David Lundberg started Altus Traffic to cater for the desperate need for traffic control services. By getting in early the company, which provides traffic management services for companies doing major road construction, has grown fast and has revenue of over $50 million.
But five years ago the company ran into trouble