Operating Your Freight Brokerage Business
Management Ideas and Insight from 40 Years in the Third Party Logistics Industry
Operating Your Freight Brokerage Business
Copyright © 2015 Steve Fernlund
All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means without written permission from the author.
Despite its dependence on the general economy, transportation brokerage is generally recession proof. Operating at the fulcrum of a dynamic market, broker opportunities abound whether truck capacity is plentiful or diminished.
Solid customer relationships that are built over time with consistent service and fair dealing will allow pricing flexibility when needed to secure carrier capacity when others cannot provide it.
With a variable amount of flexibility in pricing to shippers, rates can be adjusted to reflect the higher line haul costs that might occur when equipment capacity is tight if solid carrier relationships are maintained.
Good carrier relations rely on integrity in all transactions, following through on promises, and paying freight bills in a timely fashion; and with those relations carriers will make capacity available to us and not to other brokers—even though the cost may be higher.
With similar flexibility in purchasing transportation on the open markets, when capacity exceeds demand we will aggressively buy trucking at the lowest possible price.
Transportation brokers can derive profitable growth when times are tough while capitalizing in an opportunistic manner, regardless the condition of overall market supply.
Table of Contents
Chapter 1 People, Process, Product 5
Chapter 2 People—your best differentiator 7
Chapter 3 Process—how you get things done 15
Chapter 4 Product—arranging transportation 36
Chapter 5 Leadership—especially for you 40
About the author 51
Why this book, why now?
A quick search of the internet shows a handful of books available on the brokerage industry. All of them are about the basics—how-to books covering the steps you take to get into the business. They tell you how to get your license, and in some ways tell you how to set up your brokerage processes.
For thousands of existing brokers out there, no books can be found to give you some experienced insight on how to manage and operate your business for growth and profits.
After ten years of offering business assessments, executive coaching, and consulting to dozens of companies in the brokerage industry it is evident that common issues are holding brokerage companies back. There are thousands of brokerage business leaders out there dealing with these issues, mostly alone.
Stagnant or declining sales growth, intense competition, ineffective employees, carrier capacity (or lack thereof), and plain old boredom are just some of these issues. They generally result from three causes:
A lack of clarity in the mission or objectives of the business
A lack of belief in the ability to fulfill the mission and achieve the objectives
A negative workplace culture that competes against the mission
These three areas are the chief responsibility of the business owner. Through a formal process of assessments, strategic planning, and ongoing coaching clients of TranStrategy see dramatic improvements in clarity, belief and culture.
I have tremendous respect for those of you running a brokerage business. Your business provides a critical service in our global economy.
You inspire me and others about living the American Dream. You may not feel inspirational, but owning and operating a brokerage business is a high calling, one that deserves undying respect.
I’ve been in the third-party freight business for almost 40 years, most of that time in a leadership capacity. I was named president of my first company at 26 years old. I haven’t seen it all, but I’ve seen a lot. A book like this would have been a great help to me back then.
My hope is it will bring some help and reassurance to those of you who feel like you’re alone out there.
Who is this book for?
This book is for you if you own or manage a brokerage business, whether sales are $1 million a year or $75 million, and everywhere in between.
You already know the basics covered in the other resources out there. I won't need to explain the difference between LTL and truckload freight.
You know the difference between a lumper and a fifth-wheel and shouldn't need an explanation of the Carmack Amendment to the Interstate Commerce Act, enacted in 1906, and shown in your Broker/Carrier agreements as 49 U.S.C. 14706.
You may feel stuck, with little or no growth or even declining sales. Competition is getting more intense.
You may feel tired of the daily grind of finding trucks, dealing with challenging shippers, and finding good help.
Maybe you don't quite know what to do next.
When you go to work you feel like a lion in the zoo, pacing the cage and hoping to find the safest way out.
For four decades I've been where you are (there’s a bit about my background at the end of this book). I’m offering some ideas and insight here to help you take your business where you want it to go, or maybe figure out where you want it to go.
Consider what you read here as all advice. It's not intended to be a cure-all to the problems you face each day. There is no such thing.
It is not a guaranteed recipe for success.
Think about what you read here, take ideas that will work in your business, and leave the rest.
My goal, and my current life work, is helping you make changes that will help your business. To get you to stop pacing the cage and move you to a more rewarding—financially, personally, and professionally—brokerage business.
Bottom line, if you want something to change in your business you’ll have to make the change happen.
People, Process, Product
According to serial entrepreneur Marcus Lemonis, a successful business is built on three pillars—People, Process, and Product.
Lemonis is the Chairman and CEO of Camping World, a large network of recreational vehicle dealerships and related retail stores. He stars in the television show "The Profit" on CNBC where he invests his own money, and time, to save troubled small businesses, turning many into fast growing companies.
Let's take a look at the brokerage industry through Lemonis’s eyes:
People—the brokerage industry is run by people. Technology allows those people to arrange more transportation (productivity), but people are the most important—and challenging—point of differentiation. Since the technology revolution of the last century there has been talk of reducing to near zero the involvement of people in brokerage. It even lead to a new word, "disintermediation." Many of the ventures that began with the premise of fully automating brokerage have fizzled into irrelevance. In a 2014 year end survey of the industry, we see that more than a third of companies cite Personnel as their biggest challenge in 2015. People—a differentiation that matters.
Process—this is all about HOW you arrange transportation--and run your business. Leading transportation companies build process designed to make it easy for customers to do business with them while making it difficult for those customers to try another provider. From the way phones are answered to how customers are billed and carriers are paid, there are many opportunities to create a significant point of differentiation for your targeted market. Remember, you just have to do things a little bit better than your competition to gain a real advantage with customers.
Product—by definition your "product" is the arranging of transportation of property (freight) by authorized carriers. Freight transportation is a commodity, and the actual service has been done the same way for centuries (yes, technology has evolved, but getting freight picked up and delivered looks pretty much the same as it did decades ago.) Customers expect freight to be picked up on time, transported expeditiously, and delivered intact—all at a reasonable price (not always the lowest price.) Trying to build a strategy of differentiation around the product (meeting customer expectations isn't differentiation, it's the minimum you should do) is a colossal waste of resources.
The arranging of transportation (brokerage and 3PL) is Process and People driven--equally. Ignoring either leads to insufficient margins, stagnant growth, stressful work environments, and eventual decline.
Focus on continuous process improvement while investing in developing your people and you will quickly raise your company, whether small or large, to market leadership.
People—your best differentiator
Brokerage is a relationship based sales business—a People Business.
Whether you are a two-person business today, or a much larger enterprise, you are only able to grow as fast and profitably as your people are able to grow.
In this section we'll focus on your W-2 employees, but agents and commission based sales staff are people too. Learn how to treat people like you treat customers and your business will thrive.
Staffing—Employees, agents or both?
Contemplating the best method to grow revenue, brokers that are W2 employee based think hard about a strategy of growth through independent agents. It seems like a low cost way to build revenue with little risk.
Those already agent based wonder about hiring W2 employees to fuel growth.
Those with both employees and agents? Well they're generally perplexed about which structure is best.
Staffing structure is a fundamental question about your business model and should be determined BEFORE you work on growth plans.
Some very successful brokerage businesses are built on the 100% agent model. Others avoid agents like the plague, and have built very successful businesses too.
There is one fundamental decision to be made when you determine your staffing model.
Who do you want your customer to be?
In an agent model, your agents are your customers. Everything you build is designed to make them successful. That won't leave much time or energy to focus on shippers—although you'll still be making sure your process works for them too.
With all staff being W-2 employees, your primary customer is the shipper. That allows you to focus on shippers needs first.
It is tempting to think of agents as a low-cost way to build sales. After all, you don't pay them if they don't bring in business. However you do have real costs for recruiting and on-boarding agents. Then, when they generate business, you have the usual business costs of customer credit and carrier compliance.
Most agent models pay 65% to 75% of margin in commissions. They also tend to pay that commission within a week or so of shipment delivery. The cash needed to support this “quick pay model” is brutal, especially if your agent is successful. Can your business finance that outlay of cash?
My favorite saying to sales people is, “It's not a sale until we've been paid.” Paying commission on open receivables goes against the grain for me. But it is what the market is offering, and if you want to attract and retain quality agents you'll need to pay within a week of delivery.
If you have a blended staffing model then you face a challenge meeting the competing needs of agents, staff, and customers.
Collaborators, spectators or competitors—and how will you know?
The future success of your business lies within the workplace culture you've created. There are three primary cultural work styles, Collaborators, Competitors and Spectators.
