Alumni Success StoriesTodd Q. Smart, B.S. '87
Alumni Entrepreneur of the Year - 1998
Absolute Towing and Transporting, Inc.
What kind of business did the entrepreneur start?
Wrecked and illegally stripped automobiles deemed a "total-loss" by insurance companies are a total profit for the insurance salvage industry. This $3 billion industry comprised of companies who purchase both reparable and irreparable vehicles and sell them to the public. The buyer then repairs and sells the car or strips the car and sells the individual parts.
Absolute Towing and Transporting ("Absolute") provides the service that transports the total-loss vehicle from its current location (i.e., body shop, residence, accident scene, etc.) to the site of the public sell. Absolute, founded by Todd Q. Smart in 1987 with one tow truck, currently operates 45 trucks and earns annual revenues of $4 million.
One of the major players in the insurance salvage industry, Insurance Auto Auctions (IAA), is a primary customer of Absolute. IAA, an Illinois-based firm, was founded in 1982 and auctions vehicles at the 46 facilities it has acquired around the country. Capitalizing on this highly fragmented industry, IAA has purchased many of the smaller salvage companies thereby fueling its tremendous growth. In Southern California, Absolute handles 100% of IAA's transporting needs.
Todd Smart has successfully differentiated Absolute by offering superior customer service. The traditional towing companies typically show no respect for their customers and transport cars at their own convenience without consideration for the time constraints or other obligations of the customer. Todd saw his competition’s lack of professionalism as an opportunity for his company to excel by offering outstanding customer service while also remaining a fair and ethical firm. This was a primary factor in Todd’s ability to both gain and further build upon the valuable relationship with IAA.
Todd Smart is the first to admit that perception is more important than reality; therefore, he ensured that the customer perceived quality service, by the look and demeanor of the tow truck driver, before any service had even been provided. Todd replaced the traditional grungy and unkempt tow truck driver with a clean, uniformed and courteous Absolute driver.
In addition to perceptions, quality customer service actions also occur at Absolute. For example, to allow for faster and more efficient order processing, Absolute has set-up a computer network through which the customer may communicate with Absolute. Further, to guarantee the most competent service, Absolute is constantly and consistently upgrading and improving upon its equipment. Overall, Todd recognizes that Absolute does not necessarily tow better than any other company, it merely makes the customer's interaction with Absolute a much more enjoyable one.
An additional point of differentiation is Absolute's use of fair and ethical business practices. Upon entering this industry, Todd immediately discovered that engaging in illegal and unethical dealings (e.g., insurance claim scam) would result in quick, and rather large, profits. He could cite several examples of unscrupulous competitors who engaged in illegal acts and experienced rapid monetary growth. Recognizing the value of a positive reputation, Todd refused to allow his company to be involved in such dealings. Eleven years later, he is confident that his business has become more profitable and successful through building this honest relationship with his customers. Additionally, he feels satisfied knowing that those of his competitors that have failed have suffered the negative consequences of acting unethically.
What is the background of the entrepreneur?
Todd Q. Smart began his first entrepreneurial venture at the ripe old age of 10 while living in Salt Lake City, Utah. After a considerable amount of begging and pleading, Todd’s parents bought him a riding lawn mower for Christmas and off he went to mow the lawn of every neighbor on the block. However, Todd says that it was not until he was 18 years old that he truly realized who he was: one who would do anything to keep from getting a job . . . an Entrepreneur.
Before coming to this realization, Todd did take a job putting bicycles together at age 12. However, this job cannot be deemed a traditional job due to the fact that before taking the job, Todd had spent most of his free time at the shop. Thus, he was not really employed, rather, he was simply getting paid to do something he loved.
