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Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Beth Ewen
February - March 2012

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Old school

Kyle Kottke,
Kottke Trucking Inc.:

800.248.2623
kyle_kottke@kottke-trucking.com
www.kottke-trucking.com

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 brothers, 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.

Upsize: Describe your company as it stands today.

Kyle Kottke: We’re a 74-year-old company started by my grandfather. Myself and my two brothers took over from my Dad in 1996. We operate just under a 100-person employee and independent contractor transportation company serving the fresh-to-frozen refrigerated industry.

Upsize: What is a typical work week like at your headquarters, in Buffalo Lake?

Kottke: The easiest one to describe is the driver. Of course he’s taking the shipment from point A to point B hopefully on time and safely. Most people describe my operations center as the most creatively designed chaos ever made. We’re fast-paced. We receive on average a phone call a minute. And that doesn’t include all the data exchange that we’ve got through EDIs, and e-mails, and everything else we’ve got going on.

We’re booking work; we’re satisfying customer needs. And it usually turns into a very long day that seems very short.

Upsize: Have you had to make a big investment in your facility?

Kottke: We sit in a very old building that our father gave us in our transaction. It’s not a pretty, fancy item, like what is very common in the metro. We’re very reserved and conservative. When it comes to technology we do have a very up-to-speed server system, phone system. But if you saw our building you would chuckle, and my banker says if we ever break ground on a new terminal, that’s the day I reconsider my relationship with you.

Upsize: Why do you stick to your current HQ?

Kottke: The reality is our complex today has taken us from five trucks to 75 trucks. We’ve been very creative with the way to make it take us to this point. We joke with everybody-I always say I have one more payment left on this building and I can’t do anything different until that’s finished. I’ve been saying that for years.

My banker knows our conservative ways enough-it’s going to take a small act of God to get us to do something different, because the last thing I want to do is spend money on a building.

Upsize: Why do you feel that way?

Kottke: It doesn’t matter what building I sit in-that doesn’t make me a better or worse company. Therefore my ROI on a building is as low as I can imagine. The day I outgrow this facility is a sad day for me, because I have to do something different at a large expense and that’s not a good investment.

Upsize: How did you develop that philosophy?

Kottke: It’s bred into us, it’s no question. You would love to meet my mother. She’s still the lady who has a few coffee cans full of a few quarters for the day she’s worried she has to buy a loaf of bead. She was very old school, but very wise. She was very frugal.

It was led by example when we were young.

My father is very similar. He’s the hard worker of the family. He would roll up his sleeves and work hard and never say anything about it. It was a very good partnership that they had.

Upsize: Are they still involved in the company?

Kottke: We’re very blessed. He’s not of grade A health; he’s a 50-year smoker. But we’re very blessed; they just turned 70. I see my Mom and Dad every day. They don’t have an ownership or management role. They serve unofficially on our advisory board. My Mom has an office in one of our buildings, and she actually spends much of her time donating it to the city economic development committee of Buffalo Lake.

Upsize: How did you and your brothers come to buy the company?

Kottke: It started as a joke. My oldest brother said the success of the 1990s was doing nothing more than increasing his inheritance tax, which led my Mom and Dad through estate planning. This included a period of salary options and then buying of the stock, which took us until the end of 2011 to remove them from some form of payroll. It allowed us to have an equity stake. So all the gains we’ve made since 1996 have been on our own behalf.

They officially sold their stock early in life, and it allowed us to get in and get started much younger. They were 55 when that process began.

Upsize: What role does each brother play?

Kottke: Each of us took a different path. Kurt, the oldest, started as a farmer, and he was working part-time in the non-farm season for my Dad. And my Dad told him it was an opportunity to grow the trucking business. My other sibling, Kory, the middle of the three, he knew all along he would be involved and has been involved

Upsize: So you’re the youngest. How did you get to be in charge?

Kottke: I went to school to be a banker and found out the tie was very tight on my neck, and so I did not wait long to come home. I was a graduate of the St. Cloud Technical College, the credit and finance program.

