Kevin S. Kan, President and CEO, American Auto Wash, Inc.

From the Ground Up

Kevin S. Kan, President and CEO, American Auto Wash, Inc.

Kevin KanWhen Kevin Kan started with American Auto Wash in September 1999, he decided to learn the business from the ground up.

“The first year I didn’t have an official role,” he told me, “because I was coming from an executive position in a Fortune 500 company to a family-owned, retail business, something I had no experience with. I wasn’t sure if this was a business I would enjoy or whether I wanted to invest in it.

“So I decided to run one of the company’s sites, in Coatesville, Pa. I worked there as the manager for six months. I didn’t pump gas, because it’s self-service, but I worked on the line, washed cars, scrubbed wheels. Before committing myself to the company, I wanted to find out how the business ran and how they made their money. Otherwise, I couldn’t effectively run the company.”

By washing cars, Kevin learned how the business operated on the most basic levels, an experience that helps him to this day.

“I understand what our managers go through. I understand the difficulties of the hiring process. I understand the difficulties of training and maintaining quality services. When I tell my managers I want things to be done a certain way and they complain, I can say, ‘I’ve been there. I know it’s hard, but I know we can do it.’ I can speak with authority because I’ve had the same experience.”

From that start, Kan took on more responsibility. He became the de facto president, and in January 2003 acquired a substantial part of the company and assumed the position of CEO.

American Auto Wash, started in 1969 with one combined gas station and car wash, now operates 15 gas stations and 18 full service car washes in Philadelphia and four surrounding counties, employing over 300 people. The company is also a distributor for BP and operates a real estate business. Revenues were about $80 million in 2008.

What does Kan see as the fundamental building blocks of leadership?

“First and foremost, you have to be tough but fair. I have a reputation of being extremely strict, extremely tough. My staff knows that when I say we’re meeting at 2 p.m., it means 2:00 and not 2:05 or 2:10. It’s very important that your employees understand the standards you want. They have to know exactly what kind of person you are and what you expect of them.

“I don’t want to be an employee’s buddy or friend. I don’t believe that works. I think it confuses your employees, your subordinates. We can have friendly conversations, but first and foremost they’re my employees. They all know that, and that’s the one thing I know they all know. More than their friend, I want to be the guy that they always want to follow.”

Much of Kan’s day-to-day work involves monitoring sales numbers.

“When oil prices are shooting up, I lose money because my retail prices cannot cover the rise in my costs. So in a growing market for petroleum, I’m getting killed. Some days I might get an eight or nine cent increase per gallon, and maybe I can raise prices by two cents, if any. If my competition is not moving, I can’t move. So I’m sitting there, just eating the loss. The more gallons I sell, the more money I lose. People say, ‘Why would you do that?’ Because if I raise prices, I’m going to kill my volume. I have to look at the long term also. You have to keep your customers, so that hopefully you make your money back when there’s a down market.

“Every morning I look at the reports from 18 retail sites. I can see exactly by location how many gallons we sold, how many car washes we sold, and our margin. I can pick out problems at a site, give them a call, and say, ‘Hey, what’s happening?’ We’ve also invested in a new state-of-the-art surveillance camera system that lets us visually monitor all the sites. I can wake up on a Sunday morning at home, have my cup of tea, and see at a glance what kind of business we’re doing. Are we busy? Is there business coming in?”

Is there a core message or philosophy that Kevin wants people to know about the business?

“When I hire new managers, I always meet with them one-on-one and tell them my philosophy, which is very simple–this is your business. I always say, ‘The site that you’ll be managing is worth about $2 million to me. So look at it this way–I’m handing over to you a portfolio of mine that’s worth $2 million and it’s your business. That’s how much trust I have in you.’

“You’re sure to fail in working for me if you think you’re just coming in at 8, leaving at 5, you’re not trying to rock the boat, hey, it’s not my money. It takes me a week to spot a manager like that.

“We wash about 900,000 cars a year,” Kevin went on,” and our utility costs per car generally work out to $1. Now, if employees waste water, chemicals, and electricity, that cost goes up by 50 cents per car, which costs me another $450,000 per year. So I need managers who understand that they are accountable and responsible for the company’s success or failure. I give them quite a lot of elbow room to decide how they want to market their services.”

One way Kan does that is by giving his managers flexibility in deciding how many employees to keep on call and how to schedule them. Managing labor properly is crucial in the car wash business, which fluctuates seasonally and is traditionally much busier in winter months. Kan said he “hit a home run” by instituting a process called “labor benchmarking.” The target is to have total labor costs come in at about 30% of gross revenue at each site. Managers are given the flexibility to cut labor, raise revenue by pushing sales, or keep their current labor if they’re busy. If they miss the benchmark number, they pay a penalty from their commissions.

“The managers weren’t happy with it at the beginning, because part of changing the culture was requiring them to work in an employee position for a minimum of eight hours a week, on the line, as a cashier, or in another role. This has made our labor usage extremely efficient, and we’re reaping the benefits of that right now. In 2009, we saw an immediate improvement in our cash flow and profitability.”

Kan spent the first 12 years of his life in Hong Kong, where he learned an early lesson about attitude.

“When I was 15, just after 9th grade, I came back to Hong Kong in the summer from boarding school in the U.S., and my father said, ‘What are you going to do?’

“I said, ‘I don’t know, I really haven’t thought about it.’ He said, ‘Well, you have to do something.’ I said, ‘I’m 15. What job can I get out there?’

“One of my father’s best friends owned the entire McDonald’s franchise in Hong Kong, and my father said you can work at McDonald’s. I come from a very affluent family, and for me to work at McDonalds? I said, ‘Are you joking?’

“My father said, ‘McDonald’s is one of the most successful operations in the world. Go learn something from them.’ He called his friend, who said sure.

“When I realized my dad’s friend owned all the McDonald’s in Hong Kong, I thought, ‘Maybe I’ll get a pretty good office job in the company headquarters. My dad is good friends with the boss.’  So I met him at his office at 9 a.m. that first day, wearing a suit. My dad’s friend looked at me and said, ‘What are you doing?’

“I said, ‘I’m going to work.’

“‘In that?’

“I said yeah. He said, ‘You’re working downstairs in the restaurant.’

“‘You’re kidding me, right?’

“He said no. So I took off my jacket and tie and put an apron over my white shirt and suit pants. That first day I made Filet-o-Fish. I worked there all summer, and my father picked me up every day from work. When I got in the car, I was reeking of grease and ready to conk out after flipping burgers for eight hours. But my father wanted to talk to me. He’d ask, ‘What did you learn today? What differentiates McDonald’s from other operations?’

“So I knew after a few days that I would have to pay attention and report to my father every day about what I learned. That’s how he raised me. Every generation, we’ve had leaders come out of our family, and it’s very important to us to continue that tradition.”