A Better Slingshot

Jan. 1, 2005
It's not easy to start a rental business these days. The stories from years ago of hopeful entrepreneurs scraping together $5,000 and a few pay me when

It's not easy to start a rental business these days. The stories from years ago of hopeful entrepreneurs scraping together $5,000 and a few “pay me when you can” promises from manufacturers seem to be a thing of the past.

It's not just the buying of equipment and leasing a storefront with a small yard. If a start-up has a bit of capital, relationships with some manufacturers based on time in the industry and the wherewithal to buy some decent used equipment, one could, it would seem, get started on a modest level with an initial payout of about $1.5 million.

But as any start-up or would-be start-up owner these days can attest, the devil is in the details. There are so many small details that people don't think about when starting a business, that the new owner ends up with far too little available time to take care of the most critical task — pounding the pavement and visiting jobsites to make sure customers are coming in the door to rent equipment.

Before the new owner can rent equipment, he needs to acquire a fleet. That involves inventory planning, and negotiating favorable terms with manufacturers, not easy without a historical track record or the buying power that comes with quantity purchasing. He also needs to investigate rental software systems to operate the business in an organized manner. But even those kinds of decisions are jumping the gun.

First, there's the matter of finding a suitable location and doing an environmental assessment on the property to make sure it would pass an EPA or OSHA inspection. Then attention must be paid to designing and retrofitting the building into a functional rental center with a presentable, if not attractive, showroom and counter area. Appropriate shop space must be part of the facility and the shop must be organized and outfitted with the necessary tools and equipment to service equipment. Signage must be designed and put up. The building must conform to municipal building codes. The company needs a name, logos, business cards, decals, stationary and more. A bookkeeping system must be set up, along with a variety of processes. Office and counter furniture must be obtained. The customer walk-in experience must be designed — where will the counter go, where will equipment be returned, where will the ready line be, how will the staff help load the tools into the customers' truck? Delivery vehicles must be purchased, along with mechanics' service vehicles. Safety procedures must be considered, along with the disposal of hazardous wastes.

And then there is the task of marketing the business, through mailers, advertising, and other kinds of marketing, because no matter how good the business plan is, no matter how good the equipment is, if they don't know you're there, they won't come. And the owner needs to determine the type of equipment and clientele the business is targeting.

All these areas and many more require capital, time and thought. For the experienced rental company owner, many of these concepts are simpler, but the amount of energy one must spend on areas that have little to do with building up a customer base is usually underestimated even by experienced industry veterans.

To many franchise owners of Volvo Rents centers, the support offered by the Volvo Rents organization has simplified these decisions. Picking out a location, designing and preparing the facility, inventory planning and ordering, systems set-up, every aspect of the business is prepared with the help of the Volvo Rents staff, under the direction of a field representative. The franchisee, with the help of Volvo Rents staff, maps out a business plan, complete with budgets, based on analysis of the market and its potential and the fleet mix the owner wants. Using Volvo Rents' proprietary software package known as V-Rents — designed by Mississauga, Ontario-based Texada Industries — the new owner, with the help of the field representative, plans rates, amortization schedules, utilization variations, and figures out the cash-flow requirements of running the business. And while the franchisee can choose from a variety of financing options, Volvo Rents' financing department can take the business plan and arrive at a financing plan tailored to the needs and financial capabilities and business plan of the new owner.

The program in a nutshell works like this: the franchisee is the owner and signs a 15-year franchise agreement, pursuant to which it will operate a Volvo Rents franchise business, with two additional five-year renewal terms. As Volvo Rents president and CEO Barry Natwick says, “It's not an affair, it's a marriage.”

The franchisee pays a $10,000 development fee upon signing the franchise agreement, which is credited to the $45,000 franchise fee to get started with a Volvo Rents operation. The owner pays Volvo Rents 4 percent of gross revenue a month, which drops to 3.5 and 3 percent if higher revenue platforms are attained. The rest of the profits are his or hers, along with the support and benefits that Volvo Rents provides. Each franchisee makes payments each year into a marketing fund that benefits the entire franchise network.

