By Marc Spizzirri, GlassRatner
In the last year, GlassRatner has been on the front lines picking up the pieces of the many failed dealership groups out there. Many overextended themselves as they acquired additional franchises.
Either as a court appointed receiver, a CRO, or as a broker to facilitate the sale of assets, GlassRatner has played a role in salvaging whatever is possible from these troubled dealerships.
Although these failed businesses represent many different franchises in diverse geographic regions and varied economic marketplaces, there are compelling comparisons that should give each dealer pause. Each story merits attention, but they all generally follow the same arc with the protagonists reaching a similar grisly fate.
Hopefully, this summary will serve as a cautionary tale that will prevent others from meeting the same unpleasant fate. We will lay out the more common pitfalls and provide suggestions as to how to avoid them.
The most prevalent common denominator from each of the case studies that we have worked with this last year is poorly-executed growth. Each dealer was at one time very successful. As such, the temptations to add new dealerships and new locations became hard to resist. The decision-making process is driven by the basic tenets of greed and ego. If one dealership is good, two must be better, three great and so on.
It is common to make our decisions based on prior experiences and judgments. Combine this with a successful track record of logical and emotional business instincts that have proved reliable in the past, and we have the foundation for decision making.
Unfortunately, most organizations reach a saturation point of success after just a couple of dealerships, although it seems logical that if one experienced success once, they should be able to duplicate it. What became apparent in the groups we worked with was that with each new acquisition, there was more strain on the elements that were the foundation of the original success.
For the purposes of this discussion, we will assume that the dealer has completed a thorough evaluation of the financial resources needed for expansion and the financial viability of the new acquisition. We will limit our analysis to more subtle areas of inquiry.
There are important questions to consider prior to following through on expansion plans:
- Why were we successful in our first and/or current operations?
- Perform an honest review. Weigh location, manufacturer product and support, personnel resources, and financial resources into the analysis.
- It is not uncommon for dealers with one dealership to put a great deal of their time and energy into that one enterprise. It is unlikely that that dealer can be as attentive as new marquees and locations are added to the portfolio.
- Are the elements that led to this success still present in the new opportunity?
- Undoubtedly not all factors will be the same. Try to identify the differences and determine whether the scorecards still indicate success.
- How much of our current success depends on me or other key personnel?
- A common failure of many entrepreneurs is that they expect employees to share their zeal for the business and to possess similar competencies. Most don’t; if they did, the employees would be the dealers.
- Do we have the personnel assets to duplicate this success?
- To manage and sustain successful growth, an employee-centric culture is required. Do you trust your employees? Do they trust you? Growth requires trust.
- In each case we were engaged with this last year, there were allegations of employee theft. Whether true or not, the allegations alone led to the conclusion that the personnel assets were lacking prior to making the acquisition.
- Is our core operating ideology intact? Is it recognizable and shared by our employees?
- Do your employees know what you stand for and how you want your business run? Do they share and represent your values in the performance of their daily tasks? Growth requires collaboration.
- Can our business culture be duplicated in a new location with new employees?
- Growth will be impeded in a random culture. Regardless of what business you are building, the existing culture created in the workplace will determine how successful the business can be, and how it will be sustained.
- Sports teams are a great example of this. Some demonstrate teamwork with all working toward the same goals, and this creates an expectation to win. Others can never seem to get to the finish line.
- What five things do we do better than the dealership that we are buying?
- If you can identify them, can your team articulate a similar list?
- Will this acquisition lead to a change in lifestyle? Are we prepared for the change?
- With dealer success can comes dealer complacency. Successful enough to consider adding another dealership, but too successful i.e. comfortable to want to add the additional workload or responsibility. Consequently, if you are happy with your current lifestyle, why the need for growth?
Hopefully, this brief summary of our observations will give dealers looking for growth some things to consider before they rush into expansion. It is possible that manufacturers should incorporate some of these same questions into their approval matrix, instead of being a little too quick to reward the larger groups and public companies with new opportunities. It is our observation that the best formula for success involves a local dealer who is invested in the community and part of the fabric of the local marketplace
Marc Spizzirri is Senior Managing Director for GlassRatner Advisory & Capital Group, LLC (link), a specialty financial advisory services firm and wholly-owned subsidiary of B. Riley Financial, Inc. (NASDAQ: RILY). He can be reached at 949.922.1006 or MSpizzirri@glassratner.com.
