Debbie Frakes and Steve Clegg join us from Mexico to discuss the use of AI and dealer transaction data to forecast and manage the business through the boom-and-bust cycles in this industry through Winsby and Zintoro

I don't know quite where to start this. Last night, we put up a blog about your forecasting model that protects us whether or not it's a boom or a bust. which is quite different than most people. Everybody's reactionary to it. Steve, maybe you can kick this off and address that issue. Why is forecasting, why can forecasting prepare us for either a boom or a bust?

It's interesting, and let me just use jargon, AI is artificial intelligence, right?

I wonder how many people actually realize that 1% to 2% of the transactions in their business are around equipment. I think there's a lot of folks who would be very surprised at that because they tend not to think of it that way, do they?

I suspect that you're confronted with a lot of resistance because that is a real serious change in view. Am I overstating it?

They get lost out there, don't they? And Debbie, you do this actually in person-to-person surveys too, don't you?

That's always true, isn't it? Surveys are innocent. Yeah.

So it's a nice combination between the analytics, the artificial. The massive data we've got is rather astounding. The thing that bothers me on the data side is the accuracy of it, because we tend to move information around to satisfy whatever the metric is that we're looking for. The old joke is, you're spending too much on repair and maintenance this month. Oh, well, next month it'll be fine.

Yeah, it's like the guy who comes back from a convention and he submits his expense account and the boss says, well, wait a second, what's this 10-gallon hat in here for 200 bucks? He said, no, I'll take it out. And three or four months later, he comes back to the boss and said, you find the hat yet? So back in the 80s, Harvard did a massive survey on retention across the industrial distribution world. And they wrote a book called The Service Profit Chain. I was really interested in your 1-2-4-2-4-8 because they definitely, for our industry, for the equipment world, if you can increase your customer retention by five percentage points, you will increase your net profit by over 50. Actually, it's 45%, but what I've seen is over 50%. Yeah. And that's any time confronted with that, people thought that's impossible. It's ridiculous. And yet it works every damn time.

Yeah. Especially in this world. I think it's true everywhere. The equipment world is really a relationship business. Last week, one of the contributors at Royce Abrog for us, his name is David Jensen. He's got a master's in psychology, I think, or psychiatry. He was the HR boss for Sarah Lee. And his blog a couple of weeks ago was talking about employee engagement. And I'm dealing with the fact that on the downturn, you can get the best people. The employee engagement, Gallup did a study early this year. that said 20% of your employees, I'm using round numbers, are engaged and are making a difference. And they're excited and they're doing all kinds of stuff. There's another 20% that don't want to be here. They're not doing anything. They're just, to quote one of the guys I work with, they're just taking oxygen out of the room. So we got 60% of the people in the middle that can go either way, depending on who their leader is.

And leadership has become a real serious issue today, more than I've ever seen. And people tell me more than has been written about. And that's confronting the change you're talking about. Data analytics, artificial intelligence, telematics, sensors and equipment, all of the technology. And it's so far ahead of where we are at. In fact, it's kind of scary. And the older generations, my age, put you folks in a much younger category, but the older generation, I'm being nice today, Steve.

I took a minor in computer science in the 60s, which means I'm a real dinosaur. I learned how to wire unit record equipment. I ran software companies. And somewhere in the late 80s, I decided I couldn't keep up anymore. It was impossible. The rate of change was too much for me to keep up. And I'm probably very common for my generation, the younger generation, my granddaughter, my God, she can run circles around me. She's 21 years old and telling me how to work with the cloud. My goodness, it's amazing. So here comes artificial intelligence and your algorithm and your forecasting model. You give it to smart people and their eyes glaze over all that.

So the negative comment, it's kind of antithetical. The negative comment, it turns out to be a positive influence.

And Debbie, you're able to get those negative comments given to you because you're innocent. when you're doing the survey as opposed to the company calling themselves.

So if they intervene, they neutralize the situation.

They care. That's right. And Steve, you're not just doing this in the construction world. You're doing this in other industries, correct?

