Dealers Must Learn Asset Utilization Fast

Change is hitting the equipment industry from two directions at once, and it’s leaving a lot of smart people stuck. On one side, equipment rental has moved from a “nice add-on” to a primary way customers acquire machines. On the other, artificial intelligence is accelerating faster than cloud, mobile, or SaaS ever did. We sit down with Matt Harris of Texada to talk through what that collision means for equipment dealers, rental operators, and leadership teams trying to decide where to place their next dollar and their next hour.

We get specific about the rental transition: why OEM financing incentives and extended terms can tempt dealers to load inventory, why cash flow becomes a survival issue, and why rental performance isn’t driven by traditional transaction margins. Utilization, turnaround time, and disciplined fleet management start to dominate. We also dig into the operational mindset shift that surprises many dealers, including swapping machines fast to protect uptime and building enough fleet capacity to meet customer expectations.

Then we go straight at the AI question business owners keep asking: how do we start? We talk about leadership ownership, creating a culture of experimentation, and using simple frameworks to find high-impact workflows. We also challenge common metrics and argue for customer retention, share of wallet, and cleaner data as the foundation for becoming a true productivity partner, not just a seller of equipment.

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Transcript

Welcome Back And Why Change Hurts

SPEAKER_02 0:00

Aloha. And welcome to another candid conversation. Today we're joined after a little bit of an absence with Matt Harris, who runs Texada. Um Matt, I think you're still in Oregon, right?

SPEAKER_00 0:13

I'm in Portland, Oregon. Yeah, I am.

SPEAKER_02 0:15

Yeah, he's a lucky man on the West Coast, and I'm still in the islands. We haven't chatted about things for about two years now. So this will be a review of what we've seen and and what we think about tomorrow. And as everybody knows, what we try and do with these conversations is provoke thinking on your part. So some of this might not be very comfortable for many of you. Uh it's not meant to be personal, but it's our opinions. And everybody's got a nose, including me, and that's what I think of opinions. So, Matt, there's there's the introduction. How you been?

SPEAKER_00 0:54

We've been uh been great, uh Ron. Maybe not quite as good as you have there with you being in Hawaii, but it's been uh one heck of a year in 2026. It started with a a lot of change, and that change kept on building and building and building, and and not just for um, you know, change in in multiple domains, change at the in the equipment industry and all and everything that the industry has been dealing with uh at a macroeconomic level, but also massive change in the technology industry, um in this case with with artificial intelligence and and all the developments there. So it's uh at you know, for us at the confluence of those two, it's just been a it's been a huge and massive year of change.

SPEAKER_02 1:41

Maybe maybe you're seeing a similar thing, but I I see a lot of people and I talk to a lot of people that are really confused. They don't they don't know what to do. There's so much change they they don't know where to start. And and I let me let me come into the the one that I think is the toughest one for everybody. If we you know I've been around this for 50 years or so. So when it started, it was very simple. You sold equipment, you sold new and used equipment. And as we spoke

Rental Becomes The Mainstream Model

SPEAKER_02 2:18

the last time, you made your money on parts and service, but nobody really knew what the parts and service business, particularly not the leaders of the company. Today we have rental completely different world, and for a time, uh let's say starting in the early 90s, rental, United Rentals and Hertz and those boys, that was a channel, but it was kind of on the side. It wasn't mainstream. Today the ARA and the AMP are I I mean they're in the same world, and in fact, they're almost competing with each other. And I'm gonna call you guys a systems as a service business versus a traditional large business system provider, like the IBM to the digital. You must have seen unbelievable challenges with your audience, your customers.

SPEAKER_00 3:20

Yeah, I think there's there has definitely been an awakening uh in the equipment industry in general, uh uh towards rental, um, for rental as a business model. And it's obviously not just with rental companies themselves who have obviously been focusing there, but now we're talking about in equipment dealerships who have traditionally sold equipment and then hope to service service that uh customer as well. But now they see uh rental becoming a larger portion of how equipment is consumed. Uh and and and the good news is that they you know they're looking to get into that at a strategic level. Um and so that is that is creating a uh definitely a change, a new dynamic um in the uh industry. Ultimately, I think it's much better for the industry. Um in rental is in need of more uh excellent players who can provide more equipment to the industry. And let's face it, the the customers, uh be it contractors or or uh or uh or industry or factories, their acquisition of equipment on the terms that they want to buy it makes sense for them too. The way if they can buy it the way they want to or acquire it the way they want to, be it rent or or through acquisition, they're gonna get more of it. And so overall, this is good for the industry. It this this this period of transition, though, is an important one, um, especially for those businesses who for whom rental is a new one.

SPEAKER_02 4:55

Yeah, the um United Sunbelt RSE hurts, the originals, let me call them. Um the rental term for a machine is typically eight hours or less. The equipment world, they're looking at five to ten to twenty years owning a capital piece of equipment. And when they, you know, I I remember the rental purchase option came in in the 80s and Caterpillar put it out there because they had the deepest pockets, and they were trying to I think squelch uh competition because what they were doing is putting a $500,000 machine out there over a five-year term and getting $100,000, $8,000 a month, whatever it was. And unless you had deep enough pockets or bank lines that were sufficient to be able to float it, cat stepped away from everybody. Here's an interesting thing as well. I was at Finning in 1978 and we carried our own paper. We we were a publicly traded company, so we could get bond money like everybody else. So we just somebody wanted a machine, we'd finance it for them. 1979.

