When you ask for words to describe Titan Machinery, which at 29 stores is Case IH’s top-volume dealer in North America, you get these kind of adjectives:

• Entrepreneurial
• Opportunistic
• Hard-charging
• Forward-thinkers

These traits seem to be so ingrained in the firm’s culture that there may not be any slowing down for the aptly-named Titan Machinery, clearly in an industry consolidator mode. But while business observers often struggle to name industry consolidators who’ve enjoyed sustainable long-term success, Titan is a horse of a different color.

Besides making 18 acquisitions in 5 years, Titan is unique in that it was funded by outside equity — not an easy task in the volatile, low-return farm equipment business.

Titan Machinery, Inc.

Peter Christianson (l), president and David Meyer, CEO

Founded: 1980 (current company was formed in 2002 through the merger of Meyer Equipment, CI Farm Power and Titan LLC).

Major Lines: Case IH, New Holland

Shortlines: Top Air, Salford, Geringhoff, Summers, Fargo Products, Buhler, Brandt, Riteway, Westfield, Cub Cadet, Parker, Wil-Rich, Rowse, Woods, Brent, MacDon, Grasshopper, Kubota, Demco, Amadas, Kinze, Degelman, Cressoni

Locations: 29 Employees: 500 2005

Sales: $228 million ($175 million in wholegoods, $31 million in parts and $16.57 million in service).

Return on Equity: 25%

Titan’s reach includes 29 stores throughout the Dakotas, Minnesota and Iowa. While stores operate independently, common administration tasks are handled at the Shared Resources Center in Fargo (pictured at upper left).

It also takes a serious look at how it can bring value to the grower, as evident is in its partnership with two competing dealer organizations to offer RTK precision technologies. This rare partnership has constructed 28 towers and attracted 85 subscribers over a 2-year period to bring a high-quality, reliable and low-cost RTK signal to local growers.

The annals of business show other consolidators that eventually struggle because they get too big, and let those things that helped it succeed at a smaller level fall through the cracks.

But Titan’s decentralized approach to operations management maintains that focus on working smart and watching the pennies. “There’s no silver bullet here,” says Peter Christianson, Titan president. “We are simply applying modern computer technology and outside equity capital to do more of what the good farm equipment dealerships have been doing for 70 years.”

The keys to Titan’s success, say Christianson and David Meyer, CEO, are proven management processes, a willingness to take on the opportunities and challenges of acquiring other stores, and letting talented store managers do their job in creating organizational best practices. While “home” for these two industry veterans is a new Shared Resources headquarters building in Fargo, N.D., this pair is not a couple of beancounters operating out of an ivory tower.

Says Jim Lilleberg, manager at Titan’s Fargo Case IH location, “Both have 30-plus years of experience in this business, have seen the ups and downs, and know how to coach and mentor. They’re not in your face, but are available to help. They know how to handle that hot potato problem, and the insight they can share in a quick conversation is irreplaceable. And they have a unique ability to keep the whole organization pumped up and focused on results.”

Finding Their Voice

When asked how they arrived at their business philosophies, Meyer, a 30-year veteran at age 53, recalls what the 1980s taught him. Specifically, he cites fiscal responsibility, inventory management and how to work to get the business. “We learned we had to sell through the tough times, not just sit by and wait for it to pass,” he says.

That entrepreneurial spirit, making something happen, is a value that was never lost in the rapid growth of the company. “We’ve seen other dealers that were strong on the top end but dictatorial, which kills creativity and passion,” says Meyer.

“Our employees want to feel that it’s their life’s work, and most want to bring that ownership every day. We want to support that — we couldn’t force our philosophies onto 20-plus stores. We needed to pull the business through our stores, not push it.”

“The only way to get people to act entrepreneurial is if you’re willing to accept some mistakes,” adds Christianson. “As long as they’re open and honest about mistakes, and we learn from them, then we’ve gained experience. We don’t have political infighting or cover-your-ass going on here.”

The duo, who could be described as “students of the industry,” admits that their management style is somewhat fluid. “We’ve taken this approach by reading the times,” says Christianson. “In different times, different things work. You’ve got to stay abreast of the best of what is working and what can work in the industry.”