A Collaborator is a worker who is fully engaged and focused on delivering the mission of your organization. The Collaborator, for the most part, has internalized your company values. Count on the Collaborator doing their part to complete the mission and serve the best interests of your customers and carriers.
A Competitor is a worker who has not internalized the company values and tends to work against the company mission in favor of their own agenda. This type of worker is said to be “competing” with the organization’s culture.
A Spectator is a worker who has not really engaged in the company mission nor adopted the company values. They do not compete with the culture, they are just not yet engaged in furthering the culture of the organization and are seen to be “on the sidelines” in the business.
A healthy workplace should contain 75% or more Collaborators.
Do you know your workplace culture? TranStrategy Partners uses a very quick and comprehensive tool to identify the current culture in your business. Performed a couple times each year, you can see the improvements in your workplace on the assessment—and the bottom line.
Working conditions vs. compensation
Employee turnover got you down? People quit bad bosses, plain and simple. Unless your pay scales are way below market, people will commit themselves (collaborate) to building your business.
If you have a turnover problem, you or your key management are causing it. You determine the working conditions, culture and environment in the company. You determine and enforce work processes and procedures. You will need to change if you want your staffing situation to change.
Work hours should be reasonable and recognize that employees have a life outside work.
Workspace should be enhance productivity, not hinder it. Cramming too many people into a small space or having unreliable technology you hold productivity down and create unnecessary stress for employees.
Development—career path and training
Along with bad bosses, people quit a company when there is little chance of career or personal development. Again, it is your responsibility to make sure employees have a clear path.
Do you promote from within or go outside to find managers by default? Not everyone on your payroll wants to advance into management, but they all want to believe that it is possible.
Is the company growing? Everyone wants to be part of something successful. It gives them bragging rights, if only around the dinner table at home. Your company doesn't have to be growing wildly, but people must have a sense that your moving toward something—your reason for existence. It's a whole lot easier to put in extra effort, stay late, or come in on Saturday if there is a good reason to do so.
That's why appreciation is critical. Show your employees you care about them. That you appreciate the efforts they're making to serve your customers. And do it early and often.
Performance Management—the three components
Managing people for top performance, making more of them Collaborators, has these three components:
Capability—make sure your staff have the basic ability to perform the work. This is not just knowledge, but it is the ability to learn and perform the work.
Expectations—your people want to know what you expect them to do. Make sure you have made your expectations clear and they have been acknowledged and accepted by your folks.
Training—after defining your expectations you need to make sure to train specifically to meet those expectations.
Pay close attention consistently to these three components and you’ll see positive movement in your business.
If you don't have them now, create them now.
Writing job descriptions will clarify your expectations for each person to do. Sharing them with your employees, new hires and experienced hands, helps them get clear about what's expected of them.
If you need to discipline or terminate someone for non-performance, it is a whole lot easier with written descriptions that formalize expectations.
If you're reviewing individual job performance—which I recommend you do at least twice a year—having the common standards of written job descriptions will make the review more meaningful.
If an organization is without job descriptions, I suggest they first make a list of all the tasks done in their business each day (don’t assigning these tasks to positions or people.)
Now review each task with the thought of determining whether it is still worth doing. It can be amazing to see how many things we do in our business that are essentially worthless to the customer, and by extension the work of your business. If it’s not worth doing, stop doing it.
With the tasks clear, go through each one and assign it to a position in the company, not a person yet. What position is best suited to complete a certain task or set of tasks?
Finally, and only after all the tasks are assigned to positions, fill those positions with the right person.
Using this process, you may realize that a long time employee isn't a good fit for any of the positions. When you do, it is time for that person to move on.
The simple process of starting with tasks gets you a set of job descriptions that work for you. And, it gets the right people in the right position to collaborate with you toward your business success.
If part of your organization is struggling, and you hope putting the "right person" in a management slot will make it all better, you need to know that finding the right person isn't enough.
If you've ever hired the "right person" and it didn't work out, it may be time to look deeper in your organization to see what's causing the disappointments.
I may be a wild-eyed optimist, but I believe the majority of people we hire want to work hard, work smart, and build something meaningful with us. Not everyone is a great salesperson, but everyone has talents they bring to help build your business.
High turnover and failed business initiatives are sometimes (okay, often times) the fault of management. So check the mirror and look deeply into your operation.
Does your company have a clear purpose, and are you communicating it at every opportunity to your employees, customers, and vendors?
Do you proclaim your real values, or are the values you profess the ones that someone told you to have?
Do you always act in a manner consistent with your values?
Do you have up-to-date technology that doesn't require duplicate efforts that sap the energy of your people?
Do you have clear and reasonable policies and procedures, fairly administered?
Do you, as the leader, strive to make work more efficient and enjoyable?
Do you allow your staff the opportunity to take chances, even make mistakes, in serving customers?
Do you really have an open-door policy, encouraging criticism and feedback from employees without consequence?
To have energized and committed employees, you must have a purpose worth committing to, clear expectations for outcomes, and the discipline to follow process. Show your fearlessness, loosen your grip on the reins and let your people flourish.
A new manager (the "right person") will never match a team of energized and committed people collaborating with you. Heading in the same direction. At the same time. All while building a purposeful and profitable business.
Hiring is an area of your business where having a formal process increases efficiency and the probability of success. It will help you convey your company mission and values. It will make your job easier and more fulfilling.
Make sure you know the costs of hiring—and conversely the cost of not hiring. Unless there is a surprise termination of one of your employees, you should be planning your hiring and have a complete budget recognizing all of your expenses.
Determine how you will advertise open positions and find out what advertising vehicle works best.
Consider retaining a recruiter who specializes in your industry. Their fees can seem high, but so is the cost of advertising and screening candidates on your own. They will learn your business and culture and bring you solid candidates for open positions. They also offer a guarantee if the new hire doesn't work out.
Develop a set procedure for interviews, and follow it. Have a standard set of questions to begin the interview process.
Determine who in your organization will be involved in the hiring process.
Use assessment tools on candidates you're seriously considering to make sure they fit the skills your position requires and the culture of your workplace.
I like to have a first (and sometimes second) phone interview with job candidates. Telephone presence is critical in the brokerage industry. If I get positive feelings on the phone, my next step is an assessment based on a DISC profile followed by a face-to-face interview. The assessment tool gives me a ton of information about the candidate and leads to a series of specific questions to ask the candidate when we meet face-to-face.
If the candidate still looks promising, there will be at least one more interview—phone or face- to-face—before a decision is made and an offer presented.
While group interviews can be a problem, having another person or two who interviews candidates before hiring is a good idea—assuming those people are willing to be honest about their impressions and they aren't afraid to contradict you.
Not many people enjoy firing others. It's a damned difficult job. But if you've done all you can in the way of hiring, training, and making expectations clear, and the person is clearly incapable or unwilling to change, you will have to fire them.
Process is critical when you are firing someone. By this point you shouldn't have to explain your decision. In fact, the less said the better in termination discussions.
Bottom line, you have made a business decision and, that is that.
Firing someone is one of those decisions where we often say, “I wish we'd have done it sooner.” So don't feel guilty. Your business and well-being are better off when you fire people who should be fired. And often it's a good thing for the employee too, although it doesn’t feel that way at the time.
It is not uncommon for established brokerage businesses to employ family members. Whether in-laws or blood relatives, there are a number of business considerations.
If you don't employ family members, did you make a conscious decision to do so?
If you do employ family members, do you treat them the same way you'd treat employees not related to you?
We'll visit transitions and exit strategies later in the book, but sons and daughters following their father into a leadership position is not uncommon. In some ways, passing the business to the next generation of family shareholders is an American Dream. But it is a very difficult transition to pull off successfully.
When you employ family, make sure they fully understand you (as a father, I know that's not easy), and that they fully understand the culture in your company (likely not the culture at family gatherings).
If you have the chance, make sure family members you're thinking of hiring have some real world experience in other companies and work cultures.
Make sure they do not have a sense of entitlement to the leadership role.
Nothing is more demoralizing to your key people than finding themselves “working for” an inexperienced person who clearly would not have risen to a leadership position based on merit. No matter how lovable they are.
Process—how you do the thing you do
A broker is a sales organization/not a trucking company without trucks
Often motor carrier executives look at the brokerage businesses as simply trucking companies without assets (when they don't look at brokers as merciless blood suckers who make money without risk whilst they have all the marbles on the table.)
Shippers too will often think of brokers in the same way they think of trucking companies. That's why many of them don't understand when you refuse to sign their Shipper/Carrier Agreements.
Fundamentally, your brokerage business, and every brokerage business, is a sales organization. As such, everyone in your business is a sales person.
That may not sit well with some brokers who think themselves to be “operations.” Not to mention those who think themselves accounting, billing, collections, or claims.
