Floyd Jerkins addresses the Business Model

I think you've touched on such a broad array of reasons. of circumstances, of situations that kind of say no matter what the business model is that you're going to create, it's dynamic. It's not static. It constantly is going to be changing as the world around us changes. That's right. As you and I have spoken, I believe that most of the model of the construction equipment space that I've been in most of my life was created in 1980, in the period 80 to 82. when Reagan and Volcker beat the heck out of inflation by crucifying us with interest rates. One of the dealerships I worked with at the time was Finning, and it's a publicly traded company, so I can talk a bit about it. And this is in the late 70s. So before Volcker got crazy with his interest rates, we did all, a publicly traded company, we could float bonds, we could get cheap money. But the CFO of the company, very smart guy, his name was Vin Sooty since passed. He did all of our debt on overnight bankers acceptance because that was the most profitable avenue to take. You didn't have any money at play. You only borrowed what you needed. It was only there for a day. Hello, let's go. Well, here comes inflation. It went from, you know, three,4% pretty normally in the 50s to 18 to 20%. We're going to see some unbelievable numbers. We'll be up into 10 to 15% very soon in America. And people will understand more viscerally what that means. But the business model was created afterwards after everybody had adjusted their headcount to reflect the fact that I have to pay a higher interest bill. If you reduce your headcount, that means your market coverage goes down. If your market coverage goes down, your customers notice, hey, wait a second, you're not paying any attention to me. And then the other intersection that came in, as you mentioned, here comes the 80s, continuous quality improvement. Then Jack Walsh and General Electric with 5S, or with Six Sigma, now it's 5S. And along the way, We've got really smart. We created people that we call black belts. Right. You know how to improve processes. Well, didn't you know that before? Right. What the heck was wrong with us? Well, what was wrong with us was we got in a rocking chair. We felt good when our results fit the model. Right. And the model was arbitrary. because nobody records their costs the same way. Nobody has in a cost of sales for labor, the same things. It's all variable. And, you know, what are we trying to do? I just want people to get better at what they do. I want to improve the customer experience. And that's not measured in financials.

So here we come. Yeah, you're going to need financial statements, but I want management reports too. If you want to leave the financial models the way they are, go with it. But I want to know how many times that customer is contacted by a salesman. I want to know what they talk about. I want to know how many times he gets an order versus the, you know, this. So one last thing, and then I want to get back into your thinking. The differentiator in the old days was information. The salesman was required to. transmit information to customers. The customers didn't have access to all of our information, the technical spec sheets and all the rest of that nonsense. Well, those days are done. The customer in many cases knows more about that vehicle, car, lift truck, engine, whatever it is, than the salesman does. And the customers are now saying to the salesman, look, don't call me. I'll call you when I need you. If that's not a reflection of the relationship we have with our customers, I don't know what is.

Oh, no, it's really valid, and too many people do that.

The best price in town, so...

What's also interesting about the attendant, all of a sudden the leadership of the dealer has got religion about marketing.

Oh, I want them to be on hold because I'm going to run a 30 second. advertisement here. I'm going to have a promotion of something while out here. And they forgot. That's what they wanted to do. What did the customer want? People didn't ask that question. And it all comes down to, in my opinion, today, people are saying there's no more loyalty. I agree with that. Well, we haven't given any of our customers a reason to be loyal to us because we force them down our funnel. Right. of processes and systems, et cetera, not theirs. We've stopped asking, what do you want? What do you need? You know, and it's rather remarkable that there's been this much inertia. You mentioned Steve Jobs and the iPhone. It's maybe been 12 years. Google's been less. Simon Sinek, which made a fair amount of noise in the marketplace. He's a professor of Columbia. Most people know who he is. He wrote a book called Start With Why. What's your why? And to me, it was a really telling expose. He says, you know, you go to a church social, if that still exists, or you meet with your neighborhood, your family, et cetera. People say, what do you do? And most people can tell you what they do. Yeah, well, how do you do that? And people, most can tell you that, not all, but most. And then comes the burning question, well, why do you do it? Well, to get paid. Nobody does a job to get paid. You know, they get money, of course, but that's not what it is that turns them on. Why do you do this? Well, because I like people, whatever the different reasons are. In his book, Start With Why. Same thing that you're saying. What is it that makes the customer experience better? And how do we do with that?