Decentralized Operations

To effectively manage a large, multi-store operation, Titan knew it needed to protect those things most important to the customer — front-line decisionmaking in particular. “When consolidating, you must make it scalable yet still positive to the customer’s viewpoint,” explains Christianson. “The employees and customers are used to the dealer-principal making the decisions. To keep that intact, you need strong managers who can make the big decisions in real-time.”

This led to the operating strategy that Titan calls the “Strong Store Model.” Titan has created a structure in which store managers can concentrate on those things most critical to the business instead of being jack-of-all-trades administrators.

Where the store manager adds value, they say, is in his interactions with customers and employees. “All the other tasks,” says Christianson, “can be done in the Shared Resources center where they can be done better, and this focus better supports the key elements of the manager’s job onsite.”

The Shared Resources Center is a headquarters building located in a Fargo ag-themed business development that handles things like accounting, human resources, MIS/IT, advertising, administration and training. Because the building is overhead that the individual stores “pay for,” the modern, yet functional building is free of frills. In fact, Meyer and Christianson’s offices are no larger or ornate than you would find in any of the dealership’s store manager offices.

Lilleberg notes that store managers aren’t expected to be an expert on every last detail, but they are expected to “manage” the business where it counts. “It’s made us all more efficient. It takes away all the other things so I can concentrate on the parts, sales and service teams and the customer. This removes probably 50-60% of the tasks that I’d otherwise have to deal with.” Instead, he relies on the staff back at the Shared Resources Center, whom he says he’s in contact with probably 5-10 times a day.

Second, Titan implemented a nowhere-to-hide reporting method that shows each store’s performance and contribution to the total Titan enterprise. Here, each location is measured (see “Scorecard Time: Monthly Managers Meeting” below) against the whole, which helps reveal the best practices companywide. In other words, if a manager is lagging in any given area, he can see who the top-performing stores are and go to them and ask how they’re solving the problem. “It’s the most efficient way to get the best-in-class results,” says Meyer.

According to Meyer and Christianson, the firm is applying industry best practices rather than trying to blaze new ground. There’s nothing earth-shattering about their approach, but rather about defining the tasks and then executing, they say.

Scorecard Time: Monthly Managers Meeting

Every month, each of the store managers convenes at the Shared Resources center in Fargo for a one-day Store Managers meeting. According to Meyer, this meeting is conducted to go over the financial performance of each store and to review an array of items, including the company calendar, marketing programs, human resources, management information systems, accounting, parts/service and administration functions.

The “heart” of the meeting is the store-by-store results. “Each manager knows how they did and how well each of their peers did,” says Meyer. “We also rank all salespeople by their sales and their gross margin.”

All Titan store managers report to the Fargo-based Shared Resources training room to review performance and share best practices.

The store-by-store scorecard concentrates on:

• Market share
• Change in cash
• Profit
• New and used wholegood turns
• Interest-bearing wholegoods
• Parts obsolescence
• Work in progress
• Absorption rate
• Accounts receivable
• Insurance loss

“We stack them to unearth and identify the best practices so we can all improve. We believe in the numbers. There’s a lot of BS-ers in this business. But the proof is in the numbers. Recurring performance and predictability takes all the fast-talking out of it.”

Side-by-side comparison also serves to breed the competitive fire, says Meyer. “I guarantee you that there’s intense competition among the salespeople. Appearing on the high end of that ranking list means far more to them than cash incentives.”

“We empower the store managers a great deal,” says Christianson. “To do that, we exert a lot less central control here at Shared Resources, which is the back end of the business. The back side is completely cookie-cutter; that’s how we make things work on one computer system. We must resist the temptation to leach that cookie-cutter approach from here and apply it to the front end of the business — those individual locations that are rooted in independent and entrepreneurial thinking.”

As with anything you ask Meyer to evaluate, he points to the numbers. “We’ve had a significant increase in profitability,” he says. “To me, that’s a sign that the systems are working. We’ve been able to increase profits as we increase revenue and the number of stores.”

Balance Sheet Management

Titan officials observe that most of the farm equipment industry relies heavily on the income statement to chart its course, likely because most dealer-principals cut their teeth on the sales side of the business.

