The owner of a small trucking company asked me recently what I thought about strategic plans. She was the daughter of the company’s founder and was trying to improve the company’s performance. A consultant had approached her about developing a strategy for her company.
For most small companies, an extensive strategic planning exercise is not a good use of time. A detailed strategic plan is great if you want to capture a new market or face competitors that want to run you out of business. But in trucking, there is plenty of market share to go around. Although it may seem so at times, there is no large competitor trying to run anyone out of business. Also, for strategic planning to be any good, it must be based on a forecast that is better than conventional wisdom. And besides, the real success stories since deregulation have been entrepreneurs who grew major trucking companies from virtually nothing in 1980 without relying on strategic planning.
While I am cynical about the value of strategic planning, carriers have much to gain through other types of planning. Often, the act of planning, or thinking through the issues facing your company, is more valuable than the resulting plan. Every trucking company owner should consider developing three distinct plans: a survival plan, a homerun plan and an exit strategy.
In the last three years, many trucking companies have failed. During the good times, many of these carriers allowed their fixed overhead cost to increase to the point that a downturn in revenue would mean heavy losses. When losses came, they didn’t take the decisive action needed to stop the bleeding. Instead, they gambled that the downturn was not going to last.
A survival plan is nothing more than developing a budget and action plan for breaking even with revenues of 10 to 20 percent. Think through how much overhead your company really can afford. Can you operate with a lean staff and forego the luxury of a well-appointed corporate office? The action plan should address where costs can be cut when another downturn occurs. Why don’t trucking companies always operate with an eye toward keeping overhead low? The answer is that the very profitable ones do.
The second plan, which I call the homerun plan, isn’t necessarily for everyone. The purpose of a homerun plan is to develop a new line of business that would represent a major financial boost for your company. But that’s not feasible or appropriate for every company.
If you are only operating 20 trucks, for example, you may not have the scope to branch out. Or you may be content with your current line of business. Developing a new line of business involves risk and may require management expertise that your staff doesn’t possess. Sticking to what you know and are successful at is never a bad strategy in trucking.
But don’t ignore the benefits of branching out. You may find a line of business in which the margins aren’t as depressed as they are for the typical trucking company. Many carriers diversify into brokerage, warehousing or specialized hauling. Or they buy out businesses in other markets. These moves require planning. You need to execute them when economic conditions are right. And new businesses usually require an investment in working capital, so your existing business needs to be generating sufficient cash flow to fund the new operation.
Another reason to diversify is to prepare your company for transition. You can build your trucking company for decades, but one way or the other you will, eventually, no longer be in the picture. Generally, your exit strategy revolves around one of four alternatives: Leave the carrier to your heirs, sell the carrier to current employees, sell to another carrier or private investor or take the company public. You need to plan your exit strategy at least five years out and focus on increasing the valuation of your company. Executing a successful homerun plan is one way of making investors step up and take notice. Another is demonstrating an ability to prosper during both good times and bad.