OEM Financing Incentives And Dealer Exposure

SPEAKER_02 6:15

And mark it on your calendar, Caterpillar went to the world and said, We're gonna provide the financing. Fenning, you must stop that. If you want to be our dealer, you're gonna do your financing through us. So they took a huge chunk of income out of the dealer network. A lot of people say it was because Caterpillar was getting strained economically. So, you know, when when you and I were chatting prior to this, December was the biggest quarter in Caterpillar's history. But a lot of that was sale of equipment that was in their yards, getting rid of things. And now all manufacturers are having to give uh financing to dealers to keep their plants busy.

SPEAKER_00 7:05

Yeah. And that that has been, I think, relatively common practice. I think Caterpillar in particular, and and this was in their latest, uh their latest quarterly uh uh results, you know, they had a good quarter in construction equipment sales because they've they've gave and they've given incentive to dealers to load in equipment for uh what I assume to be their rental fleets as they as they as they try to grow uh rental. And there are other uh OEMs who are are taking making similar look moves. Um we've heard of uh we've heard rumors of Kubota, for example, offering uh financing incentives to their dealers who are willing to buy equipment to load in uh rental fleet. And so those, I mean, that's that's those are important steps being being taken. The the real question is um so as the dealers are growing their rental fleets um and they are taking these big steps into the rental industry, are they ready for what it takes to run a rental business? And just when you think about it, so you're selling

Utilization Beats Margin In Rental

SPEAKER_00 8:15

uh you're selling a machine or or or service or parts. It's very much, you know, your success of that is very much driven at a transaction margin basis, right? Did I make money selling that machine? Am I making money selling those parts? Am I doing a good job managing the the profitability of my of my service uh organization through optimization of my service technicians in all likelihood? The goods, that that's the basics, right? The really good dealers are now thinking about okay, how do I make sure I'm getting you know a share of wallet with my customers that they once they buy a machine with me, that they are buying parts, they are buying service with that dealer. Now, when you think about on the rental side, everything comes down to something completely different, which is the asset utilization. And so now dealers have to learn and flex a very different muscle, which is um they're no longer helping their customers uh manage their assets better, right? And get more utilization out of their assets, but they've actually have to manage those assets better themselves. And so that means uh less about margins on service um or parts. Um it means fast turnaround, it means fast fixing, it means really uh effective and efficient operational capabilities such that you know when uh a piece of equipment is you know coming off rent, it's turned around quickly and put back on rent. It means new pricing schema that actually, and this is really interesting, we see it as well. They actually suboptimize uh a margin that you may get on a given unit of time in order to maximize the amount of time that that piece of equipment is rented because longer rentals means higher utilization. The entire business comes down to dollar and time-based utilization. That's a new muscle, right, for a lot of uh for a lot of uh uh dealers to learn. And so I think it'll be a it'll be a really important transition. Um, and we certainly see it as we as we work with uh dealers who are getting new to the rental business, and just helping them kind of do things the way you'd expect in the rental industry.

SPEAKER_02 10:41

You know, you bring up a point that is is pivotal to the whole thing. Asset management, asset turnover in the in the sale world, if you turned your assets twice, you were pretty normal. Today the measure is return on net assets. So you look at a company publicly traded like Sunbelt, they've got 50% return on net assets. And a dealership then all of a sudden, you know, two is no good. You've got to get to five, six, seven. Because the realization that people have it kind of hits them over the head. Is asset turnover drives your margin. If I turn my inventory twice and I get 50% gross profit, that means I get a hundred percent return on my asset. If I turn it five times, I could have a gross margin of twenty percent and get the same return. Yeah. And that confuses the hell out of dealers. Not rental companies, but dealers. And that muscle, like you call it, but is that not an opportunity for you guys? I mean, that's looking right down the throat of what you do.

SPEAKER_00 11:57

I think it's a huge opportunity for for us and you know, for you know, for you as well. And advisors to the industry is uh is is effectively, you know, helping, helping, uh, helping with this transition, um, be it through, you know, just good advice, be it through technology, be it through just you know best practices. Uh I think there's there's going to be, you know, as as dealers transition into rental, there's the shock of I got to buy a lot more of equipment, right? Because it is. I mean, you gotta have a fleet. The fleet costs are not cheap. Um, and then the fleet operation, operating fleet now is not cheap, um, especially if it's gas powered. Uh, and so all those all those costs are going up, um, despite the incentives. Uh, and so I think there's going to be the amount of capital being deployed in this transition is gonna be significant. And then as dealers work through the operational consequences of this, of managing a larger, having a larger fleet and having a lot of capital deployed in rental, the the questions will start to come up then around, well, geez, it's not really uh, you know, I'm I'm doing it, you know, I'm gonna have 50% asset turn, and that's not doing it. Why? That was fine over here. Why isn't it working for me over here? And I think that's when we'll see a wave of here's, you know, let's talk about how we can help when the types of things are needed.

