Steve Clegg talks with Ron about the business tools and offerings that are available from Winsby

I think a lot of this is just through the unfortunate experiences of suffering through a lot of of failure or lack of understanding than not anticipating the results.

So what we do is we look at...

I started because Sirius Roebuck had given me their self-furnished install business and that we had built it up pretty rapidly from nothing. after they had closed it down, and then they wanted it back. So I found myself coming to Chicago and wrestling with a bear that was much larger than I was in an environment that ultimately was not going to turn out well. But then as I was doing this, I had been buying companies consistently for a good 15 years. But I would buy companies based upon technology, where there's a technology out there, continuous cast for steel or aluminum or just a consolidation and operation of even a bottling plant. And so introducing that technology, you could change the paradigm in an industry. And assure yourself that if you were going to try and build a business, there's a market to do it with the technology that gave you a significant advantage. So that had always been kind of the basis. And over time, I had gone way back.

Yes. Okay.

Everyone had access.

Well, like the continuous cast for steel was 1954, developed here in the United States, and nobody used it. Except eventually it got used by the Japanese and the French in their big steel mills. But it wasn't applied. The idea was that you could go and melt metal, pour it and form it.

Continuously, in line, not doing it one step at a time. So the technology was there. Things have kind of creeped to where there were mini mills, and those mini mills were ingot practice, but one line, but still applying a lot of the old technology, not the ladle technology, which was needed.

With rolled steel. But they couldn't do it. They started out. All of it was originally scrap dealers because they're rolling bar and rebar. The bottom end of the market and the big steel guys couldn't do it cheaply. So they're willing to give up those markets. But as I told people, this is an entry. You've got to control the door. If you can't control the door, you'll eventually be eaten up by the technological advancement of what actually occurred.

Yes, and did a number of things that I won't bother everybody with the boring details, but they did whatever they could to undermine what we're doing.

Yeah, we applied the same technology to Coke Enterprises, where it was an antiquated bottler down in Fort Worth and built Coke Enterprises, which became the largest bottler. And the steel company that I started by buying a bolt operation down in Birmingham ended up with about 25% of the rebar market in North America.

Yes.

Yes.

They're too invested in what they're doing. The people and the systems, the capital that's invested, they just can't. They're like a monkey that grabs the marbles and the coconut and won't let go, which is how you capture monkeys.

Yes. And they try and undermine. They look at new technology. That is something that they can adapt. implement. They look at it as a threat and they look for ways to either through government or regulation or who knows what.

I think you have to look at it like a Petri dish that. The technological change that occurred looks like nothing in the beginning, but it doubles just like that story about I'll bet a penny and double it every time for 18 holes of golf. And that's what's happened now. It's very difficult for people to understand exponential growth. And that's what we're faced with. Exponentially. This technology is moving at such a fast pace and the people that can grab hold of it are going to be fewer because you don't need as many people with the robotics and the AI and everything else. And you're going to find other people that with the labor issues that they they're faced with and everything else, they're going to automate. You know, you can program a robot today by just moving its arms and it'll self-improve to do whatever job you want them to do. Yeah.

So what people did was they came to me because I had built a lot of companies. And so it was like, would you help do this? And I built models, financial models to do the buyout business where we could look at something very quickly and determine whether it was worth pursuing. But the problem with financial models is you've got a lot of latitude on minor percentages and you can make almost any numbers jump through hoops. So you can delude yourself. And the reality of owning the company and the reality of running numbers and getting the bank to lend are two different worlds apart. Right,

Big time. So I got approached. to get involved with companies. And then in the process, I started looking at having the time rather than always reacting to think about, well, what what beyond the financial results really drives a business that allows someone to grow. And I'd grown a bunch of companies like even the serious operation, we had 2500 contractors and about 1500 employees. And we started that from nothing. But the challenge is, what are your drivers and how do you build and sustain a customer base? And so I'd seen a paper from a guy from Harvard, I'm trying to think of his name, professor there, that introduced a net promoter score. And he said there was a 79% correlation with a company's ability to grow. So I looked at that and said, well. I wonder if it's tied to anything else. So I ran the numbers against, we had a company that we did this for. So I ran the numbers against retention.

