Business lessons from the tire center

I was recently reading Les Schwab Pride in Performance: Keep It Going,and there were some interesting insights that I wanted to share.

He talks a lot in the beginning of the book about his life growing up, how he got into sales, and how he ended up in the tire business.The biggest things he emphasizes through the book is a desire to partner with the other people in his organization. He started a profit sharing program from day one sharing 50% of the Les Schwab profits with the employees of Les Schwab. I can't imagine many of the founders I've worked with doing the same and would much prefer to invest in companies where the employees are just as motivated as the founders and senior staff.


Towards the end of the book though he starts to add a bunch of the letters and speeches he gave. Many reflect the sentiment of focusing on integrity, removing greed, and being frugal in business practices (Most of these were echoed by Sam Walton in Sam Walton: Made In America). In one of the speeches given in 1977 to the assistant managers at all of the locations, Les outlined the principles he thought were the most valuable to help the assistant managers move into management positions and run their own stores. He starts the speech talking about his interest in investing in the employees and then goes on to say, "I do know that there is always an association between opportunity and risk. Usually the higher the opportunity, the higher the risk. I do think that if you will follow the programs that we have, then you can almost be assured of a successful business career." Then he goes on to outline the principles he looks for in an assistant manager:

  • "Be honest with ourselves.
  • Be honest with the people we work with. Be honest with your customer. I've told you before. I'll tell you again... 'There's absolutely no excuse, reason, or cause for you to be anything but 100% honest with the people you work with, or with the customer you serve.'
  • Be humble
  • Have a desire to learn. It is up to you, we can only offer the opportunity.
  • Tell the truth... have an open mind.
  • Be a man of action... make some mistakes, this is the way you learn."

I found one of his comments from a 1981 Manager Meeting incredibly interesting. Consultants the world over talk about how to treat Millennials in the workplace. How they need hand holding and special recognition. Les lays down the law in 1981 about how to manage employees and what he is telling his managers to do then, is something that managers in 2014 should strive to do today. They can help their employees be successful...

  • By giving them all the responsibility and authority they can handle.
  • By including them in what's going on.
  • By assigning them work which is important in their eyes...work that they can take pride in doing.
  • By letting them share the limelight now and then with you.
  • By taking a sincere interest in them as individuals.
  • By never belittling or ridiculing them.
  • By asking for and listening to their advice.
  • By confiding in them once in awhile.
  • By letting them know they are needed and appreciated.

That last one, Les goes on about for another couple of pages - it is the the same area all those millennial consultants pontificate on for a high hourly wage.


Another area where Les was way ahead of his time was financial innovation. He speaks endlessly about keeping simple books and preferring everything to be as simple as possible. Back in 1955 though, he was offering credit to customers at 1.5% monthly interest. This was before Wards, Penney's and Sears (whom I've talked about before as being a leader in financial innovation by inventing the credit card).


Les doesn't stop there, pages 166 through 200 are pure gold. Les talks a little about advertising theories and any business entrepreneur, marketing professional, or solopreneur can learn a lot from his simple statement...

"One ad isn't worth a darn, but ten ads per day, for 30 days, get attention. It is a case of repeat, repeat, repeat."

Whether you are building an advertising campaign of your own, trying to get your blog or book on your audiences radar, or simply trying to connect with better deal flow as an investor - consistency in your message is incredibly important. This is the same thing that all the books and blogs will tell you.


One of my favorites is this insight where he puts up a table that shows three different stores in three different, but similar cities as follows:

Yearly Sales $1,000,000 $1,250,000 $1,400,000
% Net Profit 12% 10% 8%
Dollars Net $120,000 $125,000 $112,000

 

Then he asks the reader to tell him which one is the better.

  • One would think the highest % Net Profit city is the best of the three, after all they returned the most on the money invested. Les thinks about it a little differently though. He sees the first store as having had the least amount of sales. That means that the manager might have been too tight with his customers forcing them to go to a competitor. Sure he earned a higher percentage, but on perhaps lower sales volume than was optimal.
  • The second manager was square in the middle of annual revenue and % Net Profit. This manager actually earned the most money for her city and thus makes her the best manager. She was able to balance the sales volume potential (demand) in the city with the price elasticity of the discounts. In terms of dollars actually earned, she did the best.
  • The third manager, earning the most in gross revenue was perhaps too giving of discounts and thus earned the least of the three stores.

Les goes on to describe store economics, how much a store should be able to earn based on the amount invested in the physical location and how deep the discounts are for customers. These ten pages 190-200 are gold for any retail operator, although the entire book is beneficial. If you are managing any retail real estate (I have a couple of buildings myself) or are investing in any public companies where retail is the primary source of sales (I'm invested in quite a few). The economics lessons here are plain and simple and you can see why these basic economics are what matter the most.


Of course, the other fascinating thing, that was similar to Sam Walton, Les Schwab made an effort to have each store operate independent from corporate control. In difference to Sam, he didn't spend as much time visiting all of the locations (though he did visit a lot of locations). He also didn't learn as much from each of the independent locations and implement those learnings in his other stores as often as Sam. He did do this on a number of occasions, but from the books I've been reading it wasn't to the same degree - yet both companies are wildly successful.

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