And the variation on the statistics isn't that great? No. See, that's the part that I'm sure confuses. Like statistics was one of my majors, and I love this stuff. And that makes me a real weirdo. But statistics are powerful things. You know, it's the old joke, fools make numbers and numbers make liars or whatever the hell that expression is. But if you've got the data, and this is where I was making the comment a little while ago, the quality of the data becomes problematic. If it's sales transactions, that's pretty clean because the customer is going to pay. If it's cost side of things, cost of sales varies. So you're dealing with the number of transactions, not driving it by revenue, and you're not driving it by margin. It's just transaction purity.

Right.

Genuine parts is another example. Napa, the people that own Napa,38% plus gross margin. And they have nothing that is unique.

They don't have any proprietary product. Nothing. And Granger is the same way. Syntas is another one.

Yeah, it's the old story of 7-Eleven. They go in there for the convenience of cigarettes, and well, I ran out of milk, and you don't want to spend the price of a quart of milk at a 7-Eleven. How influential, thinking about staples and the paper toner, et cetera, how much of their in-store, their displays, the selling off the floor is influenced by good, better, best pricing? Is it or not? It

John Deere tried that with undercarriage. For a long number of decades, they had arguably the best undercarriage out there, Duratrax. But the dealers didn't get any market share with it. And then they made a deal with the Italians. And so they had two products, a high price and a low price. The only thing that changed in that circumstance is the revenue dollars went down by the price difference. Didn't change the market share at all. Just changed what they sold. Because the seller was a price point person. And how do we overcome that one?

Yeah. And partially the deal from my perspective is, have you got it? Sometimes how much is it and how long do I have to wait here to get it? Same thing in labor. It's remarkable. I used to tell you that price and time were the two pressure points that the customer would put on a dealer employee and the dealer employee wasn't prepared. You know, the customer says to a guy on the counter, if they do bring up price, damn, that's expensive. I always used to say, compared to what? And so all of a sudden, the customer's on their heels or, well, what'd you expect? That's something else that puts them on their heels. We're the best after all. That's why you're talking to me. And most of the folks that are in there have never had any training on this. They don't know how to deal with it. Oh, you must be right.

Isn't it remarkable? I wrote a blog a couple, three months ago, but, you know, my philosophy in life anymore is all somebody asks for something. I say, sure, I can do that. It confuses the hell out of everybody, you know. You know, somebody's going to ask me a question one of these days, and I'm going to say yes, and they say, okay, go do it now. Let's see. All that number, catch my bluff. But, you know, when... You know, Debbie, Steve just spouts statistics because he's got all of that around. But it's intriguing to me that it was predicated on buying companies to try and minimize the mistakes. And now you're talking money. You don't want to buy something that's going to cause you to lose money. Dealers, when a customer stops doing business with them today, most of them don't know that's happening, number one, unless they use your tools. And it goes on and on and on. So the characteristic with the customer is I stopped buying. Nobody called me.

They don't care. Right.

And if only we told people what you're doing, they haven't bought anything for the last week or two or four or whatever that gap is based on their previous life. Statistics says that the closer the last two events are, the higher the probability of a future event. That's been true since the beginning of time.

And that is statistically true, yet nobody seems to want to engage. You guys do. I think your customers do now. But I don't think it's intuitive. It's counterintuitive to most people.

in the surveys. Customers tell you anything that you want to ask, anything you want to know, they'll share.

And get the same response.

Yeah.

Yeah. One of the rules I used to employ was, we will get back to every customer the same day they place the order and tell them where we have found the part. then we can have a discussion about how they want to receive it, how they want to get it. Is it fast by air? Is it by boat? Do you want to go by Morocco or what? The next day or the day after I'm supposed to get it there and it doesn't, my boss is going to call. We just take it up. And I modeled that on IBM. They had a thing called an alert chart. And they were pretty clever about how they did it. Computers going down in the 60s, when you've got batch computers and there's nothing but this one monolithic thing doing your payroll, for instance, and I've been there. And it didn't put out the checks this week. You got a problem, Charlie. And IBM had a stance that was kind of interesting. When things go bad, they said, fill the sky with planes. So I had two computers running a dealership.

