Are you thinking of expanding your dealership? Make sure your build up your “bench strength” before your grow!

The winningest coaches in the NFL, or really any sport, know that championships are often made or lost, on the depth of their bench. How strong is your “bench?” It is a very important question to think about, before considering a major merger or acquisition.

In today’s M&A world, where rich and powerful CEOs often set their sights on purchasing platforms, “bench strength” is critically important because of the necessary restructuring that will likely be required to acquire that platform and make it a success.

Typically, a CEO will look at a platform, and believe “we can make that better,” largely based on the success of his or her current dealerships. But, the reality is, it was your key players, your “first stringers,” that led to that success. If you need to move them to the new stores to ensure success, while still maintaining profitability at your existing dealerships, is your bench deep enough to do so? And, even if it is, have you thought about additional compensation for your B-team that will now be moving into positions formerly held by your “first stringers?” 

Also, how good is your bench in operating outside their areas of expertise? When looking to acquire a platform, understand that operating a Toyota dealership could be very different from a Ford, or BMW, or Hyundai, etc. They all have their differences and different types of customers. The same applies to running an NFL team vs a MLB, NBA, or NHL team. Is your team qualified to run each franchise?

What if you need to go outside and get a new team of stars to head up a platform your guys may not even be familiar with? Have you factored in recruitment and retention costs, and the idea that such “free agents” may not know your culture or style, so their success is not guaranteed? To continue with the sports analogy, having backups that have already been well-trained, ready, willing and able to step in for your stars ensures a team’s glory and is a testament to good coaching – and even better planning. In your business that means setting your sites on realistic acquisition goals, and slow growth which affords you the time to build your bench.

Build Your Bench Slowly

The most prudent M&A strategy is one that is a slow climb to the top. I advise even the wealthiest CEOs to grow at a steady pace, rather than let their egos get in the way and buy everything in your sights. Build your bench strength slowly, by putting together a management team of experts (COO, CFO, CPAs, and attorneys, etc.) for long-term steady growth, and not to try to just charge up the mountain in one day!

Also, be willing to listen and get feedback from your “bench,” once it’s built out, but do so with diligence. Often it is top management below the CEO, who is pushing for expedient growth, by finding so called “can’t miss deals.” Is their advice in your and the dealership’s best interest, or are they asking you to spend your money, in the hopes of bettering their positions?

They may not have taken into consideration that the Fair Market Value of your rent/mortgage will increase your operating costs. Do the realize if interest rates increase 2 points, depending on the size of your group, the cost of interest can go up by $2-4 million per year, or that the blue-sky multiple may have increased 2-3 times, and reduce your ROI? 

As a CEO, it is important that you share your plan with the team, and let them know to consider each of the following, before they present you with “the deal of the century!”

  • Does the franchise fit your team?
  • Maximum blue-sky multiples for each franchise
  • Geography
  • Maximum investment and ROI minimums
  • New IT systems and the potential costs for upgrades and/or for retraining

Finally, in most successful auto groups that are setting their sights on expansion, the owner/CEO is already in their 60s or 70s. That makes succession planning another critical aspect of bench strength.

Succession planning means having a strategy designed to ensure that your dealerships not only survive a leadership transition brought on by an M&A transaction, or other circumstances, but also continues to successfully outperform your competitors.

Smart succession planning dictates that the CEO cannot and should not be the “be-all and end-all” of your organization. The exact scope and nature of the succession plan, should be worked out by the CEO, with advice from Human Resources. At the bare minimum the plan should cover the CEO, and all other “C” level executives, COO, CFO, etc.  In addition your bench should be deep enough for heads of various departments, particularly in a service and sales driven business such as an auto dealership.

Crossing the Goal Line

Even when you take a “slow climb to the top” approach to growth, any M&A transaction could leave you scrambling for new team members, costing you time and money, unless you prepare in advance!

The best way to avoid that scenario is to build bench strength with smart, thoughtful hiring, and a good recruitment and retention strategy designed to grow replacements from within.