Operations

When Does Starting A Secondary Company Make Sense?

Posted on January 13, 2014 by Danny Bacher

Atlanta operator Danny Bacher, a member of LCT Fast 40, explains the pros and cons of starting secondary fleet businesses.
Atlanta operator Danny Bacher, a member of LCT Fast 40, explains the pros and cons of starting secondary fleet businesses.

Many company owners are looking for ways to supplement their incomes. Starting a second business, one that complements the first, is a great option. In our industry, there are a variety of different options for a second business; Tiered services, Go Shuttle or Super Shuttle contracts, taxi services, car washes, gas stations, towing companies, etc.

Tiered services, Go Shuttle/Super Shuttle contracts and taxi services are among the most common. But if not done properly, starting a second business can cannibalize your main business and detract from your brand’s value.

When considering a secondary business, a complementary one is usually the easiest place to begin — the low-hanging fruit. You already know the landscape.

Most likely, you can use staff and vehicles from your business. Most importantly, you may be able to tap your clients for your new business venture. As attractive as this may seem, if not executed properly, you will be left with two failed businesses rather than the one successful business you started with.

Taxi Service
Pros: Potential to market to existing clientele; use existing mechanics and detailers; can crossover employees (dispatchers and CSRs) as volume fluctuates; use the same accounting employee/bookkeeper.
Cons: Permits may not be available in certain markets; permits that are available may be extremely expensive.

Tiered Services
Pros: Market to the existing clientele; use existing infrastructure (brands must be kept separate); better use of fleet; “second life” for fleet vehicles.
Cons: Clients may think less of brand with lower-tiered service; clients may ask for lower-tiered pricing but with premium service (cannibalization of brand); hard to find partners to cover overflow or out of area work at tiered pricing.

Contract Shuttles
(Go Shuttle or Super Shuttle)
Pros: Market to existing clientele; use existing infrastructure; better use of fleet; “second life” for certain fleet vehicles.
Cons: Most contracts require 24/7 service; chauffeurs on stand-by 24 hours a day; will need to change the makeup of your fleet to handle contracted shuttles.

As the owner of a luxury ground transportation company, you need to decide if you have enough time and resources to open a second company. This industry is labor intensive and a lot of that labor and hours fall on the shoulders of the owner(s) of the company.

I think you need to be a larger business with a minimum of $3 million to $5 million per year in gross revenues to even consider opening a second company. If your day-to-day business runs itself and does not need you, then you are a perfect candidate to start diversifying your business portfolio. If you spread yourself too thin, not only will your new business not succeed, but you will end up hurting your existing business. All the time and money you spend on the new business is time and money not spent, or sucked out of, your existing business.

If you conclude that starting a secondary business sounds like a good idea, remember to keep the brands completely separate. After speaking with owners who have multiple companies of varying levels of success, I can say that a failure to separate businesses is the biggest error an owner can make. It will cost you your existing business if you are not careful.

As entrepreneurs, you always have to be looking for the next opportunity. An actual industry example: A company holds the luxury transportation contract with a hotel. The hotel also has a taxi/curbside contract. When that contract was up for renewal, the company that held the luxury transportation contract was asked to bid on the curbside contract, but with significantly lower rates. The company decided to introduce a lower tiered service that allowed them to control all of the ground transportation contracts for that hotel. It was awarded the curbside contract. This company did not go out looking for this contract, but their existing client came and asked them to create a service to fill the niche.

Guest columnist Danny Bacher is the CEO of Topper Worldwide in Atlanta and a member of the LCT Fast 40. He can be reached at [email protected]

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