Alexander Pakhomov, head of Diligence, has loved design engineering and modeling since his youth – he started with building racing engines in aeromodelling, then engines for motorcycles, later – car engines for motor rallies. The engines came out just fine, but he only took part in competitions as an amateur, in order to get an understanding of what an athlete needs for a race. Nevertheless, even this amateur level qualified for the master of sports’ standards, and he still cherishes his USSR Candidate Master of Sports badge. After moving to Saint-Petersburg in 1993, he decided to use the acquired experience in business. “I tried to turn my hobby into my new profession. By that time I’d learned to make quite good sports engines. Like all soviet athletes, I had a good handle of materials science, was able to design and construct everything I needed, could operate metal-cutting machines”, – Alexander recalls.
From car tuning to repairs
The private enterprise Diligence (the French word used in Russian language for horse drawn carriage, stagecoach), established and registered on October 20, 1993, was designed to become a styling car shop – here you could increase the power output of the engine, order aero parts and make your car unique. Yet, the demand for such services was not very great. On the other hand, a new market segment started developing. “Used foreign cars streamed into the country. They looked new, but their considerable age along with severe operating conditions in our country and the absence of appropriate maintenance and servicing very soon made the happy owners seek professional help of those who could bring their cars back to life, – Mr. Pakhomov recalls. – We found it interesting to solve these untrivial tasks, especially with no technical documentation on hand”.
Saying “we” Alexander referred to himself and a group of like-minded people he had managed to find in Saint-Petersburg. He started working together with Vadim Fersman, Georgy Vikhrov, Dmitry Yeltsov. All of them had a good grounding in engineering, aspirations in design and construction and a strong wish to not only learn something new, but implement their own ideas.
Specialization – a key factor for ensuring high quality
At first the company experienced some difficulties, common for all businesses of the “tumultuous 1990s”, but managed to overcome them all. At the end of the decade, the demand for car repairs was soaring. The Diligence management made a strategic decision – the company was banking on its narrow specialization, focusing on the Volkswagen group products.
This is how Alexander himself explains this decision: “ I realized that it was impossible to repair all kinds of cars. At least, you can’t do them all equally well – because every new car model required preliminary study of its design and the availability of special tools”. At the turn of the century, the Russian VAG branch launched a campaign against unofficial dealers and car service centers, but it didn’t affect Pakhomov’s company. The only liquid claim on the part of Volkswagen was the unauthorized use of their trademark, and in this respect Diligence was “clean”. “The confrontation of official and unofficial service shops is like fighting with one’s own shadow, – Alexander Pakhomov says. – Dealerships destroyed their own reputation in the eyes of the customers when they burst into our market with unclear rules, unreasonably high prices and this snobbism of a newcomer. And then when clients turned their backs on them, they blamed it on independent service centers, as if somebody stole something from them.
But that’s all water under the bridge now, today we have no confrontation with dealers. Their managers came to understand that working with old car owners makes no economic sense for a dealership. This is a different market segment with its own rules and economy, and they don’t want to be engaged in this work on a large scale. But they willingly sell us spare parts. Almost all of them now have daily delivery, we only order what we need through the website and wait for it to be delivered to us. The VAG encourages its dealers to increase their sales volume of spare parts, that’s why they offer their services as spare part suppliers – vying with each other, fighting for the customer, improving the quality of the service with each day. The prices are quite attractive too. Competing with each other, dealers keep the wholesale prices at the level of 20–30 % of the margin over the importer’s price. In their dealerships they sell these parts with a 100–200% markup. That’s why an OE spare part in Diligence with our 30% markup will always be cheaper than in a dealership. So we have no reasons to fight with official dealers, it’s all love and friendship now”.
Nevertheless, the smoothly running supply system doesn’t mean they don’t keep their own stock. The Diligence head believes that having most parts in stock is another key factor of the company’s success.
“This reduces the non-productive time, besides the income from spare parts sales exceeds the costs of their purchase and storage. The narrow specialization of our service center quickly turned the warehouse personnel into leading professionals in their field. The warehouse was arranged according to the production needs. The spare part sales turnover accounts for about one-third of the stock a month”, – he explains.
At the cutting edge of technology
In the late 1990s, the Internet started booming in Russia. Alexander Pakhomov, getting interested in communication on forums, became one of the authorities of the “Volkswagen” conference on Auto.ru web site. “I didn’t advertise or promote our service center, I only provided professional consulting to the forum participants. With only a dozen or two of those who were writing something, there were up to several thousand people who were reading it all on a daily basis. The site was mostly visited by people who were having some troubles with their cars. Some time later the “auto.ru” community formed a real waiting list of Volkswagen and Audi owners. In fact, word-of-mouth advertising is still the main source of clients for Diligence, because they like the way we work. 69% of our workshop orders are written up for our long-term customers who inevitably become our loyal clients after they have turned to Diligence two or three times”, – he relates. This proves that a company’s reputation among customers is the best form of advertising. Besides, even in those days the Internet was an effective means of communicating information and creating awareness.
