PART TWO: WHAT AND WHERE?
In our first segment we put you through a process designed to identify wrong or insufficient reasons for opening a second location and to focus instead on the right ones. Are you still with us? Still convinced that the growth and strengthening of the business can best be accomplished with a second location? Good. This time around we'll do some hard thinking about where it ought to be, and what it ought to be.
Acquisition of an existing collision repair facility would require a separate study and article, so we limit our attention here to building a new "greenfield" facility or going into an existing "brownfield" non-collision commercial or industrial space. We also assume the second location is sales and repair, which is different from a retail drop-off point or a non-estimating repair annex.
As an industry we have a bad habit of mixing where and what into an intimately linked, almost inseparable decision process. Whichever opportunity arises first tends to drive the other. Most of the time we decide to open a second location and then go looking to see what's available. If we find an appealing building or a nice piece of land, well, that's where it will be, and what it will be is constrained within those physical parameters. Alternatively, if we have drawn ourself a fascinating design, that's what it will be and where will be dictated by wherever we find a building to accommodate the design.
I suggest a slightly different approach. Let's try to set aside for a moment that building or lot we already have our eyes on. Let's also try to forget the ingenious production layout we drew at the kitchen table. And let's separate the what from the where for a while and see what happens.
First the "Where," Then the "What"
Generally speaking, we tend to form an early picture of what we want to build (or buy), then go looking for an available place to do it. When we find one location, we count the cars going by and get all excited. But I think where needs to comes before what and here's why. Urban and suburban populations shift. Some rapidly, some slowly, but all are in motion. Commercial and residential growth, and with it miles driven, traffic density, employment, economic activity, all migrate in one direction or another. Once carefully located in the anticipated path of that growth, a repair location can change to meet the evolving needs of that market concentration. Assumptions about where are more important than assumptions about what. In short, we can fix the wrong shop in the right place for a lot less than fixing the right shop in the wrong place.Insurers' Urgings
Insurance Company "X" says, "We could use more repair capacity in "Y" location. We'd love to have you open up something over there!" It feels so good to hear that. Enjoy it. Certainly take it into account. Get what you can of their assurances, and thank them for their interest and confidence. But your first responsibility is to open at the right place for your business for all insurers, for a long, long time. The insurer who encourages you to open at a certain place is probably completely sincere, and he's doing his job. But he cannot, and probably should not, commit to volume over a time frame that is anything but a tiny fraction of the consequences of your location decision. Welcome and enjoy insurer encouragement. But other than breaking a tie between two candidate locations equally qualified by the rest of the analysis, it's reckless to use it as a deciding factor.Competitive Frontal Attack?
Everybody likes to count cars going past a prospective location. Long before that point, however, there should be a cool-headed appraisal of competitive positioning in the local economic picture. We often start with the idea of trying to find an "underserved" market niche. But that may not always be the best approach. For example, is your principal competitor flourishing in an area which (a) is still growing, (b) is healthy and stable but with limited further growth, or (c) may be actually declining a bit? Is the major employer in the area continuing to lay off? If they've downsized, say, 20 percent or so, don't bet a nickel on their ever getting all the way back. Before, they didn't know they could operate the company without all those people, and now they do.As we mentioned in the earlier article, all newly created collision repair capacity must be filled at the expense of other repairers' business. So wherever you go you have to take business away from somebody else anyway. If you hadn't already decided that you're perfectly capable of doing that, you wouldn't still be with us on this subject. Besides, what do you know about the competitor's backlog? If they're constantly loaded, is that intimidating to you? It shouldn't be; to me it encourages confrontation. Are their estimators sending driveables away with appointments 10 working days in the future? If so, they're underserving a hot market. Are there 50 cars waiting for teardown at a facility that absolutely can't paint more than eight cars a day? If so, their cycle times are in the sky. If the competitor is still growing, and their market area is still growing, go where the action is.
...Or a Stealth Maneuver?
If the major competitor is in an area that has peaked, or has you locked out with a zoning board that doesn't want multiple collision repairers, then your next move is to find the path of the growth, and beat someone else to it. Look for an area where high housing starts, and identify which edge is moving outward. Even more important, in which direction do the new homeowners drive to work? In the direction of the growth, or back toward where they used to live? Start looking in the area equidistant between where the jobs are growing and where the houses are being built.Then start looking for the "For Sale" or "For Lease" signs. And when you find some, then, and only then, start counting cars. If you want to feel like a real researcher, check out the typical age of the cars, and the age of the drivers as well. For both, younger is better for collision repair.
Retail vs. Industrial Expense
Once we've narrowed our candidate geography down to a circle a mile or two in diameter, there is a tactical economic decision to be made. Locations in proximity to high traffic flows past consumer retail environments cost a lot more than light manufacturing property even a quarter mile off the beaten path. This results in fewer square feet and less adjacent dirt for future expansion, less money left over for facilitation and equipment. But conventional wisdom and our traditional instincts lead us to the store right on the busy road: A highly visible, attractive facility imprinting itself on the minds of daily commuters. "Going to work and returning, they will see the shop twice every day," goes the logic, "and when they have a wreck, they'll remember." So it's worth the premium for the high-traffic location. Well, maybe and maybe not.One of our clients has a high-traffic retail location right at traffic signal, at an angle where the southbound and eastbound alternately stopped lanes of cars have little else to do but stare at his store. Another has a "grandfathered" 30-ft. monster sign of Las Vegas proportions out front, that I'd have to admit gets the message across. But beyond extraordinary circumstances such as these, I have no evidence to support that economic tradeoff, particularly if there is industrial property nearby. I think the majority of people driving by either don't know you're there, even after several years of exposure, or else, for all practical purposes of consumer behavior, you become invisible. Your beautiful reception area is inside; it doesn't start selling until someone is in it.
