#187 - Good To Great - Part 2

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Welcome to the Independent Dealer Podcast with hosts Luke Godwin and Jeff Watson, A podcast by Dealers for dealers. Here we go.

Hello, and welcome to this episode of the Independent Dealer Podcast, brought to you by Buckeye Dealership Consulting. We are getting into our second installment of our book review, Good to Great by Jim Collins. Luke, chapters four through six.

Yeah, everybody out there, sorry that we have neglected this, but we've been on the road a little bit, and you probably know that. So back to our core business of trying to train y' all and not interviewing people on the road. So let's do it.

Yeah. Some meat and potatoes today, Luke. We are going to really, really get into it. Hopefully you guys have caught up. Hopefully you have read the book or listened to it up through at least chapter six. We're going to break it down chapter by chapter, concept by concept, and talk about ways that we can apply these concepts that Jim Collins teaches us to our dealerships. How does this apply to our dealerships today? What can we do today to take some of these actions to have a better running operation? Right, Luke?

Yeah. And you know what's funny is I think this book was written in the 90s or the early 2000s, I guess, and business doesn't change. And that's so funny that we're always talking about, well, you know, it's this new technology, this or that, but it's still the business is the business, and we've got to remember that. And business in general is business in general. So the core concepts of a book written, you know, yesterday or a book written 30 years ago or a book written 50 years ago, if it's training you to be a business person and a business leader is still the same. Jeff.

Yeah, yeah. It's really timeless wisdom that it's fundamental principles, like you said, that will always help you run better. So some of the little nuances about whether you're going to advertise on Facebook or whether you're going to recruit through, indeed, those things change. But the fundamental core of how to do it and how to interact with people and how to build your processes and systems, it's there. So, Luke, chapter four, Confront the brutal facts. What does he mean about that?

Well, we have so many things going on in our dealerships, and sometimes we're blinded by what we think we do great or what our employees tell us we do great. Or maybe we're just naive to think that we're great at something that we aren't. Or maybe we're just not competent in what we think we're good at. So you have to confront the brutal facts of your business and of what your perception is to your customers and the perception you display to your employees. And this is kind of where this goes. The biggest thing that, that I get out of this that car dealers do a lot is we chase shiny money. Sometimes, you know, I just think of looking on Facebook page and seeing somebody all of a sudden deciding they want to get in the rental car business or get into the rental RV business or do all of a sudden start selling high end sports cars or whatever. If that's not part of your core business, I think you're wasting time and money. And that's kind of where this goes to. Car dealers are like the wildest of the wild west when it comes to entrepreneurs. We think we can do anything, right? Of course, it's got four wheels, we can sell it right?

Or six.

Or six, whatever, or two. And then it's just really a bad thing that I see too many car dealers doing. And I'm not saying that, you know, people in the construction business don't do it either, but I see it. How about you, Jeff?

So tell me this, where does it become a difference between I'm chasing a shiny penny and I'm changing a business model? Right? I mean, that's okay, right? So if you say, hey, I've decided that, you know, selling cars is not for me right now because of the market or because of the environment or because of my passions and interests, I would much rather do power sports. That's a strategic change, right? You say, what are my core competencies? What am I good at? What is the market telling me I'm going to make a shift or a pivot purposefully. That is way different than me saying, yeah, I want to pick up a couple of Maseratis and sell them off the front line, or I want to start dabbling in this, that or the other. And we found that obviously in my dealership, we're about 70% buy here, pay here and about 30% special finance, right? Or credit union type stuff. And so we went into an area from just being strictly buy here, pay here to saying, hey, we're going to carry a slightly, a couple nicer cars, stuff that fits the CAC model, stuff that fits with my credit union. And it does get a little confusing when I have a, you know, a $12,000 suburban sitting here next to my $40,000 suburban, right? And people come in and of course they're all drawn to the $40,000 suburban. But you have to Educate them not so. So whether that's hurt my business model or hurt my overall business, you know, probably a little bit.