Bottom line, a brokerage sells capacity to shippers and sells freight shipments to trucks. Every interaction with shippers, receivers and carriers is a sales opportunity.
Of course, you should have various parts of the sales and customer service functions allocated to individual positions.
You may have freight finders who make daily contact with shipper customers to sell capacity (ask for business.)
Then you might have truck finders, those folks who spend the work day selling the freight shipments to qualified carriers.
Your accounts receivable and payable folks support those sales efforts and will often have contact (sales opportunities) with shippers and carriers.
You as the business leader should be involved in establishing and building strong relationships with customers and carriers—the very definition of sales.
By the way, the distinction between brokerage as a sales organization and the notion of it being a trucking company without trucks, is the single biggest frustration for the so-called Asset Based brokers to deal with internally.
Five Stages of the Sales Process
Sales success stems from following a standard process. We recommend a five stage process which can be adapted to your unique business position:
Pre-Approach: This is the information gathering stage. In order for you to provide a targeted sales pitch, you need to know as much about your prospect as possible. Reading their marketing materials, looking at their website, identifying who their customers are, and the lanes they might ship to will help you provide the right message in your sales pitch. Thoroughly gathering Pre-Approach data is a key element in improving your Closing rate and enhancing your image in the market place. OBJECTIVE: This stage determines if this prospect is a good fit for your service.
Approach: This stage you introduce yourself and your company to the prospect. You have a short amount of time to establish credibility with prospects. A good approach improves your ability to ultimately sell your service. The Approach includes identifying that the person you approach is the right person to be talking to, that you are credible to have the discussion with the prospect, and the fact that your company provides solutions to his/her needs. All of this is accomplished in a matter of a few minutes. Once you have established credibility, begin to validate the information gathered in pre-approach, and ask questions to uncover need(s). OBJECTIVE: Demonstrate that you know and understand the prospects need(s), build credibility, and validated information gathered in pre-approach.
Presentation: Before you begin your sales presentation, make sure you have been invited to do so during the Approach stage. If the prospect has not invited you to make your presentation, you need to re-approach the prospect from a different angle. If you sense a green light to present, make sure your presentation targets to the identified needs of your prospect. At the start of the presentation, ask questions that validate the pre-approach data you obtained or fill in the blanks if you do not have adequate pre-approach. Once you have an idea of where your prospect’s points of pain exist, then pitch him on why your service helps to solve the pain. OBJECTIVE: To match your solution to their need.
Trial Close: Throughout your presentation, ask trial closing questions to see if your prospect is buying what you are selling. Questions such as, “Can you see how our company could help you?” or, “Is this something that you might be interested in?” are questions that help to establish whether the prospects is ready to proceed on to the next stage. If they are not, you have not finished your presentation. Keep asking trial closing questions to make sure that you have permission to proceed to the close. OBJECTIVE: To get three positive responses to trial close questions.
Close: This is where you ask for the order. Be assumptive in your Close by assuming that the prospect is ready to buy. If you have received enough positive responses in the trial close then you have every right to assume the prospect is going to say yes. Do not be shy to close the deal. If you never ask for the order, you may never get it. You must close or the sale is not going to be completed. OBJECTIVE: Be very assumptive in your close. Have they given you permission to close? Assume that it is a done deal.
Patient persistence, the key strength in a salesperson
"There are three kinds of lies: lies, damned lies, and statistics."
Made popular by American author and speaker Mark Twain, this statement was attributed to British Prime Minister Benjamin Disraeli (1804-1881). Wherever it originated, skepticism about statistics has kept me from many bad decisions in a long career--not all bad decisions, but many.
Despite my hopeless skepticism, the statistics in the chart here hit home with me. Not least because I believe them to be true--or as close to true as statistics can be:
The best sales people I've ever worked with were tenacious--but not obnoxious.
They weren't always the most organized.
Their techniques often make me cringe.
They mostly didn't fit the stereotype of the "sales personality."
They may have even been, gasp, introverts.
But at the end of the day, they were patiently persistent. And that made all the difference.
They knew, intuitively in many cases, that every rejection they encountered meant they were that much closer to a sale.
They focused on building a relationship with prospects, not just closing the sale.
They were the ones who made from five to 12 contacts with every prospect (however many it took), and they made 80% of the sales that built our businesses.
So, the origin of these statistics isn't clear, but the message just shouts--
Be Persistent! And you'll outperform the 90% who quit after three contacts with prospects.
Collective action for the common good is the purpose of organizations like the Transportation Intermediaries Association (TIA.)
The TIA is the only organization representing the interests of you and your brokerage business. Not just with regulators and legislators—although that's an important part of what they do. TIA promotes brokerage across industry segments.
Through networking and educational opportunities they give you the chance to get to know others in the business that are similarly situated to you.
It's not enough to just pay dues in cash. Get involved in committee and board leadership. Attend conferences and webinars to learn best practices—and apply them in your business. Meet and get to know your peers. They are invaluable resources when you need help with a business issue.
And when called upon, reach out to your members of Congress and let them know how pending or current legislation is affecting your business and your employees.
Finally, take action together with others in our industry. Your participation is needed, and collectively we can make changes for the better.
There are other associations related to your business or your customers business that are worth participating in too.
My point is, get involved. Your business isn't operating in a vacuum. There are several thousand brokers out there. When we act for the common good, it benefits us all.
Margins (aka brokerage, gross profit)
Your margin is the most important number in making your business successful. The simple fact is that prosperous brokerage businesses, regardless of size, regularly produce margins exceeding 16%.
It is hard to generalize about this. You need to look at your own situation. But if you have an average freight bill of $1300-$1800, truckload and van or refrigerated freight, 16% margins better be your average. LTL margins ought to be significantly higher.
Larger average freight bills could justify lower margin percentages, but be very careful that you may be accepting a mediocre performance when an industry leading performance is possible.
Margins drive the engine of your business. Understand how much margin you need to generate on each load, each day, week, and month to sustain your business and produce the profit you desire.
A net income of 5% of revenue is a tough, but attainable business goal. You should use that figure to drive all your business decisions related to margins. Know what it costs you to open your doors each day. If it costs you $2,000 a day to be in business, how much margin do you need each day? Remember to add in your 5% profit.
Take a look at your average revenue per shipment. What margin percentage gets you $2000/day plus a profit?
That's your key margin indicator, and that's how you manage your business and measure employee performance.
Top line revenue (sales) is the number you often hear out in the real world. “So and so is doing $100 million a year and I'm only doing $5 million,” is a common refrain. Sales figures are important to know for several reasons, but like the tee shot in golf, a large number makes us feel good but it has little to do with profitable growth.
We all know that shippers are only interested in the lowest rate, mostly because that's what our sales people tell us, and it's what we tell each other when we get together at industry events. But I'm calling BS.
A number of years ago my company was arranging a large number of loads each week for a subsidiary of a Fortune 500 Company. I thought we'd scored a coup. In my humble, and grossly informed opinion, I thought we were getting away with charging a rate way above market.
Then we had an outside firm survey our customers, this Fortune 500 Company among them. And that's how I learned that in my customer's eyes (the only eyes that matter) our service was outstanding and our rates were fair. So instead of losing sleep over how someone might steal our business with a lower price, I planned periodic rate increases to sustain our carrier base, increase our margins, and continue to provide outstanding service.
I'm not saying that rates are like the points on “Whose Line is it Anyway” and they just don't matter. But again, rates (and the RFPs we love to hate) are, like the asset vs. non-asset question, simply another barrier to entry to a shipper's business.
As part of a comprehensive sales strategy you will have done a great deal of work developing relationships with prospective customers long before you get to the rate issue, increasing the probability of a successful bid when you do one at a market rate that allows you to arrange transportation at a margin level that sustains your growth strategy.
And that brings us to...
Sales is a negotiation, and properly doing sales means proper negotiation.
You should negotiate from a position of strength. Even when you don't feel like you're in a strong position, you need to believe you are.
You negotiate with prospective customers. Service commitments. Rates. Payment terms and conditions.
You negotiate with carriers. Again, service commitments, rates, and payment terms and conditions.
Negotiation skills are essential to maximizing your margin dollars. Let's look at a carrier negotiation to see what I mean.
You've been asked to arrange a truckload shipment, say from Atlanta, GA to Minneapolis, MN, and a distance of roughly 1,100 miles. For this example, let's say the rate to your customer is $2.50 per mile, leaving you $2,750 to work with to buy a carrier.
To have a 17% margin, you need to sell the truck for no more than $2,283.
