Koenig Equipment is no stranger to change. In its 117 years in business, it has seen changes that range from trading horses for implements to a shift in its major line (including several years of operating both John Deere and Case IH stores). The dealership has remained family-owned through its long history, however CEO Aaron Koenig notes it’s always operated like a business.
“People often ask us about the success of our dealership. I tell them, we’ve got great customers, we’ve got great products, great employees, great processes. But I think what’s made us successful is that we operate the business like a business. It’s professionally managed,” Koenig said about how the family has always been very focused on running the business at a professional level and making sure they approach decisions from a business standpoint, while still keeping family in the business, during an interview for Farm Equipment’s Our Dealer Story podcast in 2020.
Just about a year after that podcast was recorded, we caught back up with Koenig for this one-on-one interview to talk about how Koenig Equipment measures its business and success as well as how they identify and develop their future leaders.
Farm Equipment: What are the top business metrics you focus on the most to gauge the health of the dealership?
Aaron Koenig: Metrics is an interesting topic. Our Chairman, Ray Koenig, recommended to me an article in the Harvard Business Review from 2019. The name of it was, “Don’t Let Metrics Undermine Your Business,” by Michael Harris and Bill Tayler.
- When tracking metrics, don’t forget about the process and strategy involved in the metrics. Make sure you achieving the desired metrics through processes that will guarantee success.
- With current challenges in finding qualified employees, in addition to seeking experience also pay attention to cultural and organizational fit. You can always develop someone who is aligned with your culture.
- When evaluating customer satisfaction, look beyond just customer feedback. Instead examine things like parts fill rate, which can often be the cause of the satisfaction or dissatisfaction.
The premise of the article is that you have to stay focused on your strategy. Metrics only support your strategy. Sometimes people forget about the strategy behind the metric, and they do almost anything to achieve the metric. As a result, they undermine the culture and strategy of their business.
So, we’ve reflected on all of our metrics and whether they are the right measurements. One thing we’ve learned is that as we need to be more disciplined in our approach and incentivize disciplined sales and customer service processes. This is especially true in equipment sales. Incentivize good practices and good habits, and then you’ll get the outcomes you’re looking for.
FE: Have you been able to get buy-in from staff on switching gears like that?
Koenig: It depends on a couple things. One, tenure has something to do with it. The longer someone has been doing it a different way, the harder it is to turn them around. Two, success breeds complacency. Why change now if I am already successful? However, if they’re struggling to meet their sales goals, or new to the organization, or new to territory sales, then it is easier to convince them that this is a good way to do it.
As an example, like many dealers, we set unit goals by salesperson for sales of new equipment, and then provide an incentive for them to reach or exceed their goal. This year, salesperson incentives are in-part based on the quantity of quality leads in their sales funnel before they even sell their first piece. Said another way, have they done the work to build their sales funnel by prospecting and qualifying customers before the selling season arrives? We so firmly believe in our process that we’re willing to reward effort and bet that the results will follow. Moreover, the additional reward for achieving those sales is not a unit bonus, rather the standard commission. Said another way, we’re rewarding them on their process, effort and results, not only the outcome.
Listen to Koenig Equipment’s Story
Visit Farm-Equipment.com/OurDealerStory-Koenig to listen to CEO Aaron Koenig discuss the dealership group’s long history as well as what he sees as the future for the business.
Parts fill is another important metric because it is high among customer satisfiers and dissatisfiers. We also monitor technician headcount. Specifically, how many techs we have and what percentage of our total dealership staff are they. We track used equipment multiple, which we calculate by multiplying our inventory turn by our gross margin percentage.
Lastly, we measure employee engagement, no less than every 12 months. We use a formal survey administered by an independent company that among other things, helps us phrase the questions, conduct the survey and ensure confidentiality. Then we take the feedback and form cross-functional teams whose job it is to work on select areas. For example, our most recent survey measured the dealership in 9 areas. We selected the 3 areas where we would benefit most from improvement and assigned cross-functional teams to work on those things.
FE: Would that be things like internal communication, training, etc.?
Koenig: At the top of the list were training and development and internal communication. The third was reinforcing the culture and being consistent with the it.
FE: Which can be a challenge across so many stores.
Koenig: It is, especially when you’re somewhat fresh off an acquisition. In some ways, you must de-program people and then re-teach them to your way of doing business.
FE: Are the metrics you focus on are a balance of number-based metrics and things like employee engagement?
Koenig: Yes. That said, a recent metrics discussion with my Board got me thinking about customer satisfaction. Are we really looking at it the right way? It’s not calling the customer and harassing them to give you a 10/10. Focus on the experience so they want to give you a 10. Pay attention to what’s important to the customer and you’ll get the outcome you want. More specifically, are we asking the right questions so that we can fix the root cause rather than treat the symptom? For example, are we apologizing for not having a part in stock or are we working to improve our approach to parts inventory and parts fill?
FE: Right. What’s your target for parts fill?
Koenig: We’re shooting for 85% for our first time fill by ticket. In other words, did we have everything the customer wanted? If yes, that is a fill. If not, that is a miss. So, we want to fill every line item on the invoice 85% of the time.
We measure fill at the location level and at the corporate level. Furthermore, we pride ourselves on transparency, so each location has full visibility of their department metrics and branch financials.
FE: How does Koenig Equipment identify and develop your future dealership leaders or department managers?
Koenig: What I like about dealer consolidation is a larger, more sophisticated organization naturally provides employees with more opportunity for development and growth. To effectively recruit and retain people, we must be able to give them line of sight to a career path. They have to know that if they’re committed, there’s opportunity for growth.
As for recruiting techs and service managers, we’ve tried and tried to recruit experience. But if you’re lucky enough to find it, you’re going to pay dearly for it. And they’re not always a cultural fit. We still look for the needle in a haystack, but we’ve learned that developing our people from within is by far the best way to go. We invest heavily in high school and college interns. To use a baseball term, we’re building a farm system so that if people decide that they want to move on to some other career or some other industry or even some other dealer, we know we’ve got people waiting to backfill.
FE: Is there anything that you look for in some of those people, a characteristic or trait that generally identifies them as someone who could be that leader or manager down the road?
You can hear more from Aaron Koenig about their employee development program — Koenig University — during the 2021 Dealership Minds Summit: Developing Your Homegrown Talent. See the official program inserted in this issue to find our more and see who else will be speaking. For more information and to register, visit www.DealershipMindsSummit.com.
Koenig: We’ve defined 6 core values for our dealership. We discuss our core values with the candidates to find out if our values resonate with them. If they get excited about what we value most and are open to coaching, then there’s a future for them. We’re always looking to promote from within, and by and large, we’ve been able to do that. At the executive level, it’s been more difficult to advance people all the way up through the organization, so we often source externally. But when it comes to branch operations, even regional operations, we’ve had a lot of success promoting within the organization.
FE: What do you view as the biggest challenges facing both Koenig Equipment and the industry in general right now?
Koenig: We’ve already touched on the challenges of attracting and retaining good people. The last time our industry was hot, we missed an opportunity to attract talent. Now that it’s warming back up, we’re not going to repeat that mistake.
The other challenges to our industry are policy and politics. Just the introduction of uncertainty, whether it is regulatory or retaliatory, creates havoc for our customers. They are very good at adapting, but when the rules of the game constantly change, it becomes difficult. Our customers want strong fundamentals. They don’t root for subsidies. They want to know what to expect and what’s expected, and they’ll do whatever they need to do to adapt.