A big part of Titan's formula is employee reward and recognition. Each February, Titan hosts a companywide resort weekend with an awards banquet.

For Titan, it’s the balance sheet that counts, and each store has its own balance sheet to guide their actions. “By looking at it this way,” says Christianson, “we drive asset turnover and cash management. For us, the Strong Store Model makes each site responsible for its own inventory. That’s huge.”

Meyer preaches the dangers of inventory, and maintains a strict accountability for wholegoods inventory controls, particularly on interest-bearing inventory. “You can be watching revenues, profits, turns, absorptions, etc., but if you don’t keep an eye on your problem inventory, you can get in trouble in a hurry. A one-site dealer-principal usually is right on top of that problem, but when you’ve got 20 stores, you need each manager to be accountable for his respective inventory. You can’t think someone else will take care of it.”

While most data is shared with store managers on a monthly basis, Titan releases its inventory control reports weekly. “It can get out of hand in a hurry,” says Meyer. “If you don’t practice true balance sheet management, you’ll never catch it.”

Climbing the M&A Mountain

The aggressive rate of acquisitions (18 sites since 2002) is enough to make most people’s head spin. While it presented challenges, Christianson says that most problems could be anticipated, though no two stores presented the same set of circumstances.

When told that they were making it all sound easy, the modest executives admitted that there is a new dimension to management resources in operating this many stores.

Conceptually, Meyer says he and Christianson share the same basic philosophy. “Once you have the business philosophy and the operating principles, then you keep reinforcing it with people, using processes, systems and rewards.”

The pair is less concerned with evaluating the next acquisition opportunity than what it will take to get it up to speed. “Say that we wanted a store for its geography. Not all locations have the machine population that you want, and when that’s the case, you don’t turn things around in a couple of years — it could be 10-15.”

“Our priority, our job here, is to get the absolute top performance out of each of the stores,” says Meyer.

Titan officials say they’ve been busier responding to calls from interested dealers than in going out and finding acquisition candidates. At the moment, they define their worthy candidate as offering a contiguous territory, strong market potential, a good population of red and blue machines in the field and quality of people.

They are not afraid of the poorly-managed store. As long as it’s in a strong market with a good population of their equipment, Titan feels they’ll do OK. Plus, they admit, the poorly-managed stores generally offer a value in terms of price.

Conversely, red flags are raised when there’s an excessively low revenue picture, uncompetitive market (such as too many dealerships in the same market) and animosity with the customer base. Despite the fact that consolidation is new to the industry, Meyer says CNH has been very supportive of Titan’s growth. “They understand the trend to fewer but larger dealers and embrace consolidation and dealers coming together when it makes sense.”

When asked for their advice for another dealer embarking on the acquisition trail, Christianson says no one should attempt it unless he’s an outstanding communicator, a skill set that he credits to Meyer. “Clear communication with this size of growth is the biggest challenge. Things get misinterpreted and misconstrued.”

Christianson adds that 70% of what he and Meyer do each day is communication and then following up on that communication.

Post-Acquisition Improvement

Titan has seen a 50% annual revenue growth rate over each of the past 3 years. During this period, the company grew from 11 stores to 23 at the end of 2005.

While by no means the norm, Titan has acquired companies that were losing seven digits and succeeded in getting them to see black ink within 12 months. Among their keys to getting stores “up to snuff” is through sales compensation plans that are based on turns and margins, and them working diligently to control inventory.

“We saw some compensation plans that were 180-degrees off from what was good for the company,” says Meyer. “We saw salesman comp plans based on the percentage of boot (trade difference), which drives revenue but not turns or margins. As a result, there was a reward for taking less margin and creating a higher priced used machine.” He also added that they’ve seen a lot of plans where there were ceilings and red tape, essentially causing disincentives.

Culture — either indoctrinating to Titan’s, deprogramming a failed one, or embracing a successful culture from an acquired store — is another important step.

According to Meyer, each store has its own culture, personality, and assumptions and norms that have driven the business. “We are sensitive and aware of this,” he says. “For the high-performing stores, we don’t want to disrupt that culture.

“There are certain processes and systems that they’ll need to adhere to, but hopefully they can maintain a successful culture with the customers and staff — as long as they add to the enterprise.”