You've found a truck, and the dispatcher wants to know what you're paying. You start low (wisely), offering to pay $2,100 (a margin of 23.6% if you can get it.) The truck wants your load, but replies he needs $2,600.
A common negotiation tactic is to “split the difference” and offer $2400, giving you what you think is an acceptable $350 margin (but only 12.7 %.) In essence, you've given up ten percent of the revenue, and will have to work that much harder on the next load to get your average daily margin where you want it to be.
A better negotiation tactic is to increase your offer incrementally. One percent of the revenue is $27.50, so a good negotiator avoids the “split the difference” tactic and increases the offer to $2155, giving up about 2%. The carrier may not accept that, but now he has to counter with something below his $2600 starting point. And you still have room to raise your offer until a successful transaction is agreed to that leaves you close to your target margin of 17%.
Aggressive negotiation that respects the obligation your company has to be profitable, while respecting the needs of customers and carriers, is a prime indicator of the integrity of you and your business.
If negotiating doesn't come naturally to you, get yourself some training.
If negotiating doesn't come naturally to your staff, get them some training.
Your ability to successfully negotiate transactions can be a significant differentiating factor for your business that will infuse every aspect of what you do.
Key Performance Indicators (KPIs)
Managing your business becomes more of a science when you use KPIs. If you don't know where you've been, or where you're going, the proper KPIs will tell you.
Here are some that you can start using today:
Sales/margin per employee (To measure overall performance of the business. Goals need to be established)
Sales/margin per team (Or POD. Goals to be determined)
Number of shipments per employee (daily, weekly, monthly)
Number of shipments per team
Margin percentage by service (TL, LTL, Intermodal. Measured by individual and by team—daily, weekly and monthly)
Customer count (total number and number served per day/week/month ranked by percentage of revenue)
Carrier count (total used each day/week/month and ranked by percentage and performance indicators)
Percentage of shipments offered to those accepted and covered
DSO (Day Sales Outstanding, tells you how fast you’re collecting your money)
Sales leads (track the number received, processed, converted etc.)
Sales prospects (find out how effective lead generation is)
Customer retention rate (key for planning purposes is knowing how long you generally keep a customer)
Customer acquisition rate (know how many prospects are converted to customer status in the periods you are measuring.)
Operations manual—Standard Operating Procedures
We'll cover some legal issues later, but the most important thing you can do to grow and protect your business is to formalize your standard operating procedures in a written manual.
Use that manual as the basis for ongoing training of staff.
And manage your business so that those procedures are followed religiously.
If you've ever been involved in a lawsuit involving something that happened with your business, you know that during a deposition you will be asked what you did in a particular transaction. You will be asked what your standard procedure is, and if you followed your standard procedure here.
And they'll ask these questions in countless ways, for countless hours, until you tell them what they want to hear—that you screwed up.
Don't let that happen.
If you don't have standard procedures in place, put them in place now.
If you don't a written operations manual that contains those procedures, get one now.
And if you allow your staff to deviate from those procedures, stop it now.
Training new hires and existing staff with this manual assures that you provide a consistent service to customers. Your staff will be more effective. And if there is an issue that leads to litigation, you will be confident that standard procedures were followed.
This does as much to protect your business as having comprehensive written contracts with customers and carriers—especially if you don't have those contracts.
Your business, whether by design or by default, has a customer base that reflects who you are.
Do you know who your customers are? I don't just mean their names, date of birth, and favorite alcoholic beverage.
Company size and industry are important for you to know. Who makes the decisions within your customer’s organization? Who does that person work for? Do you know that person too? What challenges do they face in their industry?
The average life cycle of customers in our industry is five years or less. What will you do to extend that life cycle? What will you do when you lose an important customer?
In a prosperous brokerage, no single customer should represent more than 10% of total revenue. If you have one or two that does, increase your customer base or grow the revenue from other customers to bring your dependency down.
Finally, knowing your current customers intimately helps you create an effective sales process that attracts new customers and new business.
The capacity crunch that started in 2013 has forced a number of brokers to focus on carrier relations for the first time. It is no longer sufficient to post loads on the internet load boards and wait for the phone to ring.
The current situation reminds me of the old days of brokering, where identifying carriers, building relationships, and using the telephone to reach out when capacity is needed was routine.
Carrier compliance policies are critical. Identifying your ideal carrier by years in business, equipment type, BASIC ratings, insurance coverage, financial condition, etc. will help you attract and retain capacity, even in the tough times.
As part of your standard operating procedure, have these compliance policies written out. They should be fully understood by your staff and fairly easy to follow.
A written contract is a must, and the contract provided with membership to the TIA is a very good contract to use. No sense spending money re-inventing the wheel unless you have specific needs within your business that need consideration by outside counsel.
Your relationship with carriers needs to be on the same level as customer relationships. You need to know who makes decisions, and who that person works for, and what unique challenges those carriers face each day.
At the end of the day, make it easier for your carriers to deal with you than other brokers and you're business will grow.
No brokerage business can succeed today without the internet load boards. There are number of them out there, but really only two or three that will really help drive your growth.
The current load boards arose from the original “Dial a Truck” and similar services where brokers/shippers called a toll-free number (WATS line at the time) and gave load information to an operator who posted the load on boards in various truck stops.
Taking advantage of the internet, load boards evolved into the multi-service information providers we have today. Not only can you post loads, you can verify compliance requirements you establish, manage credit information, and get real time pricing and available capacity information.
The load boards are essential tools for recruiting and qualifying new carriers while making sure you are current on market conditions on a real time basis.
The load board companies are innovating on a continuous basis. If you think you know all the benefits of their service, you are probably mistaken. They all offer ongoing training, often at no charge to users, that review longstanding services and introduce the latest and greatest.
We find that most brokers use only a part of the load board services they have available to them. Don't be one of them. Every edge you can get against the competing herd helps build your business.
Have a formal process—more important than having the Perfect Contract
We covered this earlier, but it’s important enough to discuss again.
Every part of your business should have formal procedures, properly documented. And you need to make sure that you, your managers, and your staff follow these procedures religiously. More than a contract, this effort will help to protect your business assets from hungry plaintiff lawyers looking for a fat cow to harvest.
If writing things down isn't your strong suit, hire someone to help you.
If following the rules comes hard for you, remember that not following them can cost you your business.
Improper procedures and inattention to detail causes your attorney heartburn (and gives them a steady source of income.) As for other legal issues...
Retain a good transportation lawyer
If you don't have one now, find a good transportation lawyer and invest some time and money to have them review your procedures and contracts.
Ask around to find a good lawyer. There are several out there, some better than others. A friendly competitor may have a recommendation if you need one. The TIA has several members who are experienced in transportation law.
Find one who seems to understand you and your business.
You don't need to spend a fortune, but the peace of mind that comes from having a review of what you're doing, while giving you someone to call when trouble arises, is more than worth the investment.
When asked what one thing he wished his broker clients would do before calling him, transportation attorney Brent Primus said, “Pay more attention to high value loads.” With the right procedures in place, you'll know in advance the value of a shipment you're arranging, you'll know if the carrier has any tariff or contract provisions in place that limit their liability for loss/damage, and you'll make sure that the carrier has sufficient cargo insurance in place to cover the full value of the load.
Have a good employment lawyer
Your transportation lawyer may also be well versed in employment law, or they may have an associate who is.
Once again, a few dollars invested in a review of policies and procedures could save a fortune in fees and settlements if you face an employment or termination challenge.
A good employee manual, fair non-solicitation agreements, and a clear termination policy go a long way to minimize the need to pay expensive legal bills and enter into difficult settlement agreements. If you don’t have an employee manual now, a good attorney can help you get one in place.
And a good business lawyer
Sometimes your favorite transportation attorney is also well versed in general business law. I was blessed to know and retain Ron Usem early in my career. A business lawyer first, and a good transportation lawyer next, my company and I had the best of both worlds.
Shareholder agreements, buy-sell plans, reviewing office leases and purchase agreements are all areas where front-end legal work saves you a ton of money and time down the road.
If you don't have an attorney involved in your business affairs it's best to get one now.
Learn these three financial statements and what they're telling you
One of my mentors in business is Stan Calof, CPA.
Early in my career Stanley was the CPA who prepared our financial statements and tax returns. He was one of the best small-business CPAs I've known, then or since.
He knew my financial literacy was lacking, in a big way. So each quarter, when he'd finished preparing our financial statements—Profit and Loss; Balance Sheet; and Cash Flow—he scheduled a couple of hours to review them with me.
At first, it was all about teaching me what they were, what they said, and how to use them to plan and manage the business. He didn't make me into an accountant, but he taught me the importance of these reports and how to use them effectively to manage a growing business. (He taught me so much more about business management too, which is why I think he is one of the best.)
