Series 2: Focus on Private Cap vs Public Companies

SERIES 2: Public vs Private Cap (Focus on Private Cap) and some true stories.

First, thank you for the responses and feedback to Series 1, I enjoyed your thoughts and questions. Nearly a 1,000 folks engaged.

Private Cap is where I started and I had many tremendous opportunities and lessons learned for life, and there’s no denying that it was the springboard that gave me a shot and a leg up for huge opportunities in the “consolidator” arena too. Private cap companies truly operate in a different hemisphere than the consolidators. While the relationship with manufacturers exists for both public and private, the modus operandi diverges quickly in philosophy and daily routines. As I did in Series 1 with the focus on “public/consolidators”, I will list the positive and the challenging conclusions too, from a lifetime in management.

First the good stuff: Here are highlights of what private cap gets right..

1.) Direct connection to ownership: I had a hell of a lot of fun and built close friendships and had 1 on 1 interaction nearly daily with Principals/Owners. That made for an important direct connection with NO filter in between us. To be clear, I must add that I had quickly advanced into Management positions due to my personal business background (I owned my own company for 7 years before going into Management for others) so this put me “in position” early on and I was dealing directly with ownership quickly. This was an early advantage.

2.) Decisions: When you have your facts correct, decisions can be made NOW and there’s no committee or additional layers of personnel to scale, and that makes for lightning-fast changes. But you must be correct in your plan and show the rationale for spending money (ROI). Don’t forget–it’s not the money, it’s the money!

3.) Becoming streetwise: This is an intangible that most people would never think of. You’ll develop a street wise management style quicker in a private cap organization, as in most cases you will be the decision maker without asking for permission. This is invaluable in learning how to either satisfy a customer, dealing with rogue employees, or when making the tough call to fire a customer which is very rare. Firing customers can be a reality when working in a retail environment–it’s just the odds of dealing with literally thousands of customer contacts during your career. Remember this–you can do everything right all day long, all year long, but the crude reality is that 1-2% of the retail public is totally nuts, and there’s nothing you can do to make them happy. I have always had a low tolerance for crazy people in my career, (customers or associates) don’t get me wrong, when we were at fault with a customer, I gave the farm away, but when an irrational consumer is playing me for a fool–I have always said, they’re NOT a customer.. Private cap gives much more leeway in using your streetwise abilities to make decisions with the customer, or the rogue employee. What your lessons are, and what you gut tells you from those lessons, will serve you well for an entire career.

4.) PRIDE: In my experience with Private cap ownership, I was more prideful in delivering over the top results because of the personal relationship and direct connection I had to ownership–it’s like coming home with good grades to Mom and Dad. You’ll feel that what you do is not only going to be seen, but also complimented, or a reward given quickly–that drove me to do better all the time. Don’t get me wrong, I killed it in public companies too, but that’s because my behavior and routines were already highly developed from my private cap days.

5.) NOW is always better than LATER.. Osmosis doesn’t work in real world business–I’ll admit I was fortunate with most of my private cap experiences (most). I learned early on to interview for a job on the basis that I had to have autonomy, and that I needed to make decisions without compromise or delay–while this may sound unusual, the fact that I could even ask for that type of freedom says something about talking to a private cap employer in the first place–try doing that in a public or consolidator environment–you’d be better off to show up at the Vatican and ask for a sit down with the Pope. One time I can remember interviewing for a big job in a private cap company for a fixed operations multi store manager, and saying during the interview, “the only way I’ll take the job is if I’m seen as the General Manager of Fixed Operations”. I got the job, and it turned out to be one of the most happening things ever in my entire career–which speaks more to autonomy, than about me personally.

