Peter Fehrenbach

 

Interviewed by Dustin S. Klein

Dina Dwyer-Owens has led The Dwyer Group Inc. as chairwoman and CEO since 2007 and has guided service brands — including the iconic Rainbow International nameplate— to impressive growth during tough economic times.

The company, founded in 1981 by her father, Don Dwyer Sr., operates six other franchise businesses as well that provide cleaning, plumbing, electrical, HVAC, landscaping, appliance repair, glass repair, and related services through 1,600 franchises in nine countries.

Dwyer-Owens has worked for the Waco, Texas-based company since its inception. She recently talked with Smart Business about how she grew up in the company and how she has propelled The Dwyer Group’s franchises over the past six years to success in a sluggish economy.

Q. What did you do before you came into the company?

A lot of different things. Before The Dwyer Group, my father had his own car wash businesses. So at the age of 13, I was working at his car washes. I pumped gas and sold polish waxes. Then he had restaurants he was thinking of franchising. I worked in the restaurants and did a lot of catering. I worked in a full-service restaurant, and I was the hostess and a waitress. This was all in high school. There are six kids in my family, and we all worked from the time we were 12 or 13.

Q. What made you decide that this was what you were going to do, to rise through the ranks and take over the company?

I wasn’t sure when I first got out of high school. I attended Baylor University. My father wanted me to go to school for networking. He knew education was important. Going to school full-time and working for him full-time, I knew something had to give. It wasn’t fun doing both. I wasn’t getting the best out of either one of them.

I went to him one day and said something has to change. He said why don’t you just take the semester off and come work side by side with me.

I’ll never forget the day a franchisee came up to him at a convention and said, ‘I want to thank you for the opportunity you’ve given me. It has changed my life. Our family is doing things we only dreamt of doing because of this opportunity.’ I listened and thought, wow, I get what he means by his mission statement, which was very clear. Since we were kids, he always told us what his mission was, which was to teach his principles and systems of personal and business success so that all the people he touched could live happy, successful lives.

It’s not just about business success and making a lot of money. It’s what do you want out of your personal life, and how is this business going to help you with that? Working full-time with him for one semester, I learned more than I could have ever learned at school.

Q. What franchise did you work with originally?

It was Rainbow International, our flagship brand. Today it’s a restoration and cleaning company.

Q. How did you decide which opportunity to pursue?

When I worked with my father side-by-side during that semester, I was involved in the real estate division. I was doing stuff with the franchise companies. I was teaching new franchisees how to telemarket. And I traveled the world with my father being an ambassador for the company. He was doing that on purpose. He wanted me to know all of the things he knew.

Then by the mid ’80s, I was running the real estate company. I had a team of 28 people and ran about a million square feet of real estate, and still worked closely with him in the franchising part of the business.

I got involved in franchise sales. I generated a lot of leads. I was the top salesperson in ’83. My father kept me by his side and let me have the freedom to run the real estate division. At the same time, I traveled a lot with him. I loved learning and being part of that. Some of my other siblings weren’t as interested. They preferred to stay home. I spent a lot of time with him.

We went public in ’93. I was on the board of the public company. He started to have me sell off the real estate. He said, “I really need you full-time on the franchise side. Let’s get the real estate sold.” He died of a heart attack at the age of 60 in 1994, a year after taking the company public.

Q. Did you step in right away then?

Well, I was still selling the real estate division off, and we were building properties in the Cayman Islands. Seven Mile Shops was a property we owned there. I was responsible for leasing it. It was a new business we were building. I wasn’t the right person at the time to step into the CEO-president role.

A brother-in-law of mine who had been in the business since he was 16 really knew the franchise business and the development side better than I did, and he stepped into that role with the support of my sister, me, and a handful of professional management team members that my dad had surrounded himself with. He was very entrepreneurial.

After doing that for four years, I was VP of operations. The board knew it was time for a change. The president at the time was great, but he was a real franchise developer, not the best guy to do the day-to-day business.

They did a little shifting and asked if I would be willing to come in as the acting president and CEO. I was 35 at the time, and I knew there was some risk with the shareholders putting me in charge. I accepted the position of acting president, and got some push-back from some top franchisees that I wasn’t the right person for the job. I said, “Look, I get it. I’m not a plumber. But I don’t need to be. I’m the customer. Who better to run this business than the customer who understands what we should be doing for them?”

I said, “Give me six months, and if I don’t prove myself, I’ll be the first one to step aside and say find someone else.” In six months, the one guy who kind of led the bandwagon saying she’s not the best person became my biggest cheerleader.

Q. How many brands did you have?

We had six at the time. Today we have seven brands, and a software company. We have a buying group which is a wholly owned subsidiary. And we have handful of company-owned stores.

Q. How do you look for opportunities for those brands to expand?

First of all, it goes back to our mission. We’re very clear on how we can help our franchisees achieve the things they want in life, and we make the franchise the vehicle to help them do that. We attract team members who care about the franchisee’s personal success as much as their business success. It goes hand in hand. It’s organic.

Q. Can you give us some details about the investments you’ve made in training?

When you think about the business we’re in, the competency to train is a constant. You have to keep training the franchisees to create success for them. It’s such a big part of what we do. For most of our brands, it’s teaching the business side of the business. We have a lot synergies. We have seven different brands, so we can pool the best of all those brands and bring it into one training program.

We have a training facility in Waco where we do all of our core training. I teach the very first class to all the new franchisees. All of my key team members usually teach a class the first couple days of training. We pool the talent we have, and we can do the same classes for all seven brands, and they then break out to specific things.

Q. What matrixes do you use to measure performance?

The most important matrix is the net promoter score. We have a wonderful system that we have automated where we do the follow-up with the end-user customer on behalf of the franchisee. We will make the call to the customer after the service provider has been there to find out how the service was. It’s a 30-second survey. The most important question is “Would you refer us to a friend or family member?”

The scores range from negative 100 to positive 100. Our franchisees on average score a 74. This is home service. It’s kind of like paying someone to fix your car. Our franchisees are doing a great job taking care of the customer. Some companies are higher, but the average is 74.

Q. Do you put rewards or incentives in place for the franchisees?

You bet. We have what we call our Top Gun club. It represents the franchisees that not only do the most in revenue but fit a handful of criteria: profitability, leadership, and helping other franchisees grow their businesses. There are individual awards too. If you’re awesome at net promoter score or a team member, we will highlight them. The recognition from corporate headquarters means a lot to our franchisees.

How to reach: The Dwyer Group Inc., (800) 490-7501, www.dwyergroup.com

Takeaways

Learn all aspects of your business.

Pool talent to cross-train.

Use surveys to gauge performance.

The Dwyer-Owens File

Dina Dwyer-Owens

Chairwoman and CEO

The Dwyer Group Inc.

Education: Baylor University

Dwyer-Owens on communication: I’m taking communicating to a new level now. It’s called connection. It’s one thing to communicate, but it’s another to connect with your franchisees. We have a lot of methods of doing that. The most important method is we have franchise consultants who are really responsible for helping you grow your business and achieve your personal dreams.

Dwyer-Owens on training: We have lots of training events. There’s a lot of best-practice sharing. We have a leadership summit where we go away for four days every year. We bring the top folks from all seven brands. We have the best of the best, who then go back and educate the rest of the franchise family on what we’re doing, why you need to be involved in it, and how it’s going to make a difference in your business.

Dwyer-Owens on change: A couple of years ago, we found our franchise development was slipping. We weren’t keeping pace with new franchise units. We were not hitting the numbers that we were accustomed to hitting. So we totally re-engineered our franchise sales process. We brought people in from the outside who had expertise in managing complex sales, and we totally changed our process. We really had to shake it up, and we shook up the whole franchise development team. And we have already seen great results.

Dwyer-Owens on innovation: I sometimes drive people crazy, I think, because I’m so open to new ideas and innovation that sometimes they have to tell me to wait — aren’t we doing enough already? But I love the whole creative side of the business and doing things differently. It’s really my team that innovates. I may come up with an idea or two, but the team really makes things happen.

 

Mike Rotondo joined Tropical Smoothie Cafe Inc. as vice president of operations in 2008 — and climbed the corporate ladder about every two years. He became COO in 2011 and CEO in July 2012. While at Tropical Smoothie, Rotondo has focused on taking the company from the entrepreneurial enterprise created by its owners, Erich Jenrich and David Walker, to what he calls “the next level” — a more structured and systematically run organization poised for faster growth.

As a result of this transformation, when Rotondo was promoted to CEO last year, the private equity firm BIP Opportunities Fund bought a controlling interest in Tropical Smoothie Cafe. Jenrich and Walker remained on the company’s board, and BIP partner Scott Pressly became the company’s chairman.

Rotondo recently spoke with Smart Business about how he has steered the company through the transition from entrepreneurial company to mature organization with greater resources to grow.

Q. Looking back over the past few years, what do you consider the most important business leadership challenge you’ve faced?

My main challenge has been working with our company’s founders to determine the best course of action to move our brand forward.

Back around 2008, when I started with Tropical Smoothie, we were starting to see some negative signs. Obviously, it was a very tough time for the economy. Our comp sales were down about 6 percent in 2008 and down another 2 percent in 2009. The turnout at our franchisee convention was very low; we only had about 35 percent of our franchisees attend.

Some of our franchisees and area developers were starting to point a finger at us, saying ‘You’re not giving us the support we need.’

So we saw that we had to make some changes. On one hand, we wanted to keep all the good things that the founders of Tropical Smoothie had developed for the brand. But at the same time, we wanted to put systems and processes in place to mature the brand and professionalize it. It was about recognizing and celebrating all the great things the founders had done, but then taking it to the next level.

Q. What were some of the key systems you introduced to turn things around and to mature the Tropical Smoothie brand?

In 2008 and 2009, we were all about creating programs and increasing our visibility. We put out training programs; we put out marketing programs. We went out to the franchisees and met with them. My team and I made ourselves very accessible to the system.

We got rid of some people who were not meeting the culture and the needs of the business.

But the key thing was we started giving our franchisees new opportunities with training and marketing programs. This energized them, and at the same time, it made them more accountable because it put the responsibility on them to execute those programs.

Q. Did you make changes in the area of quality control?

Yes. For example, not long after I started in 2008, I was visiting our cafes with one of our key operations people, and I noticed that at every cafe they made the smoothies a little bit differently. Some put the ice in first. Some put the fruit in first. Sometimes they blended it a little differently or added something a little bit different.