The Profit and Loss (P&L)/Income statement shows the performance of your business over a period of time, and generally compares it to the last similar period. It tells you the effectiveness of your sales program, your margin maximization efforts, and your business expense management. With technology today you can generate this statement on a daily basis if needed.
The Balance Sheet is a snapshot of your business at certain day and time. It shows how much money you have tied up in accounts receivable (billed and yet to be billed), how much cash is on hand, what you owe in freight charges and other payables (received and yet to arrive), and calculates your equity—or lack thereof. I was taught to think of the Balance Sheet as the picture of what your business would look like if you stopped doing business that day—it tells you what is owed to you, what you owe others, and what is left over.
The Cash Flow statement is one of the more difficult statements for us non-accounting types to understand. In essence, this statement shows you how changes you've made to the P&L and Balance Sheet have affected your cash position. It shows you where the cash that you've used to operate your business has come from (payment on accounts received, borrowed money, capital invested) and where it was spent.
You have many things to focus on while building your business. Take the time to learn about your financial statements and you will increase your leadership self-confidence.
Understanding your financial statements helps you better manage cash.
I recently had a conversation with a business owner who kept referring to revenue as cash. I knew what he was saying, but his lack of financial literacy made me wonder if he really knew.
Successful cash management means you are billing and collecting accounts receivable in a timely manner—every day. Then knowing what you owe to your carriers and vendors every day, and making sure that you have cash on-hand to pay them when due.
Finally, you make sure that you make your payroll in full and on-time.
Extending credit is a fact of life in the brokerage business. Do it wrong, and you will face bad debts, maybe enough to force you out of business.
Credit terms should be set by you in advance and presented to every new customer. If the prospective customer cannot meet those terms then you can negotiate—but do it in an informed way.
I know of one brokerage business that arranged freight in a niche market and had a 14-day pay policy for accounts receivable. Not facing a ton of competition, these terms worked quite well. They built a business from zero to about $15 million in ten years with high margins and little bad debt. By stating their credit terms up front, and adhering to them with all customers, they had little push back from customers, and minimal bad debt.
You may not be able or willing to set 14-day pay terms, but you should set a standard and adhere to it. Someone on your staff (or you) should be assigned the tasks of extending credit and managing collections. They should make direct contact with prospective customers to determine their payment procedures, find out what “paperwork” is needed, and get to know their payment cycles.
The squeaky wheel gets the grease when it comes to payments for transportation services. Your customers will appreciate knowing that you know your business well enough to expect their payments in full and on time.
Accelerate billing/paperwork velocity
One of the challenges in brokerage is the lag time between ship date and billing date. This is where a Balance Sheet based on accruals comes in very handy.
The Balance Sheet shows you the accounts receivable that has been billed to customers, followed by the accounts receivable you have yet to bill.
With that number you should be able to calculate how many days’ worth of your business are tied up, waiting to be billed. If that number shows more than a day or two it's time to accelerate your process.
If billing is waiting because you have a part-time billing person (or outside service) then you should find a different way to get your billing out. If it is waiting because your billing person needs “paperwork” from the carrier, then you need find faster ways to get the paperwork.
I once had a very good paying customer that accepted our billing without the bill-of-lading. Then they bought into the BS that a bill-of-lading is needed to pay a freight bill and required us to attach the bill-of-lading with our bill (freight bills are often called invoices now, which makes me crazy.)
Thinking they wanted a proof-of-delivery (POD) I asked him if it would make more sense to put the POD on our website and they could access it when needed.
He told me they didn't need POD, they just needed the bill-of-lading to document that the order shipped (yes, in the 21st century a major shipper needed the bill-of-lading to know their order shipped—a BOL number wasn't enough.)
So instead of waiting for the carriers to send us the bill-of-lading with their freight bill, we simply had the drivers fax us the bill-of-lading from the shipping location and we billed our customer on the day of shipment.
The faster you get your freight bill (invoice) to your customer, the faster they pay you. This is one of the most important processes in the financial side of your business and you should be looking at ways to speed things up every day.
Use financial statements in planning
No one likes do to planning, especially in the freight business. To move your business beyond where it's at today, you need to plan however.
Using your financial statements to assist in the planning process is incredibly useful.
Compare the results from your Financial Statements to industry averages. You can find averages online. The TIA Market Report, issued quarterly, is a great source of industry averages. DAT prepares an annual report too. Of course your trusted Executive Coach will have the industry averages at his fingertips.
Use your Financial Statements to track trends within your business. Use real dollars and percentages when doing year over year comparisons.
Are your payroll expenses as a percentage of sales higher, lower or about the same?
How about other fixed costs?
Which way is revenue headed—up, down or about the same as previous years?
Based on the results of these comparisons you can plan to do things a different way.
You can also use your Financial Statements to predict future trends, which brings us to that other dreaded task...
Budgets are essential to take your business to the next level.
More than restraining unnecessary spending, operating within a budget shows your stockholder(s), your banker, and your staff that you know your business—inside and out. They'll take you and your goals seriously, because you take it seriously.
SOP for qualification—not just for the usual reasons
Let's talk a bit about carriers.
You probably already have a “carrier packet” that includes your contract, payment terms, and a copy of your authority and surety bond.
I assume you review all signed contracts that are returned to make sure that the terms in your agreement weren't changed in any way that puts your business in jeopardy.
And hopefully you have a standard for qualifying your carriers. These standards don't need to be the same as I would have, or some other broker, but they should clear and as cast in concrete as you can make them.
Standards might be years in business (most times indicated by the MC number, but do a little digging.) It could be six months, a year or even two.
They might include acceptable levels of BASIC scores and the carrier safety rating from the FMCSA. For example you my exclude carriers with an unsatisfactory rating, with internal management review of carriers with a Conditional rating.
Use the tools available to you to verify the information you've been given, including phone calls to insurance companies to verify coverage if that is part of your procedure.
The compelling reason for having and following a qualification policy is to protect your business in the event of an incident that leads to lawsuits. If you haven't been through one of those lawsuits yet, lucky you. Assume that you will at some time, and strictly follow your procedures to position your business safely. Formalizing and following a procedure is the best protection you have (along with a competent insurance agent and attorney.)
Another, equally compelling reason to have a formal carrier qualification procedure is to show your customers and carriers that you run a professional organization. Both shippers and carriers will be reassured knowing that you have your business under control.
Finally, having and following a standard procedure lets your employees know what is expected of them.
They'll know that your process and procedures are critical to you and your company.
They'll be proud, knowing they work for an organization that is professionally managed.
And you and they will be able to resist the fast talking trucker who wants to bend the rules, just this once, putting you and your customers in jeopardy.
Recruiting and retaining carriers
Trying to find carriers by going to the load boards every time you have a load is an ineffective way to run a brokerage business. You should make recruiting carriers that you can use on a regular basis is a much better way to manage your business.
Make recruiting carriers a core function of your business. At some point you should have a person dedicated to carrier recruiting and relations.
In the meantime, every one of your brokers should be focusing some part of their day finding new carriers.
Once you've gone through the expense of setting up a new carrier (it likely takes a good 15 to 20 minutes to set up a new carrier, not including the time it takes to find them, an expense of $50 to $100) you'll want to get them to handle more than one shipment.
Have a process of carrier retention that includes determining the carrier’s particulars like equipment type, number of trucks, general geographic preferences, etc.
More important is building a relationship similar to what you do with your shippers. Identify key dispatch personnel, managers, and company owners and take the time to get to know them. Use your TMS or CRM to track these companies so the information gathered is available to everyone in your company.
“Partnering” with carriers
Lawyers don't like to hear us use the words partner and carrier in the same sentence so I used quotation marks around partnering.
What partnering means to me is that you treat your carriers just like you treat your customers.
You find out what their needs are for freight.
Are they able to react to spot market loads or do they need lead time?
Are they willing to haul the type of freight your customers present?
Do they have time considerations whether time of day for loading/unloading or time at shippers/consignees?
After you determine the carrier's needs, look at your portfolio of business and see where there are customer needs that can match easily with the carrier's needs.
When you've got something that works, you'll be able to arrange shipments quicker (more profitably) and have more time for increased volumes.
Technology should serve your business, said Captain Obvious. The right TMS will make your staff more productive, provide better service to customers, and accelerate billing and payables.
With rapid advances in technology, you should make your technology review an annual or semi-annual event.
Does your current technology provide real advantage, or is it slowing you down? What can be automated that you do manually now?
It can be easy to get stuck with inefficient ways of doing business.