SPEAKER_02 13:29

Yeah. Well, the to make matters more difficult, the manufacturers, the equipment manufacturers, machine manufacturers, they're actually assemblers, but I want to call them OEMs for the moment. They're offering terms to dealers six months, nine months, twelve months down the road by now so I can keep my plant

Cash Flow Pressure And Market Volatility

SPEAKER_02 13:48

busy. Yeah. But the bill is going to come due. And I think that's starting to scare a lot of the dealers. They're looking at, oh, where that where am I going to spend my money? Because I got this amount I'm going to because cash flow has become all of a sudden not something that accountants look at that's nice to have. It's your survival, baby.

SPEAKER_00 14:08

Yeah, yeah, for sure. Yeah. I mean, I think, you know, what what is happening is certainly certain certainly for those companies serving a data center business, it's it's been a it's been a good it's been a good run. Um and then, but for everyone else, you know, I think it's been you know challenging in in ag markets given what's happening with North American exports. I think construction has been okay, right? There's no questions about what's happening in commercial construction and otherwise. Um and so I think, you know, I there's a lot of questions out there, uh, you know, of what's going on in the industry and the change of the markets, and there's the tariffs or the not tariffs, and and now there's gas prices and fuel prices, diesel prices, what have you. And that impacts a lot of the just the overall, you know, overall running of any one of these, the equipment themselves and the economics of the equipment, um, and the businesses as well. And so I think there's a lot on the on the plate.

SPEAKER_02 15:12

So let's let's confuse it even more. People under the age of 25 don't really want to work anymore. They um with COVID, they got a check every month. The PPP or whatever it was called masked a lot of a lot of restaurants, service industries basically went out of business. In Hawaii, it was devastating. We, you know, the island of Kauai didn't have a plane, they didn't allow them to land a plane on the island for over a year. So what do you do in a restaurant or a bank? I mean, dear lord, it's it's ridiculous. And then the next piece is try and find a good employee today who's 40, 45 years old. Those folks are worth gold. And there are not a lot of them. So we got this problem with money, we got this problem with equipment, we got this problem with people. Let me throw another curve in there. Now we've got three sizes of customers. The large machine guy, and there's three of suppliers there, Caterpillar, Kametsu, and Hitachi, the mid-size, and that's John Deere case, blah, blah, blah, all the, and then the small side, Mahindra, Kubota, et cetera. And the population starts at three with the big, maybe goes to 100 at the middle, and maybe goes to 500 at the small. And you know, economics on distribution, if I got 500 people in a supply chain, nobody's making enough money to be able to survive. So they're gonna start falling by the wayside. We this is a very difficult time if you got your money invested in stuff.

SPEAKER_00 16:54

Yeah. Well, I I mean, I'm I'm a little bit more optimistic about the 25-year-olds. Um, I think there's a lot of pretty ambitious, uh ambitious people out there. They just are gonna work differently. Um, but to your point, like um, you know, there's so much knowledge in in the heads of you know so few people, uh, you know, be it a service tech or just that great, that great sales rep that you have. Um, you know, how do you, you know, having a business and having that all of the intellectual property, the IP captivated by so few is actually pretty dangerous. And and this is where you know you want to sort of you know build uh uh vibrancy of new people and have more participation in your business. That's what owners of owners that I hear from want to do. So the key is how do you how do you you know how do you get that knowledge? How do you socialize the knowledge with everybody else? How do you how do you make everybody else uh at least help them be more experts? Maybe they can't be the level of the the you know the 40-something or 50-something service technician, but they can be better. Uh and this is actually where the the new age the new tools that are in the market now that you know through artificial intelligence AI have are have a tremendous impact. And it's the night, the neat thing is there when it comes to the engagement with technology, um, certainly the the younger generation has grown

AI Pace Shock And Where To Start

SPEAKER_00 18:19

up with it. And so they expect uh to be able to engage with a variety of different tools, you know, from their phone. Um, and now with AI, these kind of knowledge-based tools are are available with from your phone. And so it's really, it's really, really cool and interesting there.

SPEAKER_02 18:38

Well, to you know, go back to the optimistic side of things. I can't imagine a time of of of uh history that I'd rather be living than now. You know, there's so much going on, it's it's amazing. Yeah.

SPEAKER_00 18:51

I I've I've been in the technology business now longer than I care to share. So I want to say, you know, for 30 years, um, 30 over 30 years. And and it's been a it's been, you know, prior to this year, it's it's been a it's it you know, technology's gone through some pretty big you know transformation shifts. There was, you know, the the shift from obviously this is before the 30 years from mainstream to client server. Um, but then within the 30 years that I've been around, there's a shift into cloud uh and SaaS, software as a service. There's been a shift in, you know, and that created its own hyperscalers, you know, the AWSs of the world, the the uh the Azure's of the world, Google, et cetera. Um there's been a big shift into mobile applications, and now you know the mobile applications, your your phones of today are as powerful as your as your laptops from yesterday. And so there's a lot more that you can do, along with you know, bandwidth that keeps on growing as well. So there's a lot you can do there. And those were all pretty significant shifts that have happened. Um uh and really uh the pace of change there was was was really quite significant. But nothing, I mean, nothing, looks like the pace of change that we are experiencing really this year with AI, especially with the agentic developments that we're seeing now. Nothing is going as fast as I've ever seen it go before. And that's what's that's what's a little crazy about now.