What it really came down to, at that point, was that our procedure for making smoothies was about 80 percent art and 20 percent process. And I said, ‘We’re never going to get consistency if we do it that way. The average Tropical Smoothie sells about 50,000 smoothies a year. How many of those smoothies can we afford to go across the counters that are less than perfect?’ The answer is none.

So we came up with a program called One Perfect Smoothie. It was a full training kit. We broke it down and put processes in place so that you know how to properly prepare the fruit, how to build the smoothie the right way, how much of each ingredient goes in, which blender settings to use. We turned the procedure around so that it’s now 70 to 80 percent process and 20 to 30 percent art.

Our franchise community has embraced this program. They tell us it has improved the consistency of the smoothies, and it has helped them from a productivity and a food cost standpoint: ‘We’re blending our smoothies faster. We have more consistency. We’re going through fewer strawberries than we were before.’

Q. What other systems have you put in place to move the brand forward?

One process we’ve introduced is a brand audit for our cafes. At first it was just a 20-question checklist, but we expanded it into a full-blown audit. We look at the quality of the products, the hospitality level in the cafe, the cleanliness of the cafe and how well the brand is being represented in the cafe. It’s a four-hour audit and inspection.

We went from a very basic to a much more detailed and a much more mature process of evaluating the compliance in our cafes. As a result, we have cleaner, better-running cafes than we’ve had in the past. The customer surveys we do reflect that.

Another key aspect of the audit is that we use it mainly as a training tool for the franchisees. You never want this type of thing to be looked at as a hammer — ‘Uh oh, you’re having your compliance audit today.’ We look at it as a training tool. If one of our team is out there and they’re doing an audit and the franchisee is shorthanded, we’re going to put the audit down and jump in and start helping. We really believe that our main responsibility is to service our franchisees.

Q. Have you made any changes to your product mix?

We’ve streamlined our menu and, at the same time, put greater emphasis on our food offerings with a program we call our Focus On Food. We started this about two years ago. While we felt there was still some market upside with our smoothies, we felt that we had a lot more room to grow with our food offerings.

We had always joked that food is our best-kept secret — unfortunately. So we started focusing on it more. We started spotlighting some of our special menu items like our Chipotle Chicken Club Flatbread, our Chicken Pesto Flatbread and our Jamaican Jerk Chicken Wrap.

This has worked well for us. People have started to look at us as more than just a place to get a smoothie and a snack — they can also come to our cafe and have a terrific lunch. Since we started doing this, our food incidence is up 25 to 30 percent from where it was two years ago. By this, I mean the number of food items that we sell each day — how many wraps, how many sandwiches, etc. Our food transactions are up 25 percent from where they were two years ago.

The other piece that’s measurable for us is our combo incidence — the percentage of our transactions in which the customer is buying both a smoothie and a food item. As a result of our Focus On Food program, that combo figure has increased from 25 percent to 45 percent.

Q. What advice would you offer other CEOs faced with a similar challenge — the need to upgrade and mature their brand to move it forward?

The first thing I would say is protect the brand. Don’t get cute. Don’t try to change what everybody loves about the brand.

The second thing is, as you start to take on some of these challenges, you’ve got to have the right team in place. And sometimes you have to change the makeup of the team. You can’t be afraid to make those changes. You have to surround yourself with smart people, give them their marching orders, and then do the best you can to stay out of their way.

The third thing is communication. To mature and grow the brand, you’ve got to communicate. You’ve got to keep people informed at all the different levels — franchisees, support staff, investors — about what’s going on. You have to keep everybody on the same page: the process of taking an entrepreneurial business, maturing it, then getting acquired by a private equity firm and how to manage through that has been a learning experience.

The private equity firm is allowing us to do our thing, and while ultimately our brand hasn’t really changed that much, we’re much stronger than we were because we now have the processes and structure in place that a private equity firm will hold you to.

That has been huge for the Tropical Smoothie brand in terms of the resources that we have and the ability to bring in the people we need to keep moving forward. That transition has been incredible for this brand.

How to reach: Tropical Smoothie Cafe Inc., (770) 821-1900, www.tropicalsmoothie.com

Takeaways

Introduce systems and structure.

Make processes consistent.

Evaluate compliance through audits.

The Rotondo File

Mike Rotondo

CEO

Tropical Smoothie Cafe Inc.

Born: Chicago

Education: Illinois State University

Looking back over your years in school, what business leadership lessons did you learn that you use in your work today?

My major was criminal justice, so I took a lot of classes in psychology, sociology and counseling. I learned how to communicate with people on many levels, how to have tough conversations, how to listen and how to make sure they know you’re listening.

Tell me about an early job you had and the business lessons you learned from it.

In high school and college, I helped manage a store for a Baskin-Robbins ice cream franchise. This was back in 1982-83. I did payroll. I ordered inventory. I hired. I trained. Working at that Baskin-Robbins really got me going in this industry.

Do you have a main business philosophy that you use to guide you?

As a franchisor, I think the most important things are communication, driving the economics for your franchisees, and showing people that you care. Basically, everything we do is geared toward improving our people, our sales, and our profits.

What trait do you think is most important for an executive to have to be a successful leader?

If you want people to follow you, you have to be willing to get into the trenches. You have to educate yourself. It’s very important to be educated and informed about all the different disciplines your business is involved in.

What’s the best advice anyone ever gave you?

To ask open-ended questions — in other words, questions that have multiple parts and that make people have to think. You can really uncover a lot of important things by doing this. That advice was given to me by Chuck Bengochea. He was vice president of operations when I worked at Honey Baked Ham.

To turn Pinnacle Technical Resources Inc. into one of the fastest-growing technology companies in northern Texas, it just took a living room office with one employee, a big dream of success and Nina Vaca’s entrepreneurship.

Now, some 16 years later, the founder is not only chairman and CEO of the company, which provides contingent IT workforce staffing and vendor management services to Fortune 500 companies in North America, but she oversees 4,200 employees who help the company earn revenue of $236 million.

Vaca talked with Smart Business about the combination of entrepreneurial drive, motivation, culture-building and astute hiring that she has used to propel her company to these heights.

Q. Your organization seems to have a group of passionate people who love what they do, and that seems to come from the top. How are you able to get people passionate about what they do?

By simply communicating to my team that everything in life is a matter of perspective. How you view yourself, how you view what you’re doing in the world — it’s all a matter of perspective.

We have found a way to have an incredible perspective about the industry we’re in. You’ll never see such a big group of people on fire about third-party contract labor. I mean, it’s not sexy, but it’s something that’s growing tremendously.

The perspective I grew up with in my childhood is that you can do anything you want in a country like the United States. That perspective shaped my ability to dream big and to be passionate about what I do. I do the same thing at Pinnacle.

There’s a fundamental difference between motivation and inspiration. I think you can inspire people about what they’re really doing, being part of an award-winning company, their contributions to this economy, how it’s allowing us to be a better country. Those are things we often don’t think about when we do our day-to-day jobs.

I take the perspective at the 10,000-foot view and communicate it often, and people are excited about it.

Q. How do you communicate it? We often see that leaders who communicate well create effective cultures that can carry on without them.

What you’re talking about is actually extremely difficult to do once you start to grow quickly. An example of someone who has nailed this concept is Mary Kay [Mary Kay Ash, founder of cosmetics maker Mary Kay Inc.]. I really try to emulate a lot of things she is doing.

As we grow larger, it’s more difficult. What you have to do is really make certain that your culture is advanced not just by your leadership team but the layers behind them. When we were smaller, I would do a campaign with a different theme every year, and everything we did that year was based around that theme. You even see this in large corporations — there’s a theme for the year and everyone moves in that direction. We would have shirts made, mugs made. We would constantly see it visually, because you can launch a theme, but if you’re not seeing it every day, there won’t be enough energy around it. Whether it’s on a mousepad or a pen, you have to constantly be reminded of the theme.

Those are small tactical ways that we’ve been able to energize the group, and believe it or not, they work.

Q. How many employees do you have?

We have 4,200 people in the U.S and Canada. By the mere fact we are in third-party labor, we have lots of W-2s. And there’s a lot of motivation around those 4,200. Every Friday, everyone around the country wears a Pinnacle shirt. That’s just what we do. It’s part of our a culture. It’s a tradition that we have upheld. Little things like that are really important.

Q. What was the impetus behind founding the company?

I could tell you I was a visionary who knew Texas was some sort of can-do business state and that it would be the last one into the recession and the first one out as well as a right-to-work state. But the truth is I come from a very entrepreneurial family, so I understood the risks of starting a business and growing one. I had a front-row seat to make sure I capitalized on the opportunity.

Like a good entrepreneur, I found a need and serviced it. Starting a service organization, the barriers to entry are very low. I was young and aggressive. Again, I watched my parents and their parents and my whole immediate family make their way through entrepreneurship, so I wanted to do the same.

Q. Do you have a theory about children of entrepreneurs? Do they have a built-in entrepreneurial spirit? Talk about that front-row seat and how it helped you take that leap.

That front-row seat helped make me who I am today. During my upbringing, the silent example my parents taught me was big in the fact that I watched them lose a lot. I always tell entrepreneurs to never be afraid for your children to see you stress or to see you fail. It’s naturally human that we want our kids to have a better life and to have it easier — and to not see you cry and not see you lose. But I actually think the opposite. I think watching my parents have and have not — mainly have not — really taught me a lot about risk tolerance.

Now we’re all grown up, and when we have decisions and we have our lulls and it’s full of peaks and valleys, I never sweat it because even at our worst we’re light years ahead of where my parents were. I keep my perspective very crystal-clear on the mission we’re trying to accomplish.

Q. What’s an example of a challenge that you faced in your organization, what you learned and how were able to find a solution to overcome it?

I started the company in 1996, and we grew very quickly. As a service organization at the height of the dot-com era, there was lot going on in the staffing of third-party labor. Margins were big and life was good. I had a group of about 50 consultants, and life was great. Then, in 2000, we had our first recession.

I had a partner at the time, and we were pretty much down to a liquidation plan. One of my first customers, which we had about 50 percent of our business in, took it to India overnight. To say we were devastated is an understatement. My partner at the time said, ‘I’m out of here. If you have X [dollars], you can have it all.’ So I bought all of nothing, pretty much. It was a very lonely time for me — emotionally, in business. To be down to a liquidation plan and have the consultant say you need to wrap it up and let go, that was a very devastating time for Pinnacle.