In addition to the start-up assistance, Volvo Rents has a comprehensive support system. The Volvo Rents staff regularly reviews the performance of each rental business and uses a variety of sophisticated measuring matrixes to identify potential problems. For example, if an owner is spending too much on equipment compared to his return, if he's spending too much on maintenance compared to revenue, if his rates are too low, if utilization is too low, the review can spot problem areas before they reach the crisis level.

“We have a monthly report to define franchisees with two performance indicators,” says Natwick. “We give written revision to their numbers and we have a comparative for low performing, medium performing and high performing. It gives them a benchmark. Our operations teams look at the numbers and if there are any changes in the indicators, we take a look at them, sit down with the franchisees and see what we can do to help them. We try to be as preventive as possible.”

Support comes in other ways as well. Volvo Rents' preferred provider agreements with top-tier manufacturers are designed to provide each owner with large group buying power. If a single owner decides to buy, say, two generators, the acquisition is made by the Volvo Rents purchasing department. The owner is only buying two generators, and perhaps those two are going to be added to an existing fleet of four. But the owner's purchasing power and pricing does not reflect that of a small independent owner with a fleet of six generators, but, rather a large network of, at this point, about 55 rental centers, that might have acquired, let's say, 300 units from that manufacturer in the course of a year, with a projected forecast of an additional 400 in the year to come.

Volvo Rents staff believes in buying from top-tier, quality manufacturers in allied equipment areas because they reflect well on the Volvo brand itself. Volvo automobiles and off-road trucks have long nurtured a well-established reputation for durability and quality. Although its compact equipment area is relatively new, and not as well known among North American contractors as Caterpillar, Deere, Bobcat or Komatsu, for example, the products have met with strong acceptance in the North American marketplace. And that's an additional benefit for the Volvo Rents franchisee, even though the franchisees themselves are playing a significant role in the market development of the Volvo brand in the compact equipment arena.

Support is also provided in the marketing arena. The Volvo Rents marketing team provides brochures, mailers, ad materials and more. The marketing team also helps put on open houses, and devise targeted marketing campaigns unique to particular areas.

The developing franchisee brotherhood is another source of support. The franchisee ownership group is developing into a kind of fraternity and established franchisees often give advice and support to new franchisees. New franchisees often visit established franchises to benefit from their knowledge and experience. The franchisee-elected franchise council meets quarterly and provides the corporate staff with feedback on a wide variety of issues, such as the IT system, insurance needs, relationships with suppliers, and what services are needed from the corporate support staff.

Volvo Rents offers a lot of training as well. Composed of quite a few rental industry veterans who have learned from the best practices and knowledge from the various companies they've worked for, the Volvo Rents staff offers a basic rental management training package to all new franchisees, covering how to run a rental business, what reports they should be looking at in the V-Rents system, and how certain information is fed into the system. It also covers rental sales programs and tips and discussions on best trade practices in running a business. Volvo Rents is launching a rental-sales training program, which will be done regionally in the field. It offers advanced back-office training in the V-Rents system to accounting staff from each rental center. Volvo Rents offers ongoing training to service staffs. In addition to service training schools offered by manufacturers, the Volvo Rents staff itself offers specialized courses on particular areas such as earthmoving and aerial equipment.

When a new branch is open, Volvo Rents staff makes a special effort to ensure safety standards are high. “Safety, risk management and respect for the environment are core values for Volvo,” says Natwick. “When the franchisee sets up his store, we inspect to make sure that it is compliant with all the OSHA and DOT standards. We walk around all the facilities and make sure all of the wash stations are in the shops, that fire extinguishers are in the proper place, and that recycling systems are in proper use. We've had OSHA inspections in our franchisees' locations and they've gotten very high marks.”

When it comes to financing, Volvo Commercial Finance is the primary engine, providing loans averaging $2.5 to $3 million with terms available from 12 to 72 months, depending on the equipment category. The company also offers delivery and service purchase programs. Volvo Rents financial advisers also assist new franchisees in breaking down and preparing for the kind of expenses they are likely to have, in overall business expense, franchise fees, real estate costs as well as living and travel expenses.