And it turned out I could get about a 90% correlation with retention and that score.

With their retention rate for the next four to seven months.

Yes. So then once AI came along, and we do this actually for one of the big communication companies now, where we're monitoring all the calls, and you can identify if someone's giving you a negative comment. If you add negative comments and you can get a 96% correlation, and that number is actually higher.

They, yeah, it's like, well, so what? Yeah,

And so then it became. And I knew this from before. There's retention, but I couldn't document what the impact of retention was. So for this industry, when we ran the analytics for this industry, every year that you retain a customer, their sales double. So if they bought once the first year and you retained them, it's two the second year, four the third year. It usually takes... three to five years to bring a customer on. And the customer satisfaction score is really your internal sale of the customers. It's not getting new customers as much as the customer you have and engaging more departments and people to expand your footprint to the extent that you can.

Yeah, so when we ran that number, Ron, what we found was for every 1% improvement in retention, it translated for most companies to a 12% growth rate annually.

and so... That really is your driver. And so it turns out that retention, when you look at the opportunity for this industry, your forecast, the reason why our forecasts are so accurate is that you have everything that you need to grow for the next three years in the customer base you currently have.

they look at it only at one point in time the other key critical piece to this is that you have to look at it on a rolling basis and yes you've got a Let's say you've got a 95% retention rate, which is the average for the equipment industry. That is a 60% rolling 12-month loss rate of customers. You're churning 60% of your customer count on a rolling 12 months. And so the industry is notorious for what's known as churning and burning. And they end up with... Less than 20% of their customers, most of the dealers, when we originally started with them, only have 10% or 15% of their accounts representing 70% to 80% of their profits and revenues.

And I had one salesman tell me one time, I said, you know, how many customers? He goes, we hardly have any customers in this market. And I know them all. I said, well, you've got 80 customers. And our analysis says you've got 1,700 in your market. His response was, I know everybody that matters.

Now, and also people get in a trench. I mean, we did this for one of the big equipment manufacturers looking at one of their divisions. It turned out when we looked at, they had like 60 or 70 dealers. When we looked at their customer bases. Every dealer had four or five industries that they were really focused on. But when we took all the dealers, looked at all the companies, it turned out that there are 120 niche markets that were extremely viable, that any four or five of which would support a dealership in their market. Because of the nature of your sales effort, thinking I'm selling equipment versus I'm really servicing the market in terms of parts, service, rental, and equipment, because equipment's only 1% of the transactions for this industry.

That's transactions from an AI standpoint, transactions and retention. are what drive the business. So revenue is derived. You can't forecast with revenue. You can forecast with customers and transactions.

I think it's very difficult because the industry is a reactionary industry. You know, they start the day and the first call is always somebody jumping through the phone and needing something. And so you end up having most of the time it's reacting to the demands. And salesmen, too, the salesmen, they, you know, they look at themselves as account managers because. The key accounts are going to be where they sell the equipment. So they're always going for elephant hunting and ignoring the larger part of the market.

No, you're not. The risk is that the relationship becomes much more tenuous. Yeah. And also the time because of the efficiencies that, you know, we call them efficiencies, but you think of the amount of time you spend on your cell phone.

It's very scary. You can look at most cell phones track how many hours you're on the phone. That diversion, sometimes it's constructive, a lot of times it's not, makes it very, very difficult to engage. So the salesman has to be selling the full program. It's no longer a salesman, they sell equipment, the OEM pats them on the back because that's what they want to sell is equipment. But the customer looks at you as parts, service, and rental. Who's going to take care of my real problems? So if you're capable of communicating and handling the parts and service and rental issues, which keep jobs going and delivered on time, you've got a relationship. But a lot of the salesmen kind of are, you know. It varies by dealer, but oftentimes they're white gloves when it comes to anything that's high-priced equipment.

