Implementing a Strategic Process With Randy O’Connor of MTD TEN

Episode 61

Randy O'Connor

MTD TEN

Randy O’Connor is the Executive Director of MTD TEN. He is a strategic specialist with a talent for analyzing and improving processes and procedures. Randy has held a variety of roles in the tire business, from retail to distribution. He maintains a long-range perspective and thrives when he’s in a position to handle a problem.

In this episode…

How are you preparing your tire and auto repair shop for 2023? In the past two years, we’ve seen record-breaking car counts, revenues, and units sold. Unfortunately, according to Randy O’Connor, Executive Director of MTD TEN, “not every independent takes the time to sit down this time of year and make sure they’re working through the system of business planning for 2023.” He continued, “if you don’t take the first steps forward, you’re never going to get there.” Randy says it’s time to meet with vendors and determine your biggest gaps and opportunities. Hear more of his perspective on this episode of Gain Traction!

On this episode of Gain Traction, Neal Maier welcomes Randy for a conversation about the best strategic business practices for managing a tire and auto repair shop. Randy emphasizes the importance of planning for 2023 a few months before it hits. He also talks about his primary KPI — mix of business — and how understanding it is key. Randy says focusing on gross profit dollars per invoice will allow you to determine if you need to change a behavior. Gain wisdom by hearing this informative episode!

Here’s a glimpse of what you’ll learn:

Randy O’Connor explains how he found his way into the tire industry
The importance of partnering with like-minded people to tackle bigger challenges
Why having a set process and procedure can lighten your workload
Randy talks about his plans for 2023 after the crazy past two years in the automotive industry
Why it’s important to decipher your strengths from your weaknesses
How a focus on gross profit dollars over percentage can motivate the right behaviors
Randy’s best piece of advice to shop owners looking to 2023

Resources mentioned in this episode:

Transcript

Announcer:

Welcome to the Gain Traction podcast, where we feature top automotive entrepreneurs and experts and share their inspiring stories. Now, let’s get started with the show.

Neal Maier:

Hi, this is Neil Maier. I’m the host of Gain Traction, where we talk with top automotive business leaders like Sally Thomas, of JP Thomas and Company and Marc Pons of Chapel Hill Tire, and many more about how they’ve overcome challenges and found success in the tire and repair business. Before we jump in with today’s guest, this episode is brought to you by Tread Partners. Tread Partners is the home of ReTread, our new customer re-engagement program. By using targeted digital ads and communications, we’ll help you win back your best-lost customers and even guarantee a 10X ROI. So what are you waiting for? Visit us at treadpartners.com. Today I’m joined by Randy O’Connor, who’s the executive director of MTD TEN, formally DSP 20 Group. Prior to MTD TEN, Randy’s held a variety of roles in the tire business, ranging from retail to distribution. Today, he’s also a frequent contributor to Modern Tire Dealer Magazine. Randy, welcome to Gain Traction.

Randy O’Connor:

Hey Neal, how are you? Thanks for having me.

Neal:

Thanks for joining us. Well, we’ll start with the great, big question. How’d you find your way into the tire industry?

Randy:

Oh, I’m accidental. It’s not that exciting. I’m completely accidental. I got my start back in the day in the Eastern North Carolina with Colony Tire and the Creighton Crew, Creighton [inaudible 00:01:42] Crew. And so, had a great group over there and ended up… When they got out of retail, I ended up moving over to ATD and Tire Pros. The fun part of all of this was being a really young guy in the industry. I was basically the stepchild within the North Carolina Tire Dealers Association board of Directors. I was 24 or 25-years-old and no disrespect to anybody on the board, but I mean, it’s by general rule, you’ve got to be at least 40. So at 25, the youngest on the board was 40. So I was surrounded by some super smart people, needless to say. And so, I learned pretty quick, had some success between Colony and ATD Tire Pros as a consultant and director, and then got involved with DSP 20 Group.

And so, the old Norm Gaither and Dennis [inaudible 00:02:35] Group, the peer-to-peer group that was built that continues to survive and thrive today was just a perfect fit for the way that I looked at business and some of the learnings that I had had over the years. And Dennis and I saw very eye-to-eye. And so by way of that, I ended up leaving because a big brand made me an offer I couldn’t refuse to fly from the right coast to the left coast and go help them. And so, as I often say, if you end up wanting to find a private equity to buy, you just hire me.