But I have learned throughout my personal life experiences that it’s in your darkest moments that you always find your most inner strength. The absolute refusal to give up and the fact that I did have 100 percent control gave me the freedom to literally take matters into my own hands, which is what I’ve been taught to do my whole life. I diversified the business, I recruited some of the best talent in the industry, I went and talked to our customers and found out what they were really looking for. We found a niche in fixed-base, deliverable IT solutions. I leaned on my mentors and my family to work for free. I worked for free. Fortunately, my husband had a great job. I had an absolute refusal of giving up and had the ability to share a vision with others and have them come on at relatively low pay or, in some cases, no pay. That was the tipping point for Pinnacle. It was in 2001. We were literally at our worst. We’ve been growing since then.

Q. How did you extrapolate that vision, communicate it, and then create the plan to get there?

I spent a lot of time personally recruiting and handpicking all the right people. The CEO’s job is getting the right people on the bus.

Q. When you say the right people, you must have had an idea of what you were looking for.

Oh, absolutely. They had to embody the traits we were looking for, and they had to have the right type of expertise.

Q. How did you figure that piece out?

By being a student of the industry. I spend a lot of time figuring out what our next play should be. If people aren’t buying contract labor, they’re buying fixed-priced, deliverable IT solutions. You have to be a student of the industry, a student of the procurement process. When you do business with Fortune 500 companies, you have to be able to figure out why they buy your service. ?

How to reach: Pinnacle Technical Resources Inc., (214) 740-2424 or www.pinnacle1.com

The Vaca File

Nina Vaca

Chairman and CEO

Pinnacle Technical Resources Inc.

Education: Bachelor’s degree in communications and business, Texas State University-San Marcos

Vaca on delegating and motivating: I spend a lot of time working not just on the business, but in the business. Of course, as we’ve matured, I’ve had to work more on the business and not as much in it. But you have to be willing to do both. You have to be willing to roll up your sleeves, and you shouldn’t ask people to do things you’re not willing to do yourself.

Vaca on grooming IT workers: America is at an all-time high for IT workers in this country. Yet the number of degrees we’re producing, not just in technology but in STEM [Science, Technology, Engineering, and Mathematics], is at 1980 levels. So we’re upside down. If America wants to continue to be a front runner in the world of information technology, we have to create a bigger pipeline. What companies like Pinnacle are doing is taking matters into our own hands and specially grooming our own. We have veterans program, a youth program. We’re doing everything we can to be ready for tomorrow.

Vaca on corporate citizenship: I don’t believe you should just live in a city — you should help build it. At Pinnacle, we do that on steroids. We’re involved in a number of initiatives: the Blueprint for Economic Prosperity program; the [Dallas] mayor’s internship program; the Peace Through Business program. I have the privilege of serving as chairman of the U.S. Hispanic Chamber of Commerce. We’ve grown our corporate partnership in the last two years by more than 70 corporations. We’ve had to change our approach to achieve this, because corporations are shrinking the amount of philanthropy dollars. We no longer communicate to them that this is goodwill or corporate responsibility or a feel-good item. Our new approach is more pragmatic: Here is our mission, and our goals, and here’s how that mirrors your mission and your goals. It’s a business proposition. And it’s something they’re willing to invest in.

The financial meltdown that rocked the economy in late 2008 damaged U.S. businesses in myriad ways — but LeasePlan USA Inc. was one of the unfortunates that got hit from several angles at the same time.

LeasePlan, which provides automobile fleet management services and manages about 385,000 vehicles for its clients across the United States, is basically in the business of financial services. It helps companies finance and service their vehicle fleets. When the meltdown happened, liquidity and credit dried up practically overnight, making things very tough for LeasePlan.

“All of a sudden, these things became a huge issue for us,” says Mike Pitcher, LeasePlan’s president and CEO. “In that environment, a lot of our clients were under a great deal of financial pressure. And so were we, with regard to liquidity, cost of funds and simply doing business as usual. Financial services and the entire industry were very challenged.”

At the same time that liquidity and credit were drying up, the recession began to stifle many sectors of the economy, sending some of LeasePlan’s key corporate clients into downturns of their own. Consequently, those companies started looking for ways to save money. And one of the line items they began to scrutinize closely was vehicle fleet costs.

“Some of our clients were starting to downsize,” Pitcher says. “Their fleets were getting smaller, and they started looking at different options for vehicles as well.

“A telltale sign for us was that, before this downturn, the six-cylinder engine was always the predominant engine in our industry. Nobody ever ordered four cylinders for fleet. But we started seeing some of that. We started seeing some of our clients not only downsizing the number of vehicles in their fleets but using smaller vehicles. And they were holding onto vehicles longer instead of replacing them.”

All of these factors put strong downward pressure on LeasePlan’s business.

“In ’09 and ’10, we saw our overall fleet — the total amount of cars we finance — go down quite a bit,” Pitcher says. “I can tell you that our overall fleet went down by thousands of vehicles. It was a substantial drop. It got our attention. These were significant client behavioral changes we were seeing. It was an indication that some fundamental changes were happening in our industry.”

Focus on controllables

Pitcher pulled his management team together to come up with a practical plan aimed at pulling LeasePlan out of the down spin it was falling into.

“One one hand, we knew we had a credit crisis going on,” Pitcher says. “The availability of credit and liquidity was a serious issue for us. But that was really at a macro level and largely beyond our control.

“So what we decided to do as a company and as a senior management team was we started talking about how we could get back to the basics and get all the basics right.”

The result of these deliberations was a new five-year strategic plan dubbed Triple Crown, which LeasePlan put into effect near the end of 2009.

“Our Triple Crown initiative was based on our performance in serving our three main groups of constituents,” Pitcher says. “Those constituencies are our employees, our clients and business partners, and our shareholders. And we said that none of those were more important than the others. Each was critical and fundamental to our business.”

LeasePlan’s Triple Crown five-year plan set forth concrete objectives regarding how effectively the company serves each of those three stakeholder groups. The plan laid out methods to measure employee engagement and client loyalty and goals to be reached in both of those areas based on those measurement methods.

LeasePlan’s shareholder return objective was to achieve a double-digit percentage increase over the five years covered by the Triple Crown initiative.

“We started to measure employee engagement — not just satisfaction but employee engagement,” Pitcher says. “We started to measure customer and client loyalty — again, not just satisfaction but loyalty — with the key definition of loyalty based on whether the client would refer us and whether they had an intent to repurchase and do business with us again.”

LeasePlan hired a consulting firm, TNS, to periodically survey its employees as a means of measuring their level of engagement in their work.

One of the initial findings was that LeasePlan has an unusually high percentage of workers classified as “drivers” — that is, passionate, already highly engaged employees who act as if they have an ownership stake in the company and work hard to deliver exceptional service every day. They learned that with such a high percentage of “drivers,” communication becomes even more critical than usual.

“We learned that with a group like this, you can never communicate too much,” Pitcher says. “Part of the reasoning for this is that in the absence of truth, people will start to make stuff up. If you don’t tell them the truth — clearly and consistently — they’re going to make something up. And usually it’s something far worse than things actually are.

“So we started having regular town-hall-type meetings and monthly communications from myself and our CFO regarding our financial performance and monthly emails from our chief sales and marketing officer talking about accounting and departures.”

LeasePlan also pledged not to lay off workers except as an absolute last resort and managed to live up to that pledge, even through the recession’s darkest days. The company implemented a two-days-a-week, casual-dress program and a weekly “dress for success” day, as well as an employee health program called HealthyU that includes free biometric testing, a weight-watching program and a running group that participates in 5K races — all of which have been popular and have helped increase the company’s employee engagement scores.

“We’ve received great feedback from our employees,” Pitcher says. “They love these programs. They’re great morale boosters, and they cost the company little or no money.”

Gauge allegiance

As part of its Triple Crown five-year strategic plan, LeasePlan engaged an outside firm to interview its clients by phone to measure their degree of loyalty as well as their perceptions about LeasePlan’s customer responsiveness, its level of innovation, its technological know-how and the value of its service vis-à-vis how much it charges for that service.

“Client loyalty is really about a lot more than client satisfaction,” Pitcher says. “It’s about a client’s intent to repurchase. Will (clients) be willing to spend additional dollars with you as a vendor? It’s about expanding services and share of wallet and whether they’re willing to be a referral for you if another client would call. Those are the factors that drive client loyalty.”

Pitcher proudly notes that LeasePlan is now laying the groundwork for a new five-year strategic plan because it achieved all the goals of its Triple Crown five-year plan in just three years.

“We laid out a five-year plan, but our team hit all the metrics we set forth in that plan within three years,” Pitcher says. “We achieved them all during 2012. This plan brought us back to pre-credit-crisis levels of profitability.

“We hit our metrics in all three areas — employee engagement, client loyalty and shareholder return. So now we’re back to the drawing board, looking at what our next five-year plan is going to look like.”

Asked what key pitfalls he has learned to avoid while leading LeasePlan through the credit crunch and financial downturn, Pitcher says he strongly suggests resisting a common mistake.

“One of the biggest pitfalls is surrounding yourself with people who always tell you you’re right,” he says. “If you get a big enough audience with very diverse and original ideas, you’re going to find out you don’t have all the answers. As a CEO, you can become very insulated, and people won’t bring you the real problems and the real challenges. You have to stay away from a group of advisers or managers that simply always tell you you’re right.”

Pitcher also recommends empowering the rank and file to help find the solutions your company needs when it gets in a tight spot — and be sure to acknowledge those contributions.

“One of the things we learned is that your team members really want to be part of the solution,” Pitcher says. “They want to be heard. And they usually know best how to attack a problem or an opportunity and find the solution. Our best recommendations and suggestions almost always come from front-line employees.

“The other thing is — and I know this sounds trite, but it’s really not meant to be — people want to be recognized for a good job. People do a lot of good things, and it’s leadership’s responsibility to catch people doing things right, make a point of to others and say thank you.”

How to reach: LeasePlan USA Inc., (770) 933-9090 or www.us.leaseplan.com 

The Pitcher File

Mike Pitcher

President and CEO

LeasePlan USA Inc.

Born: New Orleans, La.

