Learning from Jack Taylor’s Enterprise-Rent-A-Car

“Enterprise is akin to a franchise operation in the way it has structured its global business, with one headquarters at the top and hundreds of small self-run businesses below. Unlike a traditional franchise, however, the employees charged with operating these branches are not required to put up any kind of upfront investment. Like a franchise, however, the ‘owner-operators’ are paid based on profitability of their individual units. ‘I like to think of all these groups as subsidiaries of the parent,’ says COO Pam Nicholson. ‘As we continue to grow, we break our operations into new groups. Even though we’re a big company, we like to run it as a small business, giving managers the autonomy to make decisions that are close to home.” Kirk Karzanjian

“I saw the power of our business model of having this highly incentivised confederation of branches with a common set of values and getting things done as small teams. I was sold right away on the fact that this could become a national – and perhaps even – a global company.” Andy Taylor

Maintaining Smallness

“The branch office network at Enterprise Rent-A-Car obviously reflects Andy Taylor’s belief in small teams with local leadership. His company consists of more than 4,400 of these teams, a number that is expanding at the rate of nearly one a day. One decision did get made at headquarters, however. Whenever an Enterprise branch grows to a specified size (usually between 100 and 200 cars), it is split in two and a new branch manager is appointed to the new location. Branch managers who successfully grow their branch receive favourable consideration for the next promotion; rather than bemoaning their loss of revenue, therefore, they continue to expand their business as rapidly as possible. Even in new airport locations, which are larger than the existing home market locations, Taylor keeps branches much smaller than those of the competition.” Fred Reichheld

“The drive toward simplicity is evident across the board at Enterprise. Whenever a promising new business opportunity comes along, it is quickly spun out as an independent entity. For example, Enterprise’s used-car sales business was split apart from the rental branch system in its infancy, its management and profit-and-loss accounting kept separate from the start. This way no manager has to choose between growing used-car sales and growing the core rental business; there is a separate manager to focus on each mission. This approach provides more entrepreneurial incentive and enables the rapid growth of new businesses without sapping the strength of the core rental business.” Fred Reichheld

“By assigning the used-car business to a separate set of management teams, Enterprise has created many additional management opportunities for its workforce. The energy and creativity of these separate teams have helped build Enterprise into the largest seller of used cars in the United States, without draining energy from the expansion of the core rental business, which continues to grow and divide at rates more commonly observed in petri dishes than in the car rental industry.” Fred Reichheld

“Enterprise’s operating structure consists of groups, regions, areas, branches. The ‘group’ is managed by a general manager, who overseas the ‘region,’ ‘areas,’ and ‘branches’ underneath. Each group is like a mini division of the entire company, with its own rental, human resources, accounting, and remarketing operations.” Kirk Kazanjian

Loyalty, Repeat Business & ‘Word of Mouth’

“At Enterprise, loyalty is everything. If we don’t satisfy customers so that they will come back, we can’t build the business. If we don’t have happy, well-informed employees who feel bonded with the company’s success we won’t deliver the kind of excellent service that satisfied customers. Loyalty has been the key to Enterprise’s success.” Andy Taylor

“Repeat customers are the quickest way to build a solid business.” Jack Taylor

“Enterprise’s commitment to winning repeat business is what largely differentiates the company from the rest of the rental car industry.” Kirk Kazanjian

“Offering to resolve problems the moment they are brought up can frequently transform an unhappy customer into one that is completely satisfied. It can also turn someone who never wants to do business with you again into a loyal fan.” Kirk Kazanjian

“The company was built gradually, customer by customer, with heavy emphasis on building relationships and generating both repeat business and word-of-mouth referrals.” Stan Burns

Exceed Customer Expectations

“Put customers first and employees second, and profit will take care of itself.” Jack Taylor

“Over the years, Enterprise has learned that there are six primary reasons people will stop doing business with you. The biggest reason: 68 percent go elsewhere because of the poor way they were treated by employees of the company. Successful retention, therefore, means building personal relationships with customers with the goal of keeping them for life.” Kirk Kazanjian

“At Enterprise, having “satisfied” customers isn’t enough. When you exceed people’s expectations and bring them to the “completely satisfied” category, they are at least 70 percent more likely to do business with you again.” Kirk Kazanjian