I don’t actually do anything with private equities, you just hire me and all of a sudden, you’re going to end up selling. Because I’ve been through 12 different merger and acquisitions. So anyway, big brand did really well, and they went with the [inaudible 00:03:19] crew that’s grown like crazy out there on the West Coast. And so, I got invited to come back to the 20 Group for a second spin. And so with MTD TEN, I am back in the peer-to-peer group and happy to say I have the best job in the industry. No offense to anybody else.

Neal:

Well, coming from retail especially, I have a real soft spot in my heart for the 20 Group process. I grew up on the auto repair side before jumping over to the tire dealer side, so I had kind of a similar experience in that. But obviously, you’re a huge believer, a huge proponent of the 20 Group process.

Randy:

Yeah, 20 Groups, I mean, we’re often on an island in the independent space. Again, having been part of so many mergers and acquisitions where there’s a lot of resources that kind of trickle down from other industries and you end up learning a lot from other people that gets carried along. As you’re an independent, those resources aren’t necessarily as readily available. And so, it makes perfect sense that you would partner up with like-minded folks to be able to tackle some of the biggest challenges that you have in the industry. For us, it’s financial, it’s executive discussion, best idea and any everything in between. And so, we lean on each other the best we can and we’re always there for each other and we see fantastic growth. And we also develop some relationships that you just can’t find elsewhere. It’s magical. Honestly.

Neal:

Some of my peers from my original 20 Group, and this would’ve been in the late ’90s, early 2000s, some of them, I work with them today. We continue… Those are lifelong relationships. And like you, I was on the real young end of getting to join that group and it really opened my eyes to see, holy cow, these guys are killing it and they’re not working as hard. Their process, their procedure, all is outlined. There are lots of things to be envious of. So talk a little bit about your process and, I mean, I know you’re a process and procedure guy, so…

Randy:

Yeah, you have me pegged guilty by association with process and procedure for sure. I don’t know if that’s because of being born in September and being a Virgo, or also because I’m a C in the DISC profile or an ENTJ, like you can bucket me very, very quickly and very easily. But yeah system, process and behavior is kind of the way that I like to think about a clean way to approach our industry. It’s not unlike a lot of others in the service industry. Matter of fact, I was out to dinner the other night here in Hendersonville, and we’ve got this local place that every single time you go, absolutely knocks it out of the ballpark with the best food. It’s cooked to the right temperature, the plates are absolutely clean, the place is busting at the seams constantly every time you go in and somehow they get it right.

And so, I mean, that’s not unlike basically what we need to do with our customers and the expectation. And so, there’s a system, a process and a behavior that eventually rolls up into that experience that we have with our customers. But taking it in bite size pieces isn’t often the way that we approach it. And so, a lot of what we talk about today in 20 Group, a little different than the way that it used to be, is taking those bite size pieces and figuring out how to formulate a plan in order to do it. Now, we’re all grounded in our financials, and that’s a big part of what we do, but those financials are fed by behaviors. And so, we try to figure out how to reverse engineer, if you will, from behavior back up to process, back up to system, in order to be able to feed the financial piece of the general ledger that you’re really trying to bridge the gap to, if that makes sense, Neal?

Neal:

Oh, absolutely. And speaking of financials and thinking about where we’ve all just come from. I’m sure your members are no different than our clients 2021, 2022, some pretty unreal years and have seen some record-busting car counts and revenues and units sold. How in the world do you think about 2023?

Randy:

You’re right about record-busting. It’s a great time to be in tires and auto service for sure. And while there might be a fair amount of trepidation with some of the things that are happening internationally, and even all politics aside, some of the things happening here in the 50, how do you think about 2023? You take it in bite size pieces and you break it down and you put it to paper. It’s one of those things that as I travel the country, I sadly come to find out that not every independent takes the time to sit down this time of year and make sure that they’re working through the system of business planning for 2023.

