The roof leaked, the financials were sketchy, the employees were unmotivated, and the customers were disgruntled--so Mike Schwartz decided to buy the place. Now his Harley-Davidson business is a $53 million-a-year phenomenon.
The roof leaked, the financials were sketchy, the employees were unmotivated, and the customers were disgruntled--so Mike Schwartz decided to buy the place. Now his Harley-Davidson business is a $53 million-a-year phenomenon.
Spend a few hours at Mike's Famous Harley-Davidson dealership in New Castle, Del., and chances are you will witness someone's moment of consummate joy. You'll be wandering around the massive warehouselike building, constructed in the late 1990s with reclaimed brick, pine floors, and antique factory fittings. You might be running your hand along the gleaming fuel tank of a Sportster when you'll hear the clanging of a bell. Mike's salespeople, mainly clean-shaven and dressed in chambray shirts and blue jeans, will whoop and give each other high-fives; the mechanics will lay down their wrenches for a moment; and browsing customers will applaud and grin broadly and maybe dream about the day the bell will ring for them. Someone has just bought a Harley, and the good vibes reverberate like a revving Fat Boy.
At Mike's Famous, this scene is now repeated more than 1,700 times a year at multiple locations, producing some $53 million a year in revenue and making it one of the largest Harley dealers in the world. And that makes CEO Mike Schwartz very happy--especially since he remembers what his business looked like 11 years ago. When Schwartz acquired the dealership in 1994, it was a 29-year-old $1.8 million business, selling 153 bikes a year and losing money. It was surviving, barely, on the iconic Harley name. So Schwartz set out to reinvent the company, transforming it into a tourist attraction, professionalizing the management team, scrapping programs that didn't work, and expanding those that did. Along the way, he found that it doesn't do much good to try to get your company to grow unless you grow along with it.
Schwartz's hair is close-cropped, his black-framed glasses are more Mild One than Wild One, and he's pretty proud of his denim shirt with its "Voted #1 Dealer Worldwide" embroidered above the pocket. In other words, Mike Schwartz is your basic Harley guy, circa 2006.
Schwartz grew up in the suburbs of Philadelphia and studied economics at the University of Delaware, which is where he bought his first bike. It was a practical purchase, not a passionate one: He and a roommate cashed in their meal tickets to buy a $1,200 street-legal Kawasaki to get around campus. As a young adult, Schwartz was never a motorcycle enthusiast; he was too busy figuring out how he'd start his own company. He worked at a small restaurant and as a salesman of tanning beds until he built up enough confidence to strike out on his own.
By 1992, when he was 33, he had founded two small and profitable companies: Apple Paging and Communications, which sold cell phones and pagers, and ABC Ticket Co., a sporting events ticket vendor. He had a wife and a son; he was successful, but perhaps a little restless. And that's when he wandered into a Harley dealership. "There was this buzz around Harley," he recalls. "It was the intrigue that brought me there." Suddenly, he had a powerful hankering for a Harley.
Before Schwartz cleaned up the dealership and moved it into its new home, the place was barely surviving, living off the iconic Harley name. "It was kind of a club," says another Harley dealer.
The dealership was situated on Wilmington's Northeast Boulevard, which had been the major traveling route from Philadelphia to Washington, D.C., until the construction of the Interstate 95 corridor in the '50s. Schwartz was told he'd have to wait a year and a half for his $13,000 Heritage Softail cruiser, which was not an excessive lead time at a Harley dealership back then. "Every couple of months, I'd go back there to check on the status of the bike," says Schwartz, who recalls shaking his head every time he returned. "You could tell the business hadn't changed in years." But Schwartz sensed that the place might have potential. Finally, after a year, he got word that his bike had arrived. "He came home from picking up the bike and he told me, 'I'm going to buy that place," recalls his wife, Debbie, who sometimes teaches time management at the dealership. "And knowing Mike, I knew he meant business."
