Gut Feel versus Statistics and Metrics

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My father was a baseball statistician. In fact, he was major league baseball’s first full-time statistician working for a baseball team, starting with the Brooklyn Dodgers and ending up in Los Angeles. He essentially created his job by convincing then Dodgers owner Branch Rickey that his field manager could be a lot more effective if, for example, he knew how each of his hitters fared against right- or left-handed pitchers, and each particular pitcher their opponents would send to the mound. And what if he knew how his pitchers each fared against right- or left-handed hitters and each opponent as well?

So Rickey agreed to hire my dad (whose name was Allan Roth if you want to Google any of this). The first couple of managers he worked with thought this was pure bleep. These were men of the ballfield, of grass and dirt and sweat and spit. They made their decisions by their own logic, by gut feel, by the seat of their pants. They didn’t care about a stat sheet and eventually my dad was kicked upstairs to work with the announcers.

Over the years my dad deepened his statistical analysis and of course others with the aid of computers have taken the field much farther. And gradually statistical knowledge became a key ingredient to baseball strategy and the way baseball executives put together a roster. So while instinct and gut feel and the eye test still count for a lot in baseball and all sports, statistics have become an integral component.

And when a ballplayer or any athlete is involved in salary negotiations, his or her agent is going to use stats to build his case even as teams do the same. 

The reason I’m sharing a bit about my dad’s career is that in the evolution of the rental industry we see some similar dynamics play out. The rental industry got its start, for the most part around the 1950s, by men who were pretty damn smart. They were entrepreneurs who saw a niche that needed to be filled, providing equipment for contractors on construction jobsites during an era of great economic expansion, as well as providing equipment and tools for homeowners during the postwar era of relative prosperity. They had a pretty good feel for their local markets and what their customers needed. They had an instinctive gut feel for what equipment would work for them. Owners generally knew every detail about their businesses, knew almost every customer by first name and knew what they wanted and needed most of the time.

Back then they didn’t have too many competitors. Steady cash flow could make up for a multitude of questionable decisions and practices.

Over time the industry became more challenging. How many competitors do you have now in your main market area, and how many come from outside the area to compete with you for jobs? How are margins now; very likely a lot thinner with the cost of Tier 4 engines and a myriad of other expenses?

Owning a rental business in this competitive landscape is so much more complex than previous generations and that is why metrics and as much knowledge as possible are necessary. Dan Kaplan years ago in his book Service Success even likened charting a variety of performance metrics in a rental business to baseball statistics.

There are a variety of important metrics to keep track of and you can read about the essentials in this month’s cover story by Carolyn Stansberry of The Stansberry Firm. To start off with you need to manage your fleet because your rental inventory is your largest investment. You need more than a gut feel – you need to know exactly how each piece of equipment is performing, and when it is no longer a money-maker. Just as a baseball manager has to know when to take a pitcher out based on actual performance, you need to know when to replace an asset. When is the right time to replace a unit in terms of return on your investment? When is the cost of maintenance too much compared to the volume the machine is producing? What percentage of revenue should you spend on new fleet?

There are other areas to measure and Carolyn’s article covers the basics of fleet management that anybody in the rental business needs to pay attention to. Instinct and gut feel still have an important place in the world of business, but when it comes to management in this era, metrics and data are vital for success.

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What's Rent Talk?

Rent Talk is the premier blog of Rental Equipment Register Magazine

Contributors

Michael Roth

Michael Roth has covered the equipment rental industry full time for RER since 1989 and has served as the magazine’s editor in chief since 1994. He has nearly 30 years experience as a...

Gary Stansberry

Gary Stansberry is president of The Stansberry Firm LLC and specializes in business sales, fair market business valuations, operational consulting and positioning businesses to increase their value.
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