When Titan first acquires a store, officials aim to make people comfortable with the new way of doing business, and why it’s a positive change. Right away, they address compensation and benefit plans.

Like much of what they do, there’s a formula in place. “First, we address employees in group meetings, then one-on-one and then we train them extensively with computers and systems,” says Christianson. “Then, we let them run for a while. It’s a Tsunami of change. Then we keep following up until they’re doing the things the way they’re supposed to do them.”

After a period of 6 months to a year, Titan typically remodels the facility. “It reiterates the changes we’ve made,” says Christianson. Here, changes can be made for appearance as well as workflow efficiency. “It’s a positive for employees, customers, everyone,” says Christianson.

Grow Your Own Talent

Meyer and Christianson make no bones about it — it’s their people who are making the company succeed. The firm has a history of progressive human management, dating back to the 1980s in the early days of dealership profit-sharing and doing performance reviews long before they were the norm.

Training is a big part of their plan. The large classroom at the Shared Resource Center allows a permanent training facility, which is routinely used for training store administrators, parts/service personnel and sales meetings (with special topics such as precision farming). Programs are also held at specific store locations on occasion.

And Titan knows that its ability to grow is only a function of the people who can support that growth. And because they cannot typically find the talent they seek walking down the street, they’ve taken a grow-your-own approach. They can do this, says Meyer, because the processes on the back side are there to make sure things go right. “The front end of the business comes down to natural ability — regardless of initial industry knowledge,” he says.

Last year, Titan introduced a management trainee program that targets young graduates with management potential and a strong work ethic. Within 2 years, these individuals are exposed to the entire business and are groomed to step into a store manager role. “This is a sustainable method for attracting talent,” says Christianson. “The best way is to grow your own.”

These trainees are given a “business manager” title, and are involved and recognized in order to keep them engaged in the business. Generation X-ers need immediate feedback or they’ll grow impatient and bored, says Christianson.

All of this helps in finding talent for an old, often unglamorous industry. “There is a percentage of people who want that entrepreneur environment, which is harder to find nowadays,” says Christianson. “The ones who like it thrive; the ones who don’t end up leaving for something else.”

Titan hasn’t been content to cry the woes over the shortage of technicians, either. Christianson was instrumental in establishing a new 2-year technician training program at Minnesota State Community & Technical College at Moorhead, Minn. A longtime board member at the school, Christianson fostered a partnership between the college and CNH to “home-grow” workforce-ready diesel technicians for dealerships. Open to all CNH dealers, this program features a CNH-established curriculum and current CNH parts, tractors and state-of-the-art tools and equipment.

Following their classroom training, the techs-in-training return to their sponsoring dealer to work in a supervised occupational experience for an 8-week period, return to school and then start their summer employment back at the sponsoring dealership. In its first full-year, Titan enrolled 8 students in the program.

Titan’s emphasis on employees is evident through its annual journey for an employee appreciation weekend and award’s banquet at a resort in Minnesota’s “Lake Country.” The company picks up the tab for employees and spouses and hosts an annual banquet where a myriad of awards are presented to employees representing all job functions as well as top-performing locations. For Meyer, it’s just another reflection of how Titan does business. “It’s a matter of communicating the expectation, reporting the results and then rewarding the results,” he says.

What’s Next?

According to its three-phrase business plan (Consolidating, Improving and Sustaining), Titan is embarking on the “Improving” stage, which focuses on improving current operations and continuing modest growth. Among the keys for this phase are balancing construction and ag equipment, solidifying the regional footprint and growing market share.

From an operations side, Titan will hire ag and construction equipment expertise, create an HR recruiting process, continue employee performance incentives and standardize the stores’ image. Capital will be raised by owner/principal equity, preferred stock and subordinated debt. And the firm intends to increase its reliance on the vision and guidance of the board (which has the discipline and governance of a publicly trade firm, says Meyer) during this phase, with a refined organizational structure.

Meyer still sees Titan sticking with its plan for 3-4 acquisitions per year. “We can acquire only as fast as we’re succeeding in operating the stores that we have,” says Meyer. “We can’t be spread too thin on people and capital.

“I’d say we’re at a conservative level of growth at this point, still at 3-4 stores per year. It’s all a function of people.”