Upsize: Share details of how you manage your financial performance.

Kottke: First of all for debt structure alone, we’re conservative. The only thing we debt structure is new capital purchases, or trucks/trailers. That’s through a traditional structure.

We actually manage very old school, and the most important statement here is our cash flow statement. We watch it every month, and we truly need to generate cash month to month to month.

At the end of the day or the end of the year a good year is a 5 to 8 percent increase in stockholders equity. Obviously the income statement, balance sheet and cash flow statement is the generator of that. It’s the only way I know how to do things. Maybe that sounds so simple, but I’ve only worked one other place. I grew up around this business

Upsize: Tell me more about when you use debt.

Kottke: The only capital equipment we acquire with debt is our truck/trailers. We have a large investment into tools and machinery in our maintenance department, but all that would be generated and taken out of cash flow. I have no debt structure on any of my facilities. I don’t have any debt structure on anything besides capital investment in tractors and trailers, and those are traditional arrangements. I have three different providers that lend: TCF, Cen Bank, and Capital One has an equipment finance division.

Upsize: Don’t people tell you that you’re missing out on faster growth?

Kottke: Everybody’s so worried about affecting their balance sheet today. I believe our approach is best for affecting our balance sheet one, two or three years from now. I manage for today’s cash flow, so if I can manage for whatever facility upgrade I want today all of that leads to future cash flow. Maybe that’s old school, I’m not sure.

You mentioned before the joke about the large, publicly traded company building a new headquarters-and that’s when shareholders should run because it’s usually a sign of bad times ahead. Well the truth is they make some gadget facility to keep that real estate off their balance sheet anyway. I like things simple. What you see is what you get.

Upsize: What are the biggest areas of change in your industry?

Kottke: It’s changing steadfastly. There are two main drivers, and the first item of change is simply the energy marketplace. With diesel fuel at or near $4 a gallon, we’re watching our customers go back to more of a regional concept. So maybe General Mills, for example, will not ship their pastries 1,200 miles, but maybe they’ll have two bakeries each shipping 600 miles. It changes the work flow of my organization.

The second thing that’s having an impact is the ability to find capable, willing and professional drivers. The truth is many of these guys are away from home five to 10 days. That’s very difficult to find the home front that is able to work with that.

I have both independent contractors and employees. Not every guy who drives the truck wants to own the truck, and therefore they work best as an employee/driver, and the guy that owns the truck has the investment of the truck, the fuel.  It’s the same job but a much different outlook. It’s typical to have both; where we’re different is that we’re equal, 50/50 between employee drivers and owner/operator drivers. It’s typical many companies will choose one or the other that they’re better at.

Upsize: Tell me more about the changes your customers are making to their operations.

Kottke: When diesel was cheap everybody was real quick to close facilities and ship nationwide to one facility, so it was very likely that a company in Minneapolis would put their biscuits all over the U.S.  Now they’re duplicating facilities and regionalizing the haul. Therefore it’s not as common to find the Minneapolis-to-further distance loads, which is OK.

Upsize: Where do your trucks go?

Kottke: We service 28 states. If you drew a line from North Dakota to New Mexico that’s what  we call our west coast. And then we go no further northeast than Ohio. And we serve everything in there. It was set up 20 years ago for driver convenience. It was a way for our drivers to be away from home a half to a third less than what is typical.

Upsize: How important is technology for your operation?

Kottke: It’s incredibly important. There are much smarter people than me that tell me what I need and what I don’t need. I find people that I trust to help  me. I have an IT consulting company travel here once a month, and they do very good work telling me where our dollars will be spent.

I just know how to move stuff. The rest of the stuff is Greek to me.

Upsize: It sounds like you rely on outside expertise when you need it, like your attorney, your accountant, your IT consultants.

Upsize: No question. You find good people, you build your business around them. The bad part of having small companies is you can’t afford to have them on staff.

