In the Red to Profitable in 30 Days

When Rich Margo walked into the Honest-1 Auto Care shop, he immediately knew something was wrong.

“Having been in the industry and having received a wealth of training from different companies, I could identify operational and procedural challenges that [the owner] was struggling with,” Margo says. “At this shop, the tail was wagging the dog.”

At this point in 2004, Margo had just become the owner of another Honest-1 Auto Care franchise in Las Vegas. To get a feel for the business, he stopped into a sister shop across town.

But within 30 minutes of speaking with the then-owner of that Honest-1 shop, Margo identified potential business killers everywhere: The shop was overstaffed; there were unmotivated employees; the owner had poor vendor relations; there was a lackluster inspection process; customer service was poor.

Not only did Margo identify those problems, but he also knew how to implement new procedures and rectify the flailing business that, just a few months after his initial visit, finished October $40,000 in the red.

So, in October 2005, as he was waiting for his own Honest-1 shop to open, Margo got the phone call. An experienced business owner himself, having managed both Pep Boys and Big O Tires shops in the Las Vegas area, Margo was asked to step in and save the struggling shop—and do so in just 30 days.

The Backstory

Margo had spent his career managing at various franchises, and in 2004, he was looking for an ownership opportunity in a new business that had yet to establish itself. He found it with Honest-1 Auto Care, which now has locations in about 50 cities across the U.S. 

Margo and the franchise came to an agreement, and he was set to open his first Honest-1 Auto Care shop in Las Vegas across town from that sister location.

Then came the shop visit, and, sure enough, six months into his shop’s existence, Margo got that phone call.

“The [Honest-1] franchise owner asked me if I could help him because the shop didn't have good operations, training procedures, policies or personnel in place,” Margo says. “The local franchiser and area reps wanted me to help this guy. He's been in there four months and he's losing money hand over fist.”

“Look, I'll come and be your manager,” Margo said to the then-owner. “You take a couple weeks to collect yourself and get yourself together, I'll have it straightened out for you when you get back. I'll take a weekly salary for my time here, and then, once we're profitable, we'll split the profits 50/50."

The Problem

The main expense that was killing the Honest-1 shop was, as Margo referred to it, a “Three Stooges” problem.

“One guy is standing around with a cigarette in his hand, the other guy is under the hood, and another guy is standing around screaming, ‘Ratchet!’” Margo says. “And every one of these guys is on salary. They're breaking this owner. The catalog would call for four hours, and the tech would come to him and say, ‘That's going to take me seven or eight hours to do.’”

During his initial visit to the shop, Margo also noted how inefficient the then-owner’s estimating process was.

“He was calling and pricing parts with three or four different suppliers, trying to get the customer the best price,” Margo says, “instead of having a relationship established with a primary supplier. He would spend an hour just trying to put together a price for one estimate and running himself ragged.”

Not only was the then-owner wasting time and money on finding a supplier, he was stressing himself out and making the customers wait, leading to poor customer relations that killed future business opportunities—putting all the money the then-owner had invested in advertising to waste.

“He brought traffic in, but there was no plan inside the shop operationally to handle the customers coming in,” Margo says. “First-time customers weren’t coming back because the speed of service was not there.”

Margo also noted that customers weren’t invested in the shop because its inspection process was so poor. The shop wasn’t looking to educate customers on maintaining vehicles to industry standards, so the shop never gave the customer any reason to come back for additional work in the future.

“Whatever the car came in for, that's what got checked and inspected for and that's how it left, either getting fixed or estimated for,” Margo says. “There were not any additional maintenance item discussions, there were no maintenance plans.”

After Margo had identified all those problems, he scheduled out how he would turn the shop around in just one month.

The Solution

Right away, Margo knew he’d have to slash the staff in half, from six technicians to three.

“The most controllable expense is payroll,” Margo says. “So, when I first started looking at the numbers, that's the first thing I saw: It was too heavy on payroll. And it didn’t take much to figure out because of the design of the shop, like when you come into the lobby, there’s a nice four-by-four window that looks right into the shop from the lobby. Even the customers could see nobody was really working. They were probably 45 to 50 percent productive based off their logged time.”

How did Margo choose which employees to cut? Well, actually, he didn’t have to decide at all.

“I pulled all six of them into the office one by one, and said, ‘Good news! You're getting a raise. I’m taking you off of salary and putting you on flat-rate,’” Margo explained to them. “I took them off their base and said, ‘I'll pay you $25 an hour, but you're going to earn every hour of it.’