Volvo Rents operates a customer relationship management database, which helps each franchise to identify and focus on target markets. The system can analyze customers by measuring frequency of rental, grouping customers by dollars spent, number of visits, amount spent per visit, and a variety of other ways. The system is designed to help franchisees focus on specific areas to drive business and to identify the 20 percent of customers doing 80 percent of the business. Volvo Rents recently came out with a credit card program enabling customers to set up a Volvo credit card account for their Volvo Rents rentals and purchases, with a rewards program where they can accumulate points for goods and services at Volvo Rents.

Think locally

The philosophy that has driven the development of Volvo Rents is a return to the basics — local accessible ownership, good quality equipment and the kind of intensely dedicated customer service that is typical of entrepreneurial owners of small rental companies. The ear-to-the-ground, hands-on local ownership is to be backed up by the network of franchisees and the support of Volvo Rents.

“We talked with a lot of customers and the one key that was missing out there was customer service, having that local knowledge and having that guy who wakes up in the morning and knows the customers, knows the market, whose kids play ball with his customers' kids,” says Natwick. “Customers have indicated to us that that's something they really miss and we're trying to fill that gap by doing it on a localized, privately owned basis.”

So who are the new entrepreneurs that are becoming Volvo Rents franchisees? Many are investment professionals who are new to the rental industry but experienced, successful business people. In those cases, the Volvo Rents staff helps them either partner or hire rental industry professionals who are skilled at operations.

For example, Bruce Bourgeois in Louisiana, has a successful metal fabrication business. He started a Volvo Rents franchise and management helped team him with John Shipman, a veteran of rental in the Louisiana market. Although Bourgeois was new to rental, he is, Natwick says, “a unique individual, extremely energetic with an engineering background and very customer-service oriented.” By teaming with rental veteran Shipman, he was able to shorten his learning curve and establish a successful operation.

Other franchisees — such as Gary Tripp in Orlando, Fla., who had sold to NationsRent — are former owners who sold to consolidators and are returning to the business they enjoy and are skilled in.

Others are former executives and managers of larger rental companies, usually consolidators, who wanted opportunities to own their own businesses. The two franchisees profiled in this article — Houston's Pete Post and Merced, Calif.'s Helder Garcia and Brian Silveria — fit that description.

Volvo Rents has also attracted contractors who knew the construction business but hadn't owned rental businesses before, such as David Terry in Rochester, N.Y., and Paul Bullock in Monroe and Alexandria, La.

With 54 rental centers and growing, the growth of Volvo Rents has not been as meteoric as originally discussed publicly when the Volvo Rents franchising system burst upon the scene in 2001, but the slower pace has been intentional as management staff has been more concerned with finding the right franchisees likely to succeed and fit with the Volvo Rents system. The slow and steady approach has been strongly blessed by corporate management more concerned about constructing a lasting program than building it fast.

The Volvo Rents program is operating in Europe, where growth has been slower because the Volvo Rents staff has seen that a cookie-cutter, one-size-fits-all growth pattern will not export to unique countries with different business cultures. Volvo Rents is determined, however, to grow in Europe, where this year, the franchise program will launch in Germany and Italy and is looking ahead at opportunities to develop Volvo Rents in various continents around the world.

The franchise program is not perfect and Natwick himself is quick to admit a need to continue to develop the product and improve communications between the company and franchisees. But backed by an organization with a successful track record, Volvo Rents is rich in talent, including industry veterans Natwick, Bud Howard, vice president of global rental channel development; Marty Moore, vice president of Volvo Rents, North America; and Mike Crouch, vice president of global operations.

They appear to have good reason to be confident.

Do What You Say

After 22 years as a senior executive at Prime Equipment Co., reaching the level of president and chief operating officer, followed by a two-year stint as vice president of fleet operations at NationsRent, Pete Post had essentially retired from the rental business. Yet, still young enough to have energy and ambition, Post kept his options open and considered starting over as an entrepreneur.

Then he heard about Volvo Rents. After receiving a call from Volvo Rents vice president of global rental channel development Bud Howard urging him to consider the program, Post began looking into it. He was confident he had the market awareness and essential rental knowledge to compete well in the dynamic Houston economy. And Post was impressed by what he learned about the Volvo Rents program.

Post liked the idea that he could run his own ship, yet still be supported by the resources of a large company.

