Blow it up

By Mark Gordon
| 11:00 a.m. April 8, 2016
| 2 Free Articles Remaining!

Strategies

Executive Summary
Company. FreightCenter Industry. Shipping, third-party logistics Key. Shifting business models takes discipline and patience.

Matthew Brosious knows all about making tough decisions, going back to the mid-1990s when he was a U.S. Army Ranger.

His latest big call isn't in wartime. Yet it carries major consequences for the third-party logistics company he founded in 1998, Palm Harbor-based FreightCenter. The company's core model is to use Web-based apps to allow customers to compare rates from different carriers, book and track shipments and print shipping documents.

But Brosious has different ideas. His goal: Turn FreightCenter from a company filled with one-off, transactional customers where small sales add up, to a business that wins work from a small group of large clients.

For FreightCenter, the shift, akin to trading minnows for whales, is seismic.

This is a company, after all, that recently rocketed to some major growth. Annual revenues, for example, rose 125% from 2009 through 2013, from $12.9 million to $29.1 million.
Brosious was a runner up for the Business Observer's Entrepreneur of the Year Award in 2012, and the company made the Inc. 5,000 list for seven consecutive years, from 2007 to 2013.

But the high-energy Brosious quickly ticks off a list of reasons why the company has to change — and fast. For one, its old model is low-margin and high-cost, from paying out large commission fees to maintaining massive websites. Another factor is simple economics: His niche is increasingly being commoditized, with supply outdoing demand.

One more reason prompting the change in models is the fall in the price of oil. This is because lower fuel prices reduce the surcharges carriers levy on customers, which, in turn, lowers fees third-party logistics firms such as FreightCenter charge.

That last point squeezed profit margins and revenues for FreightCenter. On the latter, annual sales growth has fallen to 11.3% since 2013, from $29.1 million to $32.4 million last year.

All of these factors, says Brosious, have put FreightCenter in a legit change-or-else position.

“It's a culture change from the past 17 years,” Brosious says. “But if we continue to do what we always do, then we will never get to be a $100 million or a $120 million company.”

The timing of the model do-over can also be an advantage for FreightCenter in a potential exit strategy. This stems from the current consolidation and mergers in the industry, known as 3PL, for third-party logistics, that's fueled by private equity money and venture capital.

Private equity funds, says Jett McCandless, co-founder and CEO of Chicago-based 3PL consulting firm CarrierDirect, are “super-interested” in companies that post positive earnings before interest, taxes deprecation and amortization, EBITDA. “It's been a pretty hot market for a few years,” McCandless says. “We expect we will continue to see consolidation.”

Move up
McCandless is aware of the business model and market for FreightCenter and another large Tampa-area 3PL firm, Riverview-based BlueGrace Logistics. FreightCenter, by using a one-time transactional model, has a big share of a $250 million mini-market, says McCandless. “There's not many pieces of the pie there,” he says. “It makes sense they would want to move up.”

Up means getting a piece of a $700 billion industry, where clients are major companies and organizations with complicated shipping needs. Think Coca-Cola needing 100 shipments to 100 places, and not having the capacity to do it internally, immediately. Says Brosious: “We want to be the shipper that helps businesses move pallets over and over.”

The linchpin to the strategy is the firm's proprietary technology, both for sales agents and customers. A team of in-house FreightCenter software developers created a customized transportation management system that allows agents to easily find capacity on trucks nationwide for loads. Clients have their own system to access the information.

The software also helps the company build and update a leads database, and it provides a detailed analysis of outside metrics, including fuel prices and what competitors charge.

FreightCenter has spent millions on technology, Brosious says. “For us to play in this field, we have to have something that separates us,” says Brosious. “I want to be confident we have enough disruptive technology to outdo our competitors.”

Revisited model
The model transformation next combines new hires and new departments. A big aspect there is the creation of a customer service unit — the first one ever at the company.

A customer service unit, hopes Brosious, will eliminate what FreightCenter executives call birth-to-death shipping for the inbound phone sales staff. This happens when a salesperson handles everything for the client, from the time the lead comes to the website to the final destination of the package. But sales people were spread too thin, and service suffered.

Allowing salespeople more time per customer will also help FreightCenter gain traction with the bigger clients the company covets, says Brosious. He projects that will happen when salespeople, through training, begin to build relationships with larger shippers. If a customer needs to ship goods to Boston, for example, maybe that company needs help with all its shipments to the northeast.

Around 20 people have been hired for customer service in the past four months. All told, FreightCenter plans to hire at least 40 people this year, to add to the payroll of 116 people.

Lastly, the model shift included a major bombshell for a small group of well-paid FreightCenter employees. This came from an overhaul of the commission structure. He got rid of the old pay scale, a 10% commission-per-profit of a sale, with bonus opportunities that could bump it up to 17%. He replaced it with a 5% commission, with a chance for a smaller bonus, and he gave sales staff a $1 an hour raise in base salary, to about $12 an hour.

The takeaway: Five FreightCenter salespeople who made about $90,000 a year faced cuts that would drop their salary to around $45,000 to $50,000 a year. Those five people, says Brosious, quit after the changes.

Brosious remains resolute about the need to blow up the sales structure, to make it more team-based. “You have to revisit your business model and sometimes you almost have to start over,” he says.

Adds Brosious: “The thing about leadership is sometimes you have to realize you're part of the problem.”

'High quality'
That humility can be traced back to Brosious' experience with the Army Rangers, in the 75th Ranger Regiment. After the Army, in 1996, Brosious moved back to his native upstate New York, where he was going to attend college.

But his dad, Jim Brosious, needed help running one of three consumer mailing and packaging stores he owned in the New Port Richey area and the younger Brosious moved to Florida. Within a few months, Matthew Brosious saw a broad business opportunity, in the space between using the U.S. Post office or FedEx and hiring movers. So he started FreightCenter.

Brosious now feels like he's back in startup mode with the model shift at FreightCenter.

One of the messages Brosious tries to deliver to employees is by changing the customers it targets, the company can simplify its marketplace definition.

In the old days, the company was the MacGyver of shipping middlemen: It always found a way. While that made for some interesting shipments (see above), the margins are thin and the work is time consuming. And it presents a branding challenge, in that customers don't quickly get what FreightCenter is about.

“We don't want to be the jack-of-all-trades shipper,” says Brosious.

One more dose of proof Brosious says is validation for the shift came right before he began to make the changes official. That's when he walks around the office and stopped employees with a pop quiz: Where does FreightCenter fit with the business axiom that holds a company strives to win on two out three in price, quality and service?

Responses were a variation of deer-in-the-headlights stares and goofy guesses. Few employees, says Brosious, could articulate what the company should be. Brosious has since made clarification of the message part of his mission.

“I don't care if we are the cheapest,” he says. “I want to know if a customer comes to FreightCenter, he will get over-serviced and high quality.”

Ship this
Third-party logistics firm FreightCenter, based in Palm Harbor, has helped clients ship hundreds of quirky and oddball things in the last 17 years, including:
A handcrafted mattress that cost $20,000

The set prop Delorean car from the “Back to the Future” movies

A life-size Jack Daniel's statue