Education: Bachelor’s degree in marketing, University of Louisiana at Lafayette; MBA, Emory University

Looking back over your years in school, do you recall any important business leadership lessons you learned that you still use today?

That you can learn from any experience, good or bad. From good leaders you can learn good aspects of leadership — but you can also learn from bad leaders, what not to do. There are role models on both sides of that coin, and if you take every experience as a learning experience, I think you can become a very well-rounded leader.

Another important lesson is that attitude is everything. In the face of crap, you can say, “The whole world is falling apart, and there’s nothing I can do.” Or you can say, “This is an opportunity.”

What was the first job you had, and what business lessons did you learn from it?

I was a painter and sandblaster on oil rigs in the Gulf of Mexico. I worked 21 days straight, 15 hours a day. In other words, I worked a 105-hour week for three weeks in a row. And the lesson I learned is that I wanted to make a living with my mind, not my back.

Do you have a main business philosophy that you use to guide you?

It simply would be that people have an inherent desire to be successful, and management’s main objective should always be to harness their passion and find ways to show them how they can succeed.

What trait do you think is most important for an executive to have in order to be a successful leader?

If I had to pick one, it would be integrity.

What’s the best advice anyone ever gave you?

Never do anything your mama wouldn’t be proud of. My older brother said that. Having been raised by my mom for a long time, I would say that’s up there.

Interviewed by Dustin S. Klein | dsklein@sbnonline.com

With more than three decades of experience in the lodging industry, including the last seven years as president and CEO of LQ Management LLC, the company that owns the La Quinta hotel chain, Wayne Goldberg is a man on the move. The company’s two major brands, La Quinta Inn and La Quinta Inn & Suites, are in major expansion mode: La Quinta had 425 hotels at the end of 2005; today, it has more than 800, with 9,000 employees. The growth has been fueled in part by technological innovations that enable La Quinta’s customers to make fuller use of the technological devices with which they travel.

Goldberg recently talked with Smart Business about the technological modernizations and some of the other strategies he has used to drive La Quinta’s growth over the last few years.

SB: Let’s talk about innovation. How are you becoming innovative leaders in your space — not just in the properties, but how you market yourselves and build your brand?

WG: I’ll start with technology, because what I like to say is that I view us as the little engine that could. We have done some things that we’ve received a lot of recognition for. We were recognized this year by Technology Innovator magazine as Technology Innovator of the Year. In our little company of 845 hotels, we have done some very creative things.

First of all, what I would tell you is that the world has changed. It used to be that it was all about giving the guest the technology that they needed and wanted. You would make that technology available and put it in the room, whether it was a fax machine or the delivery of bandwidth to the room. The actual hardware and software — you gave the guest all of the technology they needed.

Today, it isn’t about giving them technology. It’s about giving them the capability of using the technology that they’re traveling with.

We’ve taken a different approach. We’ve done a number of firsts. In 2012, we launched a new mobile site, the first of its kind. On this site, we launched a platform called LQ Instant Hold. When you go to book a room, you’ll see a banner that says LQ Instant Hold. If you click on it, we will hold a room for you for up to four hours. All you have to do is enter your phone number. It’s unique.

We launched this in February, and by June, 40 percent of all our mobile bookings were coming through LQ Instant Hold.

SB: Are your properties franchised or company-owned?

WG: It’s a combination. It’s a different model than most of our competitors. In my view, this is another point of innovation; we own and operate 400 of our 845 hotels. We are significantly invested in the real estate and in the operation of our business, which I think is a big positive for us because we have real skin in the game.

We are going to our partners and saying, ‘Look, you need to change the bandwidth from 1.5 megs to 3 megs as a minimum standard. By the way, we can show you the return on the investment and the improvement in guest satisfaction. We can show you the reasons you should do it. And we’re doing it at 400 hotels. We’ve invested millions on our corporate side.’

All of a sudden, we have more credibility than someone just brand-building and telling people to increase profitability by spending money.

We don’t ask our partners to do anything that isn’t economical. It’s all about doing the things that are economical, and if it makes economic sense, then you can get the troops around those issues and initiatives and really make progress. But if you’re doing it just for the brand, where is the real economic value? And why would I do it?

I can tell you that being a franchisee of another brand — which we are — we see this all the time. We’re asked to do things and invest capital [where] there is no economic value. And, by the way, some of our competitors make money every time they require their franchise partners to do something by making them use certain vendors and products and then by taking a percentage of everything you’re buying. There’s a little bit of conflict of interest in that type of approach.

SB: Would you discuss your brand from both an ownership standpoint and a franchise standpoint. How has your brand changed and evolved?

WG: What I would tell you is that in 2000, we were 99 percent company-owned. We owned and operated 298 hotels, and we had one franchise property. What we have done over the last several years is our entire focus has been to leverage the brand, not the balance sheet.

For us, what that means is that we started the franchise business, and we decided we were going to grow our way out of a challenge we had of owning a large amount of older real estate.

Many of our owned assets are some of our older assets. In many cases, they were our inns. We’re one brand with two products. We have La Quinta Inns, which are limited-service hotels that operate in the upper end of the economy segment, and then we have the La Quinta Inn & Suites, which operate in the middle to upper end of the midscale category.

As I said, we wanted to grow our way through some of the challenges we have with our own real estate, so we have sold some older hotels. We have identified hotels that we felt were obsolete or at the end of their life and took them out of the system and sold them.

We’ve done this a number of times. From 2000 to 2006, prior to our acquisition and public-to-private transition to Blackstone, we were 99 percent company-owned, approximately 70 percent of our properties were Inns, the average age of our hotels was 26.1 years, and about 70 percent of our properties were exterior-corridor.

Today, we’re 53 percent franchised and 47 percent company-owned, we’re 70 percent Inns & Suites, the average age of our properties is 15 years, and we’re 70 percent interior-corridor. And it absolutely enhances our brand when we move to interior.

SB: Let’s go back to wireless service. How is your company innovating with the delivery of wireless to La Quinta customers?

WG: For Internet, bandwidth has been and continues to be the key issue. We embarked on a program two years ago where we fundamentally changed the way we deliver bandwidth to our properties and changed our brand standards.

For most of our competitors in our space, the typical bandwidth requirement for a property is 1.5 (Mbps), so to speak. We began about two years ago integrating circuits, and now it’s almost like delivering bandwidth “on tap.” So you’re not paying for extra bandwidth that you’re not using. We’re only buying and using what is needed.

What we do is integrate circuits with a multitude of providers, and we deliver bandwidth to the hotels based on what is actually being used. It changes based on the usage, so that the bandwidth being delivered is sufficient for the property.

We also changed our minimum from 1.5 to 3 megs. On average, we’re closer to 6, and we actually have a property with 19 megs of bandwidth. Now, that property is a hotel where we have a contract with a dorm, and they have a whole building, and there are two students per room and they’re on the Internet 24/7, so in order to give them what they need, we deliver 19 megs. So that is an extreme and an exception. But we basically doubled our minimum.

And what we watch for is 90 percent of the capacity being used. When that happens, then you move and integrate an additional circuit and additional bandwidth.

SB: So you basically have bandwidth on demand and there’s a trigger point where you flip a switch and it’s on?

WG: Well, it’s a little more complicated, but we would change the bandwidth for that property based on what the usage is over a period of time.

SB: So it’s not just for a day or a week? You bump it up because you’re seeing the trends?

WG: Correct.

SB: How are you gauging and monitoring the system?

WG: We monitor the percentage of what is being delivered and the usage of what is being delivered.

SB: Is there a correlation between that and the room occupancy rate?

WG: It plays a part, and it’s a significant correlation, but it also has a lot to do with the demographics of the property. For example, if you’re in a location next to a technology park and you’ve got a sophisticated, technologically advanced consumer staying with you, they will be using more bandwidth, so you have to deliver more.

What happens in this industry and what used to happen with us is that there are small percentages of people using a large percentage of the bandwidth. What most of our competitors are still doing today is when folks are streaming video and using an inordinate amount of the capacity, they bump them off the system basically to make room for the folks that are just checking email. They’re not allowing people to use the kind of bandwidth they may require. ?

How to reach: LQ Management LLC, (214) 492-6600 or www.lq.com

The Goldberg File

Wayne Goldberg

President and CEO

LQ Management LLC

Education: Bachelor’s degree, University of Louisville

Goldberg on fee-based franchising: We have very strategically focused on growth through our franchise fee-based organization. Today, we are 70 percent Inns & Suites, and if we take our pipeline and take some things we’re going to do with additional assets, where we have identified some noncore assets, we’re going to look to divest.

In 2014, those numbers will change. The breakdown between Inns versus Inns & Suites will be 75 percent Inns & Suites. If you look at the average age in 2000 — 26.1 years — today, it’s 15 years, and in 2014, it will be 13. The average age has come down dramatically because the bulk of our new franchise fee-based has been new construction. Even the ones that aren’t new construction are much newer properties, because we’re not allowing anything out of the system.

Goldberg on growth: We were recognized in 2012 as the fastest-growing limited-service hotel brand. If you look over 10 years, we have grown 166 percent. Our closest competitor, Holiday Inn Express, grew 62 percent. And in addition to begin the fastest-growing brand in the segment over 10 years, we’re also the fastest-growing brand over five years. According to Smith Travel research, we’ve grown 62 percent over five years. The closest competitor is Hampton Inn at 43 percent.

Goldberg on evolving the company’s brand: Speaking to the evolution of the brand and the product and the positioning of the organization, last year we were recognized by Forester Research. We were recognized across all brands, full-service brands included, on customer experience. They asked how easy the company was to transact with, and whether you would transact with them again. We ranked No. 2 in consumer experience among all brands, one point beyond Hampton Inn & Suites.

Larry Dorfman, APCO’s chairman and CEO, learned a cold fact of life the hard way: If your business is heavily dependent on another market sector and that sector takes a hit, you’re going to take a hit too.

And, boy, did that other sector take a hit. New car sales in the U.S. fell by almost exactly half in a little more than a year, says Dorfman, whose company sells extended warranties at 1,800 franchise auto dealers around the U.S. and commonly goes by the name of its extended-warranty brand, EasyCare.

“New vehicle sales dropped from 16.9 million to 8.7 million, basically in a 15-month period,” he says. “Used car sales suffered significantly too, but the hardest hit were clearly the franchise dealers.”

Dorfman didn’t have to go looking for danger signs. They came rolling at him like a tidal wave.