But when you really look at the cost and how much money you make on selling equipment, especially in an inflationary environment, you're losing money even though you think you're reporting money. The only one making money is the IRS collecting taxes on your inflated profits that have no ability to purchase the next piece of equipment.

It scares them. It also scares the OEMs because you're not paying attention to what I want you doing.

Exactly. I gave you this franchise dealership for you to sell my equipment and you're not selling my equipment. You're selling parts and service. But the better, you know, there are a number of manufacturers that fully understand this and support the parts and services are primary. you know, avenue for retaining a customer for the opportunity to sell a company. But that's, again, oftentimes not the case with a lot of the people out there.

Yes. But what's happened from our benchmark survey show that where brand used to be really critical, brand gets zero points in Canada and only five points of 100 points on why they do business with a dealer in the United States. It's principally. It's a really important thing to understand.

And also what's coming out of China, the people, unfortunately, that built plants in China, they trained the first crew. The Chinese moved that crew to a... a plant that looks better and with enhanced operating procedures. And then they train another crew and they move it to another plant. And I was in Beijing. Yeah, I was in Beijing and I'm looking up and I say, God, you know, the one OEM that I was very familiar with, I go, they own this market. And the guy goes, none of those are cranes.

the ability to manufacture, truly. And it's hard to get someone to go into a plant that has the hands-on knowledge application requirements that in today's world you need.

The things that really matter are with that machine, the parts, the service, and the warranty claims. Because as a dealer, you can't afford. You think, oh, I make money on warranty, or maybe I don't make money on warranty. But that is not a good thing to have. A warranty claim is an unhappy customer. And it reflects badly on the dealer. And you need to fire OEMs that have real warranty issues because you'll destroy your market.

It's like International Harvester. I mean, I tried to, I was involved with trying to buy Steiger tractor from them. And the guy who was running at the time before they went bankrupt explained to me that the real business was credit. That those farmers were just too dumb to know if you just give them a deal on finance, they'll buy anything. And Sears Roebuck had the same attitude with the credit. The money was being generated by credit. And it was because they're pushing all their costs up to all the departments. So it made it look like they're. generating the money. So a lot of these organizations lose sight of that. What really matters, all business revolves around one event. It's two people exchanging goods and services. That's all it is. And then everything else should be supporting that moment, not the reverse. But a lot of people silo and don't understand that critical relationship. Yeah.

Yes. So

That's true.

They'll say that.

Well, they could do it. And the people that do, and I had one in particular the other a week or two ago said, well, this program, your analytics is taking away a third of my job. I said, what were you doing? He goes, well, I was building a lot of this stuff with Excel files. And as needed. And on top of it, I wasn't, you know, in this case, I wasn't able to forget a forecast. And I was usually 60 days behind on providing this. So, you know, everything was out of the barn by the time that anyone figured out what was going on.

Yeah, I think, you know, CDK has done a link with our system. So it's really easy to bring on a CDK dealer. You know, John Bowling and that whole team has done a wonderful job in looking for ways to make the information they're gathering usable to the extent they can.

Now, Target, those guys, which is invaluable, actually, they can drive down to the detail. So it's great to know that I got a fire burning, but, you know, what specifically, how do you get down to that instant? with the information that you would need to determine where the opportunities for cost savings or efficiencies need to be focused.

I think people think they want to know the information. It's important, but you have to know it in the context of, okay, is it going to make a difference? Can I measure the impact? And again, as you know, the allocation of costs, the reason why we avoid getting into... how someone, an accountant decides they're going to allocate based upon whoever's, the bigger personality within the organization allocates costs. I tell people that, you know, just straight invoice, it's very difficult to, you know, screw that up because it's the customer. What are they paying? And then what did you pay for it?

That way I don't get into arguments with somebody on, well, your numbers are all wrong. Well, they're not. They're actually the real numbers, and you've got accounting problems.

