#29 - Eric Freeman - Scaling Your Dealership

All right, guys and girls, it's another episode of the Independent Dealer podcast. Today we have one of my best friends, Eric Freeman from Freedom Motor from Freeman Motor Company out in Oregon. Jeff, what we got today, Eric is going to just.

He's going to blow your mind today. Be sure you're sitting down, you're focused, you've got your pen and your paper in here. He's going to talk to us about scaling 101, when to scale, when to even look out at a second location. Why would you need a second location? He gives us insight into that. He talks about how training is a crucial prerequisite to even thinking about a second or third location. And then if you are ready to go, what you need to be prepared for, some of the pitfalls, some of the calculations and projections that you need to have. And then you just really got to ask yourself, am I ready? You know, am I ready to take on this project? I think a lot of dealers look at that. They all think that it's fun to have their name on another sign or a second location or a third location. It's very tempting. But Eric's gonna lay it out for us. Right, Eric?

You bet.

Well, this guy. Guys and girls, you better get ready because this is just a lot of stuff. Write it down, listen to it twice. Welcome to the Independent Dealer podcast, the.

Podcast for auto dealers to learn and grow together. Here are your hosts and Luke Godwin and Jeff Watson. Yeah, Eric, so tell us a little bit about scaling. I think a lot of our dealers, you know, they're asking themselves, when do I open a second location? Do I open a second location? Is it smart? Is it not? Tell us a little bit about your experience going from, you know, starting to. I think you're at three stores now, correct?

Yeah, we have three stores. We have two in Portland, one on the west side, one on the east side, and then we have one in Salem, which is an hour south. So I think the first question that I would think about at this point in time is, as an owner, does my current store need me on a daily basis? So, in other words, am I a cog in the wheel, or am I merely just a spoke doing some part of what my store requires each day? And so, you know, in further investigation, what we find is a lot of people, a lot of owners are working in their business and not necessarily on their business. And if that is the fact you are not ready to open a second store, that's huge.

So, Eric, that is so interesting. So right now, I know that I Don't need to open a second store. But could you go back to your first try at this with the Bend store and kind of tell us what happened there? I know you mentioned that it was a good ways away. Do you see a correlation in distance from your original location to the next location being a real hurdle?

Yeah, absolutely. I mean, we made it doubly challenging on ourselves in the first go around back in 2004, when we added a second store three hours away, we put newer employees on our newest opportunity, which was that Bend store. And unfortunately, we've got new demographic, new location, trying to figure out what kind of inventory would work well, and then we've got newer employees. And so you just. There's just way too much new. There's no foundation. And so ultimately, two years later, we're going, oh, wow, something's starting to go right. And of course, we all know what happened in 08. And so we ended up shutting that store down in the downturn.

So how long was that store open, Eric?

The store was open about two and a half years.

When did you. When did you notice, you know, how long did it take you to figure out that. That it wasn't right? I mean, was it a feeling like the second month in or. Or how did you know when it was. How'd you know when something wasn't right?

Well, I think looking at the numbers was our biggest, you know, telltale that things were not going well. And one of the great lessons of that adventure was that we have to go in and look at a market before we even step foot thinking about that being a potential location. So, in other words, you know, I'm doing business in Portland, Oregon. I've got millions of people here. I can do business because inevitably there are people always every day ready to buy a car. We went into Bend, Oregon, which is a very small town. And so you have a demographic now that we know, now that we've been there, we know, but we have a demographic that either has the money to buy a new vehicle, and Bend was well represented with both a Mercedes dealer, a BMW dealer, a Porsche dealer, or you have the flip side, which is you have working people who are really serving the other side of the demographic. And so there was not a lot of middle class, which is really what we serve. We serve in our business a group of people that want to drive a great car at a reduced cost. And so that demographic didn't exist in bending at that time. So we did not do our due diligence, and therefore we failed.

That's so, so interesting about the, the demographics. And if you don't know what you're getting into, you know, our model may not, may not exist in that market. That's, you know, that's definitely something that, that we should all have on the, on the forefront. But I don't even think about it. I just go, hey, well, my, my model is going to work, right?

