Upsize Magazine Article Kottke Trucking, Inc. March 2012
COVER STORY Old school Kottke Trucking revs growth — and lots of it — the traditional way KYLE KOTTKE sounds older than his 33 years when he talks about how he grows his business. He likes things simple. He carries debt only on trucks/trailers. He won’t invest in a new building because the return on investment stinks. He won’t use future cash flow to pay for things today. But the company’s results make him seem like a young hotshot: with his two broth- ers, he has managed to double the size of his family-owned trucking company in five years, and he is actively working on plans to do it again. INTERVIEW BY BETH EWEN PHOTOGRAPHY BY JONATHAN HANKIN26 AS SEEN IN UPSIZE MINNESOTA, FEBRUARY • MARCH 2012 reprinted with permission, all rights reserved www.upsizemag.com
“We actually managevery old school, andthe most importantstatement here is ourcash flow statement,”says Kyle Kottke,general manager ofKottke Trucking.
COVER STORY Upsize: Describe your company as it stands today. management role. They serve unofficially on our advisory board. Kyle Kottke: We’re a 74-year-old company started by my My Mom has an office in one of our buildings, and she actuallygrandfather. Myself and my two brothers took over from my Dad spends much of her time donating it to the city economic devel-in 1996. We operate just under a 100-person employee and inde- opment committee of Buffalo Lake.pendent contractor transportation company serving the fresh-to- Upsize: How did you and your brothers come to buy the com-frozen refrigerated industry. pany? Upsize: What is a typical work week like at your headquarters, Kottke: It started as a joke. My oldest brother said the successin Buffalo Lake? of the 1990s was doing nothing more than increasing his inheri- Kottke: The easiest one to describe is the driver. Of course he’s tance tax, which led my Mom and Dad through estate planning.taking the shipment from point A to point B hopefully on time This included a period of salary options and then buying of theand safely. Most people describe my operations center as the stock, which took us until the end of 2011 to remove them frommost creatively designed chaos ever made. We’re fast-paced. We some form of payroll. It allowed us to have an equity stake. So allreceive on average a phone call a minute. And that doesn’t the gains we’ve made since 1996 have been on our own behalf.include all the data exchange that we’ve got through EDIs, and e- They officially sold their stock early in life, and it allowed us tomails, and everything else we’ve got going on. get in and get started much younger. They were 55 when that We’re booking work; we’re satisfying customer needs. And it process began.usually turns into a very long day that seems very short. Upsize: What role does each brother play? Upsize: Have you had to make a big investment in your facili- Kottke: Each of us took a different path. Kurt, the oldest, start-ty? ed as a farmer, and he was working part-time in the non-farm sea- Kottke: We sit in a very old building that our father gave us in son for my Dad. And my Dad told him it was an opportunity toour transaction. It’s not a pretty, fancy item, like what is very com- grow the trucking business. My other sibling, Kory, the middle ofmon in the metro. We’re very reserved and conservative. When it the three, he knew all along he would be involved and has beencomes to technology we do have a very up-to-speed server sys- involvedtem, phone system. But if you saw our building you would chuck- Upsize: So you’re the youngest. How did you get to be inle, and my banker says if we ever break ground on a new termi- charge?nal, that’s the day I reconsider my relationship with you. Kottke: I went to school to be a banker and found out the tie Upsize: Why do you stick to your current HQ? was very tight on my neck, and so I did not wait long to come Kottke: The reality is our complex today has taken us from five home. I was a graduate of the St. Cloud Technical College, thetrucks to 75 trucks. We’ve been very creative with the way to credit and finance program.make it take us to this point. We joke with everybody—I always Upsize: Share details of how you manage your financial per-say I have one more payment left on this building and I can’t do formance.anything different until that’s finished. I’ve been saying that for Kottke: First of all for debt structure alone, we’re conservative.years. The only thing we debt structure is new capital purchases, or My banker knows our conservative ways enough—it’s going to trucks/trailers. That’s through a traditional structure.take a small act of God to get us to do something different, We actually manage very old school, and the most importantbecause the last thing I want to do is spend money on a building. statement here is our cash flow statement. We watch it every Upsize: Why do you feel that way? month, and we truly need to generate cash month to month to Kottke: It doesn’t matter what building I sit in—that doesn’t month.make me a better or worse company. Therefore my ROI on a At the end of the day or the end of the year a good year is a 5building is as low as I can imagine. The day I outgrow this facili- to 8 percent increase in stockholders equity. Obviously thety is a sad day for me, because I have to do