How specialised equipment rental pays dividends
01 May 2021
Higher returns make specialty rental a noble commercial aspiration, but lasting success can be elusive. Regular IRN columnist Kevin Appleton analyses the ingredients for success.
It is always good, at least if you are as much of a pedant as I am, to start by defining terms.
What is specialty rental?
The term “specialty rental” is most commonly applied to businesses that specialise in a particular type of construction equipment and is a term used to distinguish them from general rental businesses.
Although of course, it can be used in other, more specific ways...
It might be applied to someone who is exclusively renting left-handed Champagne glasses to peer-recognition galas in the soft toy industry.
That would be special indeed, but it might be better described as “niche”.
The three questions we are going to consider are: why do such businesses exist?; how do they manage to thrive? and; what might their future be?
Specialty rental = equipment specialist
The answer to the first of these questions can be addressed by a couple of old sayings, “A jack of all trades and a master of none” - and in German, “Übung macht den meister”, which roughly translates as “Practice makes perfect”.
Research indicates that outstanding performers in their field do not get there by accident. In his bestselling book, The Social Animal, David Brooks reviews the academic insights into this area - specifically across musicians and sportspeople, but the principle would hold good - and concludes:
“As K. Anders Ericsson of Florida State University has demonstrated, it’s deliberate practice. Top performers spend more hours (many more hours) rigorously honing their craft. As Ericsson has noted, top performers devote five times more hours to become great than the average performers devote to become competent.”
“It’s not just the hours, it’s the kind of work done in those hours. Mediocre performers practice in the most pleasant way possible. Great achievers practice in the most deliberate and self-critical way”
What are the advantages of being a specialist?
One of the advantages of specialisation in life, as in rental, is that the degree of repetition and subject-matter-familiarity it produces will inevitably result in higher standards of qualitative performance. This is not because the non-specialists are idiots, but simply that there are not enough hours in the day for them to become expert to the same degree as a specialist across a much wider palette of activities.
If you choose to rent an aerial work platform, for example, from a specialist in that product then all of their equipment, measures, processes, systems and training will be focused on delivering expert service in that one product.
Specialist divisions within generalists can start to close that gap but even then, those at the top of the organisation are trying to balance strategy and investment across a much wider range of competing interests than their specialist brethren.
How specialty rental businesses grow
It is this degree of specialisation that will lead to stronger financial returns. To use another old saying, “The devil is in the detail”.
Being able to deep-dive into, and optimise, the financial returns of specific equipment types, along with all the contributory factors, is easier when the range is limited.
Meeting customer needs
It is also likely that customers who place particular value in the specialist equipment being rented, will tend to find their way to companies who have a superior expertise in that space.
Those kinds of customers will generally pay more too.
These factors in combination have tended to mean that specialist rental businesses produce stronger financial returns than generalists operating in the same market.
In turn this has made them attractive acquisition targets for generalists, although their achieved returns have often fallen following those acquisitions, maybe for the very reasons proposed above.
The future of specialty rental
I remain optimistic about the future prospects for specialty rental businesses. There is something about their set-up and sources of financial advantage, which is really difficult for larger or more generalist businesses to emulate.
They also tend to regenerate following acquisition by a generalist as the entrepreneurs behind the business decide to “have another go” and start a rival business.
It could be that over the course of a decade or two the best of the generalists develops specialty divisions, which allow them to compete successfully against single-line rental rivals, but that is far from certain.
When you are looking to generalise at anything in life you are forced to make compromises that represent a “good fit” with all of the challenges you face but represent a perfect fit with none of them.
The slice of the market that lives beyond settling for “good” and aspires to find “perfect” is the space in which specialty rental businesses thrive.
...I have some nice left-handed Champagne glasses for rent.
About the author
He is a former CEO of Lavendon Group and a chairman and/or non-executive director of a number of companies in the rental and logistics sectors. To comment on these articles, e-mail: IRNfeedback@khl.com