Yeah, Optimism, which is beautiful. I love optimism. But optimism needs to be supported by wisdom, by thoughtful process of is this going to work for me? So, you know, based on that set of clear expectations and a roadmap to where I want my store to go, I was thinking when you shot me this topic about why do I need a second store? Why? And the thought process, I came up with a few reasonings that might make sense to those people out there listening. One is I want an additional brand. I want to carry something that I don't particularly carry in the market I'm currently in. So that might be a reason I might, might want to service a different location that I know has the potential to produce, you know, units and be very serviceable from a location standpoint from where I am right now. So for instance, our store in Salem right Now is a 40 minute drive for me. Just perfect amount of time to listen to a great podcast, right, and get there. And I'm energized and I'm ready to go. So I love that. But it's not three hours away like Ben was number three. It offers additional positions in the company for some current employees that are ready to move up. And this was one of our large motivations. We opened up Salem, we had people that we knew had potential beyond where their positions were, but we didn't have anywhere to put them. And that's okay. You know, you have to make a choice to go, I'm ready to launch these people and let them go. Which is, you know, which is a fine choice too for us. We said we want to retain these people, so what does that look like? So for us, it looked like, hey, let's look at what opening the second location would do. And so that offered additional positions where we could move people up. So that might be an idea for people.

Really interesting thought, Eric. It makes me think like, if you've got key employees and they're growing to the point where it's almost like this guy's either going to spin off and open his own store because he knows and can do the whole operation, start to finish, or I can give him this place to grow and provide him with his own lot that's still under my name, but maybe he goes from being the sales manager to the GM or the VP or whatever it is. That kind of what you did there.

Absolutely. Yep. You bet. And so we. There was a lot of positions that opened up, and so it's exciting to watch now as Marshall begins to train people, moving up in all of those positions to see these people just blossom right now.

You didn't do that out of ego. You didn't do it because you wanted your name on a second store or a third store.

Yeah, no. You had very little.

Grow them or lose them, you know?

Yeah, yeah, yeah. Absolutely, Jeff. I mean, the reality of it is, you know, anybody. Any man who has a good wife behind them, they're probably asking why or really? And so obviously Jenny was asking me that question. But this was for Marshall, for Kara and I, this was a. This was a move for employee growth.

From.

For me personally, I'm into real estate. And another option for a store can be a real estate move, where a store is supporting a piece of real estate that eventually will become, you know, piece of real estate for retirement income. So that might be a move. And then my last thought is, I don't need a second store, and I'm crazy and neglecting for punishment, so that could very, very well be it too. But going back to the first point, the question is, as an owner, can I handle this kind of pressure?

Eric, that's. I know how your. How your training goes there and how Marshall's involved in that. Can you expand on the importance? I mean, you talked about the reason you. One of the reason you expanded was because you had such great people. I think so many people don't think about that when they jump into a new store. They, you know, they just figure they can replicate it.

Can you.

Can you talk about the need to be maybe overstaffed and to develop those people with great training internally or, you know, if you're. If you're training outside to really, really the, I guess the need to train like y' all do and how vital that is to your business?

Training is absolutely an essential. At Freedom Motor Company, we all tend to take the path of least resistance. And it's human nature. It's not wrong. It's just human nature. And so when we take the numbers each week and we look at phone ups, we listen to phone call interactions, we look at fresh ups, we look at test drives to desk, you know, we look at all the metrics that we're tracking, it is very Easy to see what numbers are lacking. And so rather than base our training on a feeling, we're looking at the numbers first and then we're taking those numbers and going, you know, what we need to train on. Test drive to the desk. So we know we have a problem at the end of the test drive where we're asking for the sale, where we're asking them to pull up to the sold line, there's something going on there where we're not getting enough. Yes questions in. So, you know, we gear training towards that. That's in sales, of course. F and I, you know, same deal. Are we offering every item to every person every time, you know, service, are we having comebacks or are we fixing the vehicle right the first time? So every department, we can look at the metrics and go, where this week are we failing and how do we train on that? And I think based on how I grew up, we can sometimes look at training as, oh, you must think I'm failing. Training has nothing to do with failing. But every. Just getting a little bit better and a little bit better until these trainings become muscle memory.