They were both down at the same time. I had every publishing company in Canada. in the meeting room next door. And there were about 20 guys in the room, gals and guys, mostly guys though, Debbie.

I stood on the desk and I said, okay, which of you folks stick your hands up if you are here and able to fix anything? And three people stuck their hand up. I said, the rest of you get the hell out of here. They were just causing problems. And it's the same damn thing, Steve. It's going to be here in a week. I told you. And they keep coming back. Oh, that's right. I forgot. So now we've got an education process with the customer as well, getting them to trust what we say because they don't today.

Yeah.

Yeah, I've always said price is only important when everything else in the transaction is identical. You made an interesting comment, though, that it was all based on expectations. And customer service, to me, is a function of expectations and perceptions. The customer has an expectation coming into the transaction with you. They know what that is. Typically, we don't. Right. And they have a perception of how they received or what they received. And they own that one, too. And unless we ask, we're never going to know. Customers, you know, it's the same deal.

So let's shift gears here for a second. Market share is important, true or false?

Okay. Define that for me so that we're on the same page.

Okay. So unit transactions of machinery is the same thing. True or false?

Again, that's a position that is alien to the thinking of this industry.

And we seem to be starting to move the customer closer to the manufacturer and further from the dealer. National accounts, large industries, those types of things. Are you seeing that as well?

question. Yeah. That model you're talking about back when I started in the industry 100 years ago, the French dealer in France, Bergerac Mobile. They had one technician in the field for every between 10 and 20 machines, depending on work conditions. And their market control was phenomenal. It was almost impossible for anybody else to break into it. And then, you know, over time, education changes, MBA programs, a financial architect came in and changed that model. Profitability sank for a couple of three years, and it's hard like hell to get things back when it changes momentum. Of course, the guy was fired, but there was a whole bunch of people that were the penalty in the penalty box. That's the dilemma. You've already mentioned the financial statements. That's a look backwards. It used to drive me crazy. I ran a data processing department for a while at a cat dealer, and we put financial statements out every day.

And they said, you can't do that. How can you do that? They said, well, you can put out invoices every day. Why can't I do that? Well, we've got all of these allocations. Well, forget the allocation. How much did you spend? That's all I was interested in. And boy, I had a bunch of it. It's like in the consulting world. You go into an operation, you have a big Klieg light, a big flashlight, and you put the light in the corner and you watch where the rats go running. It's amazing. So here's statistics. that are hard like hell to fight. Reagan said it. Facts are awfully stubborn things. And so now the onus is on the performance of the individual. And that is, I think, fundamentally what's in our way in many regards. I don't want to be accountable.

I think so too. I worked with a John Derr dealer on the West Coast a long time ago. And they wanted to find an objective way of evaluating the skills of the people, technicians. So I built a questionnaire that the technician was going to fill in on themselves. So it was 15 or 20 pages, I don't know, six or eight points on a page. So it was a reasonably comprehensive circumstance. And I scored them by different engine transmission, blah, blah. So we've got that. Then I got together with the management and said, okay, fine. Give me the payroll for these same people. Got that. Then we had the management come in and say, okay, fine. Who are your best guys? And we made three different lists. There was zero correlation. Now, I wasn't surprised, and at the end of the day, they weren't either. But isn't that a horrible thing to say?

It's interesting to bring that up because for the last 40 or 50 years, metrics have become kind of... the gospel. And here's the metrics we should go by. And in the last little while, consulting companies, Kinsey and Accenture and the big boys, are starting to receive criticism because they're starting to deal vanilla. It's the same thing over and over and over again. There's nothing new. There's nothing changed. And the world is changing very quickly. So these metrics that we've been driving on all this time, and you looked at it,1-2-4,2-4-8, just Those two sets of metrics, if that's all we did, that'd be wonderful because the results would be there, right?

And you can prove it with, you can create the model with AI using the dealer's data, transaction data, not financial, transaction data. Debbie cross-checks it and follows through and ensures that there's traction on implementation. And that combination is powerful as hell.

And all of the companies, Debbie, that Steve gives you the analytics for. How many of them sign up for the surveys? The majority or not?