Towards the end of the first decade since the creation of Diligence, a crisis broke out inside the company. “Managing it family-style was no longer possible. Money was slipping through our fingers, the employees interacted with clients in a disorderly manner. The company ceased to be a single entity, – Alexander recalls. – I felt frustrated and every now and then had to admit my own incompetence as a manager. I even started searching for a substitute among professionals in the management sphere. I hired an HR specialist to discern the causes of the problems”.
One of the questions that we put to each employee during an interview was: “What is wrong about the company?” This gave rise to certain “stinking thinking”, because even those who had believed that everything was fine, started thinking that something was wrong… A few people decided to leave the company. Needless to say, those who left were people who felt professionally established, that is, key personalities, irreplaceable professionals. Meanwhile, the management had to learn the principles of business administration. A year later they elaborated “The Company Regulations”, which not only determined the internal procedures and code of conduct, but also established the rules of client communication. But it wasn’t a compilation of prohibitions and requirements, the role of every single employee was emphasized in the “Regulations” and the top priority was given to mutual trust in dealing with clients. Besides, the terms and procedures of payment were determined. “The staff members themselves estimated the value of every employee for the company. According to the assigned qualification rating, the level of salaries was determined, – Mr. Pakhomov goes on. – In accordance with the American business administration studies I was to fire those who didn’t accept the new rules and hire new employees instead. But intuitively I understood that the people were our main asset and I couldn’t do this to them. Having spent a lot of time on persuasion, explanations, convincing and reasoning, I managed to preserve our staff”. The crisis was surmounted.
The “AT” section
By the mid 2000s, Diligence was already quite well-known in St.-Petersburg. As it turned out, their fame reached Moscow: on the Internet they found a company Diligence-MSK, which specialized in automatic transmission repair. Alexander Pakhomov contacted the owner of the “clone” and the latter offered to train the company’s employee in AT diagnostics and repair, as a compensation for using their brand name.
In 2003–2005, vehicles equipped with automatic transmissions filled the market, and it became clear that for a number of reasons, both technical and economical, automatic transmission repair is to be performed in a special zone within a car service center, with its own special rules. Before that time the matter wasn’t very urgent, because cars with ATs made up just a small proportion of all the vehicles appearing at the gate of our car shop. In the1990s our fellow countrymen bought old cars from Europe, which were usually on their last legs, and the cost of rebuilding an AT for them sometimes amounted to the cost of the car itself. Besides, there was a particular fear of new and unfamiliar equipment, which stopped many people from buying cars with automatic transmissions.
The offer to go to Moscow for a training course was made to Nikita Shmitov. “I was only 24, and if I had known back then what awaits me in the nearest two years – I would’ve refused to go! But having no gift of foresight, I did make this momentous step. During the course of training I realized that I knew nothing of hydraulics and that it was all too complicated for me”, – Nikita recalls. Having completed his studies he returned to St.-Petersburg and wanted to resume doing what he could do well – diagnostics of engine control systems. But his employer thought otherwise and started promoting “AT” repair among their clients. The first experience was not very fruitful for Nikita: “I will never forget that 096 Golf. The transmission was absolutely dead and whatever I did – I couldn’t make it work. Three months later, when both the client’s patience and my reasons ran out, we had to buy a used unit for replacement”. But it was just the beginning, and the next experience turned out to be more successful.
The number of orders was growing and Nikita got his own subordinates. At the end of 2007, the company finally managed to acquire its own site in Elizarov Prospekt. At the new premises, automatic transmission repair was performed in a 8-sq.m. workroom and with only one lift. By 2013, both the area and the number of lifts had doubled and the automatic transmission section already included five employees.
The company itself was growing too, many business processes underwent reforms, changes were made to the organizational structure. Nikita was offered a new position – service director, which he took up on March 1st, 2013. “It took me over six months to consider this matter and debate it in my mind. This position required new knowledge and skills from me. And one more time I forced myself to “take a dive”. But this time it was a conscious decision, I understood it would be hard, – Nikita recalls. – Four years later I can tell you that it was worth it!”
Finding your own place
In 1990s, there was a certain fashion in St.-Petersburg – owners of expensive foreign cars went to Finland for service and repairs because they didn’t trust domestic car service centers or even dealerships. However, the 1998 crisis made them search for realistic alternatives inside the country. The company Diligence experienced these changes firsthand – the I and II VW Golf owners were leaving them, obviously for economic reasons, but at the same time quite new Volkswagen and Audi cars were coming for servicing from dealerships. A similar trend was observed in the crisis years of 2008 and 2014.
