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Handing over the keys
For more than 100 years, Linder Equipment has served the agriculture community of Tulare, California. An area where cotton was once king became a popular place for dairies. As row-crop farmers moved away from cotton, forage acres increased, and more and more nut trees began to replace the formerly dominant crop.
During that time, the dealership evolved with the ag landscape. But for as much as it has revised its machinery lineup to accommodate its clientele, it has also reached a fork in the road.
“This is not a good location, and it's really an old school location,” says general manager Jim Dokken. “We've outgrown this facility. When you reach that point, the decision has to be made on whether you want to continue with the business. If you do, you have to make a big commitment.”
While he knows the reality of the situation, Dokken's hands are tied.
At 95, Frances Linder oversees the family business that her husband, David, and their son, Robert, once ran. The two men carried the dealership through good times and bad with an eye to the future.
When David was at the helm, he took the company his grandfather built and further developed that business with deep roots in the local community. Known for running a tight ship, he was a visible owner who had a genuine interest in his employees.
After David's death in 2001, Robert took over. Back then, Robert knew the business was headed toward a critical juncture. But any plans for growth faded away in 2011 when he suddenly died.
“We were making real progress with Robert,” notes Dokken. “He understood that in order to stay competitive, we had to look at expansion.”
Even with projected earnings at about $24 million in 2012, the door that was once open to expanding the business has been closed.
The dealership not only has outgrown its current space, but also is the sole site in a world where multistore locations are becoming the norm.
“The old days of the single-location dealership are pretty much a thing of the past,” says Dokken. “This is a family business, but those days are numbered because it's all about economies of scale and keeping the numbers up.”
As major iron makers reshape their dealer networks, owners are forced to take a long, hard look at their future and what it will take to survive.
“We're not doing it because we want to be a pain to our dealer network,” says Alistair McLelland, AGCO. “We believe small single-store dealerships – and there will always be exceptions – will have to expand into or become part of multistore operations to achieve the critical mass required so they can make investments in the business.
“Dealers recognize that a business with a portfolio of $5, $7, or $10 million is going to struggle to be seen as a viable alternative to a $100-million dealership. They just can't keep up with the investment requirement there,” he says.
It's that investment in the future that has Linder Equipment at a crossroads.
Paying it forward
As the owner of Van Wall Equipment, Don Van Houweling knows that planning for the future is paramount to continuing the legacy he has so carefully constructed.
From humble beginnings as a John Deere plant employee in Ankeny, Iowa, to the owner of 12 store locations, Van Houweling has diversified his business to stay viable in an ever-changing industry.
“When I started in 1974, most of my customers had 400 to 500 acres,” he recalls. “As those customers moved to 1,500 to 2,500 to 3,500 acres, their expectations and the scope and scale of the support systems they needed changed. I went from about 500 customers who were professional ag managers down to around 50.”
As that happened, his dealerships had to become larger to support the scale of services these customers were going to need.
“I had to consolidate into a multistore environment where I had an investment with centralized management but decentralized support,” he notes. “One of my benchmarks of a well-run, balanced sales, parts, and service dealer group is $600,000 of average revenue per full-time employee.”
It's a trend that is gaining momentum across all brands.
“The main thing that's driving the need for that change in mentality at the dealer level is the fact that the customer base is changing so rapidly and dramatically,” says Alistair McLelland, AGCO. “We've gone from a single-store dealership that had its core group of customers and basically was a relationship-based business to a more business-centered approach.”
In the past, a single-location dealer sold to the same customer base who traded equipment every two or three years. This setting created a nice business for a family.
“Today, farm consolidation is making the farm end of things much more of a business-type relationship than it ever has been,” he says.
As the farming landscape has evolved, so, too, have dealerships expanded to support the enhanced services that customers demand.
Yet, even though the dealerships have grown to meet increasing demands of a changing customer base, farmers still want to feel connected to their dealers.
“Relationships between dealer and customer continue to be critical, and a key factor is trust that they're working together for mutual success,” says David Rock, manager, John Deere Dealer Strategy. “However, that relationship has moved beyond personal and includes business relationship factors with increased expectations for dealer performance. Dealers are changing their business models and developing employees to meet this higher level of customer expectation.”
Van Houweling knows that shaping the future of Van Wall Equipment comes not only from growing locations but also from the talent.
Today, both of his sons work in the company. Mark oversees transportation logistics; Matt is in charge of marketing and IT. Van Houweling's wife, Terry, handles receivables.
While the family component is important, he believes success has come through a blend of competent family members as well as budding, yet aggressive, managers.
“I have brought in other young, capable management people and given them a percentage of the company,” he explains. “My model is to create ownership opportunities for young aggressive managers that are going to be a part of our future.”
From 12 employees to 260 today, he's built a well-oiled machine by placing family members where their expertise best benefits the business; yet he is ensuring it won't slow down if there's not enough family talent.
“I've got all of these pieces coming together that really mesh well to make it a successful business,” says Van Houweling.
It's clear that transitioning a dealership to the next generation is not as simple as handing over the keys to the front door. It requires long-term planning, as well as good communication and management skills.
“Business continuation through management and ownership development and generational succession is a challenge that dealers are preparing for,” says Rock.
As dealers plan for the future, Van Houweling believes it will be a challenge to create that blend he has so skillfully crafted, especially for the long term.
“The key is to be very generous and look at why you wanted to be a dealer and what it did for you,” he says. “Give the young talent of the future some of the same opportunities for ownership.”