That's so interesting. You bring up that point of metrics. I think a lot of entrepreneurs, not a lot, but probably a majority of us, go on gut feeling, and I think that's so wrong. You can have a gut feeling, but you've got to make sure that the metrics say what they say. And, you know, one thing I've learned from, from you and Marshall, for sure, I mean, I've learned many things, but, you know, how many ups did you have? How are you tracking? What are you doing? You know, but I've not thought past the point of, of making sure that I look at those numbers every week. I'm tracking them. Right. But am I looking at those numbers to do my training? And I'm not. So I'm glad you brought it up. It's. That's so, so interesting. And that's the way I'm gonna start basing my training, I guess.

Yeah. And what do you. I mean, why would you want to open a second location or a third location when all you're doing is just, you're just amplifying the current issue. Right? Because you're going to take this flaw in your system or your training or your employees or your demos or whatever it is, and all you're going to do is duplicate that. And now you've got two problems, you know, because you didn't, you didn't have it right in your home store. You know? Yeah, absolutely.

Eric, when you moved, when you opened this store in Salem, I guess that was about a year ago now, or maybe not even quite a year ago, I guess. How did you move your employees? Did you decide, hey, these people are going to Salem? These are the people we've identified for general manager position. Can you kind of expand on how exactly you did that?

Yeah, so that's a great question. I think I want to back up for a second and talk about, can I afford even that second store? And then if I can't afford it, how am I going to put the right employees in the right positions in this store? So some key lessons that we have learned and learned the hard way, Unfortunately, I want to be really vulnerable here in the fact that we made some mistakes as we went out and built this Salem store. Can I afford a second store? So the question is, as I go out and procure this second location, what are the items that I need to think about that are potential costs in opening that second location? So as I look at that cost, will I be using savings money that I've got set aside for a project like this, or am I going to dig into my working capital? And so we made the mistake of using a good chunk of working capital and thoughts that we were going to get some of it back at the end of a loan process. And so that didn't work out. I want to encourage you. Use savings, don't use working capital, and put yourself in a difficult position. So extra cash is always needed for building expenses and its contingencies. And I remember in the old days, you know, we. Jeff, you can probably identify with this. And Luke, you too, have. Having built places, we used to talk about a 10% contingency. I don't think that really is wise these days. A minimum of 20 and maybe even 25% contingency. When we're talking about going out and renovating and building this second location next, the holding costs for inventory. One of the things that we really didn't think well through is, hey, we're gonna buy inventory because we want to open up. And for us, it was July. Sorry, January 7th. So at what point do you begin buying, shipping, reconing, and detailing inventory to begin advertising? So you're open with inventory on day one. Well, that takes a lot of upfront cash to make all that happen for day one. So do I have the capital to make sure that inventory is set to go on day one? One of the biggest ones that I want to move into, Luke, is where you were asking about employees. So we grossly underestimated the amount of capital would take to find, hire, and train employees to open this second store. Now, we had talked about some of our failures in Bend and those failures were very fresh in our mind, even though that was a decade ago. How were we going to staff this store and be successful from the start? Well, we knew that we needed to hire employees who we could put into key positions in the Portland store and duplicate positions while training. So we had a minimum of 90 days training for these, a lot of these new employees because we wanted to make sure these employees that were coming into the Portland store, which is our flagship store, were going to succeed. I mean, the last thing you want to do is open a new store, put your best employees on that new opportunity, and then see your mothership sink. So we had to make sure we had put time, energy into these people and making sure they were going to happen. I mean, shoot, the first 30, 60 days we're dating, right? I mean, you don't know if this employee is really going to work out. And so we needed to make sure that we were set to go. So what does that mean? I've got a whole bunch of payroll that's going on with non producers. These people were non producers. They couldn't be producers. I mean, they were in training. So a lot of capital needs to be set aside, or I shouldn't say a lot. A very calculated amount of capital needs to be set aside for a minimum of 90 days training for staff that is going to go into that second store, additional store, and then last was there. We have to be real with ourselves in the fact that this store is probably not going to open and be profitable in the first month, maybe even the second month. I mean, we think about the average business that goes into business. How long does it take to be profitable? And so I think being realistic is we need to calculate six months to a year before we see a second store turning a consistent profit. So that's going to take capital from your original store while your second location gets up and going. Hey, at least, at least you get.