SPEAKER_02 20:26

It's it's kind of been a weird. If I look at a curve, it it's been an exponential curve where 10 years ago the rate of change might have been two to four percent, five years ago, 10 to 15 percent, two years ago 40 to 60 percent, now it's like 80 percent, like poof, it's got boom, here we go. Which is which is makes it very difficult for like what I what do I do? Where do I go? Where do I start? How do I do this? And to me, part of that has been caused by we made so much money for so long we didn't have to be good at what we did. Now you got to be good at what you do. And that's causing difficulty too. Like you said, these younger folks, I mean, hell, I I I mentioned to you my daughter's a curriculum advisor for rapid advancement by individual determination. Every student has to stand up in a classroom once a week, 15 minutes, and make a presentation on what in that subject this week makes a difference in their life. I'll be glad I'm gone. I mean, I don't want to compete with those dudes. They got critical thinking, they got presentation.

SPEAKER_00 21:31

I mean, they got it all. Yeah. Yeah. And I think, you know, they got that and they have a world view, and and uh, yeah, they have now, you know, capabilities and and and tools to really, you know, have a meaningful impact. I think it's just, you know, our are are are we helping them become familiar with the tools? And this is you know another thing that business owners are faced with. Because like what artificial with AI. You know, what how how should you know owners ask me all the time, how should we use it? What should we do? Uh, how do I get started? How do I how do I uh help help help my team? You know, what do we do? And it's a and it's it's a very, you know, on the one hand, it's a very simple question. On the other hand, it's extremely profound. Um, because, you know, it's there's the you know, not not doing anything is almost uh a recipe for um being out of business because the people who are doing things are gonna move so much faster. Um and so uh and so you know where you start is just is just so important to it now.

SPEAKER_02 22:47

Um I had an exercise in the consulting world which I called five things. And we take a department and one of the monthly meetings have an hour and a half discussion on. Give me five things that you'd like to do that would make a difference in how you do your job

Five Things Exercise And Empowerment

SPEAKER_02 23:07

and make a list. And everybody just write it down, don't talk about it. Then make a list of five things that are a pain in the ass to do, and then make a list of five things that if we were able to make these changes would make a lot more money for the company. And then at the end of that, we'd get a flip chart or a computer screen or whatever and list them all down, didn't editorialize, just wrote them down and then had the group group them together so that we ended up with the top five, the most significant five elements in each of those three categories. And it was amazing that they pretty much two or three of them matched across all lists.

SPEAKER_01 23:49

Yeah.

SPEAKER_02 23:50

It was a pain in the ass to do if you could fix it and make your life easier and make more money for the company. Well, why the hell are we talking about it? Why don't we do something about it?

unknown 23:58

Yeah.

SPEAKER_02 23:59

And and the answer I got was the employees didn't feel empowered to make the change.

SPEAKER_01 24:06

Yeah.

SPEAKER_02 24:07

Leadership has become a a a bottleneck.

SPEAKER_00 24:11

Yeah. Yeah. And this is where I mean, I think the the the interesting thing about AI is that it's all new, right? I think the the the best companies are um the imperative to adopt it. Um, first you have to believe, right? It can it make a difference on the business? And I think you have to just go in with some A priori, yeah, yeah, it's gonna make a difference. And so the but that has to come from a leadership. Yep. It can't be delegated. No, not at all. Um you can't you can't say uh, you know, you can't you can't ask your sales manager to lead the charge on with AI. You it has to come from leadership. Um but then while uh adoption and trying it and getting started has to come from leadership, the best ideas are not gonna come from leadership. But creating the culture where people can try things and share what they're learning with everybody else. Like they tried, you know, GPT or Gemini or Claude, and hey, I did this thing and it was faster than I ever could do it before, and it gave me this great answer. Check it out. Like those great answers are gonna come from everybody else, right? Who is thinking about, especially the people who are new to your business, who are asking themselves, geez, why the heck are we doing it this way? Let me just use, I'll use Gemini and get it done in half the time or a third of the time. Um, but and that's what is kind of cool about it, right? Is there's this the way AI now can turn anybody into an innovate innovative innovator in the in the business. But the need to innovate has got to come from the top. And then the culture of you know, of sort of spawning ideas and listening and and and and and and and and creating that that that captivation of the new ideas that has to come from the top.

SPEAKER_02 25:57

And the thing that bothers me about that, and I agree with you, it it ultimately it's the owner, or let me call it the board, just to balance the risk a little bit. How do they know what to do? Nobody's trained them.

SPEAKER_00 26:14

Yeah. Nobody knows what to do. I mean, you just have to know that I better learn this. There's so much power here for me to figure out that I better learn it, or else I'm going to be left behind. And I read this really interesting article uh recently uh that somebody sent me about how similar it was to um way back in the day, centuries ago now, of when uh during the industrial electrification, like electricity was coming

Electricity Lessons For AI Adoption

SPEAKER_00 26:49

on the scene. And nobody knew exactly what it could do. Um, but the innovators, the people, they the leaders of it said, hey, we better figure this out because I think it's going to be really important for our industry. So let's get started and see what the team can come up with. And they did. And lo and behold, the companies that you know converted to electricity, you know, were thousands of times more productive than those who stayed on steam or water or whatever they were working uh on from their from their uh industrial processing. It's the same with AI, right? Like the the the the leaders don't necessarily know need to know exactly what to do. They just need to know that this is a incredibly powerful tool. Let's start doing something with it so we can learn how to best adopt it for our business. Um, because if we don't, you know, I don't want to lose. I don't want to lose to the people who are.