“You could literally see the volumes starting to slide, and we were attached directly to the number of cars that get sold at any given store [dealership],” he says. “If a store sells 100 cars, then you know they’re going to sell a certain number of extended service contracts. And if that 100-car store suddenly starts selling 50, then both of us have a problem. That’s just the way it is.”

It didn’t take long for Dorfman and his leadership team to figure out what they needed to change. APCO’s business was too dependent on car sales. The company had to find a way to broaden its base.

“Our benefits at the time totally focused on how many cars got delivered to a customer at a franchise dealership,” Dorfman says. “We started to recognize that we were on what we call a two-legged stool. Whichever way the car business went, that’s the way we would go too. Now, our company was founded in 1984, so we had been through a couple of recessions. We’d been up and down on a couple of these rides. Of course, nobody knew what this one was going to be like. But you sure could feel it coming.”

Set the table

APCO’s leaders quickly concluded that the stool on which their company’s fortunes were perched needed a sturdier base. Dorfman and his team knew that building that third stool leg would be absolutely critical to APCO’s long-term health, so they attacked the project meticulously and deliberately and from several angles at once.

In fact, APCO’s leadership team had set the table for these base-broadening measures before the downturn really started to seriously kick in — just as they began to sense it coming. Ford Motor Co. had bought APCO back in 1999 and had been operating as a subsidiary for about seven years.

For the first few years, that arrangement had gone swimmingly. But as Dorfman saw vehicle sales leveling off and creeping downward in late 2006 and early 2007 and with Ford increasingly sinking into debilitating debt and cash-flow problems in mid-2007 after more than a year of deliberation, APCO’s employees and equity partners purchased the company back from Ford.

“We bought it back, and then, from that point, the market continued to dribble down a little bit,” Dorfman says. “And, fortunately, we were able to start making some decisions — some investments — that we could not have made under Ford. This was one of the critical reasons that we wanted to buy the company back. We could see that they weren’t going to invest in our company.”

Then the stock market crash hit in 2008, and business went into free fall virtually across the board in the U.S., including automobile sales and, consequently, APCO’s business.

“One of our key financial measures is trailing 12-month EBITDA,” Dorfman says. “We watch that very carefully. And we went from $28.7 million at our peak — that would’ve been about ’06 — to $12.5 million after the crash, in ’09. So what do you do?

“Well, you know, the first thing you do is you take the gun out of your mouth. No, I’m kidding. Obviously, this didn’t all happen in one week. But it did happen pretty darn quick.”

As they saw the nose-dive gathering steam, APCO team members started looking for ways to get their company off of its two-legged stool and build a firm third leg for balance.

“The first thing we did is we looked at how we approach the business,” Dorfman says. “What we saw was that our business was totally affected by whether the dealer sold a car today or not. We knew that had to change. So we asked ourselves, ‘How else can we do what we do and stay who we are but, at the same time, move away from being so dependent on car sales?’”

APCO decided to focus on what it saw as an underappreciated and neglected area of its dealerships: the service department. It developed a software program called EasyCare SOS — Special Owner Services — to help its dealers better manage their customer relationships.

“It’s literally a CRM [customer relationship management] program,” Dorfman says. “It helps dealers manage their customer relationships throughout the ownership life cycle of the vehicle. We built this software to make sure consumers are approached the right way — that they’re notified properly but not overnotified when their vehicle is due for service, what specials are available, etc.”

The program has worked so well that APCO guarantees dealers a 500 percent return on their investment.

“We started that piece, EasyCare SOS, from scratch in late ’07 with two people,” Dorfman says. “Today, it has 36 people in it, and it contributed 8 percent of our profit this year.”

Invest in technology

In addition to forming EasyCare SOS, APCO made other investments. The company formed a retail division, it created a certified used car program in partnership with Motor Trend magazine, and it bought a company called CoVideo that had developed a sophisticated video email technology.

“The CoVideo technology allows you to create and send a video email as quick and easily as you could type and send a text email,” Dorfman says. “It’s very personal and immediate. You’re looking right at the person’s face: ‘We want to let you know it’s time for your vehicle to come in for service. Click here for an appointment.’ Or: ‘Hello. Thanks for the time on the phone. I enjoyed it. I look forward to seeing you when I come in next week. We appreciate your business.’”

APCO invested $900,000 in the CoVideo technology to build the infrastructure and create apps to deliver large quantities of video email efficiently to an array of mobile devices: iPhones, iPads, Androids and BlackBerrys. The company plugged the technology into its EasyCare SOS program so its dealers can use it to send video updates to their customers instead of regular emails.

“We did all of this during a down market,” Dorfman says. “In so doing, we turned digital customer interaction into a much more personal process.”

All of the investments have begun to pay off for APCO. The company’s key metric, trailing 12-month EBITDA, is growing again, and the company has paid off a substantial portion of the debt from its buyback from Ford Motor Co.

“Trailing 12-month EBITDA is back up to about $16.7 million from a low of $12.5 million in ’09,” Dorfman says. “So we’re back up 25, 30 percent. And that’s while making these major investments to grow the business.

“Also, we’ve paid our debt down to about $20 million during very tough times. We’ve built a broader base, which has expanded us further into our own business and actually outside the car business with CoVideo. This puts us in a strong position to continue to make more investments to grow the company.”

Choose partners wisely

Asked what advice he would offer business executives whose businesses are facing similar challenges, Dorfman ticks off several suggestions: Choose your business partners carefully, focus on delivering more than is expected of you, keep a finger on the pulse of your business, and stay ahead of the game with regard to expense management.

“You’ve got to have great partners, great clients and great employees,” he says. “You can’t ask more of somebody than the time and effort that you’ve taken to build a relationship with them. You can’t go to the bank and make a $300 deposit and then go back five days later and take $10 grand out. The bank doesn’t do that. And neither do customers, partners, investors.

“Your chances of being able to make a withdrawal are a lot better when you’ve made a substantial deposit. And what we did for a few years before and during this downturn is we continued to make deposits with the people we work with so we had a base to work from. Building that base really helped us.”

Dorfman says the most important thing he has learned while leading APCO through the financial crisis is that executives should never let market conditions dictate the pace of their business.

“If you buy in to everything people say about the market, you’ll be out of business in no time,” he says. ?

How to reach: Automobile Protection Corp., (678) 225-1000 or www.easycare.com

 

The Dorfman File

 

Larry Dorfman

Chairman and CEO

Automobile Protection Corp.

Born: Brooklyn, N.Y.

Education: University of Georgia

What was your first job, and what business leadership lessons did you learn from it?

I grew up working in our family’s office equipment business. I was in sales. I was given a car at age 16, and I had to pay for the gas and insurance with the money I made selling. My dad was my mentor — actually somewhere between my mentor and tormentor — and in both cases, he did a good job. He exposed me to a lot of opportunities, like learning how to go out and make cold-call presentations to businesspeople. And, you know, at 16 or 17, that’s a pretty interesting game plan. You learn quickly. And my dad was always there to go back to and talk about what worked and what didn’t.

Do you have a main business philosophy that you use to guide you?

One of the key things we learned as we went through the recession is we changed our philosophy from the hard sell to building a relationship with customers. I grew up in a hard-sell environment. But I think people have changed. They don’t like to be hard-sold anymore. Salespeople have to understand that you can’t ask more from a customer than what you’re willing to give them — your time, your effort, your knowledge.

What trait do you think is most important for an executive to have in order to be a successful leader?

Don’t be afraid to make a decision.

What’s the best advice anyone ever gave you?

You can’t take more out of a relationship than you put into it. I learned that from an instructor at a communications course I took in 1985 that was geared toward getting people to understand and learn to communicate better. It was a personal and business growth course.

When the recession rocked the auto industry in 2008 and 2009, Automobile Protection Corp., which sells extended service contracts to car buyers, got rocked just as hard.

Larry Dorfman, APCO’s chairman and CEO, learned a cold fact of life the hard way: If your business is heavily dependent on another market sector and that sector takes a hit, you’re going to take a hit too.

And, boy, did that other sector take a hit. New car sales in the U.S. fell by almost exactly half in a little more than a year, says Dorfman, whose company sells extended warranties at 1,800 franchise auto dealers around the U.S. and commonly goes by the name of its extended-warranty brand, EasyCare.

“New vehicle sales dropped from 16.9 million to 8.7 million, basically in a 15-month period,” he says. “Used car sales suffered significantly too, but the hardest hit were clearly the franchise dealers.”

Dorfman didn’t have to go looking for danger signs. They came rolling at him like a tidal wave.

“You could literally see the volumes starting to slide, and we were attached directly to the number of cars that get sold at any given store [dealership],” he says. “If a store sells 100 cars, then you know they’re going to sell a certain number of extended service contracts. And if that 100-car store suddenly starts selling 50, then both of us have a problem. That’s just the way it is.”

It didn’t take long for Dorfman and his leadership team to figure out what they needed to change. APCO’s business was too dependent on car sales. The company had to find a way to broaden its base.

“Our benefits at the time totally focused on how many cars got delivered to a customer at a franchise dealership,” Dorfman says. “We started to recognize that we were on what we call a two-legged stool. Whichever way the car business went, that’s the way we would go too. Now, our company was founded in 1984, so we had been through a couple of recessions. We’d been up and down on a couple of these rides. Of course, nobody knew what this one was going to be like. But you sure could feel it coming.”

Set the table

APCO’s leaders quickly concluded that the stool on which their company’s fortunes were perched needed a sturdier base. Dorfman and his team knew that building that third stool leg would be absolutely critical to APCO’s long-term health, so they attacked the project meticulously and deliberately and from several angles at once.

In fact, APCO’s leadership team had set the table for these base-broadening measures before the downturn really started to seriously kick in — just as they began to sense it coming. Ford Motor Co. had bought APCO back in 1999 and had been operating as a subsidiary for about seven years.

For the first few years, that arrangement had gone swimmingly. But as Dorfman saw vehicle sales leveling off and creeping downward in late 2006 and early 2007 and with Ford increasingly sinking into debilitating debt and cash-flow problems in mid-2007 after more than a year of deliberation, APCO’s employees and equity partners purchased the company back from Ford.

“We bought it back, and then, from that point, the market continued to dribble down a little bit,” Dorfman says. “And, fortunately, we were able to start making some decisions — some investments — that we could not have made under Ford. This was one of the critical reasons that we wanted to buy the company back. We could see that they weren’t going to invest in our company.”