Yeah. So I can, I can speak to this on two things that really jump out that I've done in my business that I recommend anybody out there not to do. So we've been a buy here, pay here store for 35 years. My dad really loves classic cars. Okay. So I guess eight, ten years ago we decided that we, and we, I mean him, decided that we were going to really go into classic cars, start taking cars to auction, buying a lot of classic cars. And it's fun. Oh buddy, it's fun. It's simple. But it's not simple. You get the cars ready, you take them to auction, you sell them, that's it. Right. And so next thing I know, we've got 250, maybe $300,000 in cash tied up in classic cars. Well, you know what that did to my buy here pay here side, right?

Yeah.

For one, it took away my everyday making my portfolio bigger and it also put me in a cash crunch for a bit. And so that's one example what I've done. The second example was something kind of like you're talking about. I decided I would go get me a floor plan, carry some higher end cars as well, cars and trucks. And I would sell those to outside finance companies. This, that and other. Well, I tied up a good bit of money, cost myself on floor plan and in the end I ended up just buy here pay here in those higher priced cars which cost me more cash. And so I got away from the core competency of what I do. I tried to take some moonshots and it didn't work and it took away from my buy here pay here portfolio. And so those are just two examples. And I hope y' all out there understand that these are mistakes I made. And I don't want people making mistakes when they're trying to build a portfolio. You know, we're a seasoned company, we can do things like that. But again, it's not what we should be doing.

Yeah. And I guess my only caveat to that would be like, when do we get to the point where we can take some chances and maybe enjoy it? And maybe your dad and you'd gotten to the point where you say, hey, you know what? We like classic cars. This is going to be a fun outlet for us. But my core business is still taken care of. And I think that's probably the key, is you can dabble in those things you enjoy. If you're not neglecting your baby.

If you have enough cash, if you're in the buy here, pay here space, and you have enough cash, you have managers in place, and you have processes in place where you can go play, albeit. Go play. We'll talk about that. We'll talk about that a little bit later. But, yes, you can do that.

And so finding out what you're good at. You know, he talks a lot about, you know, interviewing your employees, interviewing your customers, talking to these people and really getting to the heart of what people enjoy about your dealership and what your employees enjoy about your dealership and taking that honest feedback. Hey, here's where we're good. Here's where we're bad.

Yeah.

After reading this book, I had my social media girl put together just a basic Google form that goes out to all of our new customers. That, you know, is just a simple customer satisfaction survey. We just want to know where we excelled, where we fell short. It can be completely anonymous. I just. You need that constant feedback loop because we might think we're an amazing place to buy a car and that everything's great and they had a great time, whereas they might really think it took way too long, or they might really think that they weren't treated right or that the AC was too cold or that the seats were hard. And you don't know those things, but when you see those start popping up time after time, you can take those actions.

Yeah. And, you know, it's the same with your employees. And that was one of the things that he talked about. You need to make sure that if an employee tells you something, that you actually take it to heart and you just don't go, oh, that's just a bitter employee. Because if it said more than once, it's probably true. Right. Engage in dialogue and debate, not coercion. And we're, you know, as. As owner operators, we. We tend to coerce people with money. Sometimes, you know, oh, they're complaining. Let's just give them a little more money. But maybe that's not really the problem. We need to. We need to listen. We need to take it to heart, and we need to build in red flag mechanisms so if things do get off the rails, somebody can come to us or come to a manager to explain what's going on.

So help me out with that, Luke. Here's my headache. And I know Adrian, my manager, is going to be listening to this. So right now, sales team is great. Not a lot of drama, not a lot of headaches, not a lot of complaints. My shop is a whole nother story, right. I feel like it's constant. Someone's complaining about something or someone doesn't like the way someone's treating them or they don't like the way that they didn't get flattened for this, that or the other. And so I have a hard time because I'm like, guys, just give me two weeks of no drama, just give me two weeks of head down work just for a minute. So for me to be constantly poking my head in there and saying, hey guys, how you doing? What's up? How you feeling? What's new, what's wrong, what can I, what can we do better? It seems like you're constantly poking the hornet's nest to just have this agitation and this uneasiness like, well, you know what, Jeff, actually I don't really like the flavor of Kool Aid that we have around here. You know, like, yeah, what's the balance between that? What's the balance between too much feedback.