“Enterprise knows it must make a valiant effort to bring customers to that top-level [satisfaction] box, since the cost of not doing so is so great. ‘We don’t see top-box customer satisfaction as an extravagance,’ Andy Taylor adds. ‘Rather, it’s the cornerstone of our business model.’ Kirk Kazanjian

“Enterprise-Rent-A-Car proved by tracking both survey results and subsequent behaviour that completely satisfied customers are three times more likely to do business with you again than those who are somewhat satisfied.” Kirk Kazanjian

“Enterprise found that people were just as interested in good service in Europe as they were everywhere else. After all, good customer service knows no boundaries” Kirk Kazanjian

“Every [Enterprise-Rent-A-Car] branch is even required to commit part of its operating budget to writing off losses involved with making whatever amends are necessary to keep a customer happy. It’s what known as the customer satisfaction account. From the day they hit the counter at the branch, our people have the ability to give away something if they need to without getting any additional approval.” Kirk Kazanjian

“The most successful leaders walk in every morning asking, “How happy are our customers and what can I do to help?” In addition, they hire smart people and allow managers and employees in the branches to fix problems on the spot. In other words, they give each individual the power to make things right with the customer.” Kirk Kazanjian

“When you think about it, we’re actually not in the car rental business at all. We’re in the customer satisfaction business. And that’s a trait we have in common with every successful service company, large or small.” Andy Taylor

“The key contributor to the company’s success with the insurance industry is that Enterprise is not just a rental car company. “We provide solutions and reduce the costs associated with the rental process,” Andy Taylor says. “We offer a sophisticated value proposition to our customers in what is otherwise a commodity-driven business.” Kirk Kazanjian

Business is People

“People are the critical factor in making our business succeed.”

“It’s the people that make any organisation a wonderful, service oriented company.” Kirk Kazanjian

Value, Reward & Empower Employees

“New hires at Enterprise start at pay levels 25 to 50 percent higher than those of the competition, levels that can grow at 20 percent annually for strong performers.” Frederick Reichheld

“If you are successful at Enterprise, you will be paid more than the competition could ever think about giving you.” Andy Taylor

“If I give someone a piece of the action or a bonus based on profits, they are going to do a better job everytime.” Jack Taylor

“A major difference between Enterprise and our competitors is that their business is cars and ours is people. They focus on building their fleet of cars; we focus on building our employees’ careers.” Andy Taylor

“Enterprise’s unique structure of giving entrepreneurial freedom and sharing profits with employees has created incredible worker loyalty, fostered innovation and produced impressive results. What the company has learned over the years is that happy employees make for happy customers.” Kirk Kazanjian

“Few do as much as Enterprise to truly allow employees to behave like and be compensated as owners. This feeling of entrepreneurship spurs everyone at the company to perform at their highest potential every day. And while the approach and incentives Enterprise uses might appear on the surface to be more costly than necessary, the company’s innovative pay-for-performance plan is really what has made it so successful for such a long time.” Kirk Kazanjian

“Employees reaching the assistant manager level begin to receive both a base salary and a cut of the profits from the business. Indeed, Enterprise pays out almost 40 percent of all company profits to employees. While most companies see the payroll as a drag on the bottom line, Enterprise has always thrived on spreading the wealth.” Kirk Kazanjian

“At most companies, people are always looking up on high and asking, ‘What do you want me to do?’ We take another path. We look at our people and say, “Do the right thing for your customers and your teams.’ We let them figure it out.” Andy Taylor

Uncapped Earnings

“There’s no such thing as our people making too much money in our book. Employees making lots of money are legend at Enterprise because of our structure, but the company’s own profitability has grown in line with this.” Doug Brown

“Some people in the company make more than $1 million a year. Does it bother me that we’re paying so much? No. I think it’s wonderful, because in order for them to get that $1 million, if they are on a 10% bonus plan, they’ve got to be generating $10 million for the business.” Jack Taylor

“Let’s say you make $100,000 for the business and I give you 10% of that as a bonus, or $10,000. By that logic, if you make us $1 million, you get $100,000. Would I rather have you make the extra $10,000 or $100,000? It’s obvious. I’d much rather pay you $100,000. The more you make, the more the business makes. Why wouldn’t I want that to happen?” Jack Taylor

Don’t Change the Goalposts

“Once you strike a deal with employees, don’t break it for any reason. In a well-structured pay-for-performance system, revel in paying big bonuses to workers.” Kirk Kazanjian 