And they don't have a cost of sales because the ability to track true hours and application hours. what's known as a tar baby machine, everyone's got one, that sits there and magically accrues hundreds of hours. And then someone screwed up on that machine. So if you put a management in of a department, oftentimes they're making it ineffective because they're applying hours to machines that they shouldn't apply to or... blending hours over into another machine because this one took too long or, you know, all this, you know, crap that goes on. Well,

They don't have the ability, but they do have how many techs do they have on payroll? And what's it costing? That's a very simple number. Very simple. It's very difficult. I'm paying a salesman. I'm paying a tech. I know who they are. I know what they do. I know how much I pay each month. And I know what my contribution is.

That's what we're doing. We're starting to do that for people.

Because we can actually look at payroll and break the payroll up and you can assign it to a branch in a department. And it doesn't matter how you allocate the hours. What matters is, did you make any money in that department? And then that's why you have a manager. I'm not going to micromanage. a service department. I've hired somebody to manage that, manage it profitably. And what he's got is what are the revenues in and what is he spending to service those revenues?

Roughly, if you've got 10 locations, probably about $1,000.

We'll show you what customers are at risk.

Meaning? What's the likelihood that you're going to lose that customer in the next 12 months? Okay.

It'll show what your retention rates are by department, by branch.

They should be. But usually what's interesting about salesmen, if they're assigned to an account, a lot of dealers take what are known as house accounts. Yep. And the difference between a salesman-owned account versus a house account, the retention rate is almost double.

Salesman account.

my income. I own it. And yeah, so this personal attachment, and we go back to this, and the customer, surprisingly, the customer, even though the sales guy supposedly is only selling equipment, when you ask the customer, who do they contact? They contact the salesman for parts service rental because he's their obonsman for determining how does that customer get service out of that dealership.

He's the gateway. And the knowledge and experience of that salesman is really critical. And if that salesman changes, the likelihood of losing that customer is 50% in the next 18 months. Yeah.

Yes.

Yes.

I think it's, it's, it takes somebody that wants to. It's looking at the business differently. And that is a challenge for almost everybody. I'm including, I'll put myself in that. Oh,

We're older. We're always, you know, you know what you know. And then when someone's going, well, take a look at it this way. And you go, I don't have time for that. So a lot of this is. taking small steps, first understanding, and then choosing one thing at a time. And if you're going to choose one thing, the number one thing is retention. And then retention goes with engagement. So in order to retain them, you need to engage them to get their frequency of purchase up to a high enough level consistently that you'll retain them. It's like going to a restaurant. If you go to a restaurant, you know, once a week for, you know, five or six weeks, you'll put up with a bad waiter or a bad dessert or, you know, whatever. But if you go once and any of those things go wrong, you're done. And in today's world, because of, you got to remember, your opportunity to lose a customer exponentially increases with every month that goes by. Yeah.

We give everybody the list of customers they need to contact.

The dealer, when you look at who they're contacting rather than A, B, or C, it's really a stable account is where all the business is. All your money is somebody that's never going to leave. In order to get there, you have to get a high enough frequency that's consistent to achieve that. Even a contractor with only four machines will buy more than 12 times a year from a dealer, and they prefer 84% of the time to buy from a dealer if it's available.

That's their preference. So all you got to do is make sure it's available. And most of it's parts today. And so monitoring the parts calls and encouraging and also carrying what they buy. You need to have for the trigger items like filters, good, better, best. You need to be selling 100% of their filter requirements. That'll give you the transactions because a stable account isn't derived, even though it's 10 times more than your average account, a stable account. Most equipment dealers have 20% of their customers as stable, and it represents, as I said,70% to 80% of their revenues.

But they will go out of business in doing that.

Yeah, they can't survive. You can see it where as an industry is changing, you're seeing old line, you know, solid, you know, well-established dealerships, you know, blink out of existence and get merged. They're not making it. And it, again, a stable account, even though it's 10 times on average more, but it could be somebody that spent a dollar. every other week for a year.

It really is. I mean, if you look at a production line, it used to be people would put in a production line. It would have to have to justify a 10 or 15 year life. Yes. Yeah. And it went down to seven years. Then it went down to three years and they couldn't make it work. So as they shrunk the time to make changes, they became variable machines. So now all you have to do is roll in one. machine and you can fix the line and retool.