And too much feedback? Too much feedback is someone constantly in HR's office weekly and staying in there for an hour, that's too much. So I think there has to be a mechanism and a process where managers are in place that they can speak to a manager, you know, for a certain amount of time. Weekly is too much. But you know, you have to have maybe a form or something because you don't need text taking time out of the day to complain because texts are bit of complainers. You need mechanisms in place so that hey, if there is actual real problem, not because someone unlocked your toolbox or whatever, if there's actual real problem, they need to bring it to staff. And unfortunately what I've discovered in the last couple months is if the shop is not managed properly or any business is not managed properly, they're is a deep underlying problem with your business. I thought everything was hunky dory in my shop and then I realized it wasn't. So what I do I have fired everybody or they quit one of the two or they fired themselves and if.

They quit, I fired them right before they could quit.

No, but I made sure that raises weren't given when they asked for things. I didn't do it because I realized that, well, number one, I'd managed the people very poorly, very poorly. And I had let them get away with too many things. I paid them wrong all these things and I didn't have the right manager running the place. So yesterday new manager started, we hired a new tech that starts on the 20th. We hired a new tech that starts Friday. We kept one tech out of the old, old deal. Cause we figured he could make it. We got, you know, we've got the processes in place now. We were running fine. We were doing a million dollars in sales, you know, so we thought we had everything figured out. That million dollars in sales should have been $1.5 million in sales. So we had a problem. But revenue can wash over problems in good times. It doesn't in bad.

Yeah, it definitely makes me think about sometimes cleaning house is the only way because so many bad habits roll over and roll over and roll over. Hopefully, as a, as a shop, as a business owner, you don't, you know, I start feeling like. I kind of start feeling like I'm beholden to some techs and some employees because the job market is so tight. And I start having a fear that I can't replace them. And I think they know that. And that's, I think, the wrong position to be in. I think you always have to be willing to make the right decision, even if it means you're going to not have employees or not have sales for a season. It's better than just dragging it out and having the wrong people in the wrong seat.

But that's the stock sale paradox, which, which he talks about is very interesting. It talks about this guy who was a POW in Vietnam and he never set a date on when they were going to get the lead, but he knew in the end they would. And so this kind of goes down to that. And it's. You got to retain faith that what you know is the end game for your shop or your dealership or whatever is the end game. And you can't let, you can't let that little stuff fire in a tech word about not having techs for, for two weeks or whatever. You can't let that blind you from what the long term game is. And the long term game, in my opinion, is to build a shop that's going to be great, that's going to take care of my cars, will take care of my customers, and take care of outside work and really produce good income for me. So we can't focus on these today problems because we'll never achieve the greatest if we worry about a tech being a drama queen. Because if he's too much of a drama queen, then we need to find new tech. It's just the way it's going to be.

Yeah, they took a lot. Don't let, don't let greatness be held hostage by mediocrity.

You know, 100%. I've been doing it.

He shows up on time. He doesn't steal anything.

You know, I've been doing it way too long. And if he doesn't show up on time, he is stealing. He's stealing your labor hours. Because remember, our inventory. Our inventory in the shop is not cars. It's hours that can be turned. And if they're not there, that's stealing money from you.

Yeah. So, Luke, let's move on. Chapter five, the hedgehog concept. What does that mean?

So one thing when he's talking about these great companies is that he compared foxes to hedgehogs. You know, and foxes are just. They're trying to be, you know, cunning and they're trying to be sly. They're doing all this and the hedgehog is just plowing along, right? And what he. What he found out is these great companies were just hedgehogs. They found the things they were good at and they kept doing it. They weren't worried about the shiny things. They weren't hopping all over the place like, you know, like a fox. They weren't trying to get over on somebody. They were just. They did what they did great. They figured out what they did great, and they just kept going forward like they should. And so I think, you know, that is. That's the hedgehog concept that we have to. You know, don't get me wrong, buy here, pay here is not the most glamorous thing in the world, is it, Jeff?