“To have a small business, family owned, with the support and financial backing from Volvo, as opposed to establishing Post Rentals and buying fleet on credit, that took one whole set of problems out of the way,” says Post. “Not to say we haven't had some bumps in the road and a lot of hard work, but we get things when we need it.”

The primary question Post asked several people he knew who had joined up was “do the Volvo people do what they say they'll do?” The answer he kept hearing was “yes.”

Post decided to give it a shot and went to work negotiating a deal with Volvo Rents. He found a location on a three-acre lot on a busy thoroughfare not far from the airport in a bustling area with a lot of construction going on. The building had housed a pressure washer shop. He set about acquiring fleet and refurbishing the facility, which “we needed to paint and clean and chase rats out of, everything you can imagine,” Post says.

A large 14-foot by 48-foot sign overhead, 50 feet high, is giving his fledgling rental center great exposure.

As Post set about contacting contractors he'd known from his years with Prime, he found a lot of interest in doing business with a small company with a local hands-on owner. Post found that his history in the Houston rental industry gave him some customer contacts, but he knew his company would have to perform to keep business coming in.

Post has marketed his company with his big sign, with mailers and good solid contacting with contractors. Every Friday afternoon, he lights up the propane barbecue and invites everybody in for “Pete's Famous Cheeseburgers.”

“They'll just about kill you, but they're good and they get people coming in to see what we have,” Post laughs.

Post plans to continue to market his company towards the small- to medium-size contractors, and steers clear of high-visibility projects such as the Houston ship channel area where competition is vicious and the rate wars are fierce.

One of the major questions Post had as he got started was how Volvo's compact equipment would perform in the hyper-competitive Houston rental scene and how it would be accepted by contractors accustomed to brands with more of a track record in the rental environment. To his relief, the equipment, like his company, has been very well received.

“We've been pleasantly surprised,” Post says. “The Volvo backhoes are heavy and strong and in this part of Texas, the earth is hard and solid. Our customers say they like them. The 7,000-pound excavator has been a very hot item and the skid-steer loaders have done very well.”

Post is starting small, with seven employees — himself, working as a hands-on, onsite owner; one outside salesman; two service technicians; a bookkeeper/accountant; a counter person/general manager and a delivery person.

“Several of our guys came from previous experience with big companies, but had moved on,” Post says. “They wanted to be part of a smaller company where they could have a voice and make a difference. We've been contacted by a lot of people thinking this is a better way to go. But we'll stay with this size until we see how the revenue goes and how the winter treats us.”

So far Post is happy with the foundation his company is building and optimistic about the future, already looking ahead to potential expansion possibilities. But he also is taking his time, knowing the company still must consolidate his growing customer base.

And now Post is frequently asked by long-time associates in the rental business, “Do the Volvo Rents people do what they say they'll do?” And he answers “yes.”

“Is everything perfect?” Post asks. “Of course not. Are there areas that need improvement? You bet. But I see the potential.”

Falling Into Place

There are several good places in Merced, Calif., to have a good cup of coffee. There's Starbucks, of course, and the Courtyard Café, the Wired Internet Coffee Bar, the PF Bistro and Apple Annie's Donut Shop.

And there's Volvo Rents.

No, not many Mercedians are going to trade in their pumpkin spice latte for a Styrofoam cup of Joe at the Volvo Rents branch on South Highway 59. But a brightly lit corner of the Volvo Rents showroom has several large tables and stools and a large TV screen that shows news, sports and equipment videos. On any given day, a visitor to Volvo Rents might find half a dozen contractors enjoying donuts and coffee and talking about the business.

Of course it takes more than serving coffee to run a successful rental business and Volvo Rents wouldn't be increasing its rental volume every month just by making caramel cappuccinos. But the Hard Hat Café — which is what Volvo Rents owners Helder Garcia and Brian Silveria dubbed the coffee area — is a reflection of the family-owned, friendly atmosphere the customer encounters in Volvo Rents in Merced, a small city of about 65,000 people in the middle of California's richly agricultural Central Valley.

A friendly atmosphere only goes so far in the rental business. Most important is the hands-on attention and service from Garcia and Silveria, locally born and raised owners who personally call customers when somebody makes a mistake and personally visit jobsites where Volvo Equipment is rented, just to check that everything is going right.

