How to Think Like an OPPORTUNIST - Strategy
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SECTION: Strategy

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How to Think Like an OPPORTUNIST

By Joanne Costin

Article Date: 11-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.

Dealers show there’s more than one way to grow in a down market.

"It’s a miserable market," said Mark Burris, president of Rudd Equipment Co, based in Louisville, Ky. And no one will argue the point. Despite it, however, Rudd Equipment Co. and other dealers are expanding, taking advantage of market opportunities. So what are they thinking? Construction Equipment Distribution recently interviewed Burris and other executives from Kiely Equipment (Long Branch, N.J.) and Road Machinery (Phoenix, Ariz. ) to find out.

Their strategies and thinking are probably as diverse as the equipment they sell. Will it be growth through acquisition, expansion, or new product lines? How will you approach the challenges? Can you afford to weather the current economic storm? Learn from the experiences of three dealers who are growing and expanding in a down market. Pay attention and take notes, for they, or someone like them, may be coming to a market near you.

Unconventional Kiely Equipment Stays with What They Know

Small by AED standards, no one can dispute that Long Branch, N.J.-based Kiely Equipment is an up-and-comer, a niche player, and an incredible success. Revenue growth of 295 percent in 2008 placed them in Inc. magazine’s 5,000 for the second time in the past two years, as annual sales topped $5.6 million.

At first glance, Kiely Equipment Co. appears to be hodgepodge of unrelated businesses: They rent traffic safety products; sell and service underground construction equipment through Astec Underground North Atlantic and are the North American distributor for Wheelwash. Yet John Kiely, dealer principal, believes the three businesses share core competencies.

The fact that John Kiely’s day job is at J.F. Kiely Construction might very well be the competency. While other dealers try very hard to understand contractors, it’s a way of life for Kiely, who has grown up working in the family’s large utility construction business, where he currently serves as president.

Kiely first nourished his entrepreneurial spirit in 2004, when his dissatisfaction with a supplier led him to purchase an attenuator truck and mail a postcard to contractors. By the end of the first year he had purchased six attenuator trucks and hired his friend Ben Taylor to manage day-to-day operations.

I was looking for ways to grow, said Kiely, but I want to stay close to what we know." We did a lot of trenching and directional drilling, so we started Aztec, and we became an exclusive dealership for Aztec underground boring equipment. At first he was concerned that his contractor competitors wouldn’t buy from him, but Kiely soon found out that it didn’t really matter.

"If you provide fantastic service and good pricing, they absolutely will," said Kiely.

Recognizing that environmental issues were going to be of increasing importance, Kiely contacted a European supplier about wheel washing systems and became the North American distributor for Wheelwash. Truck washing is increasingly a requirement on government jobs, and this market is holding up well.

According to Kiely, the company has done three things to succeed in a down market. The first is staying committed to their core competencies. "You see a lot of companies right now, they start selling different lines; they start trying new stuff; almost in a panic state. We are doing quite the opposite, completely focusing on what we know how to do."

Second, is doing business with customers that promote the company. "We try to work with high profile customers," said Kiely. "People see them using you, and it gives extra value to your company as well." Customers that pay fall into this category as well." Several years ago, after a continuous problem with late payments, he decided to "fire" the company’s largest customer. The decision paid off as the business was soon replaced by customers that pay, while consuming far less staff time.

Lastly, the company stays focused on keeping fixed overhead low, choosing instead to invest in quality equipment. The lean operation with nine employees is run from a remodeled garage measuring just 900 square feet. Maintenance operations take place in a 12,000-square-foot tent or borrowed facilities.

An entrepreneurial attitude permeates the company. Unlike old school managers, Kiely shares all the financials with all employees. "We weren’t afraid to try and break the mold," said Kiely. "We kept trying different things among our employees and our customers." With low turnover and impressive sales figures, the strategy is definitely working. Kiely says he uses small businesses such as Kiely Equipment as a farm team for the larger construction business. In Kiely Equipment he is free to test new management ideas and strategies.

If Kiely Equipment continues to experience the same growth it has in the past two years, it won’t be long they’re in the big leagues.

Rudd Equipment Company Is Ready When Opportunity Knocks

Rudd Equipment’s most recent expansion took effect Sept. 1, when Volvo officially appointed them as dealer for the state of Ohio. Opportunity knocked when the existing dealer in Ohio decided to exit the industry, and Rudd was ready. With locations in Kentucky, Indiana, Pennsylvania, and West Virginia, Rudd already had Ohio surrounded.

"For us Ohio was sort of a natural progression for our business," said Burris.

Rudd chose to start fresh, rather than use any facilities of the former dealer. "It's hard to change a customer's perception of the company and the product you represent if they go driving right up to the same facility they have been going to for 50 years," said Burris. "We are looking to change the image of Volvo in the state of Ohio completely."