There was a it's interesting in a number of forms and directions. There was a big fuss last week when the world found out Tim Cook's pay package. Seventy three million, I think, was the number. And since he's been. the boss, the share value of Apple's gone up like a thousand percent. The question comes back is how much is somebody worth? Well, when he's paid shares, and that means he has to buy them. And in order for them to be cheap, he needs to drive the value up, which is beneficial for every customer there is out there that owns a share. But I think there's a more telling argument about the business model and needing to be dynamic, and that's General Electric. Jack Welch, when he took over in the 1980s, said, I'm going to be the number one or number two in every supply avenue that I'm in, and we're going to be in finance big time. He retires. Jeff Immelt takes over. Arguably, Jeff Immelt is much more intelligent, much better educated, much better as a communicator than Jack Welch was, but he darn near took the company bankrupt because he did not adapt. That's the reality on the ground today. And I think we've seen that with car dealers. That's right. With consolidations, the small ones have gone away. I think we've seen it in the agricultural community, the engine community. Heck, there's only three or four manufacturers of engine anymore. Yep. Construction, mining, there's three suppliers today. I mean, this is remarkable. And yet we still operate on. 600,000,750,000 an employee or whatever the number is. Culture, you know, there was a thing the other day that got my attention. I'm a rather direct person. And I always ask for a performance review from my bosses, always, and never got one. And the response I got was, well, did I give you more money? Yeah, well, that's your performance review. Go away. My last boss in Quebec was the vice president of finance, and he was a pretty crusty guy. Not a hardship to work with, but he was a pain in the butt. So we would do this, and he said, well, okay, if that's the way you're going to be. And I went in and I said, it's time for you to have a performance review. And he looked up and he said, why is that? And I said, well, here's 60 days. I quit. That's your review. And I left his office and he was behind out from behind his desk and down the hall, catching up with me as fast as you could imagine. And it was the biggest mistake in my life. I was legally required to give them two weeks, but we were putting in a new computer system and I wanted to give them enough time and make it transition seamless. Well, I got sick because I was trying to do too damn much and all the rest of it. They offered to double my salary, give me a car, golf club membership, all kinds of stuff in that 60 days. My wife Marlene said to me, said, Ron, they're just trying to buy your butt. I said, of course they are. She said, are you going to take it? I said, of course I'm not. And I didn't. We left and everything's fine.

You were still money. Wasn't the problem.

You know, and people seem to, you know, Amazon's another beautiful example. You know, bookstores didn't see them coming. Right. I buy a lot of books. I read a lot of books. I hated bookstores because they never had the books that I was after. Yep. They had to order it. So I had to wait. So here comes Amazon. I have a broader array of choice. I can see what the bookstore can't show me. Right. It took them just as long to deliver to me. And then with Prime. I didn't have to pay for freight. So what the heck do I want to go to a bookstore for? And as a result of that, Borders, which was my favorite bookstore at the time, is gone.

Well, Kanye West is at the moment kicking the music industry. The artists only get 12% of the revenue stream. He said, wait a second, we created this stuff and it's the farmers have the same thing. Right. You know, it's everywhere in society. And that, I believe, is going to get a real serious kick. And who's going to do it? The Zs, the Xs, and the millennials, because they don't like what the world is that they're living in.

Look at the support in San Francisco. There's an example fighting City Hall. Yeah. Yeah.