6.) Developing people is a faster track in Private Cap–in a consolidator organization, there is a line of people inside the company out the door and down the street to be considered for the job first–that can be very frustrating. I promoted literally dozens and dozens of folks coast to coast, in both private cap and public companies, but there’s no question that when you spot a talent, or see something in a person that you like or can build upon, you can make it happen for them quicker in a private cap company–later in my career this became a “bench” of talent that I drew upon for my jobs with the consolidators. A TRUE STORY: One day I got a call from an owner, he said, “Bruce we need a Service Director for the store that I closed on today–meet me there in 2 hours.” I called a friend who I knew who had talent and he needed a job–I said, “meet me in 2 hours.” We walked into the store and sat with the owner, and I introduced them to each other, and I said this is the guy. The new guy was German with a fairly strong accent. After about 20 minutes, the owner said this: “Bruce, I’m Italian, you’re Irish, he’s German and this is a Japanese franchise–how does that work?” I said, “it’s Ellis Island all over again and we’ll kill it”–we all laughed together, and my friend was hired on the spot—now that’s a FAST TRACK! That German friend of mine is still a close friend to this day, and he did a great job! You’ll never experience this in a consolidator operation.

7.) Mistakes: Read carefully to understand this one. Mistakes–everybody makes them or takes hits. In private cap, big mistakes are not easily absorbed, so you’ll learn to be more careful (if you’re smart) and you’ll absorb the lessons. I used to tell people when they made big mistakes: “let it soak deep Brother, let it soak deep, and don’t ever repeat this one again”. Private cap is a great learning ground, and the lessons hit home much harder. Dealing with mistakes and not repeating them is an intangible learned the hard way and it becomes a storage vault of knowledge for you and ends up being a big plus over a career! TRUE STORY: I was running 9 business locations for a guy in KC who will remain unnamed, and one day we were sitting together in his office (looked like a movie set in Hollywood) and I asked him–what is the first thing you worry about and try to manage every day? He took a sip of VO and Water, looked out the window and said, “Bruce, all I do is get F’d all the time, so I try to avoid mistakes first.” He’s correct. So, remember this folks, mistakes or people taking advantage of you, is dollar for dollar the most dramatic and bottom-line profit hit you’ll ever take..

8.) More time.. Time is the constant in the universe, and how much you have and how you use it is what drives all success. TRUE STORY: I was asked to address a graduating class for a dealer academy (I had a student that I sponsored in that group). The Publics had been established about 10 years prior and were all the rage, and many of the candidates in the class were from private cap companies and they were wondering, how they could compete with the giants? In part of my comments to the graduating class, I said very directly, “While the publics are engaged in meetings, analysis and conference calls, you’ll have the time to actually take care of and satisfy your customers–you can always win under those circumstances!” I had many of the graduates walk up afterwards and say, thank you, you’ve given me hope!

9.) Profitability: Private cap companies don’t grab the headlines, but MANY of them absolutely kill it and make unbelievable amounts of net profit–you do not have to be a consolidator to make big money. The private companies generally have MUCH LOWER fixed expenses which is a huge plus. A client that I consult, has financials that are simply the greatest I have ever seen. An amazing operation and the financials are so good, that his store can’t be bought by anyone–so good, that it can’t be penciled or improved upon enough to justify the purchase price based on market multiples.. How good is that? Do not be afraid that you can’t win big in private cap company.

10.) Fond memories: And I’m not talking about Jane or Maria here.. Yeah, fond memories do count, especially when you get into the later 1/3 of your career. Looking back across my career, the fondest memories I have from business are from my private cap days. Some of that is purely emotional–I can be a sentimental fool–so what? Thinking of the fantastic friendships and the early big wins matters to me. And a lot of personal satisfaction comes from the time period when I was developing early business philosophies, most of which I still use to this day. I also met ethical people along the way–ethics are the way you will always be known, and I met some tremendous business and ethical leaders along the way in both public and private cap. TRUE STORY: I worked for a Gentleman in KC early in my career, and a few of the things that I remembered the most, were that the store was run perfectly, and my paychecks were always correct. That Owner was F. Lee Major of Kansas City. I’ll never forget the huge sign, hanging over the service drive of a multi lane wide entrance (there were 6 franchises under 1 roof), and the monster sign read: “WELCOME TO THE WORLD’S GREATEST SERVICE DEPARTMENT”. Talk about self-imposed pressure… If you didn’t believe it, you couldn’t work there. What’s the old saying? No pressure, No Diamonds!

The challenges with private cap: Some of the concerns you might run into.

