Consider these lessons before you try to grow your shop into an MSO

Jan. 1, 2020
As the costs of equipment and training increase, becoming an MSO is one option for shops needing to increase revenue.
For a picture of j
ust how complex, vibrant and variable the collision repair market is, consider these transformative events from the last five years. In 2007, as the world economy tanked, so did shop revenues. As the economy struggled to revive, much of the industry struggled simply to survive. Some of the industry's most reputable shops reported slipping profits. Anecdotal evidence suggested a market whose landscape was being increasingly dotted with the hulks of shuttered shops, whose owners either decided they could no longer afford to compete or didn't believe their efforts would pay off.

From this gloom and misery grew a repair industry that appears to be in many ways much stronger and survival-capable than the one that preceded it. The changing landscape is proving to be fertile business ground for shops with successful operational models that are looking to expand. Weakened competition and the ready availability of repair space, equipment and labor are making the transformation of single-site operations to multiple-shop operators (MSOs) – and the growth of MSOs – more appealing than ever.

Indeed, according to numbers collected by ABRN, MSOs are grabbing market share faster than any other industry business model. In the last decade, MSOs grew from handling 10 percent of claims to 18 percent — nearly doubling their business and their chunk of the repair industry pie. As the cost of necessary investments in training and equipment continue to rise, becoming an MSO is beginning to look like a desirable option for many shops needing to increase revenue.

 Ron Nagy

The steps to making this decision and transforming a repair business into a successful MSO are unique to each shop. The lessons learned from others who have successfully made this change can be valuable to every repairer. Let's look at some of the most significant lessons provided by ABRN Top Shops, along with the decisions of Top Shop winners who currently plan to stick with their single-site format.

Lesson 1: Find a motivation beyond the money

Bringing in more revenue is usually one of the main, if not the most significant, motivation for growing into an MSO. MSOs also offer other economic advantages, perhaps most notably, buying power, since vendors often offer significant discounts to businesses that purchase for multiple sites. The shops ABRN spoke to noted other, more significant reasons for their decisions.

Ron Nagy, president of Wooster, Ohio-based Nagy's Collision Specialists (a 2011 Top Shop finalist), said he and his brother Dan came to their decision in 2005 after sitting down for a cup of coffee at a local restaurant. Nagy says he and his brother realized they either could "roll the dice" and open another location or stay put at their current spot, where they had been successful and relatively content for a decade.

They decided to open a second location ultimately, not because they were seeking more revenue, but because they wanted to take advantage of the opportunity.

"What was most important to us is that we didn't want to look back one day and wonder what could have been," Nagy says.

While basing such an important decision on personal belief may seem a bit reckless, Nagy says the decision also was economically feasible. The investment needed for a second site – several hundred thousand dollars – wasn't a deal breaker. Nagy now has five shops and one express location.

"Taken over the course of a business lifetime, several hundred thousand dollars really isn't that much," he says. "In time, you can absorb a cost like that. So why not open another site?"

Laura Gay, who co-owns Fort Washington Auto Body in Oxon Hill, Md., with her husband Rodney, says the couple was motivated by several considerations. One of them was gaining new insight into the collision market and buying power.

"We wanted to see how another shop handles its business," Gay says. "If you're going to grow, you can't let your thinking be stagnant. We wanted to know how others look at the industry and approach running their business."

Kyle Danielson, general manager of Mesa, Ariz.-based Invision Auto Body, said expanding was a natural progression. Invision always has been focused on building every part of its business. By expanding, the shop was staying true to its identity since adding sites was a way of building new business, Danielson says.

Lesson 2: Expect a learning curve

The steps necessary to transform a shop into an MSO typically are as unique as the shop itself. Repairers report that there is no one correct or clear path to expanding to a second site. Those taking this path, they say, can expect a fairly steep learning curve.

Nagy says, "I had no idea how much there was to learn." You're just not going to know what you're going to need to know until you do it."

Nagy says he benefited by reaching out to friends in the Automotive Service Association who already were running MSOs and were more than happy to give advice. Other lessons were picked up from experience.

In his case, Nagy said many of the most difficult lessons were economic. For example, he says when he first opened his second shop, he thought his business could save money by sharing equipment across businesses. That proved not to be the case.

"You're going to look to save money in places, but you find a lot of expenses you may not expect," he says.

Gay similarly reached out for help when transforming her business into an MSO. "MACRO, the Mid Atlantic Collision Repair Organization, was especially helpful," she says. "A number of its members are MSOs. They gave us a lot of helpful advice and tips."