Has anybody who started with the survey stopped them? No. Has anybody, Steve, who started with the forecasting stopped them?

Yeah, it's kind of interesting. A number of times, I don't know if you've heard this, I'm sure you have, but a number of times the dealer principal tells me it's the shingle that sells nothing else. And this is a people business. It's a relationship business. If you don't have the people, you've got nothing. And Steve, as you say, I was talking to the president of Troy University. I think I mentioned this to Debbie. Jack Hawkins is his name. he's got a remarkable history and track record. And I said, okay, fine. What are the challenges you're seeing from kids coming out of high school into college? And he rattled off three things, critical thinking, analytical thinking, and communications. And I said, well, that's not curriculum-based. That's not history, reading, writing, arithmetic. He said, no. What we seem to have developed is we're teaching people to tests. We're not teaching people to think.

He said, what's more problematic in my mind, him talking to me, is I don't see leadership skills anymore, anywhere. And one of the large health care companies in America asked him to put on a program for his folks at a convention. I think there were 2,000 people. in management that were coming. And he wanted a leadership training program put together. So he put the program together. They went down, had a day, and out of the 2,000,1,200 people signed up. So the owner of the company was really pleased. This is great. A month goes by, less than 100 people that had signed up out of that 1,200 had actually done anything. And that's something I see or used to see a lot in our classes. They would leave a class. They go back to work. The first couple of days, they're catching up with the stuff they did. They missed while they were away. Same gig on vacations. So two or three days go by. And now they've got to sit.

If they have a break in the action, they've got to sit and say, OK, what was it that I wanted to do that was going to be different? And the probability of anything happening was low. And the education model now, they're saying, remember the old 50-minute lecture? They don't want 50-minute lectures anymore. They want 10-minute. pieces, blocks, with a quiz, with the technology in the classroom. We can hold up a phone. We've got laptops. So the professor's putting a quiz question up on the screen and everybody's answering. So we did that to all of our classes. The first time, the first 10 or 12 minute quiz, a third to a half of the people got the answer right. The second time,10 or 12 or 15 minutes later, a half to two thirds. The third time on, it was well in the 90s. Because all of a sudden, people knew, damn it, they're going to check on me.

a conversation, we tune in and tune out. We check in and check out. I didn't miss anything. And I go back to wherever the heck my mind wandered to. Do you ever get anything like that from a customer that the dealer isn't really engaging with me?

Yeah. Yeah, and that goes back to your point of your surveys that Debbie was doing for who's the best dealer. The story of Gerstner going into IBM, and he has his first meeting with all of the executives, and he asked them to, who are your top three customers? And nobody could give it to him. So the meeting broke up very quickly, and it was reconvened a week later, and everybody gave him their top three customers, and then he disappeared and went out and visited every one of the customers. There was a commercial on television years ago in the same, you know, we're losing our business, we're losing our customers, and here's the guys I want you to go see, and this is the guy I'm going to go see. I'm the president. Blackie was out with customers all the time. Leaders do that.

I always was interested in the troublemaker because those folks tended to think about the world differently than the rest of the room. And if you pay attention to the troublemaker, it's amazing how much that's the same people you're talking about, Steve. They cause me trouble. There's aggravation. They push back. They want better. That's the folks we want to pay attention to.

Yeah, David Jensen, the fellow I mentioned a little while ago, he lives in Mexico now, but he was one of the founders of Personnalysis. And you have too, but I've been involved with a lot of personality profiling products. Myers-Briggs and all the rest. And what personalysis does is they, their questions are, what do you least like? The flip of everything. What do you like? Everybody knows that that's easy. And after a while it goes. And I'll give you an example. I worked in a lockup in a prison when I first came out of university and I was trained on how to do that for treatment programs for people. So I had a Caterpillar dealer in Nebraska, a former Caterpillar dealer in Nebraska, wanted me to do some consulting work with them. And they wanted me to fill out this form. I said, that's cool. Just as long as you share the results with me. So we did it. And I worked with them for about a year and a half.