Today, insurers' directed ("recommended") direct repair program (DRP) claims are climbing into the 30 percent to 40 percent brackets, as a percentage of all claims, with no slowing in sight. Spend the money on keeping the customer, rather than panning for gold in the traffic stream for the new one. Spend the savings on a gorgeous reception area and on marketing to insurers, and on acquiring space for expansion. Finally, there is bound to be a significant difference in the sheer time cost of the zoning and NIMBY ("Not in my back yard") resistance. Other than extraordinary circumstances, there's a better bang for your buck a block or two off the main drag.
Distance Between Shops
The distance between the two locations matters because of "load-leveling," the distribution of volume to optimize cycle time and workload. Unless the uses of the two locations are mutually exclusive, you're almost certainly going to be moving cars between the shops. If your major insurers say they will never let you write a car at one place but fix it at the equally qualified other, tell them you understand and will comply. Then prepare privately for the day when they change their minds, because they are going to.Dealer Country
Love it or hate it, dealer-referred volume can have a proper and useful place in many sound collision repair business strategies. If it's part of yours for this location, take into account that proximity is a factor. Dealer customers don't like to go far from their first stop, and somebody (mostly you and your employees) is going to have to move those lot damage and warranty jobs back and forth quickly.Now let's look at some key factors of what.
Size
Big subject. I'm a realist; I know you already have something in mind, and I'm probably not going to talk you very far off of it. But here are a few points anyway.First, we tend naturally to overestimate our ability to fill and manage a second shop; its design is usually as much a statement to ourselves, about ourselves as it is a hard, cold reflection of reality.
That's why virtually all third locations are smaller than the second. They're built by guys who survived getting the "Taj Mahal" out of their systems. Look, people are hard to find, and twice the people are twice as hard to find. But the real nasty surprise is this: Twice the number of people under one roof is not twice as hard to manage, train and motivate; it's often four times harder.
Let's say you're up for that, anyway. If your people can manage-or teach others to manage-8000 sq.ft. and eight employees, they can probably manage-or teach others to manage-12,000 sq.ft. and 11 or 12 employees. Cross much farther than that, into the world of 35 or 40 people, and you're on another planet, in a long, cold and lonely learning curve. Finally, obviously, is the financial amount at risk. You can't prevent the possibility of a bad first year. But you can at least pick your pain in advance. Here's my best shot: How would you rather spend 10 or 12 months? Frantically trying to get the work out of an overloaded shop that can be expanded when things slow down, and with the first location potentially able to help? Or trying to get enough work into a ravenous overhead machine which may die of unabsorbed fixed expense before things pick up, draining work away from the first location to keep the whole business alive? Limit your second location to a decent-sized building you know your people can run, with excess existing or potential parking space to expand into.
Dedicated Design
Full range of production with the same mix of repairs as at the first location? Or, the latest industry subject du jour, a "Heavy Hit Center"? The prospect of getting those train wrecks out of the repair flow at the "mother ship" is pretty tempting. Let them build those $12,000 monsters on the frame racks somewhere where there aren't four $2000 jobs waiting to get on them. We can stop moving cars all day, and cycle times will go way down. That is, or was, the idea. Unfortunately, the results of such experiments are at best mixed.At the very least you may have to devise yet another and quite different pay plan for the heavy hit techs, if you can find them at all. And you'll be parking and moving lots of totals as a percentage of the population in the shop at any point in time. If you absolutely cannot resist the temptation to head down this path, at least think through the alternative: Consider making the new location-or a large and separate part of it-a light hit, fast-track center. Leave the mix as is at the first location, where they're at least used to it, and run the new place on sheer velocity. Better still, defer the dedicated repair idea to the third or fourth shop. On your first expansion, build an all-purpose repair facility. You have enough to worry about.
The Musts
No matter where or what we build, it's our opportunity to replace or eliminate the things that drive us crazy at the first location. Does this seem too basic to mention? You would be astonished at how many gorgeous second locations wind up with the same operational quirks and glitches as the original shop. They just don't get the attention until it's too late. There are far too many to list, but here are three areas to examine for change:Space is expensive. Do we really need a bigger parts area at the new place? Or do we need a much smaller parts area, and a much better way to schedule parts and manage returns?
Why are we estimating and selling in the same space, elbow to elbow, where we are simultaneously delivering cars, collecting deductibles and dealing with customers' post-repair questions and concerns? Aren't they two different kinds of transactions, requiring distinct environments?
You may have beautiful reception/office area, with a door marked, "Authorized Personnel Only." Assuming you are proud of the way the shop is maintained, why can't the customers see into the shop? They've all seen nice reception areas. But the majority have never seen a beautiful repair space. They never stop talking about it afterward.
Above all, make the list of all the things-large or small-about the original location that can't be changed there, but can be fixed when starting fresh. Because you probably don't know more than a third of them yourself, circulate that list among the employees. Make sure they are kept firmly in mind and don't get lost in the grandeur of change as you build or remodel at the second. Whatever you do, don't borrow money to duplicate fixable problems.
Been There, Done That
Probably a thousand times, both the right way and the wrong. For heaven's sake take a couple of days and visit someone who has operated his or her second location for a year or two, or may even be building a third or fourth. For the cost of a plane ticket or a day's drive, the return on investment, in terms of avoided mistakes and discovered opportunities, is huge. If you don't know where to go, write to me care of ABRN and I'll tell you who to visit not too far from you. Ask somebody who's done it already and learned from it.Good luck. Next time, we'll prepare for the execution, in "The Second Location, Part III: Making it Happen."
