As my three partners and I arrived at the location of the automotive service retailer, we wondered what all the fuss was about. The year was 1979. The facility was full, and cars were backed up into the street. We walked into the building, found the manager, and asked, “Why are all these cars here?” The manager sarcastically replied: “To have their oil changed. Why else would folks bring their cars to Jiffy Lube? You guys must be from the East Coast, right?” One of my partners turned to me and said, “If they do this much business in Ogden, Utah, how well do you think we can do in Boston or L.A.?”
It wasn’t long before our group—which had been on the prowl for an entrepreneurial opportunity—struck a deal to acquire the assets of this small firm. It had been called Jiffy Lube, Inc. The night before we closed the deal, we pondered what to name our new company. “Jiffy Lube International” was the unanimous choice.
What motivates a small group of entrepreneurs to name a firm consisting of seven local retail outlets “International”? The naming decision trumpeted a vision of the possible and an absolute commitment to growth. In our case, growth would be through franchising with an eye toward acquisition. More importantly, as a lesson for other entrepreneurs pursuing expansion, it would be guided by a carefully constructed strategy.
A Frenzied Obsession
Shortly after buying the local Jiffy Lube, we spent scarce and precious resources on a marketing study that helped us identify the nature of the demand for oil changes. The results revealed dissatisfaction with the current delivery systems. Market trends, such as conversion of garages to self-service gas stations and an aging population, meant the quick lube concept would be well accepted. Critically, the study also revealed that the 30 largest markets in the United States had room for at least 1,000 specialty oil-change shops.
Penetrating those top 30 markets became the core of our growth strategy. We understood, all too clearly, that our only competitive advantages would be our brand name – Jiffy Lube – and our understanding of the operating system necessary to deliver quick lube service (much like McDonald’s for delivering quick lunch service) – both of which we would need to develop. Our commitment to growth became a frenzied obsession with first-mover advantage and brand building. We had to dominate the top markets to create a critical mass for marketing and achieve economies of scale in advertising.
Execution Is Vital
We soon discovered that the strategic imperative to grow must be quickly wed to an enabling execution strategy. However, we also faced a common entrepreneur’s problem: a sense of urgency to grow and a lack of currently available resources. The solution? We decided that franchising would be the principle method for developing new outlets.
We dove into the execution, and within a few years we had almost 200 stores opened, most of them franchises. In addition, we opened some company stores to enable us to become knowledgeable about the business and be credible with the franchisees we would be pursuing.
As we opened stores, we tracked a growing number of competitors that were regionally based. It seemed clear to us that some of these competitors were good operators and, even with a regional approach, might box us out of major markets. If enough of these competitors dominated regions, our national growth strategy and its inherent economies of scale could be thwarted. If we could buy the best of these competitors, on the other hand, we would achieve two objectives. First, we would expand even faster, and second, we would eliminate potentially dangerous competitors.
If You Can’t Lick ‘Em
Because we were starved for cash, with every penny going to build new stores, our acquisition strategy included re-franchising the acquired stores as soon as possible. In some cases, we were able to execute on the core of our acquisition strategy, which was to convert competitors to Jiffy Lube franchisees.
Our message to competitors was that Jiffy Lube was best positioned to dominate the market. They could join us and grow with us as a franchisee, profit from us by selling -- or compete with us and lose. We made it clear that we had to enter major markets, that, in fact, we were already getting into those markets. We were on our way. The train had left the station, and their only choice was to get on or get run over.
Now for the Potholes
The process of growing through acquisition was exciting and intense but filled with potholes. We made a lot of mistakes and learned a lot of lessons. Remember, our strategy called for optimal penetration into the top 30 markets? However, what if an aggressive competitor is making major headway in a smaller but still significant market – and initial contact with the competitor reveals a willingness to talk about an acquisition? (Answer: sometimes, we jumped too quickly in situations such as these, draining resources from our major-markets strategy.)
What happens when you sell a territory to a franchisee and then a competitor builds a number of stores and subsequently wants to sell? The franchisee may not be prepared to participate in the purchase but also has contractual rights in the geography. (A sticky wicket, indeed, but our bottom line was always to honor the partnership. Our first obligation was to our franchisee.)
What if a competitor undervalued his or her company and we could acquire the firm with a big discount -- but the shops were not in a top 30 market? (Solution: if there is an existing franchisee willing and qualified to operate the stores, buy the company. If not, pass.)
A Final Word
Although McDonald’s founder, Ray Kroc, believed a company is either green and growing or ripe and rotting, our message is that entrepreneurs must have a strategic reason to expand and pay careful attention to financial management. So many companies meet or exceed revenue objectives and then find themselves in trouble. We faced all of the questions listed above (and many more too numerous to be addressed in this article!) The lessons learned center on believing in the mission and the plan. Think long term, because seldom is real value created quickly.
My Babson College colleague, serial entrepreneur, and friend, Ed Marram, talks about the stages of entrepreneurship: wonder, blunder, thunder, plunder, and asunder (or the renaissance of wonder!) Blunder and thunder are growth stages and terribly dangerous. Acquisitions that are on plan and strategically sane can help turn blunder into thunder.
Stephen Spinelli, Jr.