It’s Your Business
- Subject: Turning around a failing business
- Essential Reading: Shop Owner, Center Manager
- Author: Terry Greenhut, Transmission Digest Business Editor
There was a show on TV recently that would or should be of interest to every entrepreneur regardless of whether they are in the auto-repair business and whether their company is large or small. There were only two episodes and I hope there will be more, but you can get the general idea of what they were trying to show us about turning failing businesses into again profitable ventures.
The show was called “The Turnaround King.” It was about a consultant who is called in when a business is in pretty deep trouble and in imminent danger of failing. His job is to analyze the business in its current state and see whether he can teach the owners how to turn it around to save its life.
His approach is to first enter the establishment incognito, as a customer, to see how he is treated and how good a job is done of selling him what he came in for and what he really needs (which may not be the same thing). In the first show he was hired by a franchisee of a well-known gymnasium franchise. The gentleman had $850,000 invested in the business. Much of it had come from taking out a second mortgage on his house. The business was in a middle-class town in New Jersey where the average family income exceeded $100,000. The franchisee seemed to stay in the background while his two sons ran it. The gym was losing money rapidly and soon the owner was going to lose his house if something couldn’t be done to turn it around.
The consultant walked up to the counter and waited for someone to take care of him. There was no one around. He waited several minutes before anyone came out to help him. While standing there he noticed that the shelves that should normally have merchandise on them for sale, such as hats, T-shirts, shorts, sweats etc., were empty; so was the drink-dispensing refrigerated unit behind the counter. The place looked as if either it was about to go out of business or was brand new and not stocked or open for business yet.
When one of the brothers finally came out, the consultant told him he had just moved to the area and was looking for a gym to join. The brother, who had a totally discouraged look on his face, said he would get someone to take him on a tour of the facility, but no one was around because many of the employees had already been laid off. The brother took him on the tour himself. Of course, he figured he had to do the short version because there was now no one to cover the front counter.
The facility was actually fantastic. It had an indoor Olympic-sized pool that was heated to room temperature, a large hot tub, a full-sized basketball court with a running track overhead that encircled the entire gymnasium. There was a weight room; several different classrooms, some with sessions in progress; a huge area filled with the latest workout machinery; and a snack bar that served food, snacks and beverages. On the tour, however, these things were glanced over. Being afraid to leave the counter for too long and really not showing much enthusiasm about the gym or making a new member, the tour guide didn’t go into detail about the availability of the different classes or the fact that personal trainers were available, and he didn’t take the prospect down to the pool and have him dip his hand in the warm water; he just had our consultant look down at the pool from a catwalk one story above.
There was no selling taking place on this tour. The brother never asked any questions that would give him information he might use to close a sale. When the prospect asked what it would cost to join he was told there was no initiation fee and the monthly charge was only $10, but that he could have a free pass for a month to see whether he liked it. Our hero left, free pass in hand. The brother never even took down any contact information. It was about as poor a job of selling as I had witnessed since seeing somebody in the transmission business quote a $3,000 price for a rebuilt transmission to a total stranger over the telephone.
Now, the rent on this building was $40,000 a month. How many $10 memberships do you figure it would take just to pay the rent? The answer is 4,000, and there’s no way this gym could support that many members, so obviously this was not a workable situation. Why were they selling memberships so cheap? Because another franchised gym had just moved into town and was selling them for $10, so our franchisees thought they had to match that price to compete.
Here’s what the brothers and their father didn’t realize. First, their facility stood head and shoulders above any other in town. No one else had a full-sized indoor basketball court or an Olympic swimming pool along with a hot tub. No one else offered personal trainers, was giving classes, had nutritionists on salary and had the ability to design a complete fitness program a client could follow long term. In fact, all the $10-a-month competitor had was a room full of machines.
There was no comparison between the gyms, yet the father and the brothers were allowing the competition, which had little to offer, set the ridiculously low price. They just didn’t realize that they weren’t selling the same product and that there was no sense in trying to compete at that level.
The family needed a whole new sales strategy, and they needed it now before they sank so far into debt that they could never climb out. There is some good, though, about things being that bad. When a business owner finally realizes that the end is really close, a consultant can actually get him or her to let loose of all of their preconceived notions and fears about the customer saying “no” and just go at it full throttle because there’s nothing left to lose.
After getting agreement from all the principals and staff (who, by the way, were pulling for the gym to succeed), the consultant ran a class and taught each one how to sell all the different services. He demonstrated the proper questioning techniques and how to run a tour that would get the potential member excited about joining. Then he closed a number of sales himself to show everyone that it could indeed be done.
Not only was he selling monthly memberships for six times the price, but he also was getting a pretty strong initiation fee. You see, he had done his homework and knew that the gym was in an affluent community where people could afford to pay for a quality gym membership.
I enjoyed how he would ask potential members why they stopped in to check the place out. When they would say they wanted to get into or stay in shape he would ask: “When do you think would be a good day to start doing that? How about today?” With the bait in the water all he had to do was wait. He had asked the closing question. It was the client’s turn to speak.
Our consultant additionally got people to sign up for classes and personal trainers right there on the spot to create more revenue. He was even able to get many of them to go for the pay-one-time-yearly dues of $650. He stocked the shelves with goods to sell and endeavored to sell at least a hat, a T-shirt or a set of sweats to everyone he signed up for a membership. Needless to say, cash flow improved dramatically. That’s the point. To turn a failing business around you need sales, lots of them and at profitable prices.
Now, you might wonder why I’m using a failing gymnasium as a turnaround example for you, the people of the transmission/auto-repair industry. Because there are a lot of commonalities, but the most-important one is that keeping a body in shape and maintaining a car are basic needs that most people share. If you can fulfill a basic need and do it better than everyone else, the right customers will gravitate toward you. And who are the right customers? The ones who realize the difference and don’t mind paying a little more for the best. To get those customers you truly have to believe that you are the best and show them how your service exceeds everything else they can get. Remember that not everyone is your customer. People who cannot accept the value of your service are never going to let you make any money off them, so they aren’t worth pursuing with cheap specials or low-ball prices. A customer looking for a $15 oil change will go to a low-ball shop hoping to get more than his money’s worth but won’t.
You will find that now, especially during this recession, those who have decided to keep their cars also realize that someone good has to keep them running properly. Push quality, honesty, friendly service and the little extra convenience items that a good customer would appreciate, then charge a price that keeps them happy and you in the black. Every time a customer comes in for anything, make their next service or repair appointment for them before they leave. Do all that and you won’t need to hire a turnaround expert.
Terry Greenhut, Transmission Digest Business Editor. Visit www.TerryGreenhut.com.