Growing Pains

| December 12, 2008

This time around, Mike Connors was very careful in choosing a driver for a second truck.

Florida owner-operator Mike Connors added one truck in 1996, then another in 1997. But before 1998 was over, lack of revenue forced him back to a one-truck operation.

“It’s not that we weren’t profitable,” Connors says. “It’s just the money didn’t meet the frustration level. The risks were too great.”

Connors recently hired a driver and put an old truck back in operation for another chance at being a small fleet owner, but this time with more caution. He established a dedicated run with a stable client at a good rate, which means predictability for his second truck. Since deciding to expand in January, he says, “My expectations just about match what I’m getting.”

Truckers who plan to expand should realize that their success at operating one truck doesn’t guarantee they can duplicate the profits with a second, third or fourth truck. Connors’ initial failure at running a small fleet is not uncommon. Many owner-operators who try to expand fail because they can’t find that stability in a reliable driver or in freight, and they either lack management skills or can’t find time to manage while driving.

Fleet owners who once held the reins of their own rigs and others suggest writing a business plan, investigating the amount of demand for services, and building good relationships with clients and potential drivers.

“If you’re going to be a fleet owner, you have to become a teacher, manager, cheerleader and mother,” says Ken Dewitt, a principal with Tidwell DeWitt LLC, a consulting and accounting service that advises trucking companies. “You have to learn how to be a tough businessman.”

And the first step in that direction is a business plan.

A DETAILED PLAN FOR GROWTH

Whether two pages or several dozen, a business plan has to be specific and written down, Dewitt says. More than a list of goals, a business plan details how you will achieve those goals.

“I’m working on an acquisition right now where a fleet is buying 50 trucks and they don’t have a business plan,” Dewitt says. “That’s why the failure rate is so high in trucking.”

“It took me 35 years to get to where I am now,” says owner-operator Gary Stowe, who runs 10 trucks out of Michigan, “But I had my vision set on what I wanted to do and how I wanted to get there. When I finally got to the point where I wanted to get, I kicked back.”

A successful owner-operator has to be willing to develop a plan like Stowe did, Dewitt says. “A smart businessman builds a profit model into his business plan and follows it,” he says.

A key part of a business plan is building an adequate financial cushion for times when you can’t keep the seat filled or when freight is difficult to find.

Scott McElmurry, owner of MST Freight Services, a nine-truck operation in Lakeland, Fla., says his rule of thumb is to have $10,000 in the bank for every truck on the road. The nest egg is necessary because “you never know what you’re going to run into,” says McElmurry, who once managed a fleet of 35. “As long as you have that kind of cash, people will stand behind you longer. You can go three or four months and lose money and still have time to figure out what the problem is.”

Dewitt says an owner-operator should have at least six months of working capital – money that’s not borrowed – before putting a second truck on the road. “You need to be able to withstand losing a driver for several months,” he says.

DEVELOPING KEY RELATIONSHIPS

If you’re operating under your own authority, larger carriers will probably be able to beat your prices, so you will have to earn business with good customer relationships. Even if you’re not independent, good relationships become more important than ever when you’re running more than one truck.

“It takes a lot of hustle,” Stowe says. “A one-man operation can keep everybody happy. But a two-man operation – you’ve got to keep the clients happy with what your second man is doing and you’ve got to keep the second man happy with what he’s doing.”

Owner-operators who are leased to a carrier and expect to lease on other trucks with that same carrier should get to know their fleet managers, terminal managers and operations personnel. “Make sure they know who you are,” says small-fleet owner Greg Swift says. “And earn their respect.”

Finding a mentor in a fleet client can also be helpful. “Work with someone you’re aspiring to be like – someone who is willing to answer your questions, someone who has covered the ground you want to cover,” Swift says. “Don’t go into expansion using trial and error or you’ll be out of work.”

Many carriers who use owner-operators would rather use them over company drivers because the carriers can earn more. However, a fleet manager will be less willing to give additional loads to an owner-operator with a spotty record, even though he adds capacity.

Relationships with other drivers can help you find people to hire when you add trucks. Listening to what they have to say can give you some insight on what drivers like and dislike and, if you’re an independent, the nature of the fleets you’ll compete with. Finding drivers is difficult enough, but getting them to work as hard as they should often makes the difference between success and failure.