A multipurpose Cincinnati, Ohio, facility is expected to open in January. It will include a centralized warehouse distribution center, machine shop and branch facility. Columbus and Cleveland branches are expected to open later in 2010. Rudd Equipment will add approximately 50 employees and will also rely on its staff in perimeter locations to help serve the needs of Ohio customers.

Burris sees a trend toward industry consolidation and the company will continue to try and expand its footprint. According to Burris, the market size is not the least important factor when moving into a new territory, but it is not the most important, either. Instead, it has more to do with micro economics. The company enjoys an incremental increase in business without much increase in their general office expenses in areas such as accounting and legal.

Having used different strategies for expansion in the past, Burris definitely favors company expansion versus growth through acquisition. "If you purchase another dealer, you get the good with the bad," said Burris. "There are many more obstacles to overcome."

Another reason Burris likes the company's prospects in Ohio is that unlike the previous Volvo dealer in the state, Burris is located in multiple states, a huge advantage when serving a growing number of regional customers.

"We put our customers on a pedestal and that aligns itself with larger contracting and quarry-type customers," said Burris.

The company is also working to expand its existing product line to include many of the brands they currently represent in other states, thus adding to the diversity of their product line and customer base. Rudd Equipment has already added Volvo road machinery, something the previous dealer did not offer.

"We are like an equipment distribution mutual fund," said Burris, "touching all or part of nine states. And we are not necessarily associated with just one manufacturer. We serve a lot of different types of markets, so you get the diversity. It helps to knock the curve down. Rarely are all industries down at once."

In all, Burris believes that expanding in a down market makes a lot of sense. "Leasing costs are less, highly trained people are more accessible, and communities are more willing to participate by giving you incentives. There are a lot of advantages to expanding when the market is down."

Fortunately for Rudd Equipment, they were ready for Ohio when Ohio was ready for them.

Road Machinery Takes a Long-Term View

Phoenix-based Road Machinery purchased Shanahan Equipment, based in Sacramento, Calif., in September 2008, just before the economy's plummet. President and CEO Dennis Romanson says they would do it all again, but admits the economy put a few bumps in the road.

"Fortunately we are blessed with owners that take a long-term view," he said. Since early 2005 Road Machinery has been owned by Mitsui & Co., one of the world's most diversified and comprehensive trading, investment and service enterprises. "A few years from now [the Shanahan acquisition] will be one of the larger contributors to our profitability."

With the acquisition of Shanahan Equipment, the Komatsu dealership saw an opportunity to effectively double its current business in Arizona, New Mexico and Southern California. However, there were numerous challenges. Since facilities were not part of the acquisition, the company needed to set up new locations within 90 days. Already having two existing facilities in Perris and Hawthorne, Calif., Road Machinery added locations in Sacramento, Redding, Bakersfield and Fresno – the latter facility was later closed, but the company will be looking to expand in the Bay area when business returns to normal levels.

Road Machinery was also in the middle of implementing a new operating system when the opportunity for the acquisition arose. Instead of trying to tackle both the conversion of the acquired company's system as well as their own, they opted to delay the new operating system until they had Shanahan on board using their old system.

The economy provided challenges from a personnel standpoint as well. "Ideally what you are acquiring are people and relationships," said Romanson. However, at the same time Road Machinery was trying to bring the Shanahan people into the organization, the economy dictated downsizing. "Right now we have a great team," he added. "Now we are fighting the battle on one front, but it took about a year."

In fact, the company recently added eight new salespeople and one finance person at the Phoenix headquarters. Taking advantage of the tight job market, the company successfully recruited on university campuses within the dealer's footprint. The ‘Class of 2009' has gone through a complete Road Machinery training program. "We have been training them in our image, instead of recycling people," said Romanson. He especially enjoys the enthusiasm that the young grads bring to their work, and believes it's rubbing off on existing employees.

Despite the bumps in the road, Romanson believes in the economics of expansion. "You can typically drive a multiple of the current levels of business through your existing infrastructure with very little additional cost," explained Romanson. "So what you do is try to expand or add marketplaces to it and keep a lot of the same infrastructure, so that you are just driving more transactions through systems that have a lot of capability in them."

As for expanding in a down market, Romanson believes that now is the absolute best time to do something, because of the number of companies that are distressed and looking for a way out. "We are always looking," said Romanson, "and the ideal is to do it with contiguous territories."

But expanding into new territories isn't the only way Road Machinery is looking to expand business. Additional product lines are designed to reach new markets and develop relationships with new customers that will ideally lead to Komatsu penetration. Wirtgen was added in February of 2008 in their entire footprint except California, and the Sennebogen line was added throughout the dealer's territory later that year. Romanson believes the lines are complementary and synergistic to the Komatsu line.

"We are looking for other product lines that fit into niches we don't cover," said Romanson. "We are looking at best in class products."

Stringent regulations and a competitive environment make California one of the most difficult markets to navigate. But Romanson is confident the Road Machinery expansion has what it takes to succeed: Management and ownership teams that are not only prepared to take calculated risks, but also prepared to weather the economic storm.
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