Todd believes his entrepreneurial tendencies were, curiously enough, inspired by his father who never seemed to succeed in his business ventures. Todd remembers being fully aware when his father's businesses failed particularly because it meant moving four times during his youth. As Todd reflected on his father's business ventures, he indicated that his conclusion is that their failure was due to his father’s unwillingness to face the full risk of business ownership. In other words, his father did not invest the level of resources, whether they be human or monetary, necessary for success. This knowledge helped to motivate Todd to persevere when faced with challenges so that he may prove that success is possible if one is willing to take on the risk.
Todd's father's ventures were quite varied. He tried to sell used industrial equipment, he became involved with a lube refiner distributor and finally, he worked on a business in the tire industry. As is evident, the nature of these businesses included mostly "non-glamorous" industries, which was an additional influence on Todd and kept his mind open to all types of venture options. He recognized that successful entrepreneurs and high levels of profit were not only found in Silicon Valley, but also in Grease Alley.
When deciding where to attend college, Todd knew that he wanted to physically leave the state of Utah, but also did not want to stray too far from home, both in terms of lifestyle and distance. Thus, he chose to go to the University of Boulder at Colorado and began his college career surrounded by this beautiful landscape. However, after two years at Boulder, Todd became bored and needed a true and complete change of environment.
During the Spring of 1985, an adventurous Todd rode his motorcycle from Utah to the West Coast in search of the perfect university at which he could finish his college education. As fate would have it, he rode onto the University of Southern California's campus and a friendly Admissions counselor had the answer Todd was seeking. While other universities told him he was too late for Fall 1986 admission, USC's Admission counselor assured Todd that it was not too late. Thus, at 20 years of age, Todd transferred from Boulder’s rolling hills to USC’s cityscape.
How did the entrepreneur get the idea for starting this business?
Sitting in the USC Entrepreneur classroom in 1986, Todd had no money and no intimate connection to any particular industry. Yet this young man was determined to uphold his creed to not work for anyone but himself upon graduation. He figured that the ideal path to pursue would be to identify a customer with a need and then build a business around meeting that need. Todd had always considered himself "opportunity sensitive" and this characteristic, along with his open-mind (cultivated by his father's ventures), led him to believe that when a needy customer came along, he would recognize it.
He recognized that customer when Brad Scott, founder of Insurance Auto Auctions (IAA), was a guest speaker in one of his Entrepreneur Program classes. At this time, IAA was a young company but was growing. Todd recalls that Mr. Scott identified his biggest problem as being the $600,000 per year IAA spent on towing costs. This was an issue because Mr. Scott had to contract with seven separate towing companies to handle his towing needs. Mr. Scott was certain that these companies were not servicing his needs efficiently primarily as a result of the, aforementioned, lack of professionalism, characteristic of many towing companies at that time. Upon hearing these words, Todd's opportunity sensors were immediately buzzing. He recognized that IAA was a customer in need who had over a half-million-dollars, thus, Todd's business concept was born.
One might question why Todd felt so connected to this customer's need. Clearly, there must have been other Entrepreneur Program speakers who faced challenges that could equal a profitable venture for the young aspiring entrepreneur. Todd explained the connection as initially stemming from their similar personality characteristics. Todd believes he was more attuned to this speaker because Mr. Scott's dialogue with the class revealed a desire to succeed in his business and a general fondness of life which was similar to Todd's own feelings.
Additionally, Todd was able to identify with this industry and thereby connect with this venture concept. He had gained exposure to the towing segment of the industry through some of his father’s ventures. Further, as a teenager, one of Todd's hobbies was buying and selling cars because one of his ultimate goals was to eventually own a "nice car." He figured that if he continued to buy cars, repair them and resell them at a higher price, he would, in due time, own the car of his dreams.
What did the entrepreneur do to start this business?
With a need and thus, a potential customer, Todd was ready to take the steps necessary to turn this concept into a business. At the 1986 Entrepreneur Program mixer, Todd made his official introduction to Brad Scott and informed Brad of his intention to fulfill IAA's need. Todd indicated that, at that point, he was not positive that his concept would be successful, however, his determination to be a business owner upon graduation pushed away his doubts.
