Originally printed in the August/September 2007 Issue of Farm Equipment.
Owners: Back row (l-r): Mike Carley: Gibson City ag store manager; Phil Fayhee: parts/service operations manager; Jim Campbell: Oakland ag store manager; Wayne Coffin, Urbana ag store manager. Front-row (l-r): Mark Foster, ag/auto equipment division manager; Mike Hedge, CFO/treasurer; Ron Birkey, president/CEO; and Jeff Hedge, construction and golf equipment division manager. Not pictured is Jess Showalter, who recently retired as an owner yet is remaining in a sales support role.
Founded: 1954.
Major Line: Case IH and New Holland Ag (10 stores), Case Construction (four stores) and Jacobsen Golf & Turf Products (for most of Illinois and eastern Missouri).
Ag Shortlines: Kubota, Kinze, Salford, Unverferth, Brent, Bush Hog, Woods, Exmark and Cub Cadet.
Locations: 14 (includes a DaimlerChrysler auto dealership).
Employees: 300.
2006 Sales: $131 million ($100.8 million in wholegoods, $21.9 million in parts and $8.9 in service).
Return on Assets: 4.52%.
Since Birkey’s Farm Store’s founding in 1954, says Ron Birkey, president/CEO, there’s been no question about its customer focus. Pointing to photos of past owners and presidents that hang on the conference room wall, he says, “They were all service guys, mechanically skilled and product gurus. Their strengths were all in understanding the customer.”
But in today’s world, a customer-focus alone isn’t enough to ensure survival. Dealers also must have the discipline to manage the finances of the entity. Birkey credits the recognition of this fact in the early 1990s as a turning point that led to the firm’s rise.
Recognition of a need is only half the battle. To “get it done” requires gut-tested leadership and unrivaled sense of teamwork.
It sounds cliché, but spend time with the team at Birkey’s Farm Store, and it’s clear that pulling in the same direction, checking the egos at the door and subordinating individual or site-specific interests to the larger entity are root factors in this dealership’s success. Teamwork, as it’s spoken about in downstate Illinois and the various locations, does not appear to be lip service. Birkey’s, it seems, is “walking its talk.”
A Different Structure
An example of teamwork is immediately found in the management structure. Each of the eight owners have direct-line roles in the business, though none owns any more than 18%. The fact that Birkey’s is not only surviving, but thriving, with this ownership picture might be the most impressive feat of all for dealer-principals who’ve struggled through the philosophical and emotional pain of mergers.
With 30 years of experience under his belt, Birkey serves as president/CEO and is in charge of the day-to-day operations. But another hat he wears is chairman of the board. In that role, he explains, he sets the agenda for the meetings and participates as a board member but, at the end of the day, he subordinates to the board.
“We rely on the expertise here at the company,” says Birkey. “This is a very smart and engaging group. And the structure has kept us successful with different owners and presidents over the years. Where we’re headed is clearly understood, so the exit of a retiring owner is not devastating to the company.”
While the management and ownership structure is unique, Birkey, and Mark Foster, ag division manager and corporate vice president, say success stems from good blocking and tackling. “There aren’t a lot of new ideas in running an equipment business,” says Foster. “Our group has a wealth of industry experience, and we pay attention to what worked and hasn’t, and borrow the best ideas from our peer group, associations and best practices of other dealers.”
Owners also admit that they can’t do it all. “It isn’t the eight of us who will make the greatest difference,” says Birkey. “What makes the difference is our ability to transfer good decisionmaking to the people out at our operations. They have a much bigger role in increasing revenue and reducing costs because they touch so many opportunities every day.”
As a result, a lot of time is devoted to knowledge and teaching others how their decisions can most impact the bottom line. “We work to empower people, to get them to think on their feet,” says Mike Hedge, CFO/treasurer.
Their efforts are working. Since 2002, the firm has nearly doubled its revenue (to $131.7 million in 2006), without needing outside capital — a point of pride for Mike Hedge, who Birkey credits as one of the top financial people in the industry. “We bit off a little at a time, made some acquisitions and have been smart about how we’ve managed the growth.”
Dr. Jim Weber, the consultant who works with Birkey’s peer management group, is impressed with the direction of the company. “While many dealers are managers, few exude the leadership that Ron has demonstrated since taking over as president of Birkey’s.
“He surrounds himself with good people and lets them manage their areas. Similarly, he continues to foster the development of store managers who understand the subtle nuances of both cash flow and profit maximization.