“We believe a deal is a deal. You’re helping us drive this success. Therefore, we’re going to compensate you like we said we would five or ten years ago, on the same percentage.” Andy Taylor

Business Owners

“Business owners care more about the performance and longevity of their company than anyone else. After all, their livelihoods, reputations, and futures depend on the operations success. Few do as much as Enterprise to truly allow employees to behave and be compensated as owners.” Kirk Kazanjian

Separate Profit Centre

“Each branch, though company-owned, is a separate profit centre, structured to operate as an independent, entrepreneurial business. This structure, which Taylor calls a ‘Confederation of Partnerships’, simplifies the management of growth, and he acknowledges it as the most critical feature of his ongoing strategy. It does more than enable rapid growth and the flexibility to make rapid changes. It also provides better career development opportunity for employees, who get to run their own businesses much earlier in their careers than in most other companies. Branch managers are responsible for several million dollars’ worth of assets. The high level of financial responsibility creates more rewarding jobs for them and keeps them focused on maximizing fleet utilization. Taylor believes that individual accountability is the basis for a good partnership, and his small, independent branch structure makes it impossible for managers to miss either subpar or outstanding performance.” Frederick Reichheld

“A few areas of the business are coordinated at the national level, such as marketing and corporate communications, to ensure the brand is consistently presented across the organisation. Otherwise, the groups are allowed to operate independently down to manging their own profit and loss statements.” Kirk Kazanjian

“Branches, groups, and regions are all responsible for their own expenses. Since compensation is based on profitability, there’s a lot of pressure to keep budgets under control.” Kirk Kazanjian

Transparency and Internal Competition

“Enterprise openly shares the financial results and customer satisfaction scores of every branch office and every region. As a result, everybody can compare results and see which branches have developed winning practices, such as a van driver’s practice of offering free soft drinks to customers during summer months and an assistant manager’s allowing customers to return rental cars after hours. Because the compensation of branch and assistant branch managers is based on their branch’s profits, the managers are eager to learn from their peers. Friendly rivalries are encouraged, and it is not unusual to see competing branches wager a dinner on monthly profit reports. Every employee is motivated to find innovative ways to increase customer retention and referrals in order to build enduring relationships with the right kind of customers.” Frederick Reichheld

Innovation and Accept Mistakes

“Enterprise’s ownership structure gives employees the freedom to try new things – and make mistakes. At many companies, employees often feel their jobs may be in jeopardy if they try something new that fails to take off as expected. Enterprise executives realise that mistakes lead to opportunities. Employees are encouraged to continually try new things, even at the risk of what may be perceived to be failure.” Kirk Kazanjian

“You don’t want to make anyone accountable by telling them their jobs are on the line for taking these risks [trying new things]. If you do that, they’ll never try anything new. Taking risk is part and parcel of being successful.” Andy Taylor

Managing Risk

“Before doing anything, I’d ask, ‘What is the downside risk? How badly can we be hurt? If it goes bad, can we digest the loss without it affecting our future? If we determined we could survive it, and it was something I or others thought was a worthwhile venture, we’d go for it.” Jack Taylor

Start at the Bottom – ‘Promote-from-Within’

“At Enterprise, leaders look to hire people who can grow into general managers, people who within just a few years will essentially be running their own business at a branch office. This career track is appropriately compared to a real-world M.B.A. Everyone starts at the bottom, but no one is treated as a mere underling. All branch employees are accorded dignity and respect; they are expected to dress professionally, and they are paid as professionals.” Fred Reichheld

“Enterprise’s ‘work your way up’ and ‘promote from within’ policy assures that every field employee at all levels has been fully immersed in the company’s culture and way of doing business. Beginning on day one, new hires are thoroughly schooled on the ins and outs of exceeding customer expectations.” Kirk Kazanjian

“Every field management position gets filled from within. General managers are never recruited straight in from the outside world. Each of Enterprise’s top executives started at the very bottom, learning what it takes to please a customer, one transaction at a time.” Kirk Kazanjian

Long Term

“Above all when it comes to growth, Enteprise believe in running its business like a marathon, not a 100-yard dash. ‘All business experiences ups and downs,’ Andy Taylor says. ‘Those that focus on the long term, instead of temporary setbacks, will be more successful in the end.’” Kirk Kirzanjian

Embrace Technology

“[Enterprise] is an acknowledged leader in electronic commerce, noted particularly for its development of advanced technology that allows insurance companies to authorize reservations and billings electronically.” Frederick Reichheld