In January of 1987, Todd began gathering information to write the business plan for his venture with the first step being to find industry information. He quickly discovered that business publications and market analysts did not focus heavily on towing service companies or on the insurance salvage industry as a whole. This factor, however, did not deter Todd. He transformed his task into that of writing an operational plan to answer the question of how his company will explicitly meet Mr. Scott's needs. During this time, Todd met with Mr. Scott on two occasions to gain insight into the industry and the specific transporting service desires of IAA.
A milestone in Todd's research process occurred when he attended a meeting for a state association of towers. At the meeting, Todd found that the individuals he would interact with and compete against in the industry were not especially astute. This was an important revelation because Todd now understood that, as a business degree holder dealing in an "industry with no college grads," he had an even greater chance of finding profit and success.
In May of 1987, Todd had a complete business plan and a USC business degree. Now his goal was to solidify his relationship with IAA and begin towing. When Todd showed Mr. Scott the complete business plan, Mr. Scott was quite impressed. Since their initial introduction, the two occasions Mr. Scott had met with Todd only accounted for about 3 or 4 hours of his time. Mr. Scott was awestruck when "this kid" came back to him having done his research and was ready to service his needs. From this sign of determination, Mr. Scott gained confidence in Todd's willingness and ability to succeed. By June of 1987, Mr. Scott had agreed to utilize Todd's services for his towing and transporting needs in the valley area of Southern California. So, Todd traded his car (and some cash) for a tow truck and Absolute Towing was in business.
What major problems did the entrepreneur encounter during the startup of this business?
Todd identified capital as his biggest challenge during Absolute's start-up phase. For start-up cash, which covered the preliminary items such as business licensing, insurance and additional cash for his first tow truck, Todd had $5,000 in personal savings and borrowed $10,000 from his Grandmother. However, in order for his firm to pick cars up from tow yards, he had to pay a release fee of approximately $200 per car. Though Absolute's customers reimburse the company for this expense, the length of time between paying the release fee and customer reimbursement/payment is about five days. Thus, after towing 10 cars in one day, his business had a negative cash flow of $2,000. After four days Todd's negative flow had increased to $8,000 and he still had not been reimbursed or paid for his services.
How were those problems solved?
Todd was able to overcome this challenge because the company retained all its profits. Hence, every penny that was earned went back into the business to cover the next five days of release fee payments. Further, since each truck represents its own profit center, it was not necessary for him to purchase and own a large amount of equipment in order to generate revenue. Thus, Todd was able to grow his business incrementally and the company’s earnings, during the early days, did not need to be used for additional equipment. Therefore, Absolute was able to grow at a rate that was financially comfortable.
Who did the entrepreneur use for help and guidance during the startup of this business?
Another challenge for Todd was that he did not have the benefit of being surrounded by towing industry professionals. This was primarily due to the fact that, prior to Absolute, the concept of professionalism in towing did not exist. Thus, the individuals who did have industry knowledge were not necessarily people in whom Todd felt comfortable confiding.
Therefore, Todd relied on his instincts when making decisions for about the first four years of business. Due to the nature of his competition and its lack of business savvy, he felt he was capable of making as good a decision as anyone else in the industry. He rationalized this belief with the thought that if he could make the right decisions 51% of the time, everyone would forget about the other 49%.
It must be noted, however, that Todd believes the year he spent in the Entrepreneur Program at USC saved him four to five years of business mistakes. Todd values highly the opportunity the program gave him in listening as new and veteran entrepreneurs told intimate stories about their successes and failures in business.
What advice would the entrepreneur give to someone thinking about starting a business?
Todd Smart's advice is to "do it while you're young." He feels that out of college one has the least to lose. Most new-grads do not have major debt (though many have student loans) or family obligations to worry about. If an individual fails before he or she has accumulated wealth, the person can only land again at zero.