“The Birkey’s team epitomizes the way a high-volume, multi-store operation should run and that is clearly a reflection of the person in charge. This company is an excellent selection as Dealership of the Year.”
Working Owners
At present, all eight owners are required to be active managers. There is no passive or part-time ownership at Birkey’s, thus decisions have a longer-term horizon.
“We’ve always been a minority-owned company, and never had a structure that allowed a dictatorial, dominant leader,” says Birkey. “There’s no Lee Iacocca here.”
The result, he says, is a structure that encourages an open dialog of sound ideas, which Birkey says may be the most leading-edge aspect of the business. “With this group’s experience, every idea will need to pass the sniff test,” he says. “The good ideas float to the top and you end up with the best creative ways to drive the company.”
While the structure sounds like it has potential for bureaucracy, management insists that’s not the case. “We’re very prone toward action,” says Birkey. “We don’t pontificate forever. There are hundreds of things to do, so we need to get at it quickly.” The group doesn’t hesitate to call in other front-line managers who have expertise in specific areas.
This also typifies a trait of how Birkey’s does things. “We’re oriented toward getting a task done, not drawing the blueprint for how it gets done,” Birkey says. “When you have 14 stores, certain tasks can be handled a different way based on the talents at the store level. We identify a way something is to be done, but not who is going to do it.”
“There’s a lot of talent on this board, and a lot of variety,” says Jeff Hedge, construction division manager and corporate vice president. “We understand the strengths of each person and get out of the way.
“At an owner’s meeting, I will speak my mind, but when it comes to an operational decision, it’s Ron’s call. I’m not saying that everyone always agrees, but we are always behind the decisions. It’s not an ‘I told you so’ group.”
Managing the Business: The Birkey’s Way
Birkey’s has worked to retain the customer focus of its founders with its growth. Customer appreciation events, like this pancake breakfast served by techs at the Gibson City store, are successful in securing new business as well as deepening relationships.
Managing a growing and consolidating business poses several challenges. The biggest, say Birkey and his team, are the sheer number of locations. “You need to be in the stores to understand the operations and the customers,” says Birkey. “We also want to be there to see that everyone is on-point, so-to-speak. With aggressive plans, follow-up is critical.”
“You’ve got to be engaged in this business,” says Foster, who has been dubbed “the General” for his straight, directive style. “You can motivate people by being out there. Whether it’s me, Phil Fayhee (parts/service operations manager), Jeff or Ron, we’re all more effective every time we touch a store.”
Another critical point is asset management, which comes up enough in conversations to know that it is THE driving emphasis. “When dealers have two-thirds of their assets tied up in inventory,” says Birkey, “you’d better stay on top of it. We don’t have the luxury of quickly correcting problems in the ag or construction equipment market.”
Foster manages all ag wholegoods inventory and new ag equipment orders. “Everyone wants 5 new machines on their lot. Each store submits a wish list, and a committee of Mike Carley, Jim Campbell and myself review it. Then, we make a decision on what we can realistically do.”
Parts inventory is also closely monitored. To keep it in line, Birkey’s manages it from the Parts Distribution Center in Rantoul and shuttles parts daily between stores. A manager places stock orders, looks at all stores’ inventory, and transfers inventory from store to store.
“The parts shuttle solved the challenges of managing a slow-moving inventory and by providing more of our store needs from our own stock,” says Birkey. “The result is that we reduce obsolescence from all stores.”
In terms of management reviews, all store managers gather each month in Rantoul for a half-day meeting. The meeting covers hot issues and leadership training, followed by the company board meeting.
Also, each month, all managers review the financial statement (consisting of key ratios, full operating reports that show performance to plan and vs. last year, and rolling 12-month average). Each then reviews this data with his store management, keeping everyone in the loop.
Another operating principle involves the relationship with its suppliers, mainly Case IH. Management believes that it’ll do better with solid industry relationships, an ideal that is evident in the firm’s participation and leadership in industry associations as well.
In fact, Birkey’s sends financial statements, ratios and 1-page summaries by location to Case IH and its lenders each month, more so than is required. “The better that they know our business, the better they can build programs that work for us,” says Mike Hedge. “We communicate on the front end — before there’s a need or a trouble spot. When we’re ready to make a move, they’re right there with us. It creates credibility and trust.”
Inventory: Turn, Turn, Turn
If there’s something that reaches religious status around Birkey’s, it’s “inventory turns.”
