want to sell. They would rather tie you into a long-term lease. That’s understandable. “At the outset, we leased as much as possible to preserve capital, but in these economic times, we want to buy,” he says.
In brief, he says, “Morgan Tire instilled a fire in my belly that always says it’s fun to grow!”
A Different Path
Another dealer similar to Hennelly who professes the strategic expansion/acquisition gospel is Enger.
He, too, began his entrepreneurial journey right out of high school after graduating in 1982. And, like Hennelly, Enger also got his start in the business with Goodyear as an auto technician. But while Hennelly had a mentor in Larry Morgan and a tested template to use Enger’s initial path was dotted with a few potholes.
“I think our hardest step was going from one store to two stores,” Enger admits. “I kinda did everything wrong by doing that. I tried to be at two places at the same time. I thought I’d work at one store in the morning and the other in the afternoon, but I was very fortunate to be surrounded by two great people Ted Joseph (who was manager of his South Euclid, Ohio, store) and Jerry Zivoder (service manager at South Euclid). They shared the vision with me.”
Raised by a single mom, an elementary schoolteacher, and mentored by his German grandfather Alfred Nitzsche, Enger admits that many of his business skills were self-taught. “We were poor,” he says. “We had a lot of Hamburger Helper without the hamburger, but I always remember what my grandfather told me: ‘If you love what you do, you’ll never work a day in your life.’”
With his entrepreneurial vision established early on in life, Enger charged into the self-employment mode in October 1995. “I felt more like a worker than a team player,” he says of his experience as an employee. After more than a decade as an auto tech, service manager and store manager for Goodyear, he used a $50,000 home equity line to purchase his first store. Three years later, he had his “aha moment” with his second store in South Euclid, just two blocks from where he grew up.
“I learned a lot on that one,” he says. “It was a brand new building and I watched how the contractor did it. It was a hands-on approach meeting with the architects, working with the city, reading blueprints, etc. The owner of the building really opened up and let me see how they did it.”
In 2002, Enger leased a store in a strip mall in Mentor-on-the-Lake, east of Cleveland. “It was a shell of a store,” he says. “It had windows on it and a roof. That was it! We did all the work (on that store) ourselves with our own construction team that included myself, some friends, technicians and just a lot of employees who wanted to make some extra money at night and on the weekends.
In 2005 when he added four Lou’s Tire Mart stores to his family, he even had to enlist “mobile lighting” to complete renovations. The renovations took 30 days, working the 6 p.m. to midnight shifts after regular store hours. “We used our cars’ headlights aimed at the building to finish the work,” he laughs.
Today, Enger has 19 beautiful stores in northeast Ohio, and a solid grasp on what it takes to acquire existing stores or build new ones. One of the key elements he developed in his tactical plan was a 1-2-5-10 “stacked business plan.”
“This plan makes you review your business after one year, two years, five years and 10 years,” he says. “It gives you flexibility, which is critical for expansion, and a firm plan to follow, which is important to sales and profit growth.”
This is a solid business practice that is not unusual in most well run ventures. For example, 72-year-old Russ Vernon is a volunteer for the Akron chapter of SCORE, counselors to America’s small businesses. For several decades he ran the West Point Market, an upscale gourmet food store in west Akron. He agrees with a plan to continuously review your operations.
“We evaluate our businesses every year,” says Vernon. “This includes all vendors, suppliers, utilities and all product lines. We question everything even advisors, attorneys, etc.” Vernon would use storyboard sessions with his management team in the first quarter of every year to re-evaluate the business plan. One other suggestion: “Network and benchmark outside of your industry!”
Seemingly right on cue with Vernon’s recommendation, Enger recognized the value of benchmarking outside the tire industry, and actually evaluated Baskin-Robbins, the ice cream store franchise.
“I used to take my kids to one of their stores,” Enger says. “In 2000, the owner said he was retiring and asked if I was interested in taking over. Well, I studied their franchise agreements inside and out and realized how much control they had over the franchisee from napkins, to straws, to pencils, to cups, to paper to everything. I decided that Baskin-Robbins wasn’t the franchise for me, but I liked their idea of control. They were not just in the business of selling ice cream, but selling supplies, goods and services.”
Enger took the Baskin-Robbins example and developed his own plan of control. In 2008, he formed Enger Construction to become the building element of his vision of a 100-store business by 2018.
“I can now build stores at a substantial cost savings,” he says. “I’m the general contractor in all projects, and sub contract the major trades such as masonry, heating, air conditioning, electrical and roofing. We also have in-house electricians, carpenters and general labor to handle insulation, drywall, painting, etc.”
Similar to the McDonalds franchises, he also “clones” the looks of his stores. “We use the same architectural design, which also saves us money because we can order materials in greater quantity at a discount.”
His condensed recommendations for successful growth and expansion include:
Develop a well-thought out plan with increments of one-, two-, five- and 10-year benchmarks along the way. “I call them reality checks,” Enger says. “It will let you know if you are headed in the right direction.
Have a well-rounded team to accomplish your vision. Hiring the right people is critical to your success.
Ensure your financial stability. Maintain good relationships with your banks and share your vision with them and your suppliers.
Be flexible. You will need to make adjustments along the way, but don’t lose site of your overall short- and long-term plans.
Empower your management team and all the employees in your business. You must get everyone to believe in your dream/vision. You can’t do things by yourself.
Enger had another observation. “With the dynamics of the economy ever changing, it has spawned a lot of opportunities, and our phones literally have not stopped ringing on future acquisitions and mergers,” he says. “That could get us considerably ahead of our growth plans should any one of them work out.
“In a tough economy, a lot of people are contracting and putting a lock-down on their expansion plans. To us, those are buying opportunities. We view this economy as everything being on sale right now. Prices are falling, people are keeping their cars longer and the deals are sweeter!”