And so, taking it in bite size pieces and whatever general ledger or P&L or set of KPIs or benchmarks you’re using, you’ve got to be planning for 2023 and figuring out to the best of your ability, all things remaining the same, where you think you’re going to end up or where you want to end up. And you’ve got to figure out how to do it. And so, if you don’t take the first steps forward, you’re never going to get there. If you go back to what Lou Holtz said it right from Notre Dame, if you’re not growing, you’re dying. So it’s time to start planning for 2023 and having all those meetings with your vendors and figuring out where your biggest gaps and opportunities are. And then seeing if you got the process there to be able to change the behavior.

Neal:

That makes total sense. And I think 2023 has the opportunity of being one of the first years in quite a while where you may not be able to base it on 2022. I’ve got a feeling that things are going to be different. We’re going to have to work a whole lot harder to see some of those growth numbers in the coming year. So if there’s a potential downturn, right? If we’re facing certainly economic uncertainty, how do you base those projections? You can’t just take 2022’s numbers, add 10% and be happy with that.

Randy:

No, you certainly can’t, but 2023, much like 2022, much like 2021, I don’t know that you could benchmark against year prior. In any one of those years, a lot of us had been looking back to 2019, 2018, 2017, taking a rolling two or a rolling 12 months or 24 months and trying to figure out how to carry it forward. So yeah, it’s a big mix. But to answer your question directly, the only way to be able to work through any type of projection with any type of consistency… And projections change, it’s a process that it’s not a fixed thing that you do your budget and your projection. It’s not a one time, it’s not a fixed piece.

It’s a constantly changing part of your business that is rolling as your numbers come in, as things continue to change in the market, as negotiations change, as a million things change over time. But you’ve got to find the sticks in the mud and you’ve got to know what you’re good at and you’ve got to focus in on those pieces of your business that you’re good at so that you can at least be able to benchmark against whether it’s your market share, or whether it’s car count in a particular area, or whether it’s a mix of business based on a particular segment. You’ve got to be able to know what you’re good at, you’ve got to be able to know the numbers in and out. And then if you can project from there on out, you probably can get a good sense for other areas of your business, whether you’re on marker, whether you’re missing the target.

Neal:

I agree. I agree completely. And I think one of the difficult pieces, especially as you’re looking back on the year’s performance, one of the most difficult things for me as an operator was to just isolate a couple of KPIs. There’s so much data available to us now. There’s so many different metrics that we can watch, but ultimately, they all seem to roll up into just a couple. What are your primary KPIs when you think about performance?

Randy:

If there was one primary KPI mix of business. Understanding mix of business and understanding how mix of business affects your gross and your net line is absolutely key. Years and years ago, and anybody that’s familiar with 20 Groups has heard this, but I’d be remiss not to say it again. NHTSA had come out and said, hey, for every dollar a consumer spends on attire, they spend a dollar on a part and they spend a dollar on labor. So that’s the reason that you’ve got a one-to-one-to-one ratio, 30, 30, 30 in your business. And so, if you’re not capturing that, it’s either because you choose not to intentionally or you are choosing not to by way of not recognizing that there’s opportunity there and taking advantage of the opportunity, whether it’s on capturing the tire dollar, or whether it’s the part dollar, or the service dollars.

So being able to move your business and being able to focus in on profitability comes directly from mix of business. Now, if you get down to a little more granular level, and I’m going to skip a bunch of levels in between. But the most meaningful, and this is often debatable among consultants in the industry, but when it comes down to addressing behaviors, I believe in looking at gross profit dollars per invoice. And the reason I believe in looking at gross profit dollars per invoice is there’s nothing that more easily relates back to a specific behavior.

And when you can identify a specific behavior, for instance, let’s say the strategy that you’re using for your alignment sellout, you can very quickly and very easily say, okay, if we change our alignment approach, we’re going to get X amount more of alignments, which is going to give us an extra 32 cents gross profit per ticket. And our goal is to get an extra $2 gross profit per ticket. Okay, great. Now we’ve got $1.70 to find, it’s palatable. You can eat it, right? You can put it in your mouth, you can chew it up, you can spit it out. It’s only $2 gross profit per ticket versus we need an additional $240,000 net profit. How are we going to find it?

Neal:

That’s a wonderful way of looking at it. And that also guides a lot of decisions when it comes to even the front line, right? Which tire brands do we recommend, where are our margins? That sort of thing. Especially if you’re more focused on the gross profit dollars and less on the percentage, it tends to motivate the right behaviors.

Randy:

Yeah, you don’t pay bills with sales.