“If an owner-operator expands and is unfortunate enough to get the wrong guy, he not only won’t double his revenue, that other driver will pull all the profitability out of first truck,” says Ed Kentner, director of recruiting for National Carriers Truck Lines. “If he’s successful, he’ll be marginally so, and face double expenses and headaches.”

Owner-operators have a much tougher time than large carriers hiring quality drivers because the small operations can’t offer benefits or great pay. “The help situation is always a problem,” says owner-operator Stowe. “That’s the hardest part. We have to offer flexible hours to keep them.”

Connors searched diligently before choosing his new driver, an experienced trucker. “He’s not in it for fun,” Connors says. “He’s in it for the living.”

MOVING INTO MANAGEMENT

After finding the freight and driver for that extra truck, the most important thing owner-operators must deal with is the management aspect of the role, say experienced fleet owners, that includes to what extent, if any, they give up driving.

“Owning 10 trucks is like owning 10 little businesses,” says DeWitt. “And 9.5 have to be working to do this right. You can’t have a high percentage of non-performers.”

Part of being a good manager means being open with your drivers and paying on time. Connors makes a point of keeping his new driver in the loop. “Today, I told him what his load is going to be next week,” he says. “Typically, when he gets unloaded, he knows before he takes a load going back to Florida what and when his next load back to Texas is going to be.”

Kentner says an owner-operator will sometimes pay his truck payment before his driver when times are tight. “They always rob from the driver first, and think that the guy will stick around until times get better,” he says. That drives the employee off, so the truck quits running, compounding the owner’s problems.

Expansion ultimately can mean giving up some, if not all, of your driving. That’s because managing drivers, even a few, can be a full-time job. “The owners that I see who are successful no longer drive a truck,” Kentner says. “They’re at home monitoring what their trucks are doing. Those guys are on top of their businesses. They know what each truck is doing and what their finances are.”

Some truckers will expand and then find themselves driving more miles in their truck just to make up for the shortcomings of their other trucks. “When a guy gets up to four trucks, he’s working his tail off on the first truck to cover the other three,” Kentner says. “When he’s out driving his own truck, he can’t pay attention to the other ones.” That lack of attention often drags a small trucking company under.

Stowe had managed a food store before he got into trucking. “When the store went belly up, I bought an old truck and started hauling, but I knew from the store what you had to do and how to manage people,” he says. “You have to sell so much product to make the store work. The same is true of trucking.”


THE PAINFUL TRANSITION

On average, owner-operators suffer financially in the first years of trying to expand beyond one tractor or trailer, according to Overdrive’s 2003 Market Behavior Report.

“To get to three to five trucks – it’s a death sentence for most of those guys,” says Todd Amen of American Truck Business Services, which provide financial services to 10,000 owner-operators. The managerial demands of hiring and maintaining one or more drivers is too draining on someone who’s also trying to operate his own truck full-time, he says.

“When you run two trucks or three trucks, there’s more pressure on an owner-operator to keep costs low and revenues high,” says Chris Brady, who compiled the Overdrive report. Employing a driver also increases overhead costs of paperwork and taxes.

Fortunately, for those who master the managerial and administrative burdens of growth and employment and continue to grow, income improves beyond one-truck owner-operator averages. “At four to six units, you probably have a business model relatively in place to manage the business,” Brady says.

- Max Heine


FROM ZERO TO 157 TRUCKS IN EIGHT YEARS

After a career as a state trooper and a government bureaucrat, Greg Swift decided he would make a go as an owner-operator, with an eye toward becoming a fleet owner.

First, in his spare time Swift developed spreadsheets on expenses and a cash flow model. In January 1995, he resigned as head of training at the U.S. Department of Energy and enrolled in a trucking school.

By May he had his first truck and leased to PST Vans, a decision based on conversations with dozens of drivers. But Swift’s business plan did not include him driving long-term. He wanted to drive only for a year to validate his research and analysis regarding how to make a living off trucking.

“I wanted a good idea of profit and loss in one truck,” he says. By September he added three more trucks, and then got out of his truck at the end of the year. He joined U.S. Xpress when it absorbed PST in 1998.

Today, Swift owns Swift Enterprises, a 157-truck fleet based in Cleveland, Tenn., and leased to U.S. Xpress. By the end of the year he plans to have up to 75 additional trucks leased to Schneider National.

“You’ve got to be willing to work harder than the next guy,” Swift says.

Comments are closed.

OverdriveOnline.com strives to maintain an open forum for reader opinions. Click here to read our comment policy.