SPEAKER_02 27:45

I I've used the electric um metaphor. It was 1878.

SPEAKER_00 27:53

1878, okay.

SPEAKER_02 27:54

When electric engines replaced steam engines.

SPEAKER_00 27:57

Yeah.

SPEAKER_02 27:58

And the primary motivation was it was cheaper to buy the tool. But it took 20 years for the process, how the tool was used to take place. Yeah. So here we come with AI, and you mentioned Claude and ChatGPT and Copilot and Gemini and all of these things. Most people are obedient, how we've been brought up as babies, infants, don't touch the stove, you're going to burn your hands. How you learned arithmetic and reading, here's it repeat after me. So we were we were taught to do things the way we're supposed to do things. Curiosity or troublemakers, people have thought differently. Why do you do it that way? They were always, you know, what are you doing now for? Get get in line. Come on, smart enough. But I want the people that are curious out there now saying, why the hell do we do that? And kind of because that's kind of who I am. I've never, I must have been terrible growing up or as a student or whatever, as an employee. I know as an employee, but because the data processing manager, the caterpillar dealer I was at, his name was Ray Roberts, and I kept going after him and wanting changes, etc. So one day he finally said to me, Okay, we're going to sit down, we're going to do it. And if it doesn't work the way you want it to, I want to be silent from you for the next year. Of course, it worked out, but now here's the rest of the story. I took him from Montreal to Edmonton to Denver, and he was in his 60s when I was moving him because it was so exciting for him what we were doing. That's that's the other side. So here come all of these, quote, executives that intuitively know they have to change, but they don't know why. But I can make a document come out so well, I just need to talk to the computer for you know five minutes and then let it run its way. And it comes back with wonderful ideas. That saves money, that saves time, and it it it generates beneficial results. It doesn't get to the root, but it gets us started.

SPEAKER_00 30:04

Yeah. That's exactly that's exactly uh yeah, the the point, like getting started. Exactly. Um, and I love this is why you know more about the uh electrical transmit transformation than I do. But I love it because it's so analogous, I think. Um and so what what I what I learned, or what I what I learned what I read about when when companies transitioned to electricity is that, yeah, to your point, they got some initial benefit out of it, which was a marginal improvement over what they were doing before. It wasn't transformational, though. But it wasn't until decades later when they started to redesign their entire factories around electricity, which let them have more distributed work cells and different types of equipment, as opposed to operating off of a central core and have everything all connected to that, which is you know efficient if you're running off of a steam, uh, a steam system, but completely inefficient when you have a low manufacturing system. Um, but when they started to redesign their processes for electricity, the productivity went up by you know many, many orders of magnitude. And so they started to really get generate productivity improvements. It's exactly the same in AI with AI, is that the first adoption of AI, um, just you know, writing better emails or you know, better presentations or faster analysis, that will help people be 10, 20, maybe even 30% more productive. For sure. For sure. And that's a good day, right? If we can finish the year and said, hey, my my team was 20% more productive, that was you know, great because they used AI, they used AI tools in some way, shape, or form. When, though, we start to reconsider how the processes that we can attach to AI and redesign these processes for agents, for AI, that's when things get uh that's when things get exponential in terms of how much faster. It's not two, 20 or 30 percent uh faster. It's two to three times faster. Um, and it's the same. And so that's what I appreciated the the whole uh electrical uh I think it's identical to that. And so that's and that's it's that's the hard part, by the way, is like how do you think about you know redesigning the applicate the process in order to be served by agents?

SPEAKER_02 32:36

Well, you know, now we're we're opening up a real Pandora's box. The let me go back. We need somebody who's gonna be a champion. So now let me use Henry Ford. When he automated the factory, have you any idea how many miles of road was in the United States in 1900?

SPEAKER_00 32:58

No. 44. I assume you do how much? 44. 44 miles of road.

SPEAKER_02 33:05

So we made roads by going across fields, right?

unknown 33:08

Yeah.

SPEAKER_02 33:09

And and the other thing that he did that was rather unusual, he had to have an audience that was wealthy enough to be able to buy his car. So he was the highest paid employer in the country for a long time. He paid people on the floor a lot of money. So here we are today. And and we have data. Not necessarily clean, but we have lots of data. And I let me use the medical community for a second. MD Anderson, which is one of the larger, there's three or four in the country, health centers, is converting all medical records in America from 2000 to 2020. They're digitizing it.

AI Fears, Trades Shortages, Real Work

SPEAKER_02 33:52

So every visit, every blood test, every lab work, all the rest of that stuff. Can you imagine the power of that? You go into the doctor, he gives you your blood, and he gets and talks with you. He says, okay, you're you're 37 years old, and for 37-year-olds, your heart rate's a little high. You don't sleep enough, your your calcium's too high, blah, blah, blah. And here's what you need to do. So not only is it gonna I call doctors plumbers and and uh painkillers, you know, they just prescribe pills or they fix things. They don't help us avoid health problems, which is what we really need to get to. It's kind of like where we're going and discussing with AI, here comes what's that really gonna do for us? It's gonna change the whole damn world. And not to, you know, when I was in the 60s, when I was in university, there was a cartoon of a finger pushing a button on a computer. And the caption underneath is this computer is gonna replace your job. So just say that's 65 and compare it to 2025. That's only 60 years ago. Today everybody's still worried about the same damn thing. Here comes AI, it's gonna displace me. It's gonna really how's it gonna do that? Who's gonna pick the part? Who's gonna put the needle in your arm? You know, who's gonna change the tire on your car? It's just the work still needs to get done. Yeah, so now we've got Mike Rowe and all of the the the trades. Yeah, we don't have enough people.