branch,

Yeah, it was on the front of a couple of magazines on things that we did. But, you know, your comment about decentralization and centralization, I think, is really on the mark. The best example of the customer experience in my world is the old hardware store. You didn't know where anything was. It was a mess. Yeah. But the guy that ran the store knew where everything was, and he could tell you the price. That's right. He could not only do that, he could tell you how to use it and how to fix what it was. Well, what are you trying to do? And he'd lead you through it. Right. And that's gone. So the decentralized and centralization, loyalty to that hardware store, if they were still, Ace Hardware is my favorite today because they have somewhat of the same approach. But at Finning, we had 53 stores. And I... was a really strong advocate of decentralization. I wanted stores, not branches. Stores. It's a retail store, darn it. It's not a branch. And the local people know that local market, and they run the local store to satisfy that local market. Okay, so here's where it got a little different. You can run the whole darn thing. I ran parts. but you're not going to hire anybody in the parts department without my approval. And you're not going to get rid of anybody without my approval. And you're going to meet my metrics. If you don't meet my metrics, we're going to be talking. So you can do whatever you want decentralizing. You can run your own business, but here's the walls. Here's the boundaries. Here's where you have to stay within to play. I don't think there's anything wrong with that. One of the measures to me is customer retention. And OK, so the first fight I have with that is what the heck do you how do you define it? And the boomers and the silent generation, which is the people before the boomers or the greatest generation first and then the silent generation, they never wanted to look at retention. Well. The guy got sick. He didn't have a contract. He lost his foreman. He had a divorce. All of these things. So why don't we just measure up and down? I said, no, no, no. He bought and he stopped. That's it. Period. That's defecting.

Well, the trick with that is, first of all, to be notified that they've stopped buying. Most dealers don't know that. The second is, OK, what are you going to do about it? Well, and then we got into a big circle and had a chat. I said, why don't you pick up the phone and ask them? Oh, okay. So I want you to get notified. How long should it be? Well,60 days of somebody not buying anything from you that the previous year they bought regularly. Call them. Hey, Floyd, what's happened? My deodorant breakdown? I noticed you haven't bought anything for about 60 days. You okay? And engage. I mean, at least you're showing you care enough to find. Hey, Floyd, what's going on?

Yeah. Bob Lane's a good example. You know, Bob was a banker. I knew him in Denver when he was a regional rep, and I'm running a software business in Denver at the time that John Deere purchased a dealer management system from a company called Applied Data Systems in Phoenix and created JDIS, John Deere Information Services. And I had dinner with Bob and I said, OK, Bob, you got to tell me what you want to be when you grow up. Do you want to be manufacturing equipment or do you want to be manufacturing software? And he laughed. I said, I don't think it's funny because what you're doing is you're now starting to tell your dealer how they're going to run. So that tells me that you're not only are comfortable with the wholesale world, but you know how to run the retail world as well. And you and I both know that isn't true. And again, he laughed. Well, he became chairman and I called him in the first week and I said, OK, have you figured out what you want to be when you grow up? And he started laughing again. And I said, well, the laughter is going to be more challenging, Bob, because you're going to have to make the decision. And they got rid of JDIS and now it's called Equip. They got rid of the guy that purchased and rolled up all the dealers. They were going to try and become. Both the wholesale and the retail, a company called Nortrex, now they're unwrapping all of that. And again, it goes back to the same thing that we've been talking about. The model has changed. But the world that works within the model has changed faster, and the model hasn't changed to keep up. And that is going to be a serious problem, if it isn't already.

There's going to be. You know, there's two themes I'm looking at this year. One is the customer experience and the other is the business model. And the business model, I want to get on a financial statement on the balance sheet, the inventory of people. And, you know, we've got the parts inventory, we've got the work and process inventory, the new vehicle, new goods, used goods, rental, all of these things. And none of them. are as important as the value of the capital that you have invested in your people. Now, where I'm struggling is trying to come up with a gradation of skill set, which is why we have the assessments. And I'm getting there, but I've still got a long way to go. But once we're there, then there's going to be a very clear correlation between the skills. of the asset on the balance sheet that represents your people and the results you get as a corporation. And that deals with culture and a whole bunch of things.

Well, I don't disagree with you, but I'm never happy. It's one of the curses of my life. I'm actually reading a book on happiness. you know, as to how I can have a different perspective. But before we get too far off that track, I think we might want to wrap this up. The opening up of the business model, I think, is an important step. And you and I, I think, have given a pretty good rational expose of all of the things that are forcing us to change the business model and why we need to. And I'd like to use this as a continuing platform. We'll take a bit of a hiatus because of basketball and other things that are going on. And it's funny, I'm having to adapt to personal preferences. You with basketball, I've got another guy who looks at car shows. He's a gearhead and really, really good guy. So, yeah, that's fine because that's your happiness. I'm trying to figure out mine, you know. Why don't you give us a conclusion on this, if you can? Give us some kind of an ending.

Well, let me give you the rest of the story. Because as I was going through this process of evaluating whether to leave or not, I got the outside auditors and we went to lunch. There were three brothers that owned this dealership. One managed it. The other two were remote. So it was a bit of a risk, me having lunch with this guy. It was the senior partner that was responsible for our account. And he said, well, what are you looking for? And I said, I've asked that the department be completely rejuvenated, reorganized. And here's what I'm trying to do. And they're just... pushing it off and not coming to any conclusion. And his name was Steven. He said, you know me well enough that that's not going to go very far with me. And so that's what my problem is today.

10 years.

I was, I started on a contract for a year to fix a specific problem with the computer. I became the parts manager. I became the general parts manager. Then at At point in time, my best man was the general service manager and we weren't happy with the relationship. So we swapped jobs for a year with the company's approval and found that there was no differences to who the leader was. And I put it down to the fact that there was a gene pool issue. The pool at the service department when it is was shallower than the parts pool. They didn't think that was funny. But then I did the first product support organization in the Caterpillar world. Then I became the data processing manager and I did facilities. It was wonderful. I was put into all manner of things. And so I'm running the computer system. There's 11 stores or something in those days. This is 100 years ago. And I wanted to focus everything on the operating departments. I wanted to have a systems and programming crowd that did nothing but parts. Another one that did nothing but service. And that's not necessary. You don't need to do any of that stuff. So I'm having, and I told my wife, Marlene, that I was going to do this. She said, are you sure you want to do that? And I said, yeah. He said, are you prepared for the consequence? I said, well, are you? You know, that was more important for her because anyways, he wrote a letter to the board, the owners in Ontario, completely supporting everything that I wanted. and wondering why the company didn't approve it and hadn't put it in place already. And I had a very close relationship with the president, who was the boss of my boss. And he's sitting in my office on the following Monday. I get in about seven o 'clock. He's there about quarter to seven waiting for me with a coffee on my desk. And he said, I just got a letter from such and so. I said, oh, have I still got a job? He said, you know, Ron. How many times have I fired you? And I said, oh, five or six. He said, are you still here? Yes. He said, if you've ever got a problem, ever, about anything, at any time, you come to me. Nobody else. He says, get started. All of it's approved. He got up and he left. I love this guy. If he was still alive and the phone rang, said he was in trouble, I would just ask, where is he? And I'd be on my way. And there's very few people like that in your life. But every younger person, and I do this with my daughter and my grandkids, needs to have self-respect, self-esteem, inner confidence that they'll be okay. Right.

Oh, it doesn't matter. It doesn't matter. Bob Hewitt, I'm on contract. I'm out in a warehouse one morning. I'll never forget this. And he was an elegant man, about six, two or three, three piece suit. He comes out and I'm in sweats, sweat top and jeans and I'm working my butt off. And he comes up and he puts his arm around my shoulders and he looks at me and says, Ron, I'm really disappointed in you. And I didn't miss a beat. I said, me too, Bob. What's your disappointment? And you could see his face break down. You know, he wanted to laugh, but he didn't want to. You know, he said, when you're finished with this, come on down. I want to have a chat with you. The thing he was disappointed with is we had some stock order vehicles that got blocked by a snowstorm in the north. And he was upset that I didn't see the snowstorm coming. I said, Bob, if I had that skill, I wouldn't be working for you. So it's. I want everybody to have access to the same experiences I had as a younger person in business. And I think that everybody would love that. Yeah. Let's find out how good you can be. Let's find out where the potential is. Let's give you every tool possible to get you there. And yes, we've come a long way, but we still got miles to go. Right. And this business model subject that we opened up today, I'm not going to close that for a while. We're going to keep revisiting this thing. And in the meantime, enjoy the heck out of the basketball the next couple of three weeks. I hope your teams win. I hope better that the games are good.

That's the important thing. And thank you, Floyd. As usual, this has been, I think, very beneficial to everybody. And thank the audience, mahalo, for attending. And I look forward to having you with us again. 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.