Then the stock market crash hit in 2008, and business went into free fall virtually across the board in the U.S., including automobile sales and, consequently, APCO’s business.

“One of our key financial measures is trailing 12-month EBITDA,” Dorfman says. “We watch that very carefully. And we went from $28.7 million at our peak — that would’ve been about ’06 — to $12.5 million after the crash, in ’09. So what do you do?

“Well, you know, the first thing you do is you take the gun out of your mouth. No, I’m kidding. Obviously, this didn’t all happen in one week. But it did happen pretty darn quick.”

As they saw the nose-dive gathering steam, APCO team members started looking for ways to get their company off of its two-legged stool and build a firm third leg for balance.

“The first thing we did is we looked at how we approach the business,” Dorfman says. “What we saw was that our business was totally affected by whether the dealer sold a car today or not. We knew that had to change. So we asked ourselves, ‘How else can we do what we do and stay who we are but, at the same time, move away from being so dependent on car sales?’”

APCO decided to focus on what it saw as an underappreciated and neglected area of its dealerships: the service department. It developed a software program called EasyCare SOS — Special Owner Services — to help its dealers better manage their customer relationships.

“It’s literally a CRM [customer relationship management] program,” Dorfman says. “It helps dealers manage their customer relationships throughout the ownership life cycle of the vehicle. We built this software to make sure consumers are approached the right way — that they’re notified properly but not overnotified when their vehicle is due for service, what specials are available, etc.”

The program has worked so well that APCO guarantees dealers a 500 percent return on their investment.

“We started that piece, EasyCare SOS, from scratch in late ’07 with two people,” Dorfman says. “Today, it has 36 people in it, and it contributed 8 percent of our profit this year.”

Invest in technology

In addition to forming EasyCare SOS, APCO made other investments. The company formed a retail division, it created a certified used car program in partnership with Motor Trend magazine, and it bought a company called CoVideo that had developed a sophisticated video email technology.

“The CoVideo technology allows you to create and send a video email as quick and easily as you could type and send a text email,” Dorfman says. “It’s very personal and immediate. You’re looking right at the person’s face: ‘We want to let you know it’s time for your vehicle to come in for service. Click here for an appointment.’ Or: ‘Hello. Thanks for the time on the phone. I enjoyed it. I look forward to seeing you when I come in next week. We appreciate your business.’”

APCO invested $900,000 in the CoVideo technology to build the infrastructure and create apps to deliver large quantities of video email efficiently to an array of mobile devices: iPhones, iPads, Androids and BlackBerrys. The company plugged the technology into its EasyCare SOS program so its dealers can use it to send video updates to their customers instead of regular emails.

“We did all of this during a down market,” Dorfman says. “In so doing, we turned digital customer interaction into a much more personal process.”

All of the investments have begun to pay off for APCO. The company’s key metric, trailing 12-month EBITDA, is growing again, and the company has paid off a substantial portion of the debt from its buyback from Ford Motor Co.

“Trailing 12-month EBITDA is back up to about $16.7 million from a low of $12.5 million in ’09,” Dorfman says. “So we’re back up 25, 30 percent. And that’s while making these major investments to grow the business.

“Also, we’ve paid our debt down to about $20 million during very tough times. We’ve built a broader base, which has expanded us further into our own business and actually outside the car business with CoVideo. This puts us in a strong position to continue to make more investments to grow the company.”

Choose partners wisely

Asked what advice he would offer business executives whose businesses are facing similar challenges, Dorfman ticks off several suggestions: Choose your business partners carefully, focus on delivering more than is expected of you, keep a finger on the pulse of your business, and stay ahead of the game with regard to expense management.

“You’ve got to have great partners, great clients and great employees,” he says. “You can’t ask more of somebody than the time and effort that you’ve taken to build a relationship with them. You can’t go to the bank and make a $300 deposit and then go back five days later and take $10 grand out. The bank doesn’t do that. And neither do customers, partners, investors.

“Your chances of being able to make a withdrawal are a lot better when you’ve made a substantial deposit. And what we did for a few years before and during this downturn is we continued to make deposits with the people we work with so we had a base to work from. Building that base really helped us.”

Dorfman says the most important thing he has learned while leading APCO through the financial crisis is that executives should never let market conditions dictate the pace of their business.

“If you buy in to everything people say about the market, you’ll be out of business in no time,” he says. ?

How to reach: Automobile Protection Corp., (678) 225-1000 or www.easycare.com

The Dorfman File

Larry Dorfman

Chairman and CEO

Automobile Protection Corp.

Born: Brooklyn, N.Y.

Education: University of Georgia

What was your first job, and what business leadership lessons did you learn from it?

I grew up working in our family’s office equipment business. I was in sales. I was given a car at age 16, and I had to pay for the gas and insurance with the money I made selling. My dad was my mentor — actually somewhere between my mentor and tormentor — and in both cases, he did a good job. He exposed me to a lot of opportunities, like learning how to go out and make cold-call presentations to businesspeople. And, you know, at 16 or 17, that’s a pretty interesting game plan. You learn quickly. And my dad was always there to go back to and talk about what worked and what didn’t.

Do you have a main business philosophy that you use to guide you?

One of the key things we learned as we went through the recession is we changed our philosophy from the hard sell to building a relationship with customers. I grew up in a hard-sell environment. But I think people have changed. They don’t like to be hard-sold anymore. Salespeople have to understand that you can’t ask more from a customer than what you’re willing to give them — your time, your effort, your knowledge.

What trait do you think is most important for an executive to have in order to be a successful leader?

Don’t be afraid to make a decision.

What’s the best advice anyone ever gave you?

You can’t take more out of a relationship than you put into it. I learned that from an instructor at a communications course I took in 1985 that was geared toward getting people to understand and learn to communicate better. It was a personal and business growth course.

Six years ago, Jim Treliving started to see troubling signals in his business. The restaurant franchising boom that had been rolling since the end of the 2001 recession was starting to slow because money was getting tight and financing for franchisees was drying up. Thus, the robust growth that Treliving’s company, Boston’s Restaurant & Sports Bar, had enjoyed for the previous half-dozen years was starting to slacken. c

“The main challenge I’ve had to deal with these last few years has been with the financial portion of our business,” says Treliving, whose company today operates 400 franchises in the United States, Canada and Mexico and generates systemwide sales of more than $1 billion. “The financing situation has really changed a lot since 2006 or so. Up until then, the franchisees we dealt with had lots of avenues to get financing for their business.”

The easy-money trend in restaurant franchising started to tail off in 2006 and 2007, and then it began dropping at an even faster rate in 2008 during the most recent recession.

“The financing really dried up,” he says.

Treliving started as a franchisee with Canada-based Boston Pizza in British Columbia in 1968 and eventually bought out the entire Boston’s restaurant chain in 1983.

“This has really affected just about everybody in most small-business market sectors. Small-business growth in the United States has really been negatively impacted by the inability to find sources of financing.”

Nowhere has that trend been felt more acutely than in the restaurant-chain business.

“It has taken a toll on us, especially when it comes to trying to attract new franchisees into the business,” Treliving says. “New franchisees generally need to have a down payment of 20 to 35 percent of the cash available to go into business. Nowadays, even [potential franchisees] who do have that amount on hand are having trouble getting banks and other financial institutions to do any kind of work with them in the sense of taking a chance on them.”

Today’s persistently low interest rates make it hard on those who want to start businesses because finance companies are less inclined to take chances on small businesses when their potential returns are so low.

“Most of the banks we’ve talked to in the U.S. — even though they’re in a situation where their balance sheets are OK — they’re not lending money for small businesses,” Treliving says. “And it’s not just the banks; it’s all types of financial institutions. Obviously, any type of lender is going to require a return on its money, and if you’re buying the money at a bank at 2 percent and you’re lending it out at 3 or 4 or even 5 percent, you’re not going to make a lot of money on it. That’s why they’re not taking many chances on people who want to start small businesses.

“It’s funny; these days a lot of people in this business are saying, ‘The good thing is we’ve got these low interest rates — and the bad thing is we’ve got these low interest rates.’ It’s really a tough problem.”

Give partners slack

The financing problems that Boston’s and other small and midsized restaurant companies have been facing isn’t limited to just attracting new franchisees. It’s also affecting the ability of the company’s existing franchisees that want to expand their businesses by opening new restaurants within their territories.

“A lot of our franchisees bought territorial pieces,” Treliving says. “We entered into agreements with them back when we sold them their first store that they would open a certain number of additional restaurants in their territory over a certain period of years. We mutually agreed, and an important part of that agreement was that we had to make sure that they’re on solid financial footing before moving to the next level.

“Unfortunately we’ve had a fair amount of franchisees that, even though they have a good solid track record, when they’ve reached the date when they’re supposed to build that next store in their territory, they couldn’t get the financing they needed to do it.”

Boston’s approach in these situations has generally been to give its existing franchisees more time to strengthen their market footing so they would eventually be able to obtain financing to build the additional stores in their territories.

“The plan was that they agreed to build a certain number of stores in their territory in a certain period of time, and if they didn’t — if they failed to do that — then they would lose their territory, and they would lose the money they had paid in upfront fees to hold their territory,” Treliving says.

“We began to see with many of them that we’d have to wait a little while, until the money [for financing] started to loosen up again. We saw that we would need to reset those dates so our franchisees would have more time to build those new stores and not lose their territories. We basically had to rectify the dates so we wouldn’t go offside with our franchisees.”

“So this financing situation has really slowed down the growth of everybody — not just new franchisees, but old franchisees as well.”

Find other sources

Even though the lending picture hasn’t been good from traditional sources of financing for restaurant franchises — i.e., banks and large finance companies such as GE Capital and others — Boston’s and other restaurant chains have had a degree of success finding financing for some of their franchisees via nontraditional sources such as private equity firms.

“A lot of people are going out and finding independent money on the side,” Treliving says. “So we started looking as well for some of these new sources that would deal with us. For many years, we had been dealing with a couple of major companies for financing, but now one of them had pulled out of the business completely, and the other one had quit lending new money for restaurant franchises.

“So we had to look for other avenues, whether it was banks or individuals or private equity that had been sitting on the sidelines and were now saying, you know, ‘Maybe we should jump into this business.’”