No. No, it's not.

It's not. But guess what? We can make a lot of money doing things the right way and just plowing along, and we got to be little hedgehogs.

So for the rest of the book, he also. He uses that reference a lot, you know, your hedgehog. And he also references the three circles, which is the really kind of the largest crux of this whole book, right? Where he identifies those three circles. We're going to get into what those three circles are, but real quick, just to tell you guys, obviously, you know, Buckeye Dealership Consulting is a sponsor of the podcast. Great guys over there. Great company to go to for your reinsurance. We all know we need to have a reinsurance company set up. We pound this every single week. It is the largest wealth builder and tax deferred tax.

Vehicle that we can.

Use to set aside money for our dealerships.

And it really should be part of your three circles. You know what I mean? It's like, it's such a core concept of a buy here, pay here store, and A retail store, anybody in a car business. Having reinsurance is such a core concept because if you don't have it, you're giving away money to vendors that you don't need to give the money away to, and you're giving more money away to the federal government that you don't really need to be giving away. So use reinsurance as part of your hedgehog concept.

Yeah, super easy, no brainer. The money's going somewhere. So why buy a third party company? Why not pay your own company, Keep that money in your pocket, administer your own claims, make your own insurance coverages for your products and your liabilities. Don't give that money out. Keep it in house. Exactly. Luke, what are the three circles?

So, you know, we have to look at what, you know, what we're good at, right? What we're great at, not what we're good at. And we want to take the three concepts that make up that and create our three circles. So number one, what can you be the best in the world at? And some of us may go, I don't know if I can be best in the world at anything. Well, you got to be very specific on that. Okay, what drives revenue profit per x? And then what are we deeply passionate about? The last one might be the hardest thing here, right?

Yeah.

So let's start at number one. And you know, I kind of, I was thinking about this. What, what can I be the best in the world at? And there's plenty of people out there that are in the buy here, pay here industry. And kept thinking, I kept thinking, well, you know, the way I can decide what I can be best at is I can go, okay, I can be best at such and such ACV doing buy here, pay here in my area. And so that's the way I looked at it. Maybe somebody else can look at it differently. But I think that was kind of my way of saying, okay, this is what I can be the best in the world at. How about you, Jeff?

Yeah, you know, I kind of battle these three all the time. It's probably the same or similar concept to me. I can be the best at. I don't know if it's too broad, but saying, you know, providing affordable, reliable transportation, right. Being a transportation solution for those with less than those with damaged credit in my geographic region, within a 50 mile radius of my store, you know, or I can be the best at providing a world class car purchasing experience. You know, I think, I think those are concepts you can or those are goals or kind of like ideals, you can shoot for best is kind of an interesting word because that's so subjective, but.

Well, it's subjective, but it's not. If I, if I can't, if I know that I'm the best at, and I believe we are the best at a certain ACV buy here pay here in my, you know, probably 200, 150 mile radius. I know that we are. Well, I believe we are, let's put it that way.

So we take the circle of what we can be best at and then we take the circle of what drives revenue.

So you know, in my business, what drives revenue is payments, right? I mean really and truly in the buyer pay here space. Payments drive it in the retail space. It's car sales, our back end product or you know, whatever it is. But that's what drives your revenue. And you've got to make sure that you're building to that. I think looking at how many cars you sell in the buy here pay here space is a terrible, terrible way to look at or how much front end profit per car. It's not what you need to look at. What you need to look at is how many people can I get paying me X amount of money per month? Because that's where your revenue is. Selling a car is not revenue. That's $1,000 down. It creates revenue on the other side. So you got to really dig into the weeds and figure out what does drive that cash flow.