It's a similar chance afforded him when he became a dealer at age 29.
“Everything Deere thought I needed to learn, they put me through,” recalls Van Houweling of his days in the Ankeny, Iowa, plant. “I worked on the assembly floor, in parts procurement, in marketing, and in forecasting.”
Ending up in accounting, he was asked to do a marketing program on parts forecasting.
“I did that for two years and visited about 100 dealerships in the U.S. and Canada,” he says. “That's when I decided I might be better as a dealer than a factory worker.”
Deere supported the idea and put him in touch with a couple of possibilities. Nearly four decades ago, he became a junior partner with Donald Wall in Woodward, Iowa. Now it's his turn to pay it forward.
“It's so important in any business to mentor the younger generation,” Van Houweling says. “The beauty of it is now there's a cadre of talent that's available in our dealerships. It's not all about one person. I think that's key.”
Rethinking the dealership business model is the foundation on which Agri-Service, Inc., has been built. For over two decades, the company has created an environment where employees have a vested interested in their place of employment.
“We decided to become employee owned for a couple of reasons,” explains Cleve Buttars, president and CEO. “First, it was a good succession strategy for me, because it allowed me to pass the company to those who helped build it.”
It also provides other incentives. “There are tax advantages to being owned by an employee stock ownership plan (ESOP). And as a qualified retirement program the employee group purchases from me with money, we no longer pay in federal and state income tax,” he says.
How the system works
If an employee has worked for Agri-Service for three years, he or she is vested and receives ownership of the stock value in an ESOP portfolio.
“They get shares in accordance with their wage's percentage of our total payroll,” explains Buttars. “In other words, if their wage was 1% of our payroll for the year, they would get 1% of the total ESOP contribution.”
The stock cannot be sold or pledged by the employee to anyone else. The company will purchase the stock back upon retirement with the intent to reissue it to new employees so the cycle continues.
Along with the ESOP, Buttars has adapted an open-book management philosophy.
“Employees are allowed to see the entire financial statement in detail, except for individual salary and wage information,” he says. “They know how each store and department is performing. Our computer system also allows us to produce separate financial statements on the profitability and efficiency of each service technician and analysis on the performance of parts personnel and the sales staff.”
Employees are encouraged to provide input on how the company can increase profits by watching expenses and increasing sales.
He points out that management hasn't totally changed, however.
“We don't vote on all business decisions – just as owners of General Motors stock don't manage that corporation,” he notes. “But we do have employee surveys, and we do empower stores and department managers to solve their own problems with as little interference from our executive management team as possible. The top tier of management concentrates more on training managers to lead.”
Before he opened his doors, Buttars had support from the manufacturer to create a business model that would endure the test of time.
“The existing Hesston dealership had closed down. Fiat Corporation interviewed me about moving from Logan, Utah, to Twin Falls, Idaho, to start it back up as part of a dealer development project,” he recalls.
Acting as his banker the first year, he rented the Twin Falls facility from Fiat. About two years later, Buttars purchased the property.
“The dealership hit the growth of the big baler market at a perfect time, as dairy farmers made the switch from two- and three-tie bales to the 1-ton bales produced by the Hesston big baler,” he says. “We acquired stores over the next 22 years – some through attrition as small dealers vacated the market and some through luck, like when AGCO purchased Massey Ferguson in 1993 and we acquired the former Massey store in Burley.”
The company has grown significantly since acquiring its first location more than two decades ago.
“The observable difference is going from five to 150 employees and having 10 locations doing over $100 million in sales,” says Buttars. “But since I started in business, wages for service techs have increased dramatically, and the struggle to find or to train good techs is everyone's number-one issue.”
He doesn't need workers who can overhaul engines; he needs employees who know electronics, hydraulics, computers, and GPS programming.
“The young techno-savvy technicians will be irreplaceable,” he says. “The same goes for salesmen. Tractors are way more complex than a fancy automobile, and the cabs look like cockpits. Salesmen that don't keep up with technology and know fuel economy won't win the game.”
In the end, Buttars says it's the farmers who are the main beneficiary of this new level of competency and enthusiasm.
“Customers have commented on how our employees change once they embrace the concept,” he says. “Our people enjoy their jobs more and take pride in their work.”
In the not-too-distant future, the company will be 100% owned by the employee group.
“We have had some very strong financial performance years, and the plan is proceeding perfectly,” comments Buttars. “It is an incredible tool in retaining and attracting employees, because they see the growth of the company in their individual stock portfolio. We issue new stock every year on a set schedule. Employees are rewarded with increased stock value if the company achieves sustained growth.”
A few challenges
But that's not to say the dealership isn't faced with obstacles.
“Our biggest challenge is keeping ahead of the technology race and getting long-term loyal employees to buy into the ESOP and make career commitments to spend their working lives with us,” he says.
Although they have very low turnover, the difficult part comes in keeping the good workers and continually upgrading marginal ones.
“Plus, we need to have Spanish-speaking employees in all stores so we can make sure we communicate perfectly,” he notes.
As the dealership evolves, so, too, does Buttars' function.
“My new role is more as a leader than a manager,” he says. “I have a great partner with my son-in-law, Clint Schnoor, who is the chief operating officer. He takes care of the daily operations of the business. Our executive management team is very competent. My task is to counsel them, then get out of their way and avoid the micromanaging.
“Agri-Service has thrived because of the whole team – not just me,” Buttars says. “I am excited to still be here and to watch the employees grow my company into their company.”