Just a couple years ago I entered a brokerage business doing some significant volume. But they used a fax machine to receive completed carrier packets, leaving folks standing around the fax machine waiting for signed documents. When received, the documents were reviewed and dropped into a box for filing. Being busy, those documents were rarely scanned to the TMS file set up for that purpose.
For just a few bucks per month per user we set each broker up with a toll free fax number that delivered documents in a PDF format that could be received in the broker's email, reviewed on screen, and with a couple clicks saved to the carrier file in the TMS to be available to any one any time.
We didn't determine the cost saving, but productivity jumped and paper use declined.
Get your employees involved in finding ways to streamline your processes using technology.
If you're a tad tight on technology spending, do an ROI assessment. Any time you can get your technology to do tasks done manually you'll find it drops profit to the bottom line.
Your technology can be a competitive advantage for your brokerage, but only if you know what your customers need.
You need to know what the customer’s expectations are of course, and make sure your technology serves those.
But to really stand out you need to find ways that your technology can make life easier for them, doing something they didn't ask for, then sell it to them.
Include the gathering of technology needs as part of your customer intelligence gathering.
How can your tech help your carriers?
Like your customers, carriers can benefit from your capabilities in technology.
If you can accept billing electronically, promote that with your carriers as a way to speed up their payment. If you can arrange payment electronically, eliminating postage and paper checks, let the carriers know how to take advantage of that.
If you're really partnering with your carriers, find out if you can tender your loads electronically to their TMS.
Again, your technology can be a competitive advantage when building relationships with your carriers.
Phones—and phone etiquette
It's the job of everyone in management to make it easy for customers to do business with you. Still, it seems most CEOs, and the leadership teams they work with, avoid identifying and correcting some simple stumbling blocks to better customer service.
One potential stumbling block is how your phones are answered.
When was the last time you called your company's main phone number?
How is it being answered, and by who—or what?
Is your automated answering system on duty 24/7?
Do you like going through that system when you call?
Will your prospects like it?
When I call your company, and your automated attendant answers, I find that if I know my party's extension (which I won't since I'm a prospect) I should dial it at any time.
If I'm a driver calling I should push "1."
If I'm a dispatcher I should push "2."
For customer service I push "3."
If I need accounts payable I push "4."
And for sales I push "5."
Sometimes, pushing "0" gets me a real, live person, but not always.
Today I might be a prospect looking for a new transportation provider, and I got your phone number from your website. (The SEO investment has paid off.) But are you making it easy for me to do business with you when I call?
Who answers when I push "5" for the sales department?
Is it some guy named Lou who barks "DISPATCH" when he answers?
Is it someone who will be my future "salesman?"
Is it an administrative assistant who isn't well trained in how to greet and serve a prospective customer?
Or is it voice mail?
It really does matter how your phone is answered if you want to make it easy for me to do business with you.
Every contact between your company and its prospects/customers is an important moment of truth. As my grandma used to tell me, you only have one chance to make a good first impression.
In my business and personal life I judge potential vendors by how their phones are answered, by whom, and whether I'm made to feel like a valuable person when I call.
Sadly, whether calling my doctor, my banker, my phone company, or potential transportation providers I rarely feel good about how my calls are answered.
So those who do it right get my praise, my attention, and my business.
Take a few minutes now and call your "main phone line" to find out how your phones are answered. Better yet, hire an independent third party to make some inbound calls for you and report their findings. The Confidential Caller program of TranStrategy Partners, a sort of secret shopper for transportation companies, will report with a recording and written analysis about how your staff presents your company.
When your incoming calls are answered, for better or for worse, your company culture and customer commitment is there for all to hear.
You will get more business when you treat callers as the very important people they are.
In the early days of brokering most brokers operated in rented rooms at truck stops. It made it a lot easier to get trip leases signed and company placards pasted on the side of trucks.
The image of brokers wasn't too good.
When we started our brokerage business we made a conscious decision to have a dress code and place our offices in decent, modern office space. That set our culture inside the company and presented a positive image of brokering to customers. We created a professional image.
Today, offices take many forms.
Your office speaks volumes about your business, to employees for sure, but even to customers and carriers who may never actually visit your facility.
It should be a comfortable place to come to work.
After all, you and your employees will spend eight hours or more there every day.
You don't need a space that Donald Trump would call home, but spending some time focusing on creating a safe and comfortable workspace eliminate one of the friction points for productive work.
We've all got 'em and sometimes they're useful to have. As someone who remembers the rotating drum fax that took six to 12 minutes to send a page, I find scanning and electronic signatures the best way to go. So this little exchange on social media caught my eye, and made me laugh.
Old timer says, “Could you fax over a copy?”
“No, I can't fax because of where I live,” was the reply.
“Where do you live?” the curious old timer again.
“The 21st century!”
Supply and demand--
Brokerage takes place at the intersection of demand and capacity. Because of this unique position, brokerage is effectively recession proof.
I'll bet you won't agree with that if you suffered a drop in business during the so-called Great Recession of recent years. But during that time a number of brokers have grown, and grown significantly.
By understanding where they stood in the transportation transaction (and also, by having a solid financial footing, a solid sales plan, a companywide growth oriented culture, and a simple, well-articulated business plan.)
In the first quarter of 2014 the Polar Vortex and a burst in economic growth meant that “carrier capacity” became the defining issue. In a recent study of the industry conducted by TranStrategy Partners, half of the respondents mentioned “carrier capacity” as the “biggest challenge” for 2015.
Well, here's a thought. Carrier capacity is what a broker does. Whether there is more freight than trucks or more trucks than freight a broker operates at that fulcrum. That's what we do.
Carrier hauling capacity is always an issue for shippers. The issue is a bit different these days, and will likely be so for a long time to come. But for many years the issue revolved around finding the right capacity from a surplus of available capacity. Now, securing access to capacity is paramount.
In the same way, freight demand is an issue for carriers.
When demand is high and supply is short, the market we have today, the pricing power shifts to the capacity side. Now pricing that gives the trucker a fair return, and the ease of providing the service, will determine where capacity will be allocated.
For brokers then, capacity is your business, not the single biggest challenge.
Asset vs. non-asset based
Faced with new regulations, driver shortages, and tight capital, many trucking companies look to brokerage as the growth engine for their business in the coming years. An asset based brokerage has one inherent advantage in the marketplace, and that is shipper expectations.
For good or ill, shippers, especially larger ones, make the asset vs. non-asset criteria a barrier to entry. If you can say your business is “asset-based” then you pass the first entry barrier. It's not unlike the requirement many employers have that candidates for open positions must have a college degree. It's a simple way to cull the herd of solicitors wanting their freight.
As you've found, most of those shippers don't really know what the advantage is to being asset based. They've just been told to use that criteria.
The main reason to require assets (besides the obvious reason that you will haul some of the freight in company trucks) is based on the notion that an asset-based company has deeper pockets to cover damages in the event of an accident.
Knowing how leveraged most trucking companies are, that may be a false sense of security.
In addition, those shippers often avail themselves of the larger, non-asset based brokers in the business, and you know who they are.
So what's the best for your business?
If you started as a non-asset based brokerage then you should stay non-asset based. Running a trucking company is different than running a brokerage. Unless you have solid experience in running a trucking company, or someone on your leadership has that experience, the expenses you'll incur on the trucking side will eat up any new profits your brokerage generates.
Also, the culture of a trucking company is contrary to the culture within a successful brokerage.
Over the years I've known many brokers who saw the asset side as the way to build their business. For some, it worked out—but not without hardship. For most, it was what put them out of business.
The other side of the same coin is that many trucking companies struggle to build a sustainable brokerage business within their company. They know that brokerage requires a much lighter capital investment to generate significant sales, but the cultural strain shows up again. With a bias against brokerage ingrained in the asset based community, they struggle trying to internalize and nurture a brokerage business.
If you're a non-asset based broker, create a sales strategy that addresses barriers to entry that some shippers put in front of you. And if you want less hassle, don't even try to convert the prospect who requires an asset base. With tens of thousands of potential customers out there, find the ones that are best suited to your business and work to convert those leads in prospects, then customers.
There truly is enough business out there for everyone.
Small and mid-size brokers in the future?
The last decade has seen the growth, in number and size, of large brokerage operations.
Raising the surety bond from $10,000 to $75,000 was supposed to knock the wind out of thousands of small brokers. But that never happened (yes, a lot of brokerage licenses went away, but these were mostly little used licenses maintained “just in case” and just because it was pretty cheap to keep the authority alive even if the business was inactive.)
All this, with ongoing mergers and consolidations, seem to be reducing the opportunity for small and mid-size brokers to compete.
I'm not that pessimistic.