There was the time the Volvo Rents staff couldn't replace a broken down piece of equipment as quickly as the customer needed it. “‘I called and said, “We messed up, I can't make excuses,’ Garcia recalls. “I'm the owner, I'm calling to say I'm sorry and if I can help you the next time, please come directly to me.’ The man said ‘Now I know where I'll be renting my stuff from now on. That was awesome that you were willing to take the time and call me.’ We have told our people here that every customer counts and every dissatisfied customer has 10 friends who have 10 friends who have 10 more friends.”

Garcia and Silveria are long-time residents of their market area. Both descendents of Portuguese immigrants — a heritage they are proud of — Silveria's family has lived in the Merced area for 150 years and Garcia's family goes back multiple generations as well. The two co-owners know most of their customers from years of working in the area in the rental business. Garcia worked for Thomas Equipment for 18 years until United Rentals acquired it and stayed three years with United. Silveria goes back to 1984 with U.S. Rentals, becoming part of United when it acquired U.S. in 1998.

“Wages are low around here and dollars are tight, but people are very fair,” says Garcia about the Merced customer base. “People just want a good product and they want you to take care of them and they don't beat us up on rates.”

Garcia and Silveria's philosophy on how to do business is simple. “People have asked me, ‘what are you going to do that's different?’ says Garcia. “Just doing what we say we'll do. It's simple but so many aren't doing it.”

Garcia and Silveria tell about the time their mechanic showed up on a jobsite at 9:45 a.m., 15 minutes before the scheduled time. The customer asked, “What are you doing here?” When the mechanic said, “I'm supposed to be here at 10 and it's a quarter 'til,” the customer said, “I didn't expect you to be on time.”

“They never believed we'll really be on time,” says Silveria. “It's a nice thing to earn their confidence that way.”

The Merced owners emphasize customer service around the counter and the yard, dropping everything when the customer needs something, and taking care of them immediately. Consequently, the rental center staff — be it the counter or service staff — regularly receives high marks from the customers. And the sense of being a team that will do whatever it takes permeates the atmosphere and also comes from the owners who will load equipment themselves and make deliveries and pick up machines and set up or tear down scaffolding or whatever is required. Volvo Rents in Merced is open seven days a week to make sure it serves its homeowner customer base in addition to its primary contractor market.

Garcia and Silveria were 20-year rental industry veterans who had long considered going into business for themselves and left management positions with United Rentals for the Volvo Rents opportunity. Garcia left first, having decided to look for an opportunity to start his own business. He looked around at a few other industries and inquired of rental companies in the general area to see if they wanted to sell their business. Not yet having found the right opportunity, he attended the ConExpo show in 2002 where he learned about the Volvo Rents opportunity and was impressed with the support it offered franchisees.

Garcia spoke to long-time friend Silveria, who, after 21 years, was ready for an entrepreneurial opportunity, after going through the ranks as a yardman, truck driver, counter and manager.

“The whole concept, the financing, the help we get from Volvo, it's second to none,” says Garcia. “We're locally owned and operated and yet we have a lot of resources. I can call 50 other Volvo rental guys and ask, ‘How are you doing this, how do you figure that, and do you have one of these?’”

Things have just fallen into place for the partners since they began their venture. In a small community such as Merced, there weren't a lot of facilities that would work for an equipment rental center. “In our town, there are only basically three places we could have gone in town and United is in one of them, so this was it,” says Silveria of the building that became available just when he and Garcia started looking. Increasing the feeling that the timing was perfect was the sudden availability of a Penske shop next door that became available just before Volvo Rents was about to open, greatly increasing its shop space. And as just about every member of both men's extended families pitched in doing odd jobs, Garcia's wife, through her work, had access to some used office furniture in excellent condition, providing the fledgling business just about everything it would need.

Merced is a small but growing area, with the University of California constructing a new state-of-the-art campus, thus creating the need for dozens of businesses in support of the large new campus. Garcia and Silveria are already thinking about where they'll expand to next.

It's all falling into place like a construction job should. … or a good cup of coffee when you need it.