DAT Keypoint SPECIAL REPORT. Growing Your Small Business Steve Blair, General Manager, Keypoint Transportation Software

Transcription

1 DAT Keypoint SPECIAL REPORT Growing Your Small Business Steve Blair, General Manager, Keypoint Transportation Software

2 SPECIAL REPORT 2 Introduction: Growing Your Small Business While there are some risks associated with any start-up, a new business also brings the potential for a high return. By understanding the risk-reward tradeoffs inherent in a growing freight brokerage, you can choose the business model that suits your situation and position yourself for long-term success. A business goes through four distinct phases: startup, growth, maturity, and transition (figure 1). In the startup and growth phases, your main focus is to contribute time and money, while a mature business can offer opportunities to distribute earnings and offer a more relaxed lifestyle. Following the successful start-up phase, you will face some choices and risks as you grow your business. During the growth phase, you should plan on investing heavily in your business, with both your time and your financial resources. If you divert your time and attention, or start to distribute earnings too soon, your business will be less likely to reach the next stage. Figure 1 - Successful Business Lifecycle The four business lifecycle phases: startup, growth, maturity, and transition. There are several models that are available to grow your transportation company. I have divided them into two main types: Organic and Agency growth. Agency Growth Many brokers grow their business through an agency model. An agent-based company provides back office support to brokers who do not want to handle billing, accounting, carrier qualification, insurance, etc. The agent brings in quick revenue growth, usually on a commission-only basis that reduces the company s indirect costs but dilutes profit margins. The agency model provides ongoing opportunities, as individuals look for a way to work independently without the risks of business ownership. When you hire agents, keep in mind that they are aggressive, independent businesspeople, and you will be providing their back office services. It is helpful to think of these agents more as customers than as employees. To manage an agency model effectively, you will need solid systems with low costs per transaction and sound financial management to handle cash flow. If your agent-based company can become efficient enough on a per-transaction basis, this model facilitates rapid growth. A quality TMS is critical to this model: your agents receive the benefits of a full-featured TMS with all the tools of a large brokerage, such as integrated freight matching, load tracking, web services for the shipper, etc. In exchange, you receive a ready-made and expanding sales force. As long as your TMS is robust enough to handle a large agent network, and efficient enough to keep your overhead low, the agency model can be a great growth path for your company.

3 SPECIAL REPORT 3 Organic Growth Personnel. There are two ways to hire for organic growth: find experienced personnel, or hire new. When you hire experienced people, you should get someone who can hit the ground running and hopefully bring in a book of business and expanded knowledge. The risk here is that the experts you bring in from other transportation providers are by definition mobile and may jump to another opportunity the same way, possibly taking some of your business with them. These people are generally more expensive employees, but they come up to speed much faster and can bring needed expertise to the business as you expand into new segments or regions. Alternatively, you can hire people who are new to the transportation industry. Naturally, their learning curve will be longer, and it can also take a lot of time and effort to find quality people. To be successful, a strategy of hiring industry outsiders requires a solid business model, with set procedures and formal training and promotion paths. People who are trained by you will work the business your way, with fewer pre-conceived notions or bad habits to be unlearned. However, if this is not handled correctly, you risk investing in personnel who will ultimately leave you to work for a competitor.