First of all, if there wasn't a need for your services in the marketplace your business would have failed long ago. If you're in business today, it is because you have adapted to changing conditions (and there are always changing conditions), not because there are more or less large companies competing with you.
Celebrity chef Guy Fieri has a long-running television show on the Food Network, “Diners, Drive Ins, and Dives.” On the show he visits small restaurants serving outstanding products to a large and growing base of customers. With all the large restaurant chains created the past 30 years, you might think it impossible for small and mid-size restaurants to survive, let alone prosper. But you'd be thinking wrong.
There will always be a need for every brokerage business, regardless of size, that takes its business seriously. That focuses on above average service—you know you do a better job of serving your customers than the 20-somethings at the large scale brokerage of your choice.
The brokerage that puts customers and carriers first, treating employees like the most important asset of the business they are, will not only survive the consolidation and further regulation of brokerage, they'll thrive in spite of it.
Leadership—this is especially for you
Too busy running your business to build it?
At TranStrategy Partners we've successfully worked with dozens of business owners to help them focus their energy, and the energy of their staff, to plan for and grow their business.
Later we often hear clients say, "I wish I'd have done this sooner."
Why didn't they?
Most often, they were too busy.
Yep, too busy running their business to build it.
Entrepreneurs have their hands full. In the freight brokerage business there is no end to the things a leader could be doing.
You have to hire and fire. Deal with problem shipments and carriers. Manage billing, accounts receivable and carrier settlements.
Most leaders barely have time to service existing customers, much less sell new ones.
In the hustle and bustle of a typical day, taking time to consider what you want the business to become takes a back seat. When the action breaks, you want a break too.
We understand. We're entrepreneurs too.
So how do you find the time to plan and grow your business?
First, force yourself to set aside some time—maybe an hour or so. Put it on your calendar, and keep the appointment. Close the door. Turn off your phone. Eliminate all distractions, including thoughts about what else needs to get done or how you should have dealt with the most recent crisis.
Then answer just one question:
When my time here is done, what do I want my business to look like?
With this one step, you'll learn two things:
How to make the time needed to work on your business
The desired state of your business—what you want it to be
There's a lot more to do of course. Seeking some outside assistance comes in handy.
Find someone who can take an impartial look at your company, assess its current state, and collaborate with you (and keep you accountable) in planning and implementing a strategy to move you toward that desired state.
Your personal user’s manual for employees
Always looking to improve my management skills, a while back I found the article at Inc. Magazines website at this link very interesting: http://bit.ly/1AjW5Qd
It suggests creating a personal “User's Manual” to share with your direct reports, and potential new hires. It lets them know what it is like to work for you.
At the time I read this I was managing a small staff of brokers, compliance people and sales folks. I put together a one-page called Fernie's User’s Manual based on the following set of questions from the article. I urge you to do the same.
Questions to Ask (and Answer) For Your User's Manual
Which do I value more, speedy work or deliberate work?
What are my expectations for commitment to the job beyond conventional work hours?
What are my idiosyncrasies—that is, what are the individual quirks that anyone working with me should know about?
How will I help my employees get better at their jobs?
What weaknesses of mine should the team know about—and how can they help me improve?
What is my process for handling conflicts?
When it comes to mistakes, what's the best way for employees to come forward?
With this completed, it should only be one page, your people will know precisely what you expect from them in everything they do on the job.
Combined with the job description, expectations for performance are crystal clear.
A sure way to hold your company back is to be indecisive.
Business is all about making decisions.
Most of us have no trouble with the day-to-day, routine decisions our business requires. But when a strategic decision (about people, technology, or other investment) is required we tend to favor indecision. We tell ourselves, “We're too busy right now,” and we put those big decisions in limbo "for later, when I have the time."
Well, faced with multiple decisions of where to take our business we can get bogged down in over analyzing.
We may be afraid that our decision might be wrong.
We may be afraid that we'll piss off people we think are important to us.
We may be afraid to lose what we have to get what we want.
Early in my mid-life career change to newspaper publishing, I was visited by a wise man—a former publisher of the same newspaper. Commenting on my editorials he bluntly told me to, "Take a stand, dammit."
He said that people wanted to know what I believed, not what I thought that others believe.
Not wanting to alienate subscribers or advertisers, I tended toward presenting all sides of an issue—on one hand and on the other hand.
Indecision was my problem.
After some soul searching I took the old man's advice and began writing what I believed to be true—often fearfully, but always definitely.
An amazing thing happened.
Yes, I pissed off some people—sometimes many people.
But I saw more activity in our business.
Subscriptions and renewals went up.
Ad revenue went up—although occasionally an advertiser dropped us like a bad habit because of a stand I took. Most returned eventually, but the lost revenue, while noticed, was quickly replaced by others.
As a business leader, you need to take a stand.
You need to make the big decisions—and live with the consequences.
But if you believe that your decision is right, amazing things will happen.
And if the decision is wrong? Change it.
There can be downside to being decisive.
It happens when you operate with absolute certainty, ignoring the contrary voices you hear from staff and advisors because you know better.
Absolute certainty often has a twin brother—inflexibility. While keeping your ultimate destination in mind, flexibility is necessary to reaching it.
The captain of the HMS Titanic was absolutely certain in his destination. He was the Chief Operating Officer of the world's largest, fastest, and most luxurious steamship. His goal, cross the Atlantic to New York City faster than any ship had done before.
He had the right tools—an experienced crew with a modern, unsinkable, and well powered vessel.
As a long time captain, he'd led many a voyage to successful conclusion.
But his absolute certainty ultimately put his ship and passengers in a fateful and fatal position when he showed no flexibility toward icebergs.
Depending on the story you hear, he either ignored or misunderstood the warnings of icebergs in the shipping lanes. He continued on his mission, full speed ahead, even though throttling back the massive engines or changing his course may have saved the ship and its customers from a watery grave.
Ramming an iceberg at half throttle would have been troubling, but not fatal.
Steering a southerly course would have meant missing the expected arrival time and a trans-Atlantic speed record. But the ship and its crew would have survived the voyage to provide exceptional service for years to come.
There are many icebergs in the course of business.
The unexpected loss of a key employee(s) or customer.
Cash flow problems.
Market changes (like the capacity shortage in trucking.)
Understanding the threats these icebergs pose, while keeping the mission front and center, allows the enlightened Chief Operating Officer of the business to throttle down (or up) or even change course to safely and profitably reach its destination.
On the ocean of business there are three types of leaders:
The absolutely certain (and inflexible) leader, like the captain of the Titanic, steers to the destination full speed ahead, damn the icebergs. Sometimes they arrive at their destination safely, idolized for relentless courage and forgiven their arrogance. Many times they fail spectacularly.
Some leaders, quietly confident and steady, adjust their business to the conditions surrounding them while keeping their destination in mind. They often arrive safely and are celebrated by employees, vendors, and customers for their wisdom and courage. They rarely fail.
Far too many leaders enter the iceberg crowded waters of business with no clear destination in mind. Not knowing where they want to end up, they speed up, slow down, or change course for no apparent reason--at least to those around them. They bounce from one iceberg to the next, never hitting one hard enough to make a fatal mistake, but sustaining cumulative damage from each one. When they ultimately fail, there is nothing spectacular about it. On the rare chance they succeed, there are no accolades.
Have a clear destination for your business, but make sure you know when to adjust its speed and direction along the way.
Management—what the hell are you good at anyway?
Why don't you do what energizes you? Not what you think you're supposed to do.
Most entrepreneurs are very good at numerous roles within their business.
No matter how good though there are tasks that you just find tedious. Those tedious tasks drain you of energy very quickly.
Keeping your energy elevated will drive your company.
You may be very good at everything you do. This isn't about competence, it's about energy.
Freeing you up to do what you do best is the best thing you can do for your company.
A good strategy is to learn your strengths. TranStrategy Partners Leadership assessments will make your strengths very clear to you.
Your strengths are where your energy is maximized.
If your strength is accounting, and you spend your time brokering loads (even though you're a good broker), you will find your energy depleted quickly.
If accounting isn't a strength, even though you understand it and perform competently, you will lose energy quickly, making you less effective on other tasks.
Once you know what work energizes you (maybe its sales, I hope) then you should arrange your workload accordingly.
Those tasks that need to get done, but suck energy level, should be delegated to someone else in the organization or outsourced to others.
Working outside your strengths produces friction that holds back your company, and the productivity of your staff.
Working in the areas of your strengths reduces friction in an amazing way, freeing up your company to grow.
If you are irreplaceable, indispensable, and immortal, don’t read this part of the book.
For the rest of you, succession planning must be done, sooner rather than later.
