It took us five years to develop a high quality team of young superstar technicians.
That’s when I started to worry that they were being poached by other stores. I knew I had to do something to prevent this and, interestingly, I had started thinking about succession planning. None of my own children were interested in the body shop, so I knew that eventually someone outside the family would have to take over. I identified some key people at Parr and approached them about the opportunity to invest in the business.
I explained to them that the only reason I left a job was simply because I didn’t have an ownership position and my plan was to retire from the day-to-day business within the next five years. . At first they were suspicious, wondering what the catch was, but through regular communication and education, they became very excited about the opportunity. I explained that I was just worried about losing them in another store for a buck or two an hour and wanted to “kick their feet to the ground!”
In the meantime, I have been approached by a major consolidator with an offer to buy our business. It was like a pretty girl winking at you, and while I was intrigued, my commitment was to the young people who helped me build the business. So I declined any further discussion of the sale. I don’t judge anyone who has gone down this path, as many of these operators have built such a large business that only a consolidator can afford to buy them out.
To make it affordable for my teammates, I first sold them a total of 30% of the business. They each had to contribute their share of the cash price and in addition to their regular salary, they would receive dividends paid quarterly which, depending on the profitability of the business, would repay their bank loan. Within five years, they all owned their shares. With a 30% stake in the company, they had more than one financial institution vying for the opportunity to buy the rest of the company’s stock with no money down!
Interestingly, they asked me to keep 10% of the shares, saying that they wanted to ground me as a “consultant”. So far they have never really asked me for serious advice and are doing great!
Another major step we took in response to the desire to keep our full-time employees motivated was to introduce ‘open book management’. In the late 1990s, I read a book called The Great Game of Business by Jack Stack. He explained how he took over a decommissioned International Harvester factory with very little money and turned it into a world-class business entity by sharing the company’s finances with every employee.
Eventually, Jack and his team created a spin-off company called The Great Game of Business where they help companies develop an open-book management program that educates and informs employees to think about your business the same way as a than owner. When we had the right culture in place in Parr, I talked to my wife and Chelsea Stebner about driving to Great Game’s headquarters in Missouri and attending an introductory workshop. We came away from this event very enthusiastic about the idea of embarking on this unique commercial adventure. Then we invited the people from Great Game to come to Saskatoon and present the concept to our staff. I still remember those introductory meetings, especially when we asked our employees how much money a body shop should make after all expenses are paid. One of our team members suggested that we should make 30% profit! It was interesting to see the response when we put together an annual budget based on the previous year’s financials and only produced 6% net profit! It was clear to everyone in the room that we could and must do much better.
We started meeting weekly and focused on our critical number, which for our store was generated by hours. This measure was one that each employee could identify with, much like a contract employee. Our initial goal was to produce 1,200 hours per month. For some of our people, they felt that was too much of a stretch. As anyone who has done budgeting and goal setting knows, it didn’t take long for that threshold to be reached. From there, we continued to set higher goals and achieve them consistently. We set a goal for the first year to achieve a net profit of 7% for the store. Anything beyond that would be shared with all staff and paid quarterly. That first year, we paid out over $80,000 in bonuses. The following year we budgeted for eight percent and so on. I won’t exaggerate and tell you that every year we paid out big bonuses, but if we didn’t, everyone in the shop knew exactly why it didn’t happen. The key to the Great Game of Business is that we were able to engage all of our employees, not just the owners, in the spirit of improving productivity and profitability while sharing those benefits with the people who helped make them happen. .
I’ll be honest with you; we never got where we wanted to be, but luckily we weren’t where we were. We continued to develop a lean work environment. I wish I could tell you what the shortcut is to achieve this, but I haven’t found it yet. A good analogy would be like someone asking how to lose weight and get in shape without doing the hard work; There is no shortcut; it is simply hard work and relentless perseverance.