Stages to Operating MSOs
You’ve likely sat in class before and been taught lessons about nature. Here, for instance, is how a seed grows into roots and eventually grows a trunk, branches and leaves, and so on.
A monarch butterfly’s journey begins with eggs and turns into a caterpillar. Eventually the caterpillar becomes a cocoon with pupae and pupae turns into a butterfly--in the end leaving its cocoon behind.
Birds, meanwhile, travel long distances between their summer breeding grounds and their wintering grounds.
Those organisms are not alone in experiencing complex life cycles. In fact, your body shop is in the process of its own life cycle. Life cycles can be simple, in which a body shop owner builds a shop from the ground up and then retires, passing the one location to a family member or buyer.
Or, body shop life cycles can become more complex, morphing from one shop to multiple locations and experiencing growth that’s largely determined by the surrounding environment.
In the collision repair industry consolidation has increased steadily in recent years. On Oct. 26, 2018, California MSO Cooks Collisions’ assets were officially sold to Abra Auto Body & Glass; it was considered one of the biggest acquisitions of the year within the industry. ABRA was left with 396 U.S. locations.
But, the marketplace is constantly changing.
Barely a month later, ABRA merged with fellow consolidator, Caliber Collision, leaving the Caliber brand with over 1,000 stores.
While consolidation is impacting the industry, shops at different life stages are able to stay successful. Here’s a look at the stages of opening a shop and then the next steps in growing into multiple locations.
Stage 1: Making a Name with One Shop
Deciding to Purchase a Shop
Katie Inge is the shop manager and owner of one Maaco location in Chesapeake, Va., a part of the overarching Maaco franchise that has over 500 total locations.
Inge grew up in her father’s shop, which he opened as a Maaco location in 1983. When she reached early adulthood, she bought out her father.
Yet, buying out a franchise location is not as easy as Inge might make it seem. She dedicated years to saving money for the plan. Inge purchased a portion of her father’s business when she was 22 years old, in 2015. Growing up, she saved any of her birthday money or money she made while doing chores. It was a constant cycle of saving and not spending. Once she got into the workforce, she took at least 50 percent of each paycheck she received and put it directly into a savings account.
In 2015, she purchased 10 percent of the business from her father. She still continues to live off of half of her paycheck.
Inge says she struggled taking over a business and showing customers her success when the industry is composed predominantly of men.
“Even though I knew the industry like the back of my hand, it was difficult at first dealing with customers that wanted to talk to my boss or someone older because they assumed I didn’t know what I was talking about,” she says.
She had to explain, in extensive detail, how the shop processes worked to customers. Once she took a few extra minutes to walk the shop’s loyal customers around their cars and explain the work that needed to be done, her clientele started to warm up to her.
Stage 2: Building Upon the Core of the Business
Creating a Niche in the Market
Jimmy Mudgett, part-owner of Maryland Collision Center, found a second shop location by keeping an ear out and listening to the news that came from word of mouth.
People came to Mudgett and his co-owners at the same time that the team was sending out inquiries into the market area. Most of the Maryland Collision Center locations were acquired when the news reached Mudgett that the shop was going out of business soon. To make sure the news does reach him, he says he keeps in constant contact with his insurance adjusters, technicians at another company, or other vendors like paint vendors.
Despite having their ears open, the team also mailed letters to some local businesses. The letters indicated the team was interested in purchasing a new location in the area and asked for anyone to contact them if they were looking to sell.
“We’d get a phone call or two from sending [the letters] out,” Mudgett says.
In Canada, Jack De Sena, co-owner of Doug’s Place’s two locations, says the shop was able to expand and thrive by making one important connection: partnering with an OE.
“If you’re starting, it’s important to raise the culture of the shop and align yourself with an OEM certification program, “ De Sena says.
So, Doug’s Place identifies today as a premier certified collision group, and has been that way ever since the team became certified through BMW 10 years ago and then followed that with certifications in Tesla, Profirst, Honda, Kia, Chrysler, Ford and Nissan.
The MSO was the first shop to become Tesla certified in Edmonton, De Sena notes.
Standardizing Quality of Repairs
De Sena says his two locations capture more vehicles because his estimators are writing estimates at “the street level.” The team is not waiting to teardown the vehicle and then send the estimate to the customer, but rather books customers in after an estimate right away. Then the team orders parts so they arrive before the vehicle is checked in for the repair.
Vehicles are checked in for their slot, the customer is given a rental car if necessary, and then the technician begins the teardown process.
“This way we’re taking the vehicle off the road, and writing blueprint supplements if we need to,” he says.
In order to improve the quality of her shop, Inge and her father added a 45-foot truck booth that can handle large equipment and oversized trucks. In that larger booth, technicians painted multiple bumpers and cars at one time and bring in trucks that competition could not accommodate. In a regular booth, Inge herself can paint about five bumpers at once and in the truck booth, she can paint 12 bumpers, she says.
Mudgett’s shops have production meetings every morning. The front office staff at each location get together and discuss the schedule of vehicle for the day and then create a list that’s handed to each technician. This meeting is also a time for the team to discuss what “fell through the cracks” the day before. If a repair was missed, the team signifies it on the sheet and then the technicians can make sure to fix it and move the car along.
Stage 3: Choosing to Grow or Not to Grow
Mudgett’s team is in the process of looking for a sixth location. In late April, the shop finalized the acquisition of Varsity Auto Repair, an approximately 20,000 square-foot facility. That particular store, Mudgett says, was a negotiation that lasted for five years. Often, the negotiations can take longer if the owner is uncertain whether to sell or not.
Mudgett’s team produced $13 million in annual revenue with just four locations, he says, and the company is tracking to produce nearly $18 million with five locations.
“Because of what’s happening in this market, everyone has become a little less risk tolerant to expand, I think,” De Sena says.
For his shop’s future, it’s about weighing the pros and cons. If the shop is able to take on more insurance companies and OEM certifications then he thinks the shop could create enough pressure for growth.
Inge has no plans to grow into more than one franchise location. Instead, she says she’d like to focus on improving her current processes in her $2 million shop.
“I plan on sticking to my one location right now,” she says. “I’d much rather focus on putting my effort into making this one the best that it can be.”