SPEAKER_00 35:29

We don't. And I would say even in the office, um Oh, I agree. Even with AI, we don't have enough people. Yep. The point is is uh in the office, right? Now not even in the, you know, at the uh, you know, not even in the in the in the rental yard or at the job site, right? Like where the service techs are working and others are working. Now I'm talking in the office. We we don't have the we don't have enough people. And the reason why is that it's yeah, it's some jobs are gonna be done by AI, but others can't be. Um and it just puts a premium on um the people who have a system approach to things. Um and so, for example, in the world of um in the world of uh of software development, which is is our world, um, you know, AI makes the creation of actual code, code writing, like it's becomes trivial, right? AI can create code. So they do it automatically. The bottleneck in our business used to be code creation. It no longer is. We can create more code than we know what to do with. The bottleneck now is all the engineering that needs to be done with this code to put it on systems that are scalable and secure and accessible. Um, and then that can, you know, it's the it's the architectures that we that we build underneath the uh the code that's created for for for you know uh you know really quickly. And that's what our bottleneck now is, is like it's the people who are the engineers, it's the system mindset people. And that'll happen in in in other businesses as well. It's uh whether you're scheduling work orders or or looking for equipment sales or anything, it's the people who know the interplay of the various bits of information who can then leverage all the what they're getting out of AI to actually get them to the best outcomes. It'll become it becomes a systems level challenge, and systems people and knowledge becomes the bottleneck. It's not necessarily the the people who are doing things at the data level.

SPEAKER_02 37:42

I I I took mathematics and physics were my majors, my minors were computer science and statistics, mathematical statistics in the 60s. And I learned how to work with unit record equipment. So I'm a real dinosaur and I wanted to work for IBM. And IBM wasn't hiring then, so I I I did other things for a while. But one of the measures for success in business today is sales per employee. One of the measures of success in compet countries is GDP. Well, our quote, leadership had figured

Retention And Share Of Wallet Metrics

SPEAKER_02 38:25

out how to fool us because my GDP, I can make it go up because I have fewer employees. My sales per employee can go up, but I have fewer people. And both of you and I agree we don't have enough people, but it's been deliberate because we put profits ahead of people for quite some time now. We have the transaction volume hasn't gone down, but we've got less, fewer people doing it. And hey, congratulations, Matt. You did a really good job. Your sales of employee, geez, it used to be 600,000. Now you're a million. Holy mackerel, you must be making all kinds of money. Not true, because customers are leaving you right, left, and center. So we've got other measures, other metrics that become more important than the traditional ones. That also confuses leadership. You go ask 100 of your clients what their customer retention is, and I bet you you don't get two or three that know the answer.

SPEAKER_00 39:18

Oh, yeah. And I love you, I love the metric that you use for customer retention. It's one I continue to cite for this day in the industry that you that you used at a recent uh, or actually not at an AED conference a few years back. Um, but I I think it's abysmal. We know it uh amongst the average equipment dealer. Um, which, you know, I think the good ones are recognizing that they don't just sell equipment, that they're they're in the the share of wallet business. So they have a customer that bought equipment for them. They better make sure that they're engaged in those parts sales, those service sales. And when that customer's renting something now, they want to, they better make sure they're engaged in that. That's the opportunity. The good businesses are thinking that way. They're starting to. Um, but you know, I think there's there's a lot of pieces to put together to make sure that that continues. Um, and maximizing their penetration into their customers is a great way for the equipment industry to be thinking about their business. Uh are they uh are are are is the industry getting, you know, are they engaged with their customers as as much as they possibly could be in all the transactions that their customers are doing, everything that the customers are doing with their equipment. And to your point, in the data that you saw, they're not. And so, which is what a magnificent opportunity.

SPEAKER_02 40:37

Well, yeah, and and and it again, it's the mixing of these two businesses, these disparate equipment distribution and rental, where if I've got a backlog in the shop, it's gonna be longer than my backlog in the field because there's a different urgency in the field

Rental Service Mindset: Swap The Machine

SPEAKER_02 40:56

because the machine's down. Well, the machine's down in the shop, too. But typically, you look at a large dealer's shop, they'll have a two-week backlog in the shop. If it's a rental business and the machine goes down, the guy doesn't want to wait. And the smart dealer is sending out another machine. They're not sending a mechanic, they're sending another machine and bringing the the failed one back. Right. And that mindset, holy crow! I mean, dear lord, how much inventory am I supposed to carry? A lot.

SPEAKER_00 41:27

Like a year one.

SPEAKER_02 41:29

Yeah.

SPEAKER_00 41:30

So the you know, that's a great, that's a great example. Like, how do you handle equipment that's down in the on the job site, right? All right. So if it's a customer-owned equipment, oh great, I'll send a service tech. Don't get it done. Right. But if you're renting it, okay, the best thing to do may just be to, you know, get that, get another piece of equipment out there quickly and then get the other one back, and you can fix it fast, get it turned around. But you know, that's that's a different, it's a different mindset.