A little tax break during that time. Right?

Now that is a very positive twist, Luke. Yes, absolutely. You can definitely figure out a tax break upon opening that second store.

Eric, I tell you that just the sheer cost of what you just described is huge. I mean, cash wise, let's just use. Let's use an easy number. If my overhead at my current store, let's just say it's $100,000 a month and I'm wanting to open a second store. And for 90 days. How much of that, you know, how much extra on top of my normal $100,000. Do you believe it's going to cost me in real numbers?

Well, for 90 days.

Yeah. I mean, what's it, what's the, what's the number?

I don't know if I have that number off the top of my head. I think we are honestly still calculating kind of where we are. We're in July now and we opened in January. And I would, I'm going to guess that the, you know, every store is going to be different. Our build out alone, not the buying of a property or that stuff, but just the build out of the property was a million dollars in cash. And then the employees and training and inventory, we're looking at another half a million dollars right there in cash.

50 to 75% of our normal, additional 50 to 75% of our normal overhead, wouldn't you think?

Yeah, absolutely. Because there are definitely going to be things that you're going to save with a second location in departments that you may not need to duplicate, say, titles.

Or.

You may not even locate a shop because you think your current shop can produce the amount of inventory that you need for a second location. But therein lies another question that we need to identify. Who is going to buy the extra inventory. And as an owner, a lot of us owners buy our inventory, right? So the question is, can I handle the extra amount of time required to buy good inventory and setting up my second store for success? The second thing is, who's shipping this inventory? Who is going to go through this inventory? Can my shop handle the extra pressure? And sometimes they can for, you know, a few weeks. But you start to put pressure on a shop that's used to producing X and then all of a sudden they need to produce Y too. So you start to see a breakdown and you start to see people that you thought could handle coming to you going, hey man, I'm working these extra hours and I don't know if I can do this or how much more are you paying me to handle this second store? And so be ready for some salary paycheck type questions. And those always get deferred to Marshall.

Hey, Eric, one thing I want, I want to ask one quick question that I thought when you brought up about the, you know, the five things that came to mind. Is there a scenario would, where you would recommend to a nut, you know, to another dealer that you would open a second location without a real estate plate and without Investing in the real estate. Does that make sense or yeah, going, does that make sense?

I'm sure it probably does. It wasn't our scenario, but I believe if somebody has a turnkey business with clear expectations where an owner is not the cog in that business reproducing its as we see many franchises doing, I don't see why it couldn't. You know, the question is how good of a lease can I procure? And if I can procure a great lease and a good location. What? Yeah, why not? I mean I just look at it long term, you know, why not pay, why not pay a loan off while I'm doing business and have a piece of property at the end?

Yeah, that's a long term play for sure. So Eric, help me help us know is a dealership, maybe give us some of those key indicators that we are ready to scale. You know, what can I see in my day to day operation that says, yeah man, I'm hitting these metrics like my inventory turn is good. You know, my shop is turning out X amount of units and has time to turn out X more. Or like you said, I'm an owner, that's not really a crucial piece. I mean, maybe give us a help on what are some of those little bullet points or checkboxes that we need to hit at our dealership that might even give us the idea like oh yeah, maybe I should look elsewhere.

Very good question.

