Key success factors part 1 ($TA)
Good due diligence is not just hard work; it is also disciplined thinking. Piles of papers and megabytes of data are not worth their ink, or USBs, if they do not drive to a decision. And after a decision is made, good due diligence should also simplify the torment of when to call, check, raise or fold .
I am of the opinion that most businesses can be simplified to a few success factors that can help on both accounts. Not that other variables are not important or that you have to be prepared for the unexpected. But time is limited and 80/20 thinking can help to rapidly screen ideas and follow-up on them.
Let’s use as an example TravelCenters of America-TA. It operates and franchises truckstops along the U.S. interstate highway system. Customers include long haul trucking fleets and their drivers, independent truck drivers and motorists. Each truckstop has diesel and gasoline fueling stations, parking, a truck repair store, a c-store, a restaurant, fast food chains, and other services (showers, bathroom, game room,….). Simple and well known retail business. So what are some its characteristics
- landowners extract in rent most of the advantages of a good location
- fuel is a loss leader to attract clients and with very few purchasing power advantages given that it is also a commodity
- high fixed costs mainly rent and/or depreciation
- related services are in decline (i.e.: restaurant, game room, telephone)
- a simple and easy retail operation is also easy to copy
Nice business hu? The next step is more difficult and requires lots of reading and experience. You have to distill how this business makes money.
In this specific example, we found than external factors are more important than internal factors -short of management ineptitude or unmanageable leverage. I would say that TA lives or dies on volume and fuel margins. In other words, the state of the economy and rational competition neither of both much under management control. In the next post we are going to discuss how the industry and TravelCenters measure on both accounts.
Disclosure: long TA