Gay reports that she and her husband didn't face a steep learning curve. That may be due to their unique approach to building an MSO, which they based on the founding of their first shop. When the Gays decided to become shop owners, they purchased an existing business that was struggling, but had plenty of growth potential. The Gays turned their fortunes around by instituting a number of changes that quickly transformed the business into a money maker. Today, they target shops with similar problems and potential. They partner with shops that become part of their MSO.

Regardless of how they entered the MSO market, Nagy and Gay report that bringing on additional sites gets easier after the first expansion.

"It took us a year to get our second shop running the way we wanted it," Nagy says. "Now, it's a six-month, at most, process."

Lesson 3: Focus on what made you successful and invest in a similar model

The Gays used the very same process they used to open their first shop as they did with the two that followed. They shopped for businesses with great potential that needed guidance.

When Invision decided to add locations, Danielson said the company looked to build fresh from the ground up, which can be expensive. Shops that don't fit the Gay's business model or that have limited funds still have plenty of options when adding locations. They might want to consider the course Nagy has adopted.

Nagy looks at shops similar in size to his other locations and examines factors such as existing equipment and labor force. Nagy says repairers can realize substantial savings if an additional site already has the tools and workforce it will need to survive. Because his business relies heavily on DRPs and strong insurer relations, he also looks for shops that have these factors in place.

Once an additional site is selected, Nagy, Gay and Danielson effectively build similarity into their new operations with training and through the implementation of well-documented and practiced standard operating procedures (SOPs). SOPs reign in potential problems and allow ownership and management to handle any challenges or new implementation of policies and practices across sites at the same time. Evidence shows that as an MSO grows, so does the number of SOPs, along with the description of each.

SOPs are so important to Nagy's business that he created an SOP guide called the Ultimate Customer Experience (UCE). The UCE is a "live" document that sits on every location's server, making it accessible to every employee, from the location managers to detailers.

The UCE documents every stage of a repair and the service to be delivered to Nagy's customers, along with insurer information. Changes to the UCE are made at Nagy's corporate office and are immediately updated throughout Nagy's system so that every site has immediate access.

Lesson 4: Build around a great organization

SOPs are just one piece of the MSO puzzle. For them and the MSO to thrive, the MSO must possess a talented management team. Indeed, one of the greatest challenges of expanding to another location is building multiple management teams that can work together across locations while handling operations separately at each site. So before any shop expands, it must carefully consider whether its organization possesses the right human resources to maintain what it has while building new business.

Adding a new location typically means adding managers. Considering the stress and difficulty of building a new location, bringing in outside help isn't the best option. Nagy, Gay and Danielson all use their existing staff and build whenever possible from within.

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Nagy says his business regularly promotes management candidates with an eye to transferring them to new locations. In the Gays' case, during their first foray into MSO territory, the couple tried to be as hands-on as possible. Rodney continued managing the main business while Laura moved over to the new facility. Laura says today her role is to function as a comptroller, overseeing the activities of multiple sites.

At Invision, Danielson says his shop makes building a strong management pool a priority. They've been so successful at building the pool that it behooved the business to add a third site to utilize what Danielson called an overflow of management talent.

Danielson cautions that simply having trained managers isn't enough to ensure the success of another site. Managers must reflect a business culture that promotes cooperation and respect. Danielson says Invision has experienced success as an MSO because Invision is, at its core, a family business where managers share both knowledge and a commitment to the shop's values and practices. This commitment, he says, has helped build a management team that can efficiently transition to any of the business's sites.

"Our management already knows our business so well that my dad, or I or someone else can work over at the new shop and it doesn't affect anything at our other locations," Danielson says.

Staying put at one shop

Gay shares this view, though she also is quick to point out that familial relations aren't necessary to build an MSO. She stresses the values that must exist within any partnership or organization when it attempts to expand – most notably, mutual trust and respect.

"There has to be respect for everyone's values and goals," she says. "This and trust help build the communication this kind of business requires."

Lesson 5: Look for a market first, location second

Once a shop has the organization, resources and tools in place to expand, the next challenge is finding a place to locate. While settling on a shop that may have just closed or one positioned for a turnaround may seem like an ideal target, repairers may be better set by basing their expansion choices on a market instead of a specific shop.

Gay notes, "We looked for sites where there was growth. We looked where people were building office space and houses."

"You don't just look for business. Growth is the key," she says.

Nagy adopts a similar strategy. He says shops shouldn't shy away from entering growth markets even if they face plenty of competition.

"I don't want to come off as arrogant, but if you want to pursue business somewhere, go ahead and place your shop right next to another one," he says. "You need to be that confident in your business. And you have to go where the business is."

With plenty of market to compete for and a business model that is growing in success and popularity, MSOs could be popping up against a lot of single-site shops in the near future.

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