With some legwork, Boston’s was able to uncover some of these smaller, off-the-beaten-path financing sources. In so doing, the company was able to keep growing, albeit at a slower pace, even during the four-year downturn when traditional financing was very tight for the restaurant business.

“We had to go and look for some of those individuals and private firms,” Treliving says. “Most of them are regional. People are more likely to lend money to nearby sources, wherever they happen to be, because they can drive by and see the property, so they know where the money’s being spent and how it’s being spent. If you look at 90 percent of the restaurant chains around the country, everybody was going through the same thing. They were knocking on doors everywhere.”

Do it yourself

Lending from the traditional sources has started to loosen up a bit over the past year, but Boston’s has decided it isn’t going to rely so heavily on those traditional sources anymore. The company has decided to take a big step forward and create its own financing division to help its franchisees grow.

“We’re putting a package together right now to do that,” Treliving says. “We’re well on our way to develop our own financing. The first thing we’re going to do is go and help our existing franchisees that want to expand but can’t get the capital they need to do it. We’ll be willing to lend them money, because we’ve seen what they’ve been capable of doing over the last five or 10 years. They’ll be our first customers.

“The next ones will be potential new franchisees that we think have a great opportunity to get into the business now. We’ve been starting to receive a fair amount of inquiries about this, now that things have started to loosen up a little bit financewise.”

Asked what he has learned and what advice he would give other executives facing similar problems with tight lending inhibiting their growth, Treliving says he suggests that you choose your dance partners very carefully.

“I’ve talked to other CEOs in various businesses, and it’s really all about quality now — the quality of who you’re going to do business with,” he says. “The quality of franchisees you’re getting is what you should be looking at now — the strength of the person going in. It’s not just simply about grabbing anybody that’s got a warm body and going into business with them anymore.”

Treliving says that containing costs and reinvesting in quality service are more important now than ever, and not just in the restaurant-chain sector or the food-service sector but in all service-oriented businesses.

“You really need to be watching your costs right now,” he says. “It’s an absolute necessity. And your service has to be absolutely top-notch all the way through your operation. You can’t get away with anything less than that. If you’re willing to do these things, this can really be a great time to get into a business and have success with it.”

How to reach: Boston’s Restaurant & Sports Bar, (972) 484-9022 or www.bostonsgourmet.com

The Treliving File

Jim Treliving

Chairman and CEO

Boston’s Restaurant & Sports Bar

Born: Virden, Manitoba

What was your first job, and what business lessons did you learn from it that you use today?

I delivered groceries for a family that owned a small grocery store, and I think the biggest thing I learned was persistence — the stick-with-it sort of thing. The place where I delivered groceries —  it was very important that they be delivered on time. You had to come there clean and ready to go to work. And you had to provide great service. That was extremely important, the service aspect of it — being on time and getting the groceries out to people right away. Those things stuck in my mind when I went into the restaurant business.

Do you have a main business philosophy that you use to guide you?

I believe very much in dealing with people on a face-to-face basis. And I want to do business with people that I can have fun with — people that enjoy the same things I do.

What trait do you think is most important for a business executive to have in order to be a successful leader?

You have to have honesty and integrity. You have to be honest with your people, and honest with the franchisees you’re dealing with. Of course it’s inevitable that you’re going to have problems with your franchisees from time to time. But you sit down and discuss it with them so that you understand their side and they understand your side. And then you both make a decision on what you’re going to do, and you go forward with it together, as a team.

What’s the best advice anyone ever gave you?

My dad gave me a couple of good pieces of advice a long time ago: Always leave a little something on the table for somebody else, and always work hard and do the things that you want to do, that you enjoy doing.

Most people know Cinnabon by its mini-bakeries in malls and airports where you can grab a cinnamon roll while hustling from one place to another. And for its first two decades of existence, that’s essentially what Cinnabon was — a fast-growing chain of franchised kiosks in high-traffic venues known for the cream cheese/butter/sugar-frosted treats.

But in the last few years Cinnabon has expanded its brand and its identity by selling new products through new channels. And that’s where it has become very complicated for Cole to manage all those products and distribution channels to make sure Cinnabon’s growing brand continues to function as a seamless, integrated whole.

“That’s definitely the key challenge I’ve faced — being successful at global multichannel brand management,” says Cole, who took the reins at Cinnabon after a 15-year stint with Hooters of America, where she served as vice president.

“The Cinnabon brand is not one-dimensional; it doesn’t play in just one channel or segment. And because we are truly a multichannel business, leading that brand across all those channels and making sure that the channels integrate with each other and feed the brand is by far the most important thing I do.”

Cinnabon — which has more than 900 franchises in 48 countries and is approaching $1 billion in annual consumer sales — has fed its growth in recent years by creating and marketing new products primarily through two new conduits: consumer packaged goods in grocery stores and licensed products sold via other outlets such as fast-food restaurants.

“Our main channel has always been and remains immediate-consumption food service — our franchise bakeries, our company’s face as most consumers would know it,” Cole says. “But we’re seeing significant growth in our newer channels, which are basically grocery retail — our consumer packaged goods division — and food-service licensing, where we develop products for other immediate-consumption restaurant locations.”

Getting those products and distribution channels to mesh well and feed off each other is Cole’s constant and never-ending quest.

Protect the brand

As any company expands its product offerings and increases the number of conduits through which people can obtain them, the complications of doing business multiply, usually a lot more quickly and dauntingly than anyone expects. Cole has learned this lesson firsthand at Cinnabon, and she has tackled the challenge head-on.

“There are inherent complexities when your brand or your products as consumers know them don’t live in just one space — when there’s no longer just one place that they can get them or just one way that they can get access to them,” Cole says.

Safeguarding and augmenting the value of the company’s brand is a key driving factor, and the most crucial consideration Cinnabon’s leadership team weighs is determining which new business opportunities to take on and which ones to let pass.

“My No. 1 leadership focus is to make sure the brand is protected and enhanced — at all times, by every initiative we undertake,” Cole says. “It’s all about the brand. It’s about managing the brand, leading the brand, making sure that any new initiatives are accretive to brand value.

“The essence of this approach is that inherent in any good brand there is equity. The brand carries with it a value that has been built over time, typically through its original channel — in our case, our franchise bakeries. And that equity must always be carefully protected and taken care of, first and foremost.”

Cole cites the recent introduction of Cinnabon’s International Delight Coffee Creamer, which is now available in grocery stores and other retail outlets around the U.S., as an illustrative example of the way the company creates a new business channel to enhance the value of its brand. Cinnabon’s leadership team first determined that expanding the company’s presence in the market for coffee-related products would be a good fit for Cinnabon.

“It’s a matter of understanding where your branded products have equity and where that value can readily translate into a new area,” Cole says. “For us, we feel that we own quality indulgence. It’s who we are. When people think of our brand, they think of over-the-top indulgence — warm aromas, warm flavors, warm textures. And when you’re crystal-clear about what attributes you own, that allows you to then extend those attributes into other products.

“We knew we wanted to be in the coffee family of products, because that’s all about warmth and comfort, and it goes well with cinnamon rolls and our flavors and our other products.”

Partner selectively

Once Cinnabon’s executive team members decided they wanted to expand the company’s footprint in the coffee sector, they sought a suitable partner to help their company create and market a new retail coffee-related product.

“When we look for a group to partner with in any channel, we always look for best-in-class,” Cole says. “We do this because we have a premium brand — it may be a snack brand, but it’s a premium snack brand — so we feel we always need to be with premium partners that have brand awareness at least equal to ours. Two companies that have fit that type of requirement for us in the past are Kellogg’s and Pillsbury, to cite a couple of examples. In the coffee creamer space, we decided International Delight was the best fit.”

So Cinnabon teamed up with International Delight, whose coffee creamer products are distributed by WhiteWave Foods, and the companies together created a cinnamon-flavored coffee creamer that met their respective quality standards and their goals for introducing the jointly marketed, co-branded product.

“We had to be heavily involved in the R&D, because the flavors and the aroma have to be just right,” Cole says. “We can’t afford to have a product out there in the market that has a picture of our cinnamon roll on the label — a product that we’re that heavily invested in — and, you know, have it taste like Red Hots. The quality has to meet our standards. That’s hugely important to us. It would be too easy to just go and throw your name on things.”

Cinnabon’s R&D department and licensing group worked with International Delight to tweak and refine the cinnamon flavor of the creamer to ensure that it would meet Cinnabon’s customer’s expectations.

“The end result is this amazing, disturbingly delicious coffee creamer,” Cole says. “And, you know, that’s the bar that we always have to meet. When you open the bottle and smell it or when you pour it in your coffee and taste it, you have to have one of those eyes-roll-back-in-your-head moments. Like, ‘Wow, this is so good it’s almost inappropriate.’ That’s what we go for. And we won’t stop — we won’t release a product — until we get to that point.”

Cinnabon has had similar success partnering with other companies to license new products, including Pillsbury and Kellogg’s, as well as Burger King, through which it markets the Minibon, a smaller version of its signature cinnamon roll, and Taco Bell, through which it has licensed Taco Bell Cinnabon Delights — doughnut-hole-like balls filled with sweet cream cheese frosting and dusted with cinnamon and sugar.

Know yourself

Cinnabon has enjoyed success in recent years with these multichannel brand initiatives — new products introduced, financial growth, growth in the number of distribution points, synergies with the channels reinvesting in one another in varying combinations. Cole attributes the company’s recipe for success to a number of ingredients, chief among them the Cinnabon leadership team’s clear understanding of the company’s identity and its strengths and weaknesses.

“If there’s one piece of advice I would offer above all others, it’s that you’ve got to have clarity on the core of your brand and what makes it unique,” Cole says. “If you miss that, you’ll make mistakes, and it will be difficult to correct them later. You have to really get down to your core DNA. If you’re going to expand your brand into different channels beyond the channel you started in and where you had your early successes, you have to make sure you clearly understand what you’re about and what you’re not about.”

In the end, successfully managing a brand with multiple products marketed via multiple channels is a matter of constantly asking yourself whether each new opportunity is right for your company and, most importantly, being able to articulate convincingly why it is or isn’t a good fit.