In spring of 1994, he bought the dealership for $325,000. He financed the sale with earnings from his other businesses and with a loan from the former owner. The roof leaked, the financials were sketchy, the employees were unmotivated, and the customers were disgruntled. But it wasn't the business he'd bought that sparked his imagination: It was the business he planned to create.
Famous? Not back then. But the Mike's Famous name was like a gauntlet that Schwartz laid at his own feet; if he didn't live up to his own boast, he knew the name would make a mockery of him. "Mike speaks his life into existence every day," says Otis Hackett, a LaPorte, Ind., sales consultant who specializes in motorcycle dealerships and helped Schwartz figure out how to sell motorcycles. "He says, 'This is what I'm going to do,' and then it happens."
The Mike's Famous name was like a gauntlet that Schwartz laid at his own feet. He knew that if he didn't live up to his own boast, the name would make a mockery of him.
What lay ahead for Schwartz was, in many ways, more difficult than starting from scratch because he had bought a company based on a business model that was becoming irrelevant. "The dealers were mostly developed by a cadre of enthusiasts," explains one Harley dealer. "It was kind of a club, and it wasn't customer-focused. You'd hear stories of customers who rode up on a competing brand of motorcycle and were snubbed."
But by the early 1990s, a new kind of Harley customer had surfaced--a customer who was a lot less likely to put up with that kind of treatment. This customer was in his mid to late thirties, educated, demanding, and sophisticated. If he didn't like the way he was treated when he walked into a dealership, he would not think twice about walking out.
As Schwartz saw it, there was opportunity in the disparity between the old-style Harley dealer and the new breed of Harley customer. He knew the business would always attract the hard-core bikers, but he also wanted the clean-cut baby boomers with unfulfilled dreams or midlife crises--consumers who might be tempted by a ride on the wild side but who might just as easily choose a home theater system or a sailboat. He knew the demographic because he was the demographic.
Schwartz wasn't thinking of his business as just a Harley dealership anymore. It would be a tourist destination, like Hershey's Chocolate World or Legoland. "In the retail world, the big shift in the '90s was from selling a product to selling an experience," says Mike Rubin, president of MRA International, a Philadelphia consulting firm that helps clients develop leisure, sports, and retail projects. "Mike needed to create a draw so that people were motivated to get off the highway. It had to feel like a place that a motorcycle caravan might pull up to but that was still family-friendly."
So Schwartz decided to add a restaurant and a museum. "If I was pitching to families," he asks, "was a Harley place an acceptable place to stop? Maybe. If it also had a restaurant, would that make it better? Probably. And if there was also a museum? There's no way you'd associate a museum with someplace dangerous."
Schwartz was prepared for the restaurant to be a loss leader--an attraction that might not be profitable on its own but that might beckon travelers off the highway for a snack and ultimately lead them into the dealership. "I went to the rest stop five miles down the road and I also counted the cars that stopped at Cracker Barrel," he recalls. "These people might wait an hour for a seat on Sunday--for ordinary food and to buy a trinket." Schwartz figured that if he could snag .5% of those customers, sell each one of them $6 worth of food, and entice 10% of them to buy a T-shirt, he'd have a sustainable business.
Schwartz was making the dealership work. By getting basic management and financial systems in place, and in general behaving like a guy who really wanted to sell his product, he kicked sales up to $3.8 million in 1995, his first full year in business. But to really reinvent the business, Schwartz needed a new location, and he quickly set his heart on the most heavily traveled road in Delaware: I-95. Directly to the south, roadside restaurants are few and far between; to the north lies two hours of New Jersey Turnpike rest stops. Schwartz thought he could offer weary travelers an attractive alternative. In February 1996, nearly a year after he started looking, Schwartz's dream location became available. Just south of the Delaware Memorial Bridge, on I-295 but right off I-95, there was a 5.8-acre tract of land that had been home to one of the first Howard Johnson Motor Lodges. The ramshackle buildings, including the original orange-roofed HoJo's reception hut, were highly visible from I-95.
With traditional financing from a local bank, plus cash from his growing dealership, Schwartz signed an option to buy the abandoned site for $1.36 million.