SPEAKER_02 41:54

About 20 years ago, man, I'm working with a a large dealer. I'm just gonna say komatsu, because it was. And they broke through on a large mine, open pit mine. They had their first machine in that pit. It went down within 24 hours. They hauled it up to the top of the pit so it's sitting right at the everybody could see it. It was there for weeks. And I'm working with the commands of dealer. I said, What the hell is that? He said, Well, and he told me the whole story. I said, Why the hell don't you get the goddamn thing off here and put another machine in here? He said, Well, well, that's kind of expensive, isn't it? I said, What do you think it's costing you now? It's going to be years before you get another machine in here. I it it's it's a mindset. You know, I the other example, and I I'm kind of weird in many directions, and and everybody that knows me will tell you that. But ask a hundred women in downtown wherever to go to dinner with you. You hope it's like hell it's going to be in the first ten because otherwise your face is gonna get destroyed, man. So how do how do we view the business? Get rid of sales per employee, bring in customer attention. How many customers are you prepared to lose per year? Yeah, and that's an interesting one. And oh, so what how can I predict that? Well, you ever heard of things called buying habits? Yeah. You know, I mean, there's so we have data analytics now, but uh it it's overpowering for a lot of people. Uh Nick Maverick has a company called Built Data. He writes blogs for us, and and he came from Volvo and Volvo Rents and different dealerships, etc. He's got so much data. And I go back to the 80s when a company Called Equipment Data Associates did UCC filings, and that was a wonderful thing to allow us to calculate market share. And Randall Publishing bought them. UCC filings is such an arcane thing. They've got different names. You can't tell what the hell's real or not. So that takes me to data accuracy is a critical element today. Yeah. A lot of our data is dirty.

SPEAKER_00 44:22

And I I think I think there's a lot that you're you've been onto something with retention. And whether you call it um retention or you know, share of wallet or penetration.

SPEAKER_02 44:35

Same thing.

SPEAKER_00 44:36

You know, there's yeah, it's a it's the same thing. And you know, you know, there's a caterpillar does a the best job, a really great job of this is when they they manage their their business as not only their their equipment share at a at a given uh at a given account, um, but they also look at you know, with that equipment at that particular uh customer, that contractor, for example, they have an expectation of both service and parts sales to that customer. And what they're looking to do is that, hey, if this customer has this piece of equipment and they're using it at this level, they should be buying this much service work quarters from us and these many parts, and are they? And it that's how they manage their their business. Now they're they're they're looking at their the rental side of it as well. Um Hilti, another great construction uh product and tool company that does the same thing. They they look at their customers and they say, we would expect a customer of that size and in and that business to, if they were adopting everything that we had, should be spending this much a year with us and they're spending this much. Well, how could how do we get more? And and those are those are the best companies, the best companies really understand uh at an individual customer level, what does good look like and how far away from that are they? And then they target their they target their focus towards growth on making uh okay customers and their penetration turn them into good customers.

SPEAKER_02 46:10

Yeah, that gets me to my favorite good, better, best circumstance. You know, good is the enemy of better. Yeah, better is the enemy of best, you know. Because we we made this good. I mean, this is good. I'm gonna protect. So now I get back into change and protecting the status quo. So yeah, I was married 51 years. That's the only where retention is important. But based on how long it's been since you last bought parts from me or since you last used my labor and how big the transaction was gives me about a 5% accuracy on future events. Right. So if if the month of July, these people are supposed to have this much labor, this much parts, etc., if at the end of July they didn't do it, I want somebody to call them.

SPEAKER_00 47:03

Yep, exactly. Why not? What's going on? Hey, you know, yeah. What can we, you know, how's your business? And yeah, you know, how can we be a better partner? And certainly what's going on with this machine, and you know, we you know, we didn't we're expecting to hear you, hear, hear from you about uh, you know, uh transmission fluid change, and we didn't hear you. And uh, you know, what how can we help?

SPEAKER_02 47:26

There was a long period of time when I was a service manager, which is not my forte, I promise you. They were happy when I left. I actually put on coveralls and worked on the floor with the guys until the mechanic said, You better go in the office, you're screwing things up to too too many things here. But we were the first ones to hire a woman mechanic. And the problem I had was I needed a separate washroom. You know, silly things. We had we stopped the mechanics, we had a big shop. I I'm trying to remember 30 or 40 bays in a U shape, and the guys were walking to the parts department. It would take them 15 minutes to get there. So we put order stations in. I mean, no I'm talking in the 70s here, 1970s, just for the record. And and they would phone into the parts department. We had three ladies answering 150 mechanics on the phone, and the first thing that was obvious is the swearing stop. Stupid, right? Oh, Jesus. It it it's amazing. So here we are today. We have data that will tell us life cycle analysis. I know from the time the machine is born till the time it goes to a scrapyard, what the rate of consumption is by hour based on application, so it's not quite easy, but it's doable.

Lifecycle Data And Optimal Trade Timing

SPEAKER_02 48:50

Number of people that do that? 0.1 or something percent. It's it's tiny.

SPEAKER_01 48:57

Yeah.