“When tweaking your business model to grow in new ways, you, as the leader, have to keep your compass set on doing the right things for the right reasons,” Cole says. “That sounds simple, but it’s not. You can’t let yourself get distracted by tomorrow’s opportunities. You have to continually ask, ‘What are the right things to do for the brand?’ and ‘What are the right reasons for doing those things?’ — and make sure everyone is aligned around that. That’s how you keep the business pure; it’s how you keep integrity around the business and keep people’s hearts and minds focused on building the brand over time.”

How to reach: Cinnabon Inc., (888) 288-7655 or www.cinnabon.com

 

The Cole File

Kat Cole

President

Cinnabon Inc.

Born: Jacksonville, Fla.

Education: MBA, Georgia State University

What business leadership lessons did you learn during the time you were studying to get your MBA?

When I was getting my MBA, we were in the processing of selling my previous company, Hooters. So it was like getting two graduate degrees at once. I would go to class and learn a new financial modeling system, and then go and meet with investors and analysts and apply what I had learned.

What was your first job, and what business lessons did you learn from it?

I sold clothes in a mall when I was 15. I learned a lot about connecting with people in that job, and partnering — working with customers shoulder-to-shoulder instead of nose-to-nose.

Do you have a business philosophy that you use to guide you?

Do the right things for the right reasons. And, at all costs, do what you can to avoid being swayed away from that philosophy. Having someone at the top who’s always asking the question ‘Is this the right thing for the right reasons?’ can really help a company avoid risk and build a powerful culture.

What trait do you think is most important for an executive to have in order to be a successful leader?

I would say adaptability is No. 1. And then I think there’s this other intangible, and I don’t know if there’s a single word for it. It’s a combination of traits that results in a leader being able to make others believe.

What’s the best advice anyone ever gave you?

Be thoughtfully bold. That speaks to respecting others and understanding your environment, but being willing to speak up and take chances. That advice came from a mentor that I had in the industry.

During the first four years of his now decade-long stint at the helm of Tenet Healthcare Corp., Trevor Fetter spent a lot of time putting out fires. The company was embroiled in a couple of delicate litigation issues left over from its previous regime, and those cases drained the newly appointed CEO’s energy and focus.

Unfortunately, the legal entanglements left Fetter with little time to address a significant problem that had begun to affect both his company and the health care industry at large: a long-term growth slump that began in 2003 and persists to this day.

“From 2003 to 2006, I was focused most intensely on fighting fires and resolving legacy problems,” Fetter says. “But you could see the early signs of the slowing of growth in our industry around the beginning of 2003.”

The slowdown was largely being driven by a conscious initiative of employers and insurance companies to reverse the tide of ballooning health care costs. Companies were beginning to shift a portion of the health care costs they had traditionally borne onto their employees by increasing out-of-pocket payments such as co-pays and deductibles.

“Behind the scenes, employers’ HR departments were fixated on the percentage of total health care costs being borne by the company versus the employee,” Fetter says. “They were trying to move it from, say, an 80-20 ratio to a 70-30 ratio. And that made a big difference in the take-home pay of employees across American industry.”

It also started to make a dent in the revenue of companies such as Tenet, which owns and operates 49 hospitals and about 100 outpatient centers in 11 states and generated $9.58 billion in revenue in its most recent fiscal year.

“That and other factors have resulted in a prolonged reduction in the growth rate for our industry,” Fetter says. “And if that weren’t enough, when the recession came along in 2008, the suppression of growth expanded, and it has persisted. So our big challenge over the past few years has been how to overcome these pressures against growth.”

Tenet has faced that challenge by launching a handful of initiatives that, taken as a whole, have transformed the company into an innovator and a model for a more sustainable way to deliver health care services in the coming decades.

React to shifts

The first of these new programs, kicked off in 2007 and was dubbed the Target Growth Initiative. The program’s goal was to revise the Tenet hospitals’ menu of services to better fit the changing demographics of their communities, thus making them more competitive in their markets.

“What we did was to deconstruct our hospitals and look at them as a collection of service lines within a fiscal infrastructure,” Fetter says. “When you look at a hospital that way, you realize that some of the services you’re providing to the community are in a permanent state of decline, generally fueled by demographic trends.”

As an example, Fetter cites a hospital serving an aging community. In that type of market, the demand for maternity services will naturally decrease while the demand for cardiac services will naturally rise.

Tenet’s Target Growth Initiative enabled it to get out in front of these types of trends by investing more in service lines for which the demand was growing, even though that often came at the expense of cutting service lines for which the demand was shrinking.

“An example of this was at one of our hospitals in Los Angeles where they needed more space for operating rooms and equipment related to treating cardiac disease, while they had excess capacity for maternity and obstetrics,” Fetter says. “Another factor we had to consider is that in Los Angeles it takes forever to get permission to change a physical facility. It’s very difficult and very expensive.”

Tenet’s leaders also realized that there were competing hospitals nearby that had large, established maternity and obstetrics departments. So the company solved the puzzle by shutting down its maternity services at the Los Angeles hospital and using the freed-up space and resources to expand its cardiology capabilities.

“We repurposed those facilities to satisfy the need of the growing cardiology business,” Fetter says. “A change like that can make a huge difference if, for example, someone is having a heart attack. It might shorten their ambulance ride by 10 to 15 minutes. That can make a real difference in saving lives.”

Standardize services

Another program launched by Tenet in 2008, the Medicare Performance Initiative, is aimed at motivating physicians to standardize their treatment methods to cut costs, increase efficiency and improve patient outcomes.

Fetter and his team put together this initiative to address a number of inefficiencies they had observed both at Tenet’s hospitals and at other health care providers’ facilities: wide variations in the treatment of patients with the same condition, physicians ordering duplicate tests, overuse of supplies, keeping patients hospitalized longer than necessary and keeping patients on medication longer than necessary.

“Basically this initiative, which is ongoing and permanent, is a massive exercise in collecting data in order to show physicians that there’s tremendous variation in the ways they treat one person versus another who have the same medical condition,” Fetter says.

“In our business, lower cost usually equals better quality. Getting somebody out of the hospital sooner is better than leaving them in longer. You get them active again; you get them out of an environment where there are other sick people. The same goes for excessive amounts of tests and medications and everything else.”

The result at Tenet’s hospitals has been a gradual standardization of physicians’ patterns of care and treatment and the emergence of a set of best medical practices.

“What we are trying to do is to look at those variations, and where the variations do not help patients or help the cost of care, we are addressing them,” Fetter says.

With a system as large as Tenet’s — the company estimates that its hospitals and treatment centers amass 4 million patient encounters a year — the resulting standardization and efficiencies have produced a bounty of positive results for Tenet.

“We’ve had some staggering results,” Fetter says. “From 2009 to 2011, we saved $145 million. And we project that over a six-year period, going all the way through 2015, the cumulative savings will be about $375 million. So we’re talking about a tremendous amount of money.”

Go inside out

Among the other initiatives Tenet has launched in recent years, the company in 2008 formed a subsidiary, Conifer Health Solutions, to offer revenue-cycle services and patient communications to other hospitals and health care providers.

“Conifer represents a significant part of how we’ve dealt with our growth challenge,” Fetter says. “The idea for this came from the recognition that our company — and our headquarters in particular — was basically a service center serving 50 hospitals across the United States with a variety of services, and there was no reason we couldn’t provide those services to hospitals other than ours — and that this could be a vibrant business for us.”

The Conifer subsidiary has indeed proven to be a vibrant business for Tenet. Bolstered by several acquisitions, the fast-growing unit now serves almost 400 health care entities across the United States.

“Sitting here today, we have built the leading company in our industry that serves hospitals in the revenue cycle,” Fetter says. “This company that we started out of Tenet is on track to do more than $150 million a quarter in revenue, and it’s growing very rapidly.”

A lesson to be drawn from Tenet’s Conifer venture is that business leaders would be wise to keep their eyes peeled for opportunities to convert an in-house service into an outside revenue generator.

“The idea for taking these services outside of our company really germinated here within the leadership of our company,” Fetter says. “I’d had some prior experience doing something similar to this, and we decided to take it outside in a serious way at the beginning of 2008.

“So I’d advise other CEOs to examine the skills you have within your company and ask yourself if those skills can be used as a stand-alone line of business. That’s a concept that could work well in a lot of different markets.”

Ultimately, Fetter attributes his company’s emergence as an innovator in its field to his leadership team’s laser-like focus on Tenet’s customers’ needs and wants.

“It’s imperative to understand your overall business environment from the customers’ perspective,” Fetter says. “There’s no point of view more valuable than your customers’ point of view.”

To reach that point, Tenet’s leaders had to accept that the company’s customers were dissatisfied with both the high prices and the low quality of the services they were receiving and then put together an action plan to deal with that blunt realization.

“Our strategy for addressing that was to institute major improvements in quality and to attack our costs aggressively so that we could provide a cost and quality advantage relative to our competitors,” Fetter says. “That’s applicable in any business. You have to understand the customers’ point of view, understand what your competitive advantages and disadvantages are, and design strategies in order to build competitive advantage.” ?

How to reach: Tenet Healthcare Corp., (469) 893-2000 or www.tenethealth.com

The Fetter File

Trevor Fetter

President and CEO

Tenet Healthcare Corp.

Born: San Diego, Calif.

Education: MBA, Harvard University; bachelor’s degree in economics, Stanford University

Looking back at your years in school, can you identify a business leadership lesson you learned there that you use today?

The most important thing that applied to business and to my work is fact-based analysis — the importance of seeking the facts and trying to make decisions based at least partially on factual analysis. In the end, it doesn’t mean that every decision can be reduced to something analytical and quantitative, but you ought to have the best possible fact-based information you can get before you make an important decision.

What was your first job, and what business lessons did you learn from it?

My first job out of college was as an analyst in an investment banking firm inNew York. Among the lessons I learned, and this sometimes drives some of my colleagues crazy, is the importance of making a great presentation and having it be accurate and delivering it on time. When you’re in a customer service business, presenting your ideas in a coherent, persuasive and high-quality way is really important.

Do you have a main business philosophy that you use to guide you?

I think it’s embodied in the values we have at Tenet, which are very transparent: The patient comes first; having integrity in everything we do; and the fact that we don’t mind being measured. We are eager to provide quality data to every legitimate organization that wants to measure it. We welcome that degree of examination and transparency.

What’s the best advice anyone ever gave you?

One pithy bit of advice came from a gentleman early in my career, a wise investment banker whose name I can’t remember. He said, “A perfectly good way to answer to a question is, ‘I don’t know, but I’ll find out.’ ”

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