Schwartz knew what he knew, but he was also keenly aware of what he didn't know. And he wasn't shy about asking for help. He hired a prominent land-use attorney; signed on a former New Castle County economic development director to help him with the land use and development process; retained consultant Rubin for guidance on the overall concept and the mixed-use elements of the dealership; and hired Jack Rouse Associates, a Cincinnati designer of themed entertainment attractions.
Schwartz continued to run the dealership out of its original location--he had built the business to just about $8 million in revenue and $700,000 in profit--and by the fall of 1997, he had nailed down all the proper permits, had presented his plan to Harley, and not only secured the company's approval but also a commitment for a $6 million loan from its financing division. He had also spoken to local community groups, conducted noise studies in the neighborhood, and agreed to put his repair shop on the side of the building that faced the road, not the residents. In November 1997, the wrecking ball came down on the old HoJo's. A few weeks later, a construction trailer was hauled to the site. "Mike sat in that trailer," says his wife, Debbie, "and watched every brick go up." At night, she says, they reviewed the blueprints, studying and tweaking the architects' drawings.
Along with the restaurant, Schwartz also came up with a plan for the Museum of the American Road. He decided to feature motorcycle legend Dave Barr, who had earned a place in the Guinness World Records by riding a Harley WideGlide from the coast of France through Northern Europe and across Russia (in the winter) to the Pacific Ocean. It was the ultimate motorcycle adventure, made even more impressive by Barr's disability: He has two prosthetic legs. "I get approached by dealers all the time," says Barr, who is now a public speaker, "and I get a lot of offers and a lot of it is just rubbish. But Mike was the guy." Barr agreed to send Schwartz the bike he'd ridden to the Guinness record. He also pledged to hand over medals, pictures, and other memorabilia that Schwartz would use to create an interactive exhibit. In return, Schwartz would give Barr a modified Sportster (with a Mike's logo on the fuel tank) to ride on his 2002 "Southern Cross" journey, a 45-day trip hitting the four extreme geographical corners of Australia.
It was December 18, 1998, when Schwartz opened the doors to his new dealership, and he decided to keep it low key; he would save the real fanfare for the spring, when his potential customers were more likely to be dreaming of the open road. Then again, low key is a relative thing. For the many months it took to build his new facility, Schwartz kept hundreds of thousands of passing motorists up to speed on his plans. Mike's Famous billboards weren't as thick on I-95 as they are now, but they were hard to miss. One billboard during the construction started with a picture of a baby and one syllable: "Ba." Then another Ba was added, then another. By the time the new Mike's Famous was open, the sign said, "Ba-Ba-Ba-Bad to the Bone," and the baby wore a bandanna. The dealership was packed on opening day. "We did more business in one day than in any single week at our old place," Schwartz recalls. The building itself seemed to generate as much buzz as the motorcycles. From the road, the 40,000-square-foot complex was reminiscent of Harley's early red-brick manufacturing plants, while its back entrance mimicked a post-World War II service station. Inside, the theme was an eclectic combination of Route 66, art deco, and turn-of-the-century warehouse. Mike's Warehouse Grill was designed to resemble a manufacturing plant cafeteria, with steel conveyors, cogs, and wheels on the walls.
The following June, Schwartz held a proper grand opening. It began in York, Pa., home of a Harley factory. Barr and Schwartz rode their motorcycles side by side, with 500 pumped-up Harley devotees following behind. "We rode with a police escort," Schwartz recalls. "It was a beautiful summer day and I was riding right out in front with Dave. I'll never forget it."
That first year, Schwartz's revenue hit $13 million, and he earned Harley's coveted Gold Bar & Shield award, which recognizes the top 4% of the 650 dealerships in the country for outstanding customer service and sales performance.