Yeah, I think first of all, identifying like you were saying, Jeff, is my business running at a very efficient rate? My turn is good, my cash flow is good. And then I mean that going back to that crucial point, do I have people in the business that I could train up into positions above where they're working right now? If you are running at, you know, efficiency and you don't have maybe extra employees that are ready to move up, who is going to fill those positions? So at that point I would say you're probably not ready. And so carrying an additional, let's just say 10% of potential employees who can move up is a cost factor. And so maybe let's say that your store is running efficiently, turns good, money's good, and you do have, you know, 10 plus percent of employees that you're going, man, I wish I had a place to put these people. They're so amazing. Then those are some key. Points, key indicators that I might be ready to open a store. But then I mean I always go back to the fact that do I, do I have the energy? Do I want to, you know, double My workload double. Double what I've got going on.

Yeah. And then I think, you know, am I willing to travel the 30 or minutes or an hour to this second location daily? You know, you can't just hire someone that's local, stick them in there and show up once a week. Right. I mean, you need a. Your guy has got to be either relocating to this town, committed to being there daily, right?

Yeah. So one of the reasons that people ask us, why were you drawn to Salem? Well, we had 11 employees commuting an hour up to Portland store each day, so it made sense to go towards Salem. And then, you know, started to fall in place. We found the right property. We already had employees there. Marshall and Kara, you know, lived in that vicinity. So it was very natural for us to pick that location.

One thing I did when I was looking at, we have a neighboring county, and my CRM tells me that we get a lot of leads from that county. Right. It's about 45 minutes away. One thing I did, you know, in addition to that being kind of a telltale, they're like, hey, there's a need for this in this area because the amount of leads we're getting from that county. I also got on the DMV rolls and saw that the amount of cars being sold in the county are way lower than the amount of cars that are being bought by residents of the county. So there's actually a deficiency in that area where people are going outside of their location to find vehicles.

Did you see that, Eric?

Yeah, Jeff. That's why they pay you the big money, Jeff. See, this guy's smart. Absolutely.

No, but that tells me that there's a need that these people are going outside of their town to find cars. And so that's been an indicator for me. Obviously, I haven't pulled the trigger yet. And seriously, talking to you, Eric, I see that there's about 10 more checkboxes that I need to get done before I should even look up there. You know, but. But to your point of scalability, you know, I always thought, well, it's super easy. I mean, I can get a lease. I've got the dms, I've got my CRM, all my phones are Internet based. All I really need is I got to turn on the power, hang up a sign and get Internet and I'm up and running. You know, and that's just a super simplified, way too, too simple of a, of a look at it. Like, I never, I didn't dig into the numbers. I haven't Looked at my carrying costs, I don't mean my shop can't do an extra 20 or 30 cars a month. Just we're not even getting done what we need to now. So it's crazy.

Hey, one, one quick last question, Eric, that are that I, you know, I think people may, may look at this and this might be an indicator to some people. But I want to know if it was an indicator to you.

If.

If all of a sudden I say if I identify that my, like let's say at my dealership, if I sell, if I'm selling 50 cars a month and I think that's the number. So did you have a number in mind that said, hey, if the Portland store is selling X amount of cars, that's when we're gonna open a second location. Does that ever come to your mind? Is that something we should look at or is it all the other factors, not necessarily the amount of cars you're selling per month?

That's a great question, Luke. We did a two year projection for the new store and we wanted to be really realistic about where we're going to start with and where we're going to move each month. The bar. And we're six months of records in right now. And I'm gonna just give credit to Marshall. That guy's a great projector of numbers. I mean, he's really spot on. But you know, we grew from 17 to then over 20 and then we started creeping up and then we had one month where we dropped back a little bit. So we identified, okay, number of salesmen needed to be adjusted because we were looking at the metrics of how each one could produce. And then we began to hit 50 cars. And we're kind of right there right now figuring out, okay, how do we bump 50 to 60? So looking at the numbers, we do have a goal hitting 85 cars. But we realize that that's probably going to be a year into the project. It's a year into opening the store and building the clientele, building trust in the community and creating a place that people know that that's Freeman Motor Company, that's the place to go and so it doesn't happen overnight. Does that answer your question?

