If you own a start-up freight brokerage, you're aware of the risks and rewards that are part of growing your business. All businesses go through four distinct phases: startup, growth, maturity, and transition. In the first two phases, you pay out your time and money to the business. The payback comes in the second two phases, when you can distribute earnings and enjoy a more relaxed lifestyle.
During the growth phase, you'll invest a large amount of both time and money. At that point, you'll want to decide whether an agency or organic business model will best fit you and your circumstances. If you choose carefully and commit to the path, you'll achieve success over the long term.
Model #1: Agency Growth
If you decide to be an agent-based business, your company will provide back-office support to brokers who don't want to handle billing, accounting, carrier qualifications, insurance, and the like. The agent produces quick revenue growth on a commission-only basis, reducing indirect costs but diluting profit margins.
It helps to think of agents as customers rather than employees: They are generally aggressive, independent business people and you work for them. You need solid systems in place to ensure low costs per transaction and sound financial management to handle cash flow.
GT Worldwide Logistics, a brokerage in Monroe, IN, that specializes in heavy haul, uses agents as well as in-house sales people. "GT started in 2006 with just my partner and me, doing about $1 million in business," said Clint Prosperi, service manager. By 2010, Prosperi and partner Rich Francis had grown the brokerage to 22 sales representatives and were on pace to do about $25 million. GT has agents across the country, including Texas, Florida, Saint Louis, Chicago, Los Angeles, and Washington.
"We're always looking for the next best guy out there who wants to get in this and start making some real money," said GT President Rich Francis. "Every single one of our agents gets DAT Load Boards and Keypoint Software for free. It's very easy to help them get set up, put loads in and move freight."
Model #2: Organic Growth
If you're taking the organic approach to growth, you need to acquire personnel, choose a niche and geography, and determine equipment and mode types.
1. Hire personnel. You may think that hiring experienced transportation personnel is your best bet. These pros may cost more, but they can hit the ground running and bring a book of business and expanded knowledge. You may be able to expand into new segments or regions quickly. Of course, they may jump to another opportunity just as quickly, taking business with them.
The other choice is to hire employees new to transportation. Even with quality people, the learning curve will be steeper. You can make it easier by using a solid business model, with set procedures and formal training and promotion paths. Be careful, however: If you don't handle this smoothly, you may be training your competitor's next team.
2. Find your niche. Many start-up brokers haul truckload dry van freight, because it's the simplest and most available freight. But it's also price-driven, with large players and small margins. As a small, nimble brokerage, you should focus on a niche you're uniquely suited for. Differentiators could include a high level of customer service, flexibility, and responsiveness or a particular type of cargo.
Byrne Transportation Services in Warrenville, IL, started up in 2008. Being veteran-owned gave Byrne a foothold supplying transportation solutions for Department of Defense contractors.
"We handle big and ugly freight—the bigger and uglier, the better," said John Byrne, vice president of Byrne Transportation. "We move tanks, helicopters, personnel carriers, propeller shafts, and propellers." Byrne also does heavy haul commercially for large chemical companies.
3. Choose a region. Regional markets can offer tremendous opportunities for growth, so choose one you know well. As you expand, you can smooth your transition by hiring regional experts or deploying a robust ratings tool, like DAT RateView™.
4. Decide on equipment and modes. You can also grow your business by moving similar freight using different equipment. You'll need staff members with the expertise to expand into a new segment. Even better, you can hire personnel with a book of business. Get the right staff and you can move into flatbed, reefer, over-sized, or specialized freight.
GT Worldwide Logistics brought on a partner whose main focus was heavy haul. Prosperi said that he and Francis started learning and growing in that industry; now it's GT's specialty.
Various modes are available too. Less-than-truckload (LTL) fills space on a contract carrier's trailer and can be profitable if you match freight and truck availability.
Less-than-truckload (LTL) consolidation combines several LTL shipments on a contract carrier. In this case, the sum of the parts is greater than the whole, creating a built-in margin. But you need consistent sources of freight and a way to store it until you ship.
Intermodal sounds like what it is: You put a trailer or container on the rail. You need unique knowledge, volumes, and systems to handle the freight. Subcontracting to a specialty company may be a good way to start.
Third Party Logistics (3PL) generally isn't a growth area for a small company. But as you expand into all market segments, you move closer to providing 3PL services that move all types of freight.
Behind the scenes
No matter which model you choose, you need a quality Transportation Management System (TMS).
In the agency model, your agents will reap the benefits of a full-featured TMS with all the tools of a large brokerage, including integrated load boards, load tracking, and web services for the shipper.
In the organic model, you need systems in place that can handle growth. You may start out running your business with spreadsheets, word processing, and simple accounting software, but you'll reach a point where those tools will hamper you more than they help. At that point, a TMS like Keypoint Software can support operations and accounting together, introducing efficiencies and controls into your workflow. Successful brokers find that with the right TMS, they can grow their company 10-fold without adding to the back office staff that ran their old manual systems.
"When we did $2 million, we had four people on the administrative side," said GT's Francis. "Now we're doing $25 million and still have four people on the administrative side. There's no reason for us to add anyone."
As you guide your business through the growth stage, continue to resolve your customers' transportation challenges efficiently and cheerfully, and you'll build the two most important assets for your brokerage's future: sustainable profits and a reputation for excellent service.
"What differentiates Byrne from our competition is attention to detail," said John Byrne. That's critical in the kind of environment the company works. "We don't take anything lightly."
GT's Francis seconds that. "It's always service, then price," he emphasized.
Contact Steve at Steve.Blair@TransCore.com.
Categories: Best Practices and Benchmarks