4 SPECIAL REPORT 4 Choosing a Niche Many start-up brokers haul truck load dry van freight, as it tends to be the simplest and most abundant freight available. The problem with this segment of the market is that it is typically a price-driven market with many large players and relatively low margins. Equipment Type Once you are established in the market, you can seek opportunities to broaden your horizons and expand your company. As a small company, you are better off choosing a unique niche that is suited to your size and expertise. In a small, nimble brokerage, such niches may include a high level of customer service, flexibility, and responsiveness, or a particular geography or cargo type. Geographic Expansion Many freight brokers specialize in a geographic area, often an area they know well. Exploring regional freight markets can offer opportunities for growth. To help make a smooth transition, hire regional experts or deploy a robust rating tool such as TransCore DAT s Truckload Rate Index. Ratios of freight by equipment type, from TransCore DAT s Broker Benchmark Survey. Adding Equipment Types Another option is to grow your product line by moving similar freight but specializing in a different equipment type. This strategy may add complexity, as it requires special expertise to prevent major mistakes. Transportation professionals report that a common way to expand into a new segment, such as flatbed, is to bring in one or more experienced staff members who understand that type of freight. This plan is even better if the new hires can bring along a book of business. With the right staff, you can expand into flatbed, reefer, over-sized or specialized freight, as you will have the experience and expertise on board to handle the unique issues associated with your new business segment. Expanding Modes New transportation modes also offer opportunities for expansion. In addition to truck load (TL) other niches include less-thantruckload (LTL), LTL consolidation, intermodal, and air/expedite. Partial LTL is a load that you put on a contract carrier that has some space on their trailer. These loads are handled similarly to a truckload and can provide nice margins if you can make them happen. Partial loads are difficult to plan, as freight and truck availability must line up just right to make it work. LTL consolidation takes a number of LTL shipments and combines them on a contract carrier. This can be a profitable model for brokers, as the com-

5 SPECIAL REPORT 5 parable LTL rates for the shipper are higher than the TL rates to the carrier, creating a built-in margin. The challenge is to have consistent sources of freight with a method to combine them in a warehouse or cross-dock operation. Investing in warehouses is a capital-intensive decision, and may cause some new brokerage companies to avoid the LTL consolidation business. Common carrier LTL is shipment that is tendered to a common carrier as a single piece of freight, for the carrier to consolidate and move through terminals to delivery. Many companies see common LTL as an area for growth, but it entails some risk. First, this market segment is very price-sensitive and subject to discounts. In order to get the best discounts, you need to have high volume, and in order to get the freight volume, you need the discounts. If you can procure a steady volume of LTL freight, then this market may work for you. One option is to outsource your freight to a specialized provider, sharing your margin to get a foothold in the market. If that business develops sufficient volume to qualify for discounts, you can consider bringing the business in house. Intermodal is putting a trailer or container on the rail. This involves a minimum of three carriers (cartage of each end and rail in the middle). You will need unique knowledge, volumes, and systems to handle the freight and many people start out by sub-contracting this freight out to a specialty company. In this way, it moves like a truckload through your systems with a single customer and a single carrier. Third Party Logistics (3pl) is not typically a growth area for a small company, but as you grow into all the different segments of the market, you move closer to the potential of providing 3pl services to your customers. As a 3pl, you will need to be capable of moving all types of freight and thinking more like a shipper, in that you will need to do contract dedicated freight with carriers and tiered load tendering. Building Infrastructure One thing that all these organic growth methods share is the need for systems to handle the growth. If you start out running your business with spreadsheets, word processing, and simple accounting software, you will quickly reach a point where the tools are hampering your growth. An integrated Transportation Management System (TMS), such as TransCore s Keypoint, can facilitate growth by supporting operations and accounting together, introducing efficiencies and controls into your work flow.

6 SPECIAL REPORT 6 Many successful brokers will credit a solid TMS as the foundation for growth in the transportation industry. It is not uncommon for these companies to realize ten-fold growth without adding to the back office staff that ran their old, manual systems. Carrier relations can also be a sticking point for a new brokerage. When capacity is tight, as it is today, your TMS and your staff may not offer a large enough selection of carriers to meet your needs. Add a high-volume, reputable load board, such as TransCore DAT s Load Boards, along with a solid carrier validation system such as TransCore DAT s CarrierWatch to boost your carrier portfolio without burdening your staff. To ensure that your rates are in line with seasonal and regional norms, benchmark your rates with a market-based rating tool such as DAT Truckload Rate Index. Summary Whether you choose to expand your business organically, with internal hiring or through an agency model, you will need a solid customer base and reliable sources of truck capacity. Add a nimble pricing strategy, good cost controls and consistent attention to detail, and you have the elements for success. As you guide your new business through the growth stage, continue to resolve your customers transportation logistics challenges efficiently and cheerfully and you will build the two most important assets for the future of your brokerage: sustainable profits and a reputation for excellent service. To learn more about Keypoint, call or visit DAT Solutions. All rights reserved. All trademarks are the property of their repective owners