Making Business Partnerships Work
Tim Allen admits it’s a cliché: An after-work drink leads to a business plan sketched out on the back of a cocktail napkin. And yet, that’s exactly what he says happened when he got together one evening with Scott Penney Jr. and Ed Owen to discuss going into business for themselves.
Allen at the time was a corporate executive, and both Penney and Owen worked together at the local Mercedes-Benz repair shop where Allen had his own vehicle serviced. Although the three would-be partners came with diverse business experience, they all shared a common passion for German-engineered vehicles and the recognition that their Boston marketplace needed a viable, independent Mercedes repair option.
“At the risk of overusing a very overused expression, a year later we opened our doors,” Allen says.
What they opened was European Auto Solutions, a Mercedes-Benz repair facility located in the Boston suburb of Waltham, Mass. Although careful planning and marketable experience worked in their favor, working as a trio of business partners with different expertise required numerous considerations and clear communication to avoid devolving into constant disagreements.
“When you have three partners, and we’re all opinionated partners, there were moments of impasse,” Allen says. “None of us professes to know everything but we’re all three opinionated and we have differences of opinion.”
By working proactively to combat potential problems, the owners of European Auto Solutions have not only created an effective business partnership, they’ve also hit every milestone on their business plan, and experienced continuous growth that has led to a new 12,000-square-foot facility and the expansion of its services to a second make.
A Balanced Skill Set
Although all three partners had an interest in Mercedes cars, that interest came from different sources.
Allen had spent most of his career as the executive vice president of IT for Fidelity Insurance in Boston. He grew up working on vintage Mercedes as a hobby and still owned one, which he frequently brought to a local European make repair shop, Hatch & Sons. That’s where Allen met Owen, a service writer at Hatch & Sons and a marketing graduate of Boston College, and Penney, a young technician recently out of school.
“I always wanted to run my own business and I got to a point where I realized that the corporate career path was no longer working for me,” Allen says. “At the very same time I was leaving that industry, the independent shop I was a customer of was being sold to a dealership.”
Allen ran the idea of opening a shop past Owen and Penney, who agreed to meet to explore the idea. Both said they were eager to start their own business, as opposed to continuing at the dealer.
“I had known Tim for years as a client. It was a no-brainer for me,” Penney says. “I was 26 years old and I felt I was pretty marketable as a technician, so I said, ‘Why not?’”
The trio decided to move forward with the plans, with Allen acting as majority owner and investor, as well as taking the reins of creating a business plan, while Owen and Penney stayed on at their original jobs.
Allen spent three months researching the industry and doing competitive analysis. The next three-month chunk of time was spent bringing the two partners into the fold.
“We worked after hours to formulate from the ground up what their thoughts were, what they wanted to get out of the business, sharing what my thoughts were, what I wanted to get out of the start-up business and reconciling those across the board and across all the partners,” Allen says.
Put it in Writing
The three spent more than a year revising the plan and finding a location, finally opening in July 2006.
Allen said they wanted to open the business without any debt, so purchasing real estate was out of the question.
“We wanted a space that had at least four bays, so we could grow our business and then make a determination about where we went from there,” he says.
The trio started small, signed a five-year lease with two three-year renewable options for a four-bay shop with fewer than 10 parking spots. At the time of opening, they were also the shop’s only three employees.
Before opening their doors, Allen says he realized they needed to create a formal partnership agreement. Because all three partners had different experiences and points of view, coming to an agreement on decisions sometimes proved difficult. In particular, deciding whether to base part of their business model on antique cars completely divided the partners.
Through word of mouth, they sought out a law firm that specialized in start-up partnership agreements. They worked with a lawyer to create a partnership agreement that detailed delineation of responsibilities, percentage of ownership, and tie-breaking rules in the event of disagreements. In all, Allen says the agreement is nearly as long as their business plan.
“What we did was, as a function of putting together this plan, we articulated what we saw as each other’s functional responsibilities within the business,” Allen says. “For Scott, who fixes cars, his responsibility is shop floor organization, fixing cars, and all service techs associated with that. Ed is responsible for customer service, service writing and marketing. I’m responsible for the financial aspects of the business, strategic planning and office manager.”
Allen says the agreement has proven crucial to the success of the business, and the partners routinely reference it.
“It has helped us tremendously because we don’t step on each other’s toes,” he says. “We play devil’s advocate a lot and everyone is allowed to provide input into each other’s functional areas of expertise, but ultimately the responsibility for those functions reside with the partner that signed up for that function.”
Creating Open Communication
The partnership agreement also meant that when the shop opened, it hit the ground running. In the first year, it did $700,000 in revenue. In year two, that rose to $1 million.
“It was one of those things where each one of us had the bases covered,” Penney says. “We looked at the business from every possible circumstance. We were very conservative with our numbers and we have hit every target we put forth from the day we opened.”
While Penney acted as the lead technician, Owen got to work marketing the shop and making a visible brand. He started by attending local government functions, as well as visiting local repair and collision shops.
“There are a ton of shops in Waltham,” Owen says. “I went around and I said, ‘If you’re working on a Mercedes and you’re in over your head, just call us.’ They were the first people to tell customers, ‘Go to these guys.’ It really helped us get established in the neighborhood.”
In addition, the shop became involved with local charities and the Mercedes-Benz Club of America, regularly hosting events and car clubs at the shop.
“What I didn’t see coming is that so many of our customers were involved with charities,” Owen says. “Last year, we raised over $9,000, but just as important is that we were at every one of those charity auctions, representing our company and meeting people.”
To maintain internal communication, the partners created weekly partner meetings where they review financials, process issues and strategic planning. In 2009, they joined the Automotive Training Institute, and regularly rely on their coach to provide an objective view.
“Having that weekly conference call with our coach is an extra voice,” Penney says. “It’s somebody who’s just looking at paper, who is an objective outsider and can help us work through any discussions we are having.”
Allen says the coach has also helped them standardize procedures and understand how each of their roles fits together.
“There was a whole redesign of what I’ll call the soup-to-nuts process for delivering a car to the customer,” Allen says. “I’m talking from the moment a customer walks through the door to the time the car is delivered. It involves customer communication, employee communication, shop productivity, shop floor designs, and customer experience. There is a checkpoint of communication that now happens between the service techs and the service writers, and ultimately, the customer.”
As the partners continued to become more comfortable in their roles, business continued to grow.
In 2011, European Auto Solutions moved from a cramped facility with one bay door and eight parking spaces to a property that sits on 2.5 acres of land, which has more than doubled capacity and increased productivity by as much as 30 percent.
What’s more, the new property allows for continued expansion. In 2013, the shop launched a BMW business and Allen is currently in the process of obtaining a used-car sales license. The ample amount of parking space has also allowed Owen to host more events, sometimes with as many as 150 cars.
“We’ve got a great team here,” Penney says. “It’s a dream come true. The growth we’ve gone through over the last seven years has been unbelievable.”