“Enterprise has long been a pioneer in the use of technology to enhance its operations and improve the overall customer experience. The company discovered long ago that no matter how good your product or service, without the smart use of technology, you’ll lose out on the opportunity to make it easy and cost-effective for customers to do business with you.” Kirk Kazanjian

“Above all, technology should be used as a way to drive customer service.. Technology for its own sake is irrelevant. It only matters if it is solving a business problem, resolving a customer service issue, or creating a competitive advantage.” Kirk Kazanjian

Focus

“One of the biggest factors in our success has been our ability to say no to opportunities that would pull us off track.” Andy Taylor

“For decades Enterprise Rent-A-Car resisted the temptation to diversify and remained strategically focused on the home rental market.” Frederick Reichheld

Golden Rule

“Jack Taylor has built a team of people who share a common foundation in the business principle he lives by – treat others as you would like to be treated.” Stan Burns

Hiring, Diversity & Training

“Since personal skills are so crucial in building good relationships, Enterprise values EQ—emotional intelligence—at least as highly as IQ in recruiting employees.” Frederick Reichheld

“Most important, you must be surrounded by good people.” Andy Taylor

“We look for common traits in all of our people: hard work and entrepreneurship. That’s what breeds success.” Pam Nicholson

“Enterprise isn’t looking simply to hire counter clerks to check out cars. The company wants each employee to move up the leadership ladder.”Kirk Kazanjian

“For most employees, their job at Enterprise is their first full-time job. Rarely are people hired from other companies (those that are hired from elsewhere, come to Enterprise to perform jobs that require a specialized background.)” Stan Burns

“The Enterprise team only knows the Enterprise way, and only a few have had exposure to the cultures of other corporations. They have never experienced a layoff (Enterprise has never had a ‘downsizing.’)” Stan Burns

“For most new hires, primary training lasts about eight months.” Kirk Kazanjian

“Enterprise-Rent-A-Car hires very few degreed MBAs, because it likes to teach the fundamentals of running a business The Enterprise Way, rather than attempting to have candidates relearn what they’ve been taught in school.” Kirk Kazanjian

“The management trainee position represents a unique career trajectory that can literally take an employee from the ground floor to the executive suite in a matter of years.” Kirk Kazanjian

Local Focus

“The objective is to create a workforce in every market that mirrors the diversity of the local community. ‘We don’t set quotas, we say ‘Reflect your local market.’ We want our people who speak the same language, literally and figuratively, as our customers.” Kirk Kazanjian

“Enterprise grew rapidly in Canada, and the managers worked hard to minimize its image as a big, U.S.-based company. Just as Don Ross had done 20 years earlier in Kansas City, the Canadian managers bought cars locally, banked locally, hired locally and participated fully in the life of the community, to demonstrate their local commitment. They drew on Enterprise’s knowledge and resources, but theirs was a local presence in the towns and cities of Canada. They immersed themselves in the civic affairs of the towns where they lived and worked.”

“Today 90 percent of the U.S. population lives within fifteen miles of an Enterprise Rent-A-Car branch. Andy Taylor learned long ago the value of organizing his business into small, stable teams with maximum responsibility, flexibility, and accountability. Enterprise can deliver superior service at a profit because employees at each branch have free rein to make the decisions that affect their own customers and the profitability of their unique branch. Although headquarters has initiated important systemwide technology upgrades, Enterprise relies primarily on local initiatives for service and cost improvements.” Frederick Reichheld

Appearances

“Dress for success. While fellow salesmen dressed in loud casual wear, Jack Taylor made sure his people always presented a professional appearance, closer to that of bankers. As research later revealed, professionally dressed employees put the customer at ease.” Kirk Kazanjian

“For Enterprise the dress code is deeply linked with the company’s history and culture. In the 1950’s Jack had learned that one of the best ways to differentiate himself and his people from the competition was to look different. “If we look different, we’ll act different. I want these people to look like bankers when the customers walk in.” Jack was emphatic from the earliest days and he reminded anyone who deviated from the proper style of dress – that appearance does matter.” Stan Burns

Keep it Simple

“Make no mistake, the rental car business isn’t rocket science. As the folks at Enterprise will readily admit, in some ways the company’s meteoric rise is testament to the KISS adage – keep it simple, stupid. The company’s core operating principles are built on the bedrock business values first laid out by Jack Taylor and now carried on by his son, Andy.” Kirk Kazanjian