And I think when you say that you mean, or at least my head goes to collectible revenue. So if you are a buy here pay here store, you're saying, okay, yeah, I could put a ton of money on the books or I could say I sold a ton of cars, but either A, I don't have any gross profit in them or B, I have too much gross profit and I'm never going to actually collect that money. So really, cash collections and a return on street money or a return on investment is going to be the ultimate factor of okay, if I'm going to put 10 grand on the street after cost of car, tax, title, license, everything, how quickly can I get that money back? What is my velocity of return on my money? Whereas if you're a retail dealer now, you're just talking about gross profit front and back and how often can I flip my inventory, right? If I have a half million in inventory, how quickly can I turn that with an average of, you know, 3,000 front and back or something?

Yeah, I think that's the way to look at it. Two different models, but in the End, I think to make sure you put quality cars on the street, generates that great revenue on the back end. Not just thinking about, am I going to get a payment next month? No, I want 48 payments from this customer. And the more times you do that, the better you are.

And for me, I dig in even further and I say, okay, does Jim really mean to dissect that even further to say, hey, what really makes up my revenue or my profit per car is when I sell a 2014-2017 Ford Focus or Ford Fiesta or a truck, whatever my model is, I know that that's my maximum front end gross. It's my most collectible note. So I'm going to stop dabbling in Volkswagens and I'm going to stop dabbling in Audis and I'm not going to buy, you know, four wheel drive Wranglers because they don't fit my model and they're not the most profitable units to either be selling and, or putting on the books.

Go back to circle one. What can you be in the best in the world at? That's what matters. I can be the best in the world at selling $10,000 ACV Honda Accords or, you know, sedans or maybe, you know, $14,000 crew cab trucks. Because I know there's, I know that 2 section performs best for me and has the least problems.

Okay. Yes.

And the least issues.

Yeah. And so it hits both those circles for you. It's world class. You have the most profit. Yeah. I mean I could be world class if I had a car lot full of sevy traverses and equinoxes. I could sell them all day, every day. But they're not the best profit makers for me. So they don't fit that second circle. So moving on to the third circle, what are you deeply passionate about? That's a tough one.

I'm not deeply passionate about Buy Here, pay Here anymore. You kind of burn out over the years. So, you know, so it's.

So can you change your passion then? I mean, not to change it out of your core competency, but to say, hey, I'm not passionate about the money that Buy here pay here makes me. Or maybe I'm not passionate about what the first, you know, the initial reason I got into Buy Here pay here, but now I'm becoming passionate because I see it change people's lives or I see these people that graduate out of my program onto a credit union or I see, you know, that, that mom that no one would give a chance to now she's Getting to work. Like, how do you find passion in the used car business, whether you're retail or buyer payer?

Yeah, I mean, I think giving some money away, you know, that could probably create passion. So any ways that you can use the revenue you make to give to others is probably a good way to look at passion.

Okay. So if you use it, if you say, hey, my passion for the buy here, pay here industry is not necessarily my day to day of selling cars, but it's the ability it gives me to be charitable or the ability it gives me to be a good person that's interesting.

Yeah, I think that's the way I look at it.

Okay, so we're going to talk a lot more about the three circles in our next session and pretty much throughout the rest of the book. But anything else you want to touch on that?

No, I think, you know, just understand where you. What you need to be best at and don't confuse competency with what you're great at. Just be a hedgehog. Keep going.

The hedgehog. The three circles. Guys, we're going to touch on that a lot more, but let's move on to chapter six, A culture of discipline. Build a culture around freedom and responsibility within a framework.

Yeah, so I was talking about the sucky culture I had in my shop. We're redoing that. And I think a lot of you, if you're going to be really honest with yourself about your business, it's very possible. You have a culture problem and you got to fix it. Because if you have a culture problem, your employees are going to see it, your customers are going to see it, and you're never going to be great at anything. Yeah.

How do you know you have a culture problem and not just human nature is what it is.

You got to be able to listen, you got to. And you've got to be able to understand when somebody, when an employee is criticizing you or you find yourself talking about somebody, then there's a problem and you gotta identify it and you gotta stop it right then.