1.) You are a fixed part: What does that mean? When a private cap owner gets a divorce, has a bad day or is simply in a bad mood, you participate. The close nature of working in a private cap has a trickle-down effect, or with some owners you could say it’s Niagara Falls, and you will be expected to fully engage with the problems they are experiencing. There’s no buffer zone, no anonymity and if the problem persists for 5 years, you’ll be feeling it all along. This is not fun and can be debilitating in some situations. You have a choice–either endure or get the hell out. TRUE STORY: Early in my career I was recruited by a guy who seemed magnetic and charming. I was excited to join up with this owner. The morning of the very 1st day, the door from the showroom to the service department flew open. Dale (the owner) came out and was staring at an empty hook on the wall–he flew into a rage and did a fairly good impersonation of the Tasmanian devil cartoon character, yelling and screaming “Where is the mop??” He said, “When I come back out here in 15 minutes that mop better be hanging on the wall or someone gets fired!” He left as suddenly as he came.. I turned to a guy I had just met 30 minutes earlier and I said, “what the hell was that all about?” He said, “Dale is a fanatic that the mop better be on the hook or being used to clean the floor, or someone gets fired!” Well, no one knew where the mop was–so I called a guy over and said, “Hustle your way over to Walmart (luckily it was across the street) and get back with a mop and handle in 10 minutes–here’s 20 bucks–go!” He got back in about 10 and I said, “Hey Man, get it wet, dirty it up and hang it on the wall!” Sure enough on cue, Dale came storming out–looked at the mop on the wall and let out a sigh and turned around. Nobody got fired.. It cost me 20 bucks, but I saved a job that morning. Me, I was looking for a new job the next day. I have a saying, “when it’s bad, it’s all bad” and you get the hell out!

2.) Nepotism: This can be a huge problem in private cap and I have experienced it in more than a few stores. When people talk to me or whine about internal politics in a public/consolidator company, I say, oh yeah?? Then I tell them this TRUE STORY: One of my earliest management opportunities was at a private cap that had “3” active daily owners, all of which had 33 1/3% ownership and all 3 were at work every damn day.. Oh, but it gets better–they all had Sons, and all 3 of the Sons worked for me.. Politics? I don’t want to hear about politics until you learn how to balance what I went through there daily–I had to listen to all 3 owners every day, and then go manage their Boys too. Imagine having all of those eyes on you essentially every minute of the day and still winning at your job too. On top of that it was a militant Union shop and the location in Kansas City Kansas was pretty dicey as well–we had a strip joint on the left side, a massage parlor across the street, a liquor store on the right and a junk yard behind us–and guess what–it was a Cadillac dealership no less! I would routinely send one of the Sons out to either the Strip Club or the massage parlor to find clients when their cars were done!

3.) Undercapitalized: Projects, equipment, pay raises–if a store is undercapitalized, everything can be on hold perpetually.. I do NOT want to paint a picture that all private caps are short on cash, but it is more common than people would realize. I have never experienced this with the consolidators. You can operate successfully with limited cash, but it brings on limitations. It can be a tightrope to walk daily. You haven’t lived with stress until you’ve been in a private cap store and the owner walks in with NO notice and says we can’t make payroll–wholesale 10 Used Cars today.. Or, try this TRUE STORY: One day an owner walked into my office and said without hesitation, “call all employees together and fire the whole store and do it Now…” I said, “everyone”? He said “Yes, everyone but yourself and 4 people of your choosing, so we can keep the lights on for 60 days for 4 hours a day–we have to have 1 person in every department according to franchise rules until a buy/sell is complete, I’m broke!” I asked, “do you have paychecks for these people I’m firing?” He said, “No, you need to fire them and tell them to check back in 2 months when we can pay.” So, I got on the paging system and said: “Attention all employees–stop whatever you are doing, even if you are with a customer, and meet me in the service department NOW”. Within approximately 10 minutes, I terminated an entire franchised dealership–a big one too.. Do you think you could do that? Heat? You don’t know what heat is until you let people go with no paycheck.. I did it in less than 20 minutes–it grows you up fast.. Afterwards, I went to the owner to tell him it was done, and I asked, “So how the hell do I do I get paid for the next 60 days?” He said, “pick out a UC and I’ll sign the title over–I said, “ok, but what do I do for cash?” He said, “Well, it’s still my store–so take whatever you want other than a car and sell it to make money however you want to–just don’t take everything..” Well, we had a big problem that he didn’t think of–a service department full of unfinished cars.. I got all the repair orders together and added up the value of all the work pending–I calculated it close to $100,000.. We owned a body shop across the street that was subbed out to a private body company–I walked across the street and sat with the owner (a great Guy) and asked him to shut the door on his office.. I asked, “How much do you trust me Brother?” He said, “all the way!” I said, “OK, If i tell you to give me $40,000 cash in 2 hours, and that it will turn into $80,000 in 2 weeks, would you get the cash? He said, “Hell Yes, of course I would.” I said ok, get the cash and I’ll be back in 2 hours and then I’ll lay it exactly how it goes down and it will be 100% lawful and I’ll fade any heat associated with it.” Two hours later, I got the cash and he got the cars, the parts and I called every customer and explained that while we were out of business, their cars/trucks would still be finished and that I would keep them posted. Boom, I handled a gigantic problem and the body shop owner got ALL of his 80 Grand.. Why not the 100K? I discounted the work to the customers due to the inconvenience.. I went home that night and took a polaroid picture of that cash spread out on the floor. The Wife and I had Steak and Lobster that night.