Neal:

Yeah.

Randy:

You got to pay with the gross dollars. And we benchmark payroll against gross as well. It just makes sense that your biggest expense should get benchmarked against a solid number from which everything else gets paid. So let’s benchmark it against gross profit. And today, we benchmark it for those that want to know what that number is, it’s depending on whether you’re multi-unit group or a traditional one or two or three store operators. We’re at 42% to gross profit for traditional, and we’re 38%, 39%, which is a lot different than years past where everybody talked about 45%. The growth with the inflation and everything else we’ve seen has helped us be able to leverage the margin.

The dollars are greater, right? There’s more gross dollars there for payroll, and there needs to be. Anybody that’s not spending more on their payroll today needs to really look in the mirror very hard before their image disappears and they’re doing something else. But as a ratio, it’s less than it’s ever been, the dollars are greater. So 38%, 39% payroll to gross profit for a multi-unit location, or 42% for a single is pretty much right where it’s at. You do that well, you’ve got a really good chance of netting down to 14%, 15% as long as you’re not buying too many boats, or too many houses, or too many other fun little things along there that are affecting your non-payroll outbacks, which nobody in the industry does right, Neal?

Neal:

No, never. That’s the first I’ve ever heard of that. Let’s go back and talk about mix of business for a second. Something that anytime I meet a new tire dealer, one of the first questions I have is that service mix. And the interesting part is it’s almost never the same answer. If I’ve got a service mix I’m not happy with, how do I change that?

Randy:

That’s a fantastic question. It comes from identifying what your approach is to the business. Oftentimes, we find that your mix is something that is not intentional. So just by knowing what your mix is, you’re doing a fair job and moving steps towards being able to move that number and identify how to get where you want to go. But within each one of those, if are you’re super tire heavy and you want to move more towards, so if you’re 70% tires and I don’t know, 15% parts and 15% labor, which is kind of the old-school tire dealer days, right? Everybody that got involved in 20 Group 10 years ago, that’s where they were, they were at 70, 10, 10 with 5% other and 5% tire labor.

But if you’re in that bucket, I mean, you can look very simply and very easily at what if type calculator and say, okay, if I brought in X service dollars and/or X parts dollars and my revenue doesn’t necessarily change, my tires don’t change, so I’m going to leave my stick in the mud. I’m going to assume all else remains the same. I can look at those dollars and I can figure out what that’s going to do to my net. Now back into that, you’ve got a list of services that come out of it. So if you can look at the skills that are there, that are in your shop, you can make headway.

Now, I will say, I’m a big fan of getting folks involved that are key stakeholders in the shops. And so, if you’ve got this dream that you want to move your mix of business, I think it’s very fair to let your team know that and ask them for any and everything under the sun that they can think of to move that number. So, hey guys, we want to do more service in the shop. What are the top 10 ways you can think of that you want to do this? And so, you don’t make any promises that you’re going to do what they say, but you certainly want to hear what they have to say. And then you can figure out the best ideas of what’s out there and pull them back together. You’ve got the right to veto and you figure out the best way forward from there using some of the other key stakeholders that are going to be involved in actually selling the service and/or managing the service.

So just by way of looking at your mix of business and looking at how different mixes either contribute to or take away from your net line, you’re going to start changing things. And so, involving key stakeholders in the decision making to be able to figure out what you’re good at and/or if you’re not good at it, how you find the right people, which whole nother conversation, is probably the right way to go. So dig in, know the numbers, know your mix, and baby steps, 24 cents gross profit per invoice here and there. You can make a big shift in your business and you can jump from 10% to 15% in a couple months.

Neal:

That’s an excellent piece of advice, because I think in order to have any impact on that business mix, it requires the eyes and ears of everyone who comes in contact with car, right? They’ve got to be fully bought in, the staff has to look for the opportunities. They’ve got to identify that car that’s overdue for an oil change or the car that’s… The tire that’s down to three 30 seconds. So I think it’s critical, that’s an excellent point.

Randy:

Simply put, if you follow the NHTSA model at one-to-one-to-one, and you subscribe to the fact that customers at some point in their life cycle are going to have this need. If we simply do a good job of doing a good inspection and advising them, then it’s going to come out in the wash. You’re going to get somewhere close enough to that one-to-one-to-one ratio, which is healthy from a financial perspective. And so the more accurately, the more adept you are at doing quality vehicle inspections, the closer you’re going to get to a healthy business mix.