Yeah. So I've said this many, many times to my team is I have a zero gossip policy. Zero gossip. Like if you have a problem with a tech or if you have a problem with a service writer, you have a problem with a manager, you talk to him about it. What you don't do is talk to another tech and complain about your service writer. Right, yeah, just zero gossip policy. I don't tolerate it. I won't stand for it. It's a bad apple. It fe. It creates discontent. If you really have an issue with them, talk to them, address it, figure it out. If it can't be addressed or figure it out, then one of you has got to be reassigned or leave. Right?

Yep.

Be happy where you work and if you're not happy, then let me find you a business where you will be happy. I'll give you a reference, I'll send you to one of my friends dealerships, whatever we got to do. But you can't be here and be unhappy.

Yeah, I totally agree. And you know, part of that culture issue is that we didn't build a good system to start with. Right. And that our processes don't work or we don't follow them or whatever. And if you can't build a good process that your staff can follow, they don't know what they're doing, it creates issues where they're just sitting around or they're incompetent or whatever. So we got to make sure that we have the processes, we train the process and we hire people that are competent enough to run those processes. And if they're not, we've got to move on. But if, you know, if it is the right person in our dealership, just the wrong process for them, let's find the right process for them and something else.

Yeah. And we're going to reread this line many times, but build a system, then hire great people that don't need to be managed, just manage the system, system that you built.

That's it. It's so, so, so important.

Yeah. So that's what I find is interesting. If you've thought through your system, your processes, how you want your shop run, how you want your cars intake, how you want them inspected, how you want them repaired and verified and sent back to the front line. If you have a system for that, then you train that system, hire those people, train them and hold them accountable to it. Right. And what happens when you feel like people keep trying to short circuit or circumvent your system?

Either you keep training on that system and tell them they cannot deviate from that system. If you do deviate, I'm writing you up. And if I write you up three times because you deviated from this system, you are no longer employed at this business. That's simple.

Yeah. It's similar to traffic laws. There's speeding laws, there's stop signs, there's yield on left, you have to obey them. That is the rule of the road. If not, you get in an accident, you go to jail, you get ticketed, you get Your driver's license yanked. No difference in our dealership. Right. We set up the rules of the road here in our dealership, and we can be open and flexible. And if we think the inspection needs to come after the parts ordering or vice versa. Great, guys, let's sit down, let's revisit the system, and let's revisit chart it. But what I can't do is have you just going rogue and deciding that you're going to order the parts before the inspection and throw everybody off.

And you can't do that as an owner either. So you got to make sure that there's a process in place. You have to follow the process.

That's such a huge issue. Yep. Dealers, owners think they can just come in and harpoon the sales process, and all of a sudden they're taking a guy straight out to look at cars. Wait, you're not even following your own process. You know, just because you're the owner, you think you can bring someone in here and jump around the sales process and not go down the path to the sale. That's going to send the wrong signal to your salesman 100% all the time. So what's a stop doing list, Luke? Let's wrap it up with that. What is a stop doing list?

Anything that you currently. You know, everybody wants to do a to do list, Right. And we work that to do list. Well, what you should also do is have a stop doing list because there are things in your dealership that you are currently doing, like things out of outside of the process. You know, ordering tires for a car before you buy it. All these type things that you should not be doing. That I did this past week just thought about that. You got to stop doing it. You got to stop not following the processes. You got to stop talking about one employee to another employee. Right, Jay? Jeff. I called you Jake. That's weird. That might have been a Freudian slip on something. Anybody. Anyway, you just got to stop doing certain things and make a list and follow that stop doing list. Because I think in the end you'll have a better business if you do that and you follow it because you're going to follow the processes. Yeah.

That's so great, Luke. I don't have anything else to add to that. A great summary, and I hope everyone took three to four things away from this conversation that they can start putting into their dealership. If nothing else, it is build a system, guys. Build out a system. Put it in a Google Doc, put it in a word, put it on a piece of paper. I use a software system called Trainual that's been really good. I don't use it as much as I should, but it is, it is a process and policies building system. So find one and just get started on it today, whatever it is.

So important. So important.

Awesome, Kate. Talk to you guys next week.

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