4.) Inventory: Lower guides for UC’s and NC flooring and parts: This can be a competitive disadvantage. The more limited you are to flooring or guides, the less you have to work with. There’s nothing crazier than an owner who says, I need you to double sales, but the line of credit is the same.. To be accurate and fair, there are private cap dealers who have kept “retained earnings” in the store and have zero flooring or UC limits–while rare, it does happen. When there are limits, you will be swimming upstream and it’s not fun. When interviewing with a private cap be sure to ask what the limits are on inventory.

5.) Technology and Vendors: There is no question that the private caps “in general” do not have the edge that the consolidators do–when you’re in the 21st century, but the store is stuck in 1969, you will struggle against the competition. Again, to be accurate, nearly all the latest technologies are available to private cap too, but the adoption and learning curve is definitely behind the consolidators.

While I could give many more anecdotal thoughts both positive and challenging, we now have the general basis of comparison from both articles. While my career has been mostly automotive related, the applications of these lessons could apply to most businesses.
I’m often asked, how micro-managed are you in a public company–my answer is this, it is very prescriptive, but it works. What about crazy owners in private cap, or the psychos in the consolidator companies–yes, they exist but you outlast them, or you move on, it’s just that simple.
Conclusions: there is no right or wrong way to go when choosing between private cap and the consolidators. While wildly different in style and approach, they can both win in much different ways. Whatever your pathway is, I can give you some sage advice–if the train is going to Chicago, get on the same train that your leader takes. Don’t fight city hall. For the seeker of a fast-track career, If I had to give an edge or advantage between the two, it would be to the consolidators. To be fair, there are top shelf operators in private cap.
I have fielded the following question from many up-and-coming people throughout my career, “how can I get where you are?” My answer has always been the same–my pathway cannot be duplicated, and even if it could be, you wouldn’t want to do it.
Reality is this, the harder I worked, the luckier I got. Humility counts too–I have sat in many meetings and board rooms, and I looked around the room, humbled myself and said to myself internally, I am the dumbest guy in this room–I would think to myself, I better listen, absorb and learn–quickly. I realized that the people who had been there before I was, they knew something that I did not, and I better smarten up. The air gets thin at the top and no one is lifting you at the crest of the mountain!
I told my children and advised many people to get immersed early into the companies that can provide opportunity, provide strong benefits and teach you things that you can never obtain in a college. Strong companies, private or public, will pay you while they give you real world experience and practical applications that will last a lifetime. But you do have to listen.
I hope these thoughts in Series 1 and 2 give clarity to some and are a catalyst for self-introspection to others. Good luck in your endeavors and please promise me, that you will do your very best everyday wherever you are. And remember this, nobody gives a shit if you’re having a bad day, so be on stage–smile, and work your way through it.

all the best to everyone,
Bruce Daugherty