something different at income statement, balance sheet and cash flow statement is thea large expense and that’s not a good investment. generator of that. It’s the only way I know how to do things. Upsize: How did you develop that philosophy? Maybe that sounds so simple, but I’ve only worked one other Kottke: It’s bred into us, it’s no question. You would love to place. I grew up around this businessmeet my mother. She’s still the lady who has a few coffee cans full Upsize: Tell me more about when you use debt.of a few quarters for the day she’s worried she has to buy a loaf of Kottke: The only capital equipment we acquire with debt isbead. She was very old school, but very wise. She was very frugal. our truck/trailers. We have a large investment into tools and It was led by example when we were young. machinery in our maintenance department, but all that would be My father is very similar. He’s the hard worker of the family. generated and taken out of cash flow. I have no debt structure onHe would roll up his sleeves and work hard and never say any- any of my facilities. I don’t have any debt structure on anythingthing about it. It was a very good partnership that they had. besides capital investment in tractors and trailers, and those are Upsize: Are they still involved in the company? traditional arrangements. I have three different providers that Kottke: We’re very blessed. He’s not of grade A health; he’s a lend: TCF, Cen Bank, and Capital One has an equipment finance50-year smoker. But we’re very blessed; they just turned 70. I see division.my Mom and Dad every day. They don’t have an ownership or Upsize: Don’t people tell you that you’re missing out on faster28 AS SEEN IN UPSIZE MINNESOTA, FEBRUARY • MARCH 2012 reprinted with permission, all rights reserved www.upsizemag.com
“Everybody’s so worried about affecting their balance sheet today. I believe our approach is best foraffecting our balance sheet one, two or three years from now.”— KYLE KOTTKE, Kottke Trucking growth? these guys are away from home five to 10 days. That’s very diffi- Kottke: Everybody’s so worried about affecting their balance cult to find the home front that is able to work with that. sheet today. I believe our approach is best for affecting our bal- I have both independent contractors and employees. Not every ance sheet one, two or three years from now. I manage for today’s guy who drives the truck wants to own the truck, and therefore cash flow, so if I can manage for whatever facility upgrade I want they work best as an employee/driver, and the guy that owns the today all of that leads to future cash flow. Maybe that’s old school, truck has the investment of the truck, the fuel. It’s the same job I’m not sure. but a much different outlook. It’s typical to have both; where You mentioned before the joke about the large, publicly traded we’re different is that we’re equal, 50/50 between employee driv- company building a new headquarters—and that’s when share- ers and owner/operator drivers. It’s typical many companies will holders should run because it’s usually a sign of bad times ahead. choose one or the other that they’re better at. Well the truth is they make some gadget facility to keep that real Upsize: Tell me more about the changes your customers are estate off their balance sheet anyway. I like things simple. What making to their operations. you see is what you get. Kottke: When diesel was cheap everybody was real quick to Upsize: What are the biggest areas of change in your industry? close facilities and ship nationwide to one facility, so it was very Kottke: It’s changing steadfastly. There are two main drivers, likely that a company in Minneapolis would put their biscuits all and the first item of change is simply the energy marketplace. over the U.S. Now they’re duplicating facilities and regionalizing With diesel fuel at or near $4 a gallon, we’re watching our cus- the haul. Therefore it’s not as common to find the Minneapolis- tomers go back to more of a regional concept. So maybe Gener- to-further distance loads, which is OK. al Mills, for example, will not ship their pastries 1,200 miles, but Upsize: Where do your trucks go? maybe they’ll have two bakeries each shipping 600 miles. It Kottke: We service 28 states. If you drew a line from North changes the work flow of my organization. Dakota to New Mexico that’s what we call our west coast. And The second thing that’s having an impact is the ability to find then we go no further northeast than Ohio. And we serve every- capable, willing and professional drivers. The truth is many of thing in there. It was set up 20 years ago for driver convenience. www.upsizemag.com AS SEEN IN UPSIZE MINNESOTA, FEBRUARY • MARCH 2012 reprinted with permission, all rights reserved 29
