RISKY Business

Yard & Garden, Apr/May 2006 by Wartgow, Gregg

Dealer focusing on lowest risk, highest yield to continue moving business forward.

Frank Gannon has done business with arrogant people before. In fact, he did it for 25 years as a hospital administrator for a large, national health care provider. To say he didn't like it is an understatement. To say he never wants to do it again is even more of one. As the owner of Bob's Power Equipment in Vestavia Hills, AL, Gannon has taken a very selective approach to how he runs the dealership. Without exception, Gannon believes, every relationship with customers and suppliers must be mutually beneficial. "If there's no value in it," Gannon says, "we end the relationship courteously and quickly. We can better spend that time and energy on people we enjoy dealing with, and we have plenty of them."

There's no reason to change this strategy now. In the seven years Gannon has owned the business, sales have nearly tripled and profits continue to climb. But it took a little time for the new Bob's Power Equipment to find its groove. "My first two years I thought I'd change the industry," Gannon relates. "We spent the next couple years recovering from the mistakes I'd made those first two years. The last three years have been really good."

Now it's a wait-and-see attitude. Cannon is directing the majority of his attention and investment toward service and parts. "They provide the best margins with the lowest risk," he says. "I guess I'm lucky because I haven't been in this business for 30 years like some dealers. I don't remember the days when you could make 40% on a mower. Wholegoods margins are slim and that's not going to change. So I've chosen to focus on other areas."

That's not to say equipment is an insignificant component at Bob's Power Equipment. The dealership sells well over a million, dollar's worth every year. Gannon is confident he can continue to grow each of the lines he represents. He even budgets for floorplan interest in order to do so. "I don't mind paying it ... it's part of the business," Gannon says.

For instance, maintaining a stock of generators requires some floorplan interest. But the rewards, Gannon says, far outweigh the risk. "If you don't have generators in stock when the power goes out, you cannot sell them."

Still, Gannon does mind when the dealership is paying too much for floorplan interest. "I don't believe in sinking my retirement into inventory," he reminds.

A self-proclaimed Jim Yount disciple, Gannon says he "runs the numbers" on everything he can. "Attending one of Jim Yount's seminars really opened my eyes and got me excited," Gannon says. "When I got back from the seminar, I hired a close friend, Barry Knight, who had been my finance chief at two hospitals. We have a budget for every expense and revenue category. We keep up with margins on every SKU and part category we sell. As a result, we make decisions based on information, rather than emotion.

"Later that same year," Gannon continues, "my son Brad came into the business with me. He has a masters degree in accounting. Between Brad and our numbers man Barry, there isn't much room for error. I sure do sleep better every night."

BUILDING UP THE BACK

Bob's Power Equipment was actually founded 25 years ago as a co-business with Bob's Bikes, which still exists today. Bob's two sons eventually took over the business and split it down the middle. In 1998 Frank Cannon entered the picture. He'd done plenty of business with Bob's Bikes over the years, and ended up buying out the son in charge of the power equipment division.

"I wanted to get as far away from health care as possible," Gannon recalls. "Owning a power equipment dealership seemed to be about the best bet." Gannon's father had a long career owning and managing a handful of dealerships. Drawing on that childhood experience and the examples his father set, Gannon was well-suited to take over Bob's Power Equipment.

He kept the dealership in the same location for two years before moving to its present facility, a former Goodyear Tires shop, a few miles down the same busy highway. Gannon almost immediately began making investments in the back end of the business. The dealership underwent a remodel in order to narrow up the showroom and create more space for service and parts. Now nearly 3/4 of the 7,200-square-foot facility is dedicated to parts storage and service operations.

The large increase in space has had a dramatic effect on shop productivity. But the dealership still feels a bit pinched from time to time-especially at opening and closing time each day. Located in a popular strip mall, Bob's Power Equipment is sandwiched between Hollywood Video and a high-traffic bank. Since the dealership shares the side alley with the bank, Gannon hasn't been able to put up the additional storage facility he'd like. As a result, for a half hour each morning and evening, a couple employees have to move 20-plus riding mowers in and out of the shop.

"Looking back, we were forced to write our business plan around our facility," Gannon recalls. "We don't have enough warehouse space or a secure outside storage area, and our showroom space is limited. We don't have the room to showcase or store a full line of zero-turns and tractors. I can store up to 40 pieces of handheld equipment or six walk mowers in the space required by one rider crate. So we've had to pick and choose, and only stock a few of the best-sellers and order-in as needed. The showroom space that once housed the big riders now has parts shelves in it. The question was, 'How can we maximize our margins with the space that we have?'