Asset control is difficult for many farm equipment dealers, in part because manufacturers attempt to load them up with inventory. But as Birkey says, “The biggest opportunity to control leverage is to control assets. And none is more critical than the management of your inventory.”
Adds Foster: “Slow inventory turns have all kinds of layers of cost that hurt the dealership over time. You want to get the cash as fast as you can.” While most dealers recognize the impact of turns, most don’t attack it.
Birkey’s is currently seeing inventory turns of 3.25 (nearly 1 full turn above the national average), a number that Birkey’s is still unhappy with. Its standard is 4.0, which Birkey says is possible in a multi-store organization where there’s the power of a bigger sales team to move units.
“We’re not where we want to be yet, but we beat that horse every day,” says Birkey. “We’ve seen the impact that slow as well as fast turns have on the business.” According to Mike Hedge, improving inventory turns was key to growing the business over the last decade. “It freed up resources to grow the business without outside investment.”
When asked for the practical things they’ve done to achieve their impressive record in turns, Birkey cites an incentive program that provides salesmen 3 times the commission on used units than new equipment. (“We make more on the used equipment, so we put the emphasis there,” he says.) But, he says, it’s the focus that makes the difference.
“Mark spends a lot of time on inventory control and turns. Anything ordered that is not sold retail has to go through him. He also manages new equipment buying with a tight fist. If you manage the new, you can manage the used.”
“After a trade, we gather all the information, including what the unit is worth, and get it to all salespeople immediately via the intranet site and email. Appraisal, profit expectations and getting it to market on a timely basis are all critical. Then, get it sold and off the books.”
Current used inventory turnover and turnover trends are published each month so each site knows where it stands. Foster also adjusts the inventory twice a year at each store. “If it’s too high, we write it down,” he says. “Because the store takes a hit on income with that adjustment, they work hard to avoid it.”
“There’s a fear among dealers that if they don’t have lots of used inventory to display, they’ll go out of business,” says Birkey. “We say if you see a lot of used equipment, you probably will go out of business.
“You sell used equipment at its market value. It is irrelevant what you put into the machine. Dealers are wise to recognize that you can’t afford to have it sit around forever.”
Developing People the Key to Performance
The firm moved to an open book management style in 2001 so department managers and salesmen would know the full financial story. “We spend a lot of time on turns, ROA, leverage, etc. to make sure that they understand the financial concepts of the business so they understand the whys behind what they’re being asked to do,” says Mike Hedge.
“At that time, we landed on the fact that each person makes a great difference to the bottom line, whether $10 or $100 at a time. When those base hits accumulate, the net is huge. Home runs are great, but we’ll take the steady hits for batting average,” he says.
“To get the back-to-back improvement we need, there’s no choice but to empower people,” adds Birkey.
Financial management starts with the budget, which commences in August and is completed by year’s end. According to Mike Hedge, the budget process is very bottom-up, with managers representing sales, parts and service each providing forecasts (including technician productivity in the case of the service department). “There’s a whole lot of information pushed back and forth,” he says.
“We ask the managers to do a lot — to sell, make a sales profit and get the turns,” says Foster. “What Mike does is an example of the things that the administrative office can do to free up stores so they can focus on what is most important to the business. He provides all the data and shows them how to analyze what it means.”
Hedge defines his role as more of a teacher than a number-cruncher. “We show them how to hit the ball, but they’re the ones who need to swing the bat. We try to give them the tools to make good decisions. Asking the right questions is a very good place to start.”
Leadership Growth: Opening Doors
Parts inventory is managed by shuttling parts to and between stores from the?administrative offices in Rantoul.
Birkey says that the firm’s development of its Leadership Group and the attention that it gets from Mike Hedge, who also oversees human resources, is another differentiator.
The Leadership Group focuses on continual leadership growth of middle and top managers, including store managers, salesmen, office managers, parts managers and service managers. The goal, says Mike Hedge, is to share all financial information with them on a daily basis, including all of the balance sheet and operating statement information. They also see the budget process from the beginning.
“If they understand our mission and can break that down into how they individually can impact revenue enhancement and expense control, we’ll have a good chance to reach our goals,” says Mike Hedge.
He is convinced that the company needs to keep opening doors for people to grow. “If we don’t, they’ll go somewhere else. We can prepare and set those up who want to take their career to the next level.”
Store employees also know of the aim to promote from within, which motivates them to advance their game. “An advantage of promoting from within is that they know how we want to do business,” says Birkey.