I think my question was, is, did you have a number in mind at the Portland store that hey, once we consistently hit this number, should open another store? Should that even be an indicator or is it processes that lead to that?

Okay, yeah. You know, it's interesting. Years ago when we opened up the Portland store and moved, moved into that store, so we closed another location down and moved into that new store. When we built it, Marshall said this store will produce 75 cars. I think that's just what it'll produce. The store can hold 108 cars indoors. And we felt like 75ish was what it was going to produce. Now we trend right somewhere in the 82, 83 car per month deal. But at that point when we were hitting those numbers of efficiency, that was a factor going, okay, we're hitting our numbers here. In order to get over that hump, we're going to have to add a second location. We could, we personally, we couldn't figure out how to get that store over a hundred with the, the amount of room. We're very, we're in the city, we're very cramped for room. So there just was no way to even expand the inventory at that particular store. So going to an alternative location, that did play a factor once we were consistently hitting those numbers.

Hey, so have you seen any drop in Portland sales now that the Salem store is open?

Great question. Wish you didn't ask it, but yeah. So we moved our beloved manager, Aaron, to the Salem store. He was very consistent. He managed our sales guys in a way that was just smart. I mean, that's when we think of Aaron, we think of smart. And so we promoted a sales woman, who we love into a management position. But anytime you promote, it takes time to build a manager. We did look outside of our company to hire a manager and came to the conclusion that our best resources were within. So when we promoted Ashley.

We were.

Quick to remember that there's a lot to learn in being a successful sales manager. We needed to be patient. Well, herein lies the issue, though, Luke. When you open a new store, naturally you're going to be drawn to that new store. You're going to be drawn to the newness and what's going on down there. And it's very easy to rationalize why you need to be there rather than at your original store. And so when we began to go, oh, whoa, we need to make sure we're spending adequate time with Ashley, our new sales manager. And so our numbers did drop. And was that Ashley's fault? Absolutely not. That was our lack of attention to making sure we were providing the tools for her to be successful. So when we got back in and noticed the numbers, we noticed those metrics and go, oh, stop, guys, stop. Owners, we need to go back in there and make sure we're giving her the attention she needs. The numbers went right back Up. So I guess the note is, as we begin to open a new store, planning, planning, planning out our weeks where we're getting adequate attention to our supervisors and. And the people that are managing our stores is really crucial.

That's so great. Your knowledge and your preparation for these new stores is incredible, Eric, and we appreciate your time. Jeff, you got anything else for Eric today?

No, I think that's so informative. I think everyone's gonna learn a ton. I hope you guys were taking notes. I mean, Eric, you could write a book on this that was just so informative. Things we don't think about. You know, you get big eyes, and like you said, we're kind of these entrepreneurs that think we can just touch anything and turn it to gold. And I think that's probably when you talk to experienced dealers who have gone into multiple locations, I would say 80% of them regret opening a second store or quickly shut their second store because they just. They didn't do the prep. And I think those that do the prep and have a game plan probably love their second and third locations.

I tell you, this is for everybody out there. If you're listening to this, you're going to probably need to listen to it twice, because what Eric just dropped on all of us. When it comes, if you ever think about opening a second store, I dare say you not do anything that he said you should do, because if you don't, you're going to probably have issues.

Well, doing our homework ahead of time can save a lot of heartache, not only for you as an owner, but for employees who, if we don't do our homework, we're putting them in very vulnerable positions, and really not just them, but their families. And so as business owners, we need to take a step up to the plate and make sure we're prepping and building a foundation for their success.

And, guys, if y' all don't know Eric like I know, but what he just said is so genuine. That guy cares about people so much, and he cares about compare, cares about this industry, cares about his employees, and cares about other dealers. Eric, thank you so much for coming on today.

Thank you, guys. I appreciate you. Jeff and Luke, this was really fun.

All right, buddy.

Great. Thanks, Eric. Take care, everyone. Appreciate you listening to the podcast. Rewind and listen to this again and listen to all of our other podcasts we've got on here. We appreciate your being a part of this, and be sure you subscribe and share this with your friends. Ra.