The further away, unless it’s intentional, because you don’t want to do service or you don’t want to sell parts, the further away from a one-to-one-to-one mix, the further away you are from having an entrenched vehicle inspection program where you’re actually looking at the vehicles, finding the things that the vehicles need and advising the customer that they’re necessary and that you can provide the service for them. I don’t know that there’s a much more simple way of putting it.

Neal:

Yeah, no, it’s a lot easier to do what comes natural. And I agree. I think that almost every time I hear a really skewed business mix, it almost always comes back to there’s a lack of an inspection process, or it’s either infrequent or doesn’t exist. So I agree. I think that makes perfect sense to me. Well, Randy, I want to talk a second about advice, right? You’re just giving us all an excellent piece of advice. But I guess way for us to wrap up a bit is to think about you’re in the business of providing advice and providing guidance, what’s your best piece of advice to a shop owner as they look to 2023?

Randy:

I am in part, in the business of giving advice also in part, in the business of holding people together and delivering. But my best advice is to get advice because I also receive advice. I also am in a situation much like everyone else, where nobody’s on an island. Everybody needs to spend time investing in themselves and investing in the people around them. And so, it shouldn’t be lost on anyone that they need to take the time to reinvest back in themselves. And if they can invest back in themselves. And there’s so many resources, especially today for the independent than there ever have been before. There’s so many groups out there that we can rely on in order to be able to learn something from. And it doesn’t have to be from any one, or any two, or any five, or any 10. There’s so many resources out there that we’ve got to set aside intentional time to make sure that we are growing.

And again, to go back to the Lou Holtz [inaudible 00:23:54], and I think he said at one point he said, the worst mistake I ever made was to get Notre Dame to the top and keep them there. All I did was keep him there. We never got beyond that. And he said that was his worst mistake. And years later, he put together a list of 101 things that he wanted to do with his life like go on Johnny Carson. And he wanted to go to the White House and he had all these big things that he wanted to do with his life. And it just so happened that this was at a time where he was in transition and his wife looked at the list and said, “That’s fantastic, honey, why don’t you add another one? Get a job.” And so anyway, he had all of these aspirations and it’s not unlike two of the folks that you mentioned coming into our conversation today, Sally Thomas and Marc Pons.

Those are leaders, they’re in leadership groups, they surround themselves with fantastic people and it shows in the product that comes out to their customer. Their customers don’t know Sally or don’t know Marc. Maybe by and large, and I could be wrong, there probably are plenty of customers that do know them. But what happens behind the scenes with the leadership approach to investing in themselves and investing in their teams is not lost on them. And that’s the spirit of the independent. And so, if you feel like you’re out there on an island, or if you feel like you’ve just got to go in a different direction to be able to, or you don’t know which direction to go in, find somebody to reach out to and keep on digging until you find the right person that you click with. And you’ll know it when you do. And everyone around you will appreciate it and you’ll be well off to whatever goal it is or goals you have that are going to make you and your life and the people around you happy.

Neal:

Gosh, I think that is fantastic advice, not only as tire dealers, but as business owners in general. As I said, I’m a complete believer in the 20 Group process, so much so that I’m in a 20 Group for marketing agencies. So I continue and I think it’s just critical to get that outside approach, that insight, but also to bring some energy back, to get re-energized. Those conversations are so, so valuable.

Randy:

I’m looking for… By the way, currently looking for if anybody has a 20 Group, 20 Group, give me a call, that would be fantastic.

Neal:

That’s it. Even coaches need coaches, right? It’s so, so valuable to the process.

Randy:

Absolutely. Absolutely. So yep, invest in each other, invest in yourself, and we’re all better for having shared our lives with someone else, rather than being on an island.

Neal:

No, couldn’t agree more. Well, thank you Randy. We’ve been talking with Randy O’Connor, the executive director for MTD TEN. Randy, where can people learn more about you and the 20 Group?

Randy:

www.mtdten.com

Neal:

I love it, rolls right out. Thanks again for joining me on Gain Traction.

Randy:

Thank you, Neal, it was a pleasure.

Announcer:

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