In the corporate world the way to get promoted is to have a competent, well-trained staff person, or persons, ready to fill your shoes. Management won’t promote someone, no matter how good, if a handy replacement isn’t available.
The way to get ahead for those who own and operate a small to mid-sized brokerage business is to have a successor ready to step in when the next business opportunity presents itself.
That opportunity may be positive, like a new market to exploit, a buyer for your current business, or a comfortable retirement.
Or that opportunity may be negative, like you just might “flame out on the freeway” on your way home from the office tonight.
No matter what, having a ready successor will increase the probability that your business continues to grow along the path you have set for it—whether you’re there, or not.
Leadership succession planning takes time.
Start with creating a strategy for your business that sets its future direction and develops operational continuity.
You need an honest assessment of where your business is today, and a pretty good idea of where you want it to be in the future—one year, five years, and even ten years out.
You can do this alone, with your management team, or with a competent outside facilitator, consultant or coach like the professionals at TranStrategy Partners.
With that business planning done, your successor will be the person best able to implement it—along with you of course.
As the owner/operator of a brokerage business, you fill three important roles:
Chairman of the Board—you are responsible for the asset that is your business, responsible to the stockholder (you) to ensure this asset is protected and growing.
Chief Executive Officer (CEO)—you establish a vision and strategy for your company and marshal its financial resources to maximize the return on the stockholders investment.
Chief Operating Officer (COO)—you make sure the operations, marketing and sales functions are organized and implemented to execute the strategy and achieve the vision.
No matter how good you are in these roles, you eventually want a successor—or successors—to fill one or more of them.
To begin your search for a worthy successor, take a look at what you do. Write your own job description.
If you were gone tomorrow, how would this stuff get done?
Now, figure out what can be delegated to existing staff and begin delegating it. Sure, it won’t be done “the right way" (your way) at first, but soon enough you’ll free up more of your time—a very important asset—to think about and plan for the future of your business and find your successor.
Make no mistake, the person that can bring your business to the next level—your successor—is nothing like you. That’s a good thing.
The personal strengths needed to start a new business, and operate it over the years, are not the same strengths needed to lead it to profitable growth in the future.
That said, your successor may be a family member, a trusted current employee, or a qualified candidate from outside the company—but they need to have some core capabilities:
Financial analysis capabilities
Some of these things can be taught, but it is very important that you and your successor share the same core values, and that those values are projected in your business.
Take time to consider a number of candidates during this process.
You want to select a successor who can work closely with you, as well as existing staff.
They’ll need to develop a great relationship with your customers, vendors, banker, accountant, and legal counsel.
Your first choice may not be the best choice, and your best choice may be the candidate you least expected had the ability, the drive, and the commitment to make your business a success.
Finding your successor is a major business decision, and deserves all the time it takes.
Once chosen, grooming your successor is like entering into any long-term relationship.
Start giving away some decision making power and create some performance accountability for this new leader, and then get out of his way. The old saying is true, “The more power you give away, the more power you’ll have.”
You’ll be amazed how the right successor will jump start growth, increase profitability, and maximize the value of your company. If you just let it happen.
At least once a year you should sit down and plan for possible transitions in your business.
You should think about how you want things to happen if a transition event happens in the coming year.
What are those events?
I don't wish the worst for you, but I do know that death can strike down any of us at any time.
If it should happen to you, what will happen next?
Disability, mental or physical, is a real possibility too.
If you're the sole stockholder in your business, what happens to that asset that is your company?
If you have other stockholders, do you have a buy/sell agreement in place that treats them and your heirs fairly?
Knowing the value of your business is critical here. Then finding a way to fund a buy/sell transaction through insurance or other appropriate asset(s) is important.
If you plan to work until they carry you out of the place in a box then retirement planning isn't an issue for you. After all, what is there in life besides your freight business?
On the other hand, speaking from experience, retirement doesn't suck.
But it does require planning.
How will you fund your retirement?
Will you continue to be a stockholder in your company?
Will you work part time?
Will you sell your business?
Here too you need to know the value of the company you built, and you need to know it now.
If it's worth more than you thought, you may be able to speed up your retirement plans.
Passing to next generation
Bringing your children into the business can be a bit tricky.
Separating your Daddy role and your boss role takes a concerted effort, but it's worth it.
Determine a time-frame for turning over the reins to the next generation and decide what role you will fill when they take over.
Getting out of the way is a good thing, even if you continue to work in the business.
If the next generation will be funding a retirement for you, make sure you formalize any agreement.
And in all of this, have a good estate planning lawyer and CPA involved.
Just f----ing tired of the grind?
Sometimes the transition is that you're just tired out and you need to change something.
We find many clients begin working with us when they are in this position.
They often get re-energized using our process and make a renewed commitment to building the business.
It's fun to be part of getting beyond stuck.
Sometimes it's just clear that a person needs to get out of the business.
I know a guy who sold his brokerage business seven or eight years ago.
Not yet 50, he took a lump sum cash payment from the buyer and retired. I spoke to him recently, and he has no regrets. He walked away from brokerage and hasn't looked back.
For him, there is more to life than the grind and hustle of running a growing brokerage business.
If you're tired out, it's time to look at what TranStrategy can do for you.
In our practice at TranStrategy we find that business owners in our industry face common issues. Although the particulars of each case are unique, issues of growth, culture, and profitability are common to all.
Executive Coaching is now one of the leading mechanisms people use to enhance their businesses and their lives.
Coaching is neither therapy nor consulting.
Coaching steers you from the routines of today, creates objectives for tomorrow, and results in achieving the highest potential for you and your organization.
I hope you found this little book to be helpful, reassuring and encouraging.
To thank you for reading this book, I’m offering you a 30-minute executive coaching session over the phone, absolutely free.
Send an email to firstname.lastname@example.org and let me know what one or two challenges you would like to discuss in this call, along with the day/time you'd like to “meet.” I'll see you there.
Coaching is not only for athletes. It’s for entrepreneurs, owners of large and small businesses, and management professionals as well.
The principles of coaching remain the same:
Coaches provide an unbiased point of view.
Coaches reveal opportunities that may otherwise remain hidden.
Coaches guide you through challenges you face in achieving set goals.
About the author
My father was in the freight business since before I was born, so when people say it's in your blood I guess I'm the proof.
Learning tariffs and freight rates in the 70s, I worked for LTL motor carriers and a manufacturing company.
Then I joined a Shipper's Agent (now known as Intermodal Marketing Companies) in the years leading up to de-regulation. Our company became a licensed broker known as Twin Modal.
I became President of my first company when I was 26. Retired the first time at 40. Retired again at 46.
God willing I'll have the chance to retire again someday.
After transitioning Twin Modal to employee ownership in 1995 I “retired” to the woods of northern Minnesota. Before long my wife and I bought and operated the local newspaper and started an Espresso shop.
The community newspaper industry went through a period of consolidation, and once again I faced a transition, selling the newspaper to a group publisher and the coffee shop to new owners. After another short retirement, I got back into the freight business with a small family company.
I've had some good times and my share of trouble.
I've stood for election to public office and had the honor of representing TIA brokers before regulators and elected officials in Washington, DC.
I've witnessed the best and worst of our judicial system, and lived to tell about it.
Becky, the woman who had the courage to marry me, has kept me around 42 years, and hopefully will keep me around a bunch more. She's stayed with me through success, failure, and sometimes abject stupidity. She gave us four beautiful kids who've grown into passably tolerable adults. And there's four grandkids, for whom I'll do anything.
I pick up after my dogs, fix mine and one more divot on the golf course, and I believe in the goodness in people.
One doesn't succeed in business or life without mentors. I've had several, but will highlight the important ones.
My dad, Don Fernlund, was one of the best freight sales people I've ever known. A sales executive for an LTL motor carrier, he taught me to respect everyone. He knew his territory, and his customers, very well. He died 20 years ago, and my mom still hears from widows of some of the traffic managers he used to call on.
Dan Conway hired me at Piggyback Consolidators of Minnesota. He became my business partner, friend, and almost a second father. He taught me the importance of running a business in a way that would make good people want to work for it. He retired in 1990 when we began the transition to an employee owned company.
Chip Smith, who took over leadership of Twin Modal from me in 1995, is a brilliant co-worker, friend, and mentor. He continues to teach me so much about sales and business. And next to the old man, he's the best freight sales person I've ever known. I was so proud to watch him lead the TIA while building Twin Modal. And now, he’s building another successful brokerage.
Last, but not least, Joel McGinley. His perspective, advice, and coaching have made the last ten years a lot more rewarding. Thank you Joel for letting me collaborate in the success of TranStrategy Partners.