COVER STORYIt was a way for our drivers to be away from home a half to a third you want to buy today, that just robs from cash flow tomorrow.less than what is typical. Hence the reason Mike came on as our first non-family member Upsize: How important is technology for your operation? salesperson, and he has hit the ground running. Kottke: It’s incredibly important. There are much smarter peo- Upsize: You’re speaking about Mike Udermann, your new sen-ple than me that tell me what I need and what I don’t need. I find ior vice president, who first contacted me to tell me about Kottkepeople that I trust to help me. I have an IT consulting company Trucking. Why did you hire him, as your first non-family salestravel here once a month, and they do very good work telling me person?where our dollars will be spent. Kottke: The truth is you kind of hit the point that your own I just know how to move stuff. The rest of the stuff is Greek to techniques are hitting the wall. Mike and I have known eachme. other for a few years through different spots he had been, and we Upsize: It sounds like you rely on outside expertise when you knew he was available, and because of our conservative ways weneed it, like your attorney, your accountant, your IT consultants. were able to quickly expand our budget to bring his talent to our Upsize: No question. You find good people, you build your team.business around them. The bad part of having small companies is Upsize: Where will your company be in five years, or whatev-you can’t afford to have them on staff. er time frame you use? Upsize: What is the best advice you’ve ever received about Kottke: We’re very careful not to forecast to a time but to fore-running your company? cast to a revenue. Therefore we don’t put ourselves to a deadline Kottke: The moment you don’t look for progress is the that forces us to make decisions that aren’t conducive to what hasmoment you begin to digress. It was a word from my father when put us here. There is lots of talk here about another 100 percentwe took over the business. He had heard it from one of our larg- growth. We are sitting at 75 trucks and we are actively workinger competitors, which was always looking to progress their com- blueprints to see how we look when we’re at 125 to 150 trucks.pany because they were looking at the up-and-comers. Upsize: Is the next generation of Kottkes getting ready to take Upsize: Are you now considered to be one of the bigs, being over?chased by the up-and-comers? Kottke: I’m 33; 40 and 46 are the other ages of our manage- Kottke: Oh no. Our industry is getting larger. Where we were ment. We’re very young. My nephew is 17 and going to graduate15 years ago is now a struggling company. The shipping world high school this year, and he’s the oldest of the next generation.has gotten bigger, and to look at a company a third of our size, He has an adamant goal of getting into journalism and broad-they just don’t want to do that and I don’t blame them. casting. As much as it was coincidental when all of us ended here, Upsize: What is your revenue? we’re going to make sure that there’s absolutely zero pressure that Kottke: We’re at $19 million. Five years ago we would have the next generation gets involved.been approximately half of that. The beauty of the next generation is, my dad only had three Upsize: That’s a lot of growth! You’ve been holding out on me, sons. My oldest brother had one boy. Kory had four girls and nowtalking about how conservative you are. How did you do it? I have three girls. In a man-dominateed industry, we have one Kottke: Well, it’s nothing more than strategically putting one man and seven girls. We chuckle. We’re either going to get sometruck more on the road at a time. You know it’s not a very scien- female power involved with the company or we’ll be part oftific process. We had a healthy balance sheet that we’ve built on someone else one day.top of and we have been able to continue cash flow gains. Upsize: What’s one turning point for your company, when Upsize: What’s the biggest challenge you’ve faced? something happened and things started going much better than Kottke: The hardest struggle that we had to face was a struggle before?that everybody faced in 2008. Everybody else tried to trim their Kottke: [laughs] We’re farm boys at heart. We joke that ourexpenses and focus on just exactly what was floating their boat. turning point was when we started buying bulk toilet paper.We decided to do more of everything and grow through the Maybe it’s our even-keeled nature, but there’s not one day, onetough times. Looking back on it, it was crazy. It was a calculated moment that I go, Huh, there it was. There’s been many wins andgamble that we felt comfortable with. The balance sheet, the many losses, and our scoreboard has always been trying to makeweather, the situation — and we’ve been blessed with picking up sure we win one more than we lose.customers because other companies were cutting back. I’m hoping 10 years from today I’ll look back at bringing in a Upsize: How did you get the courage to take that calculated professional salesman and thinking that was the first day of thegamble? next stage of growth, but you just never know. Kottke: I don’t know—the smartest man or the richest man inthe world tells me that when others are selling you should be [CONTACT]buying. Does it get any simpler than that? It involves our long- Kyle Kottke is general manager of Kottke Trucking Inc. interm focus. We weren’t concerned about the immediate future so Buffalo Lake: 800.248.2623, ext. 2422; kyle_kottke@kottke-we could look at the longer-term future. trucking.com Paying for things when you buy them allows you to be moreaggressive going forward. If you need future cash flow for what30 AS SEEN IN UPSIZE MINNESOTA, FEBRUARY • MARCH 2012 reprinted with permission, all rights reserved www.upsizemag.com