Of course, not everything went smoothly. The restaurant, for example, proved to be more of a loss leader than Schwartz had anticipated, dropping $200,000 in 1999. "We were so focused on our unique products"--homemade cole slaw, freshly baked apple pie--"that we didn't realize we had to keep an eye on our food costs," he says. "It became pretty obvious that something was wrong when the restaurant manager kept coming to me asking for a check to cover payroll." In part, the operation was bleeding cash because Schwartz had insisted on creating a restaurant to satisfy his own tastes, rather than one tailored to market needs. It's a common mistake among business owners, but Schwartz could have kicked himself: "I was no different from those old-school Harley dealers who don't understand customer service."
He realized he needed to rethink his strategy. Tired and hungry customers, he reckoned, would be content with a simpler menu--good, basic food that was still several cuts above turnpike fare. "We could either continue to labor over all this high-quality food," he says, "or we could get lean and mean and still give customers what they wanted." So he scaled back, featuring foods that required little preparation. Both the chef, who was a master baker, and the restaurant manager left, and Schwartz brought in an accountant and a no-nonsense cook. Two years later, the restaurant turned a small profit.
But the restaurant was just part of what was troubling Schwartz. "The first two years were spent screaming about the business," he recalls. "We really didn't know how to sell motorcycles; they had been selling themselves. What we failed to realize was that it wasn't about getting the customers in the door, it was about how we treated them once they were here."
In the process of reinventing his business, he had overlooked a critically important element of growth--one that countless entrepreneurs are guilty of neglecting. Revenue had increased to $17 million in 2000, and margins were healthy (close to 8%), but his organization was still in its infancy. In the frenzy to staff up, he had hired haphazardly; there was no selling system on the retail floor; and his own vision of how big he wanted the company to be did not seem to resonate with some of his most trusted managers. Schwartz noticed that when he compared August to December revenue for 1999 and 2000, the figures were nearly identical. He wasn't happy about this, but his efforts to convince his staff that Mike's Famous could be a $20 million to $25 million business were thwarted by employees who seemed perfectly comfortable with the status quo.
It was January of 2001, and Schwartz had just taken courses in profitability and change management at a Harley-Davidson University dealer operations training seminar in Fort Lauderdale, Fla. Schwartz came home with some ideas that he was eager to implement. "After those two courses, I knew I had to develop an organization that was change oriented," he says. "But if I was going to ask my people to change, then I had to change first."
Schwartz's business was suffering from a classic case of prolonged adolescence. It's a phase that many growing businesses experience, and one that a company can remain stuck in indefinitely unless its owner helps it to grow up. And that almost always involves professionalizing the company in a way that will grate on some of its most veteran and loyal employees. Schwartz was beginning to realize that his company was outgrowing some of its people. "It's difficult to try to evaluate longtime employees," Schwartz says. "Your heart tells you to do one thing, but your best judgment tells you what you have to do. I knew I had to rip the business apart in order to build it back up again."
So shortly after he returned from the training seminar in Fort Lauderdale, Schwartz, in his words, "parted ways" with his sales manager, his general manager, and his personnel manager. And he placed ads on Monster.com. Within a month, he had signed on Mark Hollinger as CFO and Kelly Haines as HR manager. Neither had motorcycle dealership experience; Hollinger had been the No. 2 man at a staffing company, and Haines had worked at a long-term-care facility. He also signed on Otis Hackett, the sales consultant who specializes in motorcycle dealerships.
That year, 2001, was turbulent and chaotic. "The biggest problem was knowing where to start," says Hollinger. "Mike had built a $17 million company, but there were cracks in the foundation." Haines beefed up the company's employee handbook, which laid out everything from a new, more generous benefits plan (predictably popular) to a formal dress code (not so popular). "We had a lot of turnover that first year," says Haines. "We were trying to create structure and accountability." But it was sometimes tough, she admits, "for a 24-year-old girl who didn't know anything about bikes to correct a technician about not wearing the right shirt."
Schwartz, Hollinger, and Hackett zeroed in on the sales department, which had dwindled to one full-time salesperson, one part-timer, a full-time finance manager, and Schwartz. Getting Schwartz off the sales floor--and putting the right people with the right tools in place--was a top priority. To help lead the charge, Schwartz hired two new sales managers, both from nearby automobile dealerships, and then he turned Hackett loose.