And he said, you know, I've got this other project I want to get done. You don't fit the profile. Do you know anybody that will do this? And I said, well, tell me what you're looking for. And he did. And I said, OK, send me the form. I sent it back to him, and he called me almost instantly. He said, how the hell do you do that? I said, what? He said, you fit exactly the profile I was looking for. I said, well, that's the problem with profiles, isn't it? You can't overlook, you can't avoid the discussion eyeball to eyeball, whether it's in this rectangular Zoom meeting or face-to-face in a coffee shop or whatever it is. That's the real test, isn't it? And that's the survey, Debbie. where the customer can be honest with you because you're innocent. You don't have a vested interest anywhere. So they tell you the truth.

New York's got a personality all of its own. I agree. But, you know, from Kansas to New York, that's quite a transition, kid. Yeah.

Where do you see the industry going, Steve? With electrification, with all of the technology, with the difficulty in finding talented people, I suspect it's going to be more data analytics than less.

Mike Rowe in Dirty Jobs. There's a story of a man who had a heart attack. He needs a surgeon. There's one surgeon available. He's 100 miles away at his country cottage. And we make the call. And the guy says, okay, I'll come in and get it done. I can be there in about three hours. But halfway on the drive, his car breaks down. He's got the best car you could possibly have, but the car breaks down. He gets out of the car and he starts calling. A mechanic is found. The mechanic comes, fixes the car in 15 minutes because he brought the parts. He came on time, knew how to identify the problem, fix the problem, and off he went. Surgeon gets there, the operation is a success. Who do you thank? The mechanic or the surgeon?

And, you know, having the right part at the right time with the right person able to do it, that's going to become more and more and being involved with that machine because it's going to be electric and it's a different world with electric. Parts and service is not what it is today. That's why I think we're going to services, not things. But that's a heck of a transition. I don't know how many of the dealers that we have on the planet today in every industry are going to make it because they all live off parts and service.

Yeah, one of the interesting things, Ed Gordon, another fellow that he's from your neck of the woods and used to teach at Northwestern at the University of Chicago. He's got a couple of PhDs. He's hateful. He's so smart. And he says by the year 2030,50% of the American workforce, and he put a number on that,80 million people will not have the skills to be employable. So in this really optimistic. point. Society isn't ready for that either. Yeah.

Yeah, it really did. That's the 19... 1800s to 1900s transition, it's pretty shocking. And the same thing was true with production lines pre-1950 and post-1950 with automation and robotics. And now with data analytics and technology, I think it'll be even more extreme.

Yeah. And not just that. I think the learning, the skills that we get out of the traditional education model, that when we went to university, hopefully this is a fair statement, that the skills that we received were able to take us through our whole career. I don't think the skills that you receive in education today are going to last much longer than 10 or 20 years. Things are changing so quickly. So we're going to be going back to re-educating the workforce.

That's right. What do I do now? Well, I suspect I've taken longer of your day than I should have done, but I really appreciate the chat and the time. And Debbie, you can go back up to the roof and get in the water and see if he does it.

Any closing comments you want to put on this to make it a wrap?

Debbie, you got any thoughts on that that you could put up?

Yeah. I can't tell lies because I don't have a good enough memory to remember them all. But to put up, you know, my vernacular on what Steve just said, when I was in software development and putting systems together. It always used to, I used to characterize the user as having galloping diarrhea because whatever the heck it is that I gave them, I said, oh, that's great. But can you do this? Because there's always more.

Get into the mode that we are always thinking that there's more, that lifelong learning thing you're talking about, Steve, will become a reality. I think that's good for mankind.

And you're right. It's exciting as hell. It's reading all the stuff you can do today. It was, you know, Buck Jones or, you know, all of this stuff. Carl Sagan is closing videos, is taken from space, going away from the planet Earth. As the planet Earth gets smaller and smaller and smaller and how we realize we're just a little microcosm here. Thank you both. Gracias.

Have a great day. I appreciate it. Thank you, everybody, who listened to this, and we hope you got something from it and look forward to being with you at another Candid Conversation in the near future. Mahalo. Thank you for listening to our podcast. We appreciate your support. Should you have any thoughts or comments, please don't hesitate to contact us at www. learningwithoutscars. com. The time is now. Mahalo.