Alexander Pakhomov has the following view on the current situation: “The market is shifting – those clients who believe that our prices are too high for them now are leaving us for “garage kind of shops”. Instead, we’re getting new clients who used to get serviced at dealerships. The complaints of my counterparts from independent service centers about “garage servicemen” being engaged in predatory pricing is the same fight with one’s own shadow as dealerships used to have before. Upon closer analysis, one gets to realize that the market is roughly divided into three sectors. The upper one is the realm of dealerships, where we can find people who don’t deny themselves the pleasure of driving new and expensive cars. In the middle sector we see clients of moderate means, whose cars are not new, but from the premium segment. Or vice versa – they are new, but not so high-class. And the lower sector is the one where really old cars get serviced, whose owners have to scrape up every penny for their maintenance.
So, each sector has its own clients and its own car service centers. Perhaps, the most numerous of the three is the lowest sector, and the upper one is the narrowest. In the course of time, market participants can move from one sector to another. If the macroeconomic situation improves, the whole market shifts upwards. If the economic situation deteriorates – market players move to a lower sector. Competition, if there is any, exists only within one particular sector. That’s why those independent centers that believe that “garage servicemen” steal their clients are basically “garage servicemen” themselves in the perception of the customer, only of a more expensive kind. They work in the same market sector, and when finances get low their clients leave for those who are cheaper, but new ones within the same sector don’t come either. So, instead of complaining, they only need to move to a different market sector, and the “garage servicemen” issue will cease to be such a sore point – let them keep working with their specific clients”.
Curiously, Diligence clients look at their relationship from a different perspective. “I’m certain that here my car will get appropriate servicing and I won’t have to deal with this problem again trying to fix it in other service centers wasting my money and time, – says Alexey Sergeyevich, a loyal customer of the company for over 10 years. – There are, of course, car shops where I can get my car repaired cheaper, but I’m not sure that it will be done at the same level of quality and I don’t feel like checking it for myself – don’t have any time for that. I understand that I’m probably overpaying a little, but this is my own choice”.
According to Alexander Pakhomov, the formation of the “AKPP Club” is a timely and necessary event: “No guild consolidation will help you fight objective market laws, of course. However, various professional associations are very useful in enabling companies to enlarge their scope and gain new knowledge, fueling their growth. Solving big tasks together has always been cheaper and more efficient for each participant. And the narrower the specialization of the association is, the more successfully it will overcome problems that arise”.
Diligence managers and employees attended the Russian Rally Cup and Championship series that were held in St.-Petersburg neighbourhoods and Karelia. In some cases they even shut down for the day and the whole staff left for the rally to take some rest and support the athletes they knew. Quite often their clients joined in too.
At the end of 1999, I realized that the company was already firmly established and I finally had an opportunity to realize my engineering aspirations. Vadim Fersman was the initiator, he also took on leadership in designing and constructing sports engines for rally. We restored the motor stand that was given to us by Alexander Yuryevich Mezernitsky, who literally saved it from demolition in an experimental department of the Central Research Diesel Institute when it was on the verge of closing down. Then we invited three rally crews as a team that would use our engines at competitions. In their first season of 2001, the team won several Russian Cup and Championship stages. As for individual competitions, our athletes also repeatedly became champions and prizewinners. Our engines were good indeed. During the six years of participating in motor racing in the smallest class of 1400 cc, Andrey Buneyev won the Russian Cup, Alexey Malakhov and Alexey Aleksandrov became the championship runner-ups. All our athletes have fulfilled the norms and requirements of the Master of Sports and Candidate Master of Sports. But the main achievement for our company is the new friends that have been with us for many years, and the top specialists who have come to work for us. Aleksandr Alekseyev was working for our company for quite a long period of time, and now his pilot Sergey Serebrennikov is our technical director. Sports mechanics Alexander Gorsky and Dmitry Kudryavtsev are still working here as technical professionals. Elvira Nefedyeva is one of the most experienced and highly-qualified spare parts specialists.
Accounting and monitoring
The treadbare formula that we kept hearing ever since school-days – “Socialism means accounting and monitoring” -proved to be true for capitalism as well. As Diligence was coming into its own, the company turnover was growing, as well as its staff number. It was time to introduce automation of business processes, and at the beginning of 1999, the Diligence workflow was transferred to the Autorest software application. It was specially written by one of the clients – Alexey Nevinsky, who later became the company’s partner. “This computer program was so good, reliable and easy-to-use that we kept using it all the way till 2012, when due to the new market conditions we were forced to switch over to more advanced software. When it was time to find new information technologies and solutions for the growing company, we invited Alexey again, and we’re still working together”, – the Diligence founder says. The Autorest application gave place to the 1C: Enterprise 8 system. Utilizing it was not so easy, but the result was worth it – this software complex can be adopted to any technological chain, which is very important, because the workflow system must be consistent with the internal structure of the company.