Hedge and his group also have leadership training in place, including seminars and reviews of management topics. There’s also a Birkey’s “book club,” where participants read and discuss the likes of Good to Great, Winning With People and 360-Degree Leader. “One of the keys is creating a climate where people are comfortable with change,” he says. “A growth company like ours will continue to be adding locations, pulling people in different directions.”
Gordie Hedrick, a 28-year-old service manager at the Urbana location (at which most of the 10 techs are under the age of 30), is one who appreciates the approach to people development. “They’re not micromanagers — they let you do your job. If you happen to have a bad month, the conversation is about ‘what can we do to help get this back on track.’ If we need training, we get it. We’re expected to work hard, but that’s how you grow the business. And they are plowing the profits back into growing the business.”
Going hand-in-hand with their view toward developing the future is the focus on growing their own service technicians. The firm has strategic partnerships with community colleges and the Univ. of Illinois, and recently relaunched its scholarship program at the Parkland College in Champaign. “We still fall short of our needs for techs,” says Jeff Hedge. “It makes you wonder where we’d be if we didn’t have those relationships.”
Growth, But Measured Growth
The dealership started a bulk-oil delivery service in 2001. While a nice margin-generator, it provides another way to “touch” the customer — on his own farm.
When asked about adding locations, Birkey admitted it’ll continue, but that their hands-on nature makes it difficult to easily integrate new stores. “Our approach of high interaction from the administrative offices with each store lessens what we can do in a practical way. To grow, we need more manpower — which is a growth challenge. We’ll continue to grow but at a measured pace.”
“It takes an appetite to grow, fiscal ability to get there and an excellent management team. If all the links in the chain are not there, it falls apart. We’ve turned down far more deals than we’ve taken. If the numbers — machine population, parts/service indicators, etc. — are there and showing great potential, we’ll still let it go by if they, or we, don’t have people to put there.”
An example of this, says Foster, is when Birkey and his wife set up a residence to get the new Galesburg store off the ground. “If Ron hadn’t been willing to go, we’d have far less appetite to do these things,” he says.
When the question of the multi-store model comes up, Birkey comments on the statistics that say multi-stores are no more efficient than single-site locations. “Improvement can happen if everyone’s mindset is re-set,” he says. “A single dealer rolling into a larger group requires a great change in philosophy. Everyone must subordinate to the interest of the enterprise.”
He admits that Birkey’s had growing pains as it consolidated with others, in part because the firm was still creating a process to do it. Today, he says, the “Birkey’s Way” is more defined and understood.
Change Equals Opportunity
Open book management, financial training, hands-on communication and home-grown leadership are all tenets in Birkey’s formula for success.
Birkey’s management won’t make predictions on the future, saying no one could have forecast the company and its changes 10 years earlier. There’s little doubt, however, that they feel good about the future.
“Ag has and always will be a core business,” says Birkey. “It’s no longer just about food and fiber, but for fuel, too. That and biotechnology are very promising. Good years are ahead for ag, so there’ll be a need for good farm equipment dealers. There will be fewer of us, but we just need to be on our toes and adjust to the market. We’ll be successful if we keep our focus and strong fiscal control. We’re very optimistic from that standpoint.”
When asked what keeps him up at night, Birkey responds that there isn’t a lot that brings on insomnia, except maybe increasing interest rates that could slow the equipment business. “As for the rest, well, we’ve shown that we are capable of being on top of the curve, ready for change. Change is always coming. The industry has been dynamic for as long as I can remember.
“So, our opportunity is to be prepared for any problems. If we stay ahead, we can do something unique.”
Click on the links below to read about a day-in-the-life with the following Birkey's team members:
Plus, check out these extras:
A Construction Dealership, Too
In the mid-1980s, the Case Construction Equipment division was losing a dealer in Champaign, Ill. To fill the gap, Case asked Birkey's Farm Store to pick up the region's sales contract.
What Keeps the Birkey's Farm Store Team Up at Night?
If your business causes you to toss and turn on occasion, you're no different than the Birkey's Farm Store managers. Here are their biggest causes of insomnia.
The Essentials of Birkey's Success [Photo Album]
Page through photos from a day-in-the-life with all of the Birkey's staff interviewed for the Dealership Minds Special Report.
Birkey's Farm Stores: 2007 Dealership of the Year
Originally printed in the August/September 2007 Issue of Farm Equipment.
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