On the day Hackett began evaluating the dealership, he sat at the front door and counted customers. "I've never seen so much traffic," he told Schwartz. But what happened next shocked him. The customers weren't greeted when they walked through the door, and those lucky enough to strike up a conversation with a salesperson were often interrupted when the main office sent telephone calls down to the floor. To Hackett, that was double trouble. The conversation on the retail floor was being interrupted, and the customer on the phone was given short shrift because the salespeople were too distracted to get their names and numbers. "It was a waste of a Yellow Pages ad," grouses Hackett.
Schwartz worked with Hackett for 30 days, "from bell to bell," analyzing what was happening on the sales floor and devising a system to fix it. "We started to look at our customers as an opportunity, talking to them about why they were there and what their needs were. And when we did that, we went from selling clothes and parts and service and motorcycles along the way to really selling motorcycles."
They started with the phones. Schwartz created a business development center, staffed with employees whose sole responsibility was to take calls from prospective customers. "My job is to set up appointments and get them in the building," says Jane Spoerl, one of five operators in the center. She has an inventory of every bike in the store and can rattle off information on warranties, insurance, and financing. She can even promise callers a free lunch at the restaurant if they come in--but she never, ever, transfers calls to the retail floor. "Most months, 80% of the people who set up appointments showed up at the dealership and 50% bought bikes," she says. Everyone--even those who don't make an appointment--goes into Mike's database along with Spoerl's notes. If they do wander in at some point, salespeople can pull up their information right on the sales floor.
Next, Schwartz and his team created a sales training program, which starts with an ad in the local newspaper inviting prospective hires to apply for a free three-day course. Acceptance into the program doesn't guarantee a job, and neither does being an avid rider. Typically, nine of 10 participants stay the full three days and Schwartz hires a third of them. He runs the class four or five times a year, usually in the winter, so he can hire approximately 10 new salespeople for the spring season.
The delivery department--previously called "finance and insurance"--where customers go to fill out the paperwork that finalizes their motorcycle purchase, was completely overhauled to shorten the process to just 45 minutes. "Before, it took up to two hours," says Hollinger. "And it just wasn't consistent." Now, customers are treated to a meal at Mike's Warehouse Grill if there's a wait. Hollinger also standardized the department's selling process and moved it from the noisy show room up to the second floor of the museum, where customers are surrounded by eye-catching memorabilia. "After we improved the process, bike sales increased from 800 to more than 1,700," says Hollinger. And Harley-Davidson filmed Mike's delivery process for use as a training tool.
Hollinger also introduced a program called Famous for Service, a group comprising six employees from different departments. They meet once a week to hash out problems and brainstorm new ideas. "You get a service person sitting there with a salesperson and the barriers start breaking down," says Hollinger, who was promoted to general manager in April 2001. Employees in the group might also shadow one another for a day so that, say, a parts department employee gets a taste of what it might be like to work as a service technician or as a salesperson.
Schwartz's changes yielded quick and impressive rewards. Revenue grew to $22 million in 2001, $33 million in 2002, and $38 million in 2003. Schwartz has grown so confident of his systems that he opened a satellite dealership 40 miles away in Smyrna, Del., last spring; he also bought a Harley dealership in Groton, Conn. He's bringing his Mike's Famous brand to both new facilities and projecting 2005 revenue of $53 million for the three dealerships. The flagship will step back to $36 million, but only because some business is moving up the road.
"I always set my sights on being the best Harley dealership in the world," he says. It's a quest for perfection that's never quite over. Like a road trip on a Harley, it's not the destination that's appealing. It's the journey.
Adapted from the book Alpha Dogs: How Your Small Business Can Become a Leader of the Pack; copyright © by Donna Fenn, December 2005. Published by arrangement with HarperCollins Publishers.
DONNA FENN is the author of Upstarts! How Gen Y Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit From Their Success (McGraw-Hill, 2009), about ways Gen Y is changing the entrepreneurial landscape.