Todd has no regrets after 11 years of business and truly believes he took the risk at the most opportune time in his life. Now he has accumulated financial wealth and mental wisdom that has prepared him to take on an adult life filled with family and debt!
Why was this entrepreneur successful at getting into business?
Todd Q. Smart was successful at getting into business for several reasons. One of the major reasons is that he knew he wanted to be an entrepreneur at a young age. Because of this knowledge, he was able to put himself in situations that nurtured this ambition. Of course, the key opportunity was his ability to become a member of USC's Entrepreneur Program. Through the program he not only met his customer, he also gained a wealth of information as to who entrepreneurs are and how they grow successful businesses.
Another key to Todd's success was his decision to identify his new business venture by finding a customer with a need. Only at the point at which he had a definition of what he was searching for could he truly be opportunity sensitive. This narrowed his search for an opportunity from a universe of ideas to only those that represented his criteria.
Some may consider Todd's search for and eventual discovery of this unsatisfied customer as occurring by sheer chance. However, looking closely at the steps he took, Todd’s search was more characteristic of a systematic search. This strategy finds the searcher systematically surveying a defined set of possible leads and looking for those with the desired characteristics. Todd's defined set was successful business people and their desired characteristic was to have an unmet demand. As stated earlier, by intentionally becoming a part of the Entrepreneur Program, he was introduced to business owners on a weekly basis. Further, he made it a point to listen as successful business people talk, whether it be in the classroom or in the general public. His hope, of course, was to identify a business need.
There are also psychological reasons inherent in Todd's personality and stemming from his background that allowed him to be successful in business. One of the most fundamental was his strong desire to prove that he could be a successful business owner which, possibly subconsciously, grew from his father's business failures. This need to prove himself pushed him even more than simply wanting to be an entrepreneur. This drive or persistence was reflected in Todd's 16 to 18 hour work days during the business' early years. He said that he would work as hard as was necessary to guard against the other option, failure. "If I did not give 100% and I failed, I could not live with that feeling." Thus, unlike his father, he would be happier knowing that he took on all the business risk before letting his business fail.
Another psychological reason for Todd's success, which was also influenced by his father's activities, was the aspiring entrepreneur's open-mind to a wide variety of industries in which he could start a business. Todd clearly understood that success and profitability could be found in Lo-Tech industries. In fact, Todd eventually thought of it as an advantage to be a bachelor's degree holder starting a business in an industry with "no college graduates."
Moreover, after interacting with Todd during our interview, it is clear that his sense of humor and seeming fondness for life must have assisted him during the down times of his business start-up. In general, when situations did not turn out according to plan, he had an ability to recognize his mistakes, laugh at them and move on with new insight. These characteristics surely allowed him to remain sane in many situations.
Finally, one must realize that Todd could not have been successful at getting into business if he existed in isolation. His mere drive to prove his ability to be a successful entrepreneur stems from his interactions with his father during his early years. Further, his successful identification of IAA as a customer and Absolute Towing as his business concept is obviously a result of his interaction with the Entrepreneur Program at USC. If Todd had not become a student in the program or if Mr. Scott had not spoken to the program at that particular point in 1986, it is likely that Todd would not be President of Absolute Towing and Transporting.
An additional social factor was Todd's interaction with the association of towers during the development of his business plan. By discovering their lack of professionalism and business know-how, Todd not only gained confidence in his ability to be successful, but also identified how he could differentiate his towing operation. The professionalism he brought to the towing segment of the industry continues to allow Absolute to differentiate itself from its competition. The point is that if he had not met these individuals at the early stage of business development, he may not have known to incorporate the aforementioned points of differentiation which allowed him to gain the customer’s trust.
In summary, Todd Q. Smart was successful at getting into business because he identified his goal early, surrounded himself with individuals who could assist him and continued to smile while he worked tenaciously to grow his business into a success. Now he reaps the rewards of his risk-taking endeavors and wonders why he ever considered failure an option.
- Nicole Smith