Is it a Rental Business?

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You can earn big profits renting just about any type of product, equipment or service imaginable. And that's true whether you're an executive in a large corporation or an entrepreneur working from your kitchen table. Some examples of rental businesses come immediately to mind such as car rental, residential or commercial property rental, and event location rental. But these are just the tip of the iceberg of a massive service sector spanning every imaginable niche, thousands of companies, millions of employees and billions in revenues

Major rental business markets include tool-hire, construction equipment, vans and trucks, movie props, musical instruments, advertising space, office furniture and equipment, sporting and camping gear. And there even more rental businesses supplying people, skills and services, and new sectors supplying software and cloud based services.

I have spent over 20 years growing Rental businesses in markets are varied as IT equipment, property letting, internet services and vacation rentals. I know that Rental businesses are as diverse as it is possible to imagine. So, I wondered, do they share any common ground? And is it possible to say that they are alike? I believe so. I believe that Rental businesses have much more in common with each other than most people realise, and that the same winning strategies can be replicated across them all.

But before I get into that I thought I should define those things that, I believe, make a rental business. For me there are 4 main features which set rental businesses apart from other businesses. Rental businesses will have all four - other businesses will not.

  1. Continued Ownership or Control
    Rental companies have continued ownership or control of an asset, facility, capability, service or licence. Ownership does not pass to their Customers, it is always retained by the Rental Company even if the the rental contract extends over many years.
  2. Fractional revenues
    Rental companies invoice their Customers for use of their asset, facility, capability, service or licence. Typically these invoices are small fractions of the 'sales value' if such a value exists. Invoice amounts are usually based on time or usage (and sometimes upon the value derived by the Customer - eg: Adwords).
  3. Continued service
    Rental companies remain responsible for the usability of the asset ( or facility, capability, service or licence) throughout its contract life.
  4. Rent Again*
    In rental businesses no single customer is expected to provide all of the lifetime income for the asset (or facility, capability, service or licence).

NB: *No.4 is a critical distinction. Without it, my definition of Rental businesses would be muddled with all manner of similar but quite distinct services such as Leasing. Leases are often called 'Rental contracts' and this is really confusing. But in fact Leases are more like mortgages from Banks. In a mortgage the Bank take fractional income over the mortgage contract term. And they usually retain ownership or control of the asset, and will repossess it of the mortgage is unpaid. But neither Banks nor Leasing companies are really planning to have multiple customers for any asset - they are not planning Rent it again. Therefore, for me, Leases and Mortgages are financial services and not Rental businesses.

Like-wise mobile phone companies offer 'contracts'. In these the phone handsets are 'rented' in a bundled contract of network access and phone. But the phone company will not plan to rent that handset again - they don't offer to rental used handsets at reduced prices. They may give you a trade-in value for your old handset as an incentive for you to extend or renew your contract. But they will sell or dispose of your original handset. In effect you're buying the handset over the term of the contract, and the phone company has sold it to you, not rented to you.

So OK, I have defined a list of features to look for. Using it you can quickly see which businesses are true Rental businesses, but so what? What is the value of that - I can hear you ask. And the answer is easy. If these are the four features which define a Rental business, and they only apply to a Rental business and they apply to all Rental businesses - then you can be sure that all Rental businesses share a lot of common issues. In fact I will go further and say that I believe that Rental businesses have much more in common with each other than they do with other businesses in their 'own' sector.

Think about that? 

When I was creating Europe's largest IT Rental supplier I would have thought that the closest businesses to my own where the other companies who were selling the same IT equipment. Indeed, our company had successful sales divisions, some of which I also ran. I would never of thought that our closest peers were a Car Hire company, or Crane Hire or Hotel. I guess I was fixated on the products, and that's a mistake. Because the fundamentals of Rental are not based around the products (which could be anything) but on the reasons that customers hire rather than buy - the value that Rental delivers. Those reasons are not universal, there are many variants of them. But suffice to say that I would not buy an apartment for a 1 day visit to London. Nor would I buy a car for a Weekend trip to Rome. If I fancied Deep Sea fishing, I hire a boat and skipper. If I wanted a well dug I hire a digger and driver. I hope you can see that Rental is a business type in its own right - and Rental companies of all types share similar (if not the same) issues.

I'll be discussing in a future blog just what this means and the lessons that can be learned (and shared) across rental businesses to create better Rental businesses.




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