Major acquisitions come with execution risk and that’s particularly true when they involve assets that are located in an unfamiliar market. But Brent Hesje, the CEO of Fountain Tire, doesn’t sound too worried about the deal his company struck recently with Royal Tire. In exchange for taking a 50 per cent equity stake in Royal’s nine northern Ontario stores, Fountain Tire will receive half of their future revenues. Why only a 50 per cent stake? “Going into Ontario can be a really difficult move for a company like ours that’s based in Western Canada,” Hesje says, “but when we know the leaders of that business [Royal Tire] that own 50 per cent are down in the community, it really takes the risk out of it.”
IT’S ALSO THE WAY FOUNTAIN TIRE HAS DONE BUSINESS SINCE the company got started out of a double-bay garage in Wainwright, Alberta, in 1956. Founder Bill Fountain saw his community’s best and brightest leaving for Calgary and Edmonton, and he wanted to give those who wanted to stay in Wainwright a good reason to do so – and help keep his rural community strong in the process. A 50 per cent equity stake in the business seemed to him like a fair incentive, and ever since then the company’s growth has been informed by this so-called 50-50 model. Managers at new stores – who are often long-standing Fountain Tire employees from another existing location – are given the chance to show they can run a profitable business and meet the needs of their customers. If they can, they get half of the profits that are generated by the franchise.
This unique arrangement has helped the company grow from the garage in Wainwright to 148 locations across Western Canada. Equally important, Hesje says, is the way it has encouraged loyalty on the part of both its existing managers and employees who have an eye to being promoted in the future. That loyalty has proven to be particularly valuable to Fountain Tire in times when the competition for skilled talent in Alberta heats up, as it seems to be doing again right now. “Northern Alberta is a real challenge when it comes to retaining leadership, but in our case we haven’t had a problem with that,” Hesje says. “There’s the right incentive there, and the right kind of reward. We also share our losses, and we share in the risks and the headaches and everything else, but we share in it equally.”
If there’s a downside to Fountain Tire’s partnership-driven business model, it’s that it can get in the way of some growth opportunities. Not every partnership opportunity pans out, and the ones that do take time to consummate. The Royal Tire deal, for example, was the product of a few years’ worth of discussions. “We had been talking with this group for a couple of years, making sure we had a cultural fit in order to partner with the people who would stay,” Hesje says. “But finding people that really believe that 50-50 is what it is – 50-50 – takes a little time and getting to know each other. You’re really looking for that cultural match first.”
In fact, it was Fountain Tire’s belief in the 50-50 ownership structure that attracted Hesje, who is turning 50 himself this September, to the business in the first place. After graduating from the University of Saskatchewan in 1985, he took a job with Procter & Gamble in the Maritimes. Before long he was lured to Fountain Tire by his uncle, Brian Hesje, who would go on to be company CEO. The company was in the early stages of discussing a potential partnership with Goodyear Canada, but Goodyear had expressed concern that Fountain Tire’s corporate leadership was light on the kind of marketing expertise needed to make the deal work. Hesje was brought on board to fill that gap, and in 1988 the deal with Goodyear Canada (one that saw it trade a 49 per cent equity stake in exchange for exclusive access to the Goodyear brand and its products) was consummated.
For Hesje, Fountain Tire’s unique culture made good business sense from the very beginning. “I thought, ‘There’s a company that’s structured to have the real heroes be rewarded,’ ” he says. That structure, in turn, encourages store owners like Lloydminster’s Brant Wheeler to take a material interest in the success of the business. “From the store side of things you’ve got a manager who’s got skin in the game,” Wheeler says. “It’s your baby.”
Wheeler and his fellow store owners get a lot of help from Fountain Tire in raising their babies, too. The company deliberately runs the corporate side of its business – the administrative support, supply-chain management and other company-wide functions – on a break-even basis, which sets it apart from other businesses that might be tempted to treat their locations as ATMs. “They rely on the profit from the stores,” Wheeler says, “so they know how important it is that we do well.”
Fountain Tire continues to explore potential partnerships, and with a pilot store in Vaughan, Ontario, it has its eyes clearly set on expanding deeper into that province’s lucrative market. But Hesje says that despite adding a new company-wide computer system that can handle up to 500 stores, he’s not looking to add new locations just for the sake of it. “We’re not hell-bent on the 500,” he says. “We’re more focused on finding the right partners. But we’re ready – we have the computer infrastructure and we have the supply chain set up to supply more stores.” That approach also means he’s not willing to leave any of Fountain Tire’s existing locations behind as the company moves forward. “If we have 150 stores and two aren’t making a profit, we have to be concerned about that until they’re all making a profit. That means we don’t grow for the sake of growth. We want to make sure that all corners of the business are healthy.”