Upsize: What is the best advice you’ve ever received about running your company?

Kottke: The moment you don’t look for progress is the moment you begin to digress. It was a word from my father when we took over the business. He had heard it from one of our larger competitors, which was always looking to progress their company because they were looking at the up-and-comers.

Upsize: Are you now considered to be one of the bigs, being chased by the up-and-comers?

Kottke: Oh no. Our industry is getting larger. Where we were 15 years ago is now a struggling company. The shipping world has gotten bigger, and to look at a company a third of our size, they just don’t want to do that and I don’t blame them.

Upsize: What is your revenue?

Kottke: We’re at $19 million. Five years ago we would have been approximately half of that.

Upsize: That’s a lot of growth!  You’ve been holding out on me, talking about how conservative you are. How did you do it?

Kottke: Well, it’s nothing more than strategically putting one truck more on the road at a time. You know it’s not a very scientific process. We had a healthy balance sheet that we’ve built on top of and we have been able to continue cash flow gains.

Upsize: What’s the biggest challenge you’ve faced?

Kottke: The hardest struggle that we had to face was a struggle that everybody faced in 2008. Everybody else tried to trim their expenses and focus on just exactly what was floating their boat. We decided to do more of everything and grow through the tough times. Looking back on it, it was crazy. It was a calculated gamble that we felt comfortable with. The balance sheet, the weather, the situation – and we’ve been blessed with picking up customers because other companies were cutting back.

Upsize: How did you get the courage to take that calculated gamble?

Kottke: I don’t know-the smartest man or the richest man in the world tells me that when others are selling you should be buying. Does it get any simpler than that? It involves our long-term focus. We weren’t concerned about the immediate future so we could look at the longer-term future.

Paying for things when you buy them allows you to be more aggressive going forward. If you need future cash flow for what you want to buy today, that just robs from cash flow tomorrow. Hence the reason Mike came on as our first non-family member salesperson, and he has hit the ground running.

Upsize: You’re speaking about Mike Udermann, your new senior vice president, who first contacted me to tell me about Kottke Trucking. Why did you hire him, as your first non-family sales person?

Kottke: The truth is you kind of hit the point that your own techniques are hitting the wall. Mike and I have known each other for a few years through different spots he had been, and we knew he was available, and because of our conservative ways we were able to quickly expand our budget to bring his talent to our team.

Upsize: Where will your company be in five years, or whatever time frame you use?

Kottke: We’re very careful not to forecast to a time but to forecast to a revenue. Therefore we don’t put ourselves to a deadline that forces us to make decisions that aren’t conducive to what has put us here. There is lots of talk here about another 100 percent growth. We are sitting at 75 trucks and we are actively working blueprints to see how we look when we’re at 125 to 150 trucks.

Upsize: Is the next generation of Kottkes getting ready to take over?

Kottke: I’m 33; 40 and 46 are the other ages of our management. We’re very young. My nephew is 17 and going to graduate high school this year, and he’s the oldest of the next generation. He has an adamant goal of getting into journalism and broadcasting. As much as it was coincidental when all of us ended here, we’re going to make sure that there’s absolutely zero pressure that the next generation gets involved.

The beauty of the next generation is, my dad only had three sons. My oldest brother had one boy. Kory had four girls and now I have three girls. In a man-dominateed industry, we have one man and seven girls. We chuckle. We’re either going to get some female power involved with the company or we’ll be part of someone else one day.

Upsize: What’s one turning point for your company, when something happened and things started going much better than before?

Kottke: laughs We’re farm boys at heart. We joke that our turning point was when we started buying bulk toilet paper.

Maybe it’s our even-keeled nature, but there’s not one day, one moment that I go, Huh, there it was. There’s been many wins and many losses, and our scoreboard has always been trying to make sure we win one more than we lose.

I’m hoping 10 years from today I’ll look back at bringing in a professional salesman and thinking that was the first day of the next stage of growth, but you just never know.