SPEAKER_02 48:57

But you get to doing that, then the thing that becomes important, here comes the rental business now. When's the optimal time to trade that machine and get the highest used value for it? Because now that's a different mindset, too. Yeah.

SPEAKER_00 49:14

Yeah. It would be, I mean, I think that you know, the it excites me about the industry too, because I think the entire engagement model that the equipment industry has with its customers can change. Um, from one of, you know, transactional to one of uh of you know uh recurring, ongoing relationship-based. Like, let me be your productivity partner as opposed to let me sell equipment to you. Um and at a when you're a productivity partner, then I think the mindset changes. Yeah, it's like, okay, you might let's buy equipment, but then let's keep that running as effectively and efficiently as we possibly can. And let's also look at your ancillary needs and you know, whatever as those develop, because as the ancillary needs develop, we can maybe sell you more equipment. Oh, but there might be a better, it might, you might be better off renting equipment. And so I'm a productivity partner with my customer when I'm really helping them solve their problems. Right. Uh, you know, when I'm when I'm less about, you know, I want to sell them more equipment, I want to, but I want to help them dig more ditches, is what I basically want to do.

SPEAKER_02 50:32

That that I I want to be the prov provider of the tool that allows them to dig the hole, make a mile, whatever the hell it is. So you look after that side, I'll look after what do you need in the way of tooling? How many people, how many miles, how many holes, blah, blah, blah, how many acres?

SPEAKER_00 50:49

How how can I help you dig more ditches with what you have? Is it going to be equipment? Is it keeping your equipment running? Is it training your operators? Um, do you need rental because you have a new job and you don't have capacity for it right now? And you want to be able to do something for that job? I think that's that those when asking those questions is when I think that there's a there's a such a significant opportunity for the industry to engage with their customers.

SPEAKER_02 51:18

The the yeah, you you're you're absolutely right. We have farmers in Saskatchewan. They're religious uh sex. So it's all one big family. And they're huge farms, 100,000, 200,000, 500,000 acres. No joke, they're huge. They don't own equipment. They buy a machine for harvest, they buy a machine for planting, when the service is over, when the harvest is complete, they give the machine back to the dealer. And and you think, well, wait a second. But and and again, I've worked with that dealer and and they're incredibly successful, and they're all farmers that own it. And John Deere has a test system going up there. But every single machine, and this is because of the currency, etc., there's a whole bunch of factors involved in this. So the season's over for harvest. And all those machines are in the States being sold as used. Low hour, what do you think my used price is? Hellishly good. Yeah, really good. And in the harvest, they're gonna have two or three extra machines, so they don't worry about downtime. Yeah. Get out of the way. So my father, he was a bull of a guy back in the 30s. He ran harvest gangs in the fields where they would use thighs and mules. So he had the it's the guy with the biggest back that had, you know, the the biggest job. And holy mackerel, I don't know how the hell you do it. So they lived till they were 50, 55, and they died young. If you look at lexication, now I was reading something today. I'm my generation, people born in 46, they're supposed to be dead already. The average death is 73. Well, I'm 80. And and I'm not expecting to leave here soon. So this whole thing is changing, Matt, in every direction of our lives.

unknown 53:19

Yeah.

SPEAKER_00 53:20

You don't look at Day over 55, by the way.

SPEAKER_02 53:23

Oh, come on. I thought it was 47.

SPEAKER_00 53:27

Hey, Ron, we could go on. I don't know what I like about you is we go I would go on talking for forever and ever, but I'm just looking at the time and I need to. I need to head off to my next thing here.

SPEAKER_02 53:36

But I agree with you, and thank you for reminding me. I've I've been looking at the the clock too. How would you summarize this? Give me a rap.

SPEAKER_00 53:46

Well, I I mean the wrap is uh it's uh I mean there's in the world right now, we are faced with more change than I ever have experienced in all of my

Leadership Owns Change And Failing Fast

SPEAKER_00 54:00

life. And I told myself I would never say that, and here I am saying it. Um it is it is so unbelievably uh fast moving um and and chaotic, let's be honest. Uh I think um uh uh it is enough with a premium uh on all of us on and on leadership. Uh the way I would uh I would leave things is um, especially when it comes to technical change, is um I think the the the actual uh leadership for that change needs to can't be can't be delegated, um especially not at the level that we're we're talking about now with the latest uh technologies. And so owners of businesses, CEOs of businesses, presidents of businesses are are the ones who have got to who have got to be you know be convincing their organization that it's the that this this needs to happen. But once that convincing is done, the best thing to do is get out of the way, as uh is really the let the team kind of flourish and kind of find the right answers. Um so that's what I'm saying.

SPEAKER_02 55:08

Let me let me add one other thing. Don't be afraid to fail.

unknown 55:11

Yeah.

SPEAKER_02 55:12

Elon Musk is the best example. His SpaceX, the first three were disasters, and he was almost at bankruptcy. But he designs things to fail quickly, and the trick with that is recognize that it isn't working, fix it now. Right, right. If you do that, you'll succeed. As usual, thank you very much. It's been an interesting discussion. I hope everybody out there enjoyed this and and um think about it. The podcast will be up probably in the next week. Listen to it again. Uh, there's a lot here. So, Matt, thank you very much, and everybody listening, thank you very much. I look forward to all of us being together at the next kind of conversation, Mahalo.