Headquarters to Serve

“There is a tendency for managers at headquarters to take things away from the field organisation as we get bigger. But I have always resisted that. We should only do things in St. Louis that the branches can’t even come close to doing as well. We believe and preach that the best ideas come from the field dealing directly with customers. The real job of headquarters is to help the branches be the very best that they can be. Outside of our information technology staff, which we consider a strategic weapon, we have a very small group of people here at headquarters.” Andy Taylor

“Enterprise-Rent-A-Car actually has a very small headquarters considering the size of the company. Very little of what [Enterprise] do is centralised to headquarters.” Kirk Kazanjian

“I regard our headquarters as a massive switching station of ideas.” Andy Taylor

Sensible Growth

“Company officers admit they have the financial muscle to grow more quickly, but they want to use the expansion of this business to reward those working their way up in the company instead of bringing in managers from the outside to develop the business as fast as possible.” Kirk Kazanjian

“Expanding too fast can negatively impact customer satisfaction, which spreads everywhere and causes reputation problems.” Andy Taylor

“Keep growth under control. Although it all turned out well in the end, Andy Taylor admits that the company’s confidence caused it to overexpand in the early 1980s. “We were growing revenues more than 30 percent a year and sometimes got a little ahead of ourselves,” he says. “We put some people into positions where they couldn’t succeed and opened branches in the wrong places.” Kirk Kazanjian

“Experts estimate that Enterprise is the most profitable firm in its industry, so profitable that its rapid growth is funded through internally generated cash flow and privately placed debt. Despite the investment surge required to launch it to the top of the industry, Enterprise’s profitability has enabled it to remain a privately held company.” Frederick Reichheld

Acquisitions

“To date, we’ve made a decision to stick to our ‘organic growth’ model. We’ve decided against growing by acquisition. To this day, when we enter a new market or launch a new line of business, we take a ‘greenfield’ approach and build it from scratch. That’s the only way to ensure that our new ventures remain true to Enterprise’s culture and heritage.” Andy Taylor [2007]

Privately Owned

“We as a family have agreed that we want the company to remain privately owned by the Taylor family, with all generations involved in managing it. This gives us a huge competitive advantage. We don’t have outside shareholders and are therefore able to run Enterprise in the best way we see fit.”

“Our family-owned structure allowed us to take a long-term view of serving the customer first.” Andy Taylor

Wrong Incentives

“Jack and Andy Taylor have learned that paying on profits alone is not wise, because some employees will take shortcuts that boost current earnings but diminish the assets needed to boost future profits. Pure profit incentives need to be balanced with incentives to build long-term assets such as customer and employee loyalty.” Fred Reichheld

Summary

From its inception, Jack Taylor laid a strong foundation by identifying a unique market niche, assembling a team of exceptional individuals, sharing the business’s success, fostering innovation at all levels, and nurturing a culture of exceeding customer expectations, which enabled Enterprise to expand its operations worldwide.

The fact that a family-owned business has achieved such dominance in an industry largely dominated by large global corporations is remarkable. Despite the absence of external capital, Enterprise’s exceptional long-term growth remained unhindered. The advantage of family ownership allowed them to adopt a strategic, long-term approach, sometimes prioritizing customer satisfaction over short-term gains, thereby ensuring sustained success. Warren Buffett eloquently encapsulates this sentiment, stating:

“Jack Taylor didn’t invent artificial intelligence, he didn’t do anything that anyone of us couldn’t do. We could have entered this business. But Jack Taylor lived by the creed of delighting his customers and working with his people, establishing a relationship with them, so they, in turn, would want to delight the customers. He couldn’t take care of every rental car, but he learned how to project himself and his attitude to his fellow man and the desire to make a friend out of every customer. He managed to take very ordinary cars and turn them into this extraordinary business from virtually nothing.” – Warren Buffett

“Jack Taylor didn’t worry about whether the Federal Reserve was going to tighten or ease, or whether the stock market was up or down yesterday. He didn’t worry about the things he couldn’t change, but he did focus on the one thing he could change, and that was the customer’s experience.” – Warren Buffett

Identifying a few business success stories like Enterprise Rent-A-Car can greatly contribute to the success of one’s investment portfolio. Little wonder that Warren Buffett was eager to include it in Berkshire’s stable of investments.