And also the CN nature of equipment allows you to, rather than hard programming a machine to stamp something or do something, it's You have the flexibility. You can change whatever you're running through that a lot. So the flexibility has come at every little step of the way. And all those changes are not linear. They are exponential. Yeah.

Yeah, I think that's the risk right now. And that's why when you brought up the time today is like the 1880s to World War I, where you have a complete disconnect of industrialization and the worker. Who owns and controls that process? And we're going to have the same problem. You've got automation on one end and technical expertise in the hands of a few controlling a large capability of your economic environment.

Yes.

Well, it scares people because now you're pre-assigned. Like you're going to be a farmer. You're going to be a, you know, it's like you don't have free choice because you've been programmed. You're going to be a criminal. So we might as well lock you up now and save the world of trouble.

Yeah, I think it's going to be the individual that has the flexibility to absorb information quickly, either because they can mentally or they have tools that provide it. And then apply that knowledge is what's going to kind of take on the changing, rapidly changing world that we're in.

Yeah, I would say that's true. It's if people learn things ropely and not see the context, it's like, you know what it is? It's like doing math by formulas and not seeing the picture that the equation creates.

Well, I mean, that's really the leadership that's required is someone that can look out. And not push people or force them or reward them, but look at a vision and articulate that vision in a way that it's going to be to the benefit of everybody involved. And then with that, you can build a company.

No, it's going to change as we speak. Yeah.

And I know people are saying, oh, it's going to go back. People are going to be begging for jobs. But talent in a changing environment gets paid.

And also find out, are any of your marketing and sales programs working? Generating a return. I mean, some core things that as someone running a business, you need to know. Otherwise, you're just reacting, and you'll just be really surprised if things turn against you.

I need three years of invoices.

You have where it was shipped to, where it was billed to. So we have distance. The AI tracks the distance from your service locations.

Yes, and when we've run this forward, this is always fun. It's done much better than we ever expected. The accuracy of the forecast has been up above 95%.

Yes.

Yeah, we'd do that in a heartbeat.

haven't. The battle around comes with when we start doing this, it's who actually did it? Exactly. I've had salesmen say, that's my customer. And I say, well, they haven't bought from you for four years. Are they really out of business and they were your customer? Oh, no, I've been there. They're my customer. And you're going. So when change happens, I had one OEM guy. You can appreciate this. He is at a meeting with a whole bunch of executives and he has the view of the world that nothing gets sold.

Now, everything that's sold is because of him. And I said, how did you arrive at that conclusion? He said, well, these dealers, they come to me and they want a deal. And the only way it gets done is if I give a discount. That's the only way that this equipment gets sold. So everything's because of me. And, you know, everyone often holds the tail of the elephant, but hopefully not too close to the rear.

A lot of it's very simple things. It doesn't cost money to answer the phone and say yes.

You can, it's just when and when and how much. Yeah.

What I'll do, Ron, is I'll put together, because this is a lot of information on how this all works. Yeah. Just taking one segment at a time. So I'll do a blog on just specifically retention. Perfect. And then the other key to this is engagement. And internally, you've got to have the data available on a screen in front of whoever is talking to the customer. So how do you get that data to the person who really needs it at that moment? And how do you touch it once? So some of these are tools that are available. And we've built some of them. We've got one of the companies we have is Chatterhub, where every phone call and text and email is tracked and it logs into that account. So a lot of the tools are emerging. So it's like looking at what's going to make this happen with the least amount of employee input with the greatest impact on. What are they supposed to do? What are they supposed to say?

And what information do they really require at that moment, wherever they are in the field or behind a desk or behind the parts counter, to respond to the customer immediately and intelligently? And if they do that, you get transactions and you also identify, we drop down to the line items. We're looking at what are the trigger items for, which are your drivers. Right. to get the transactions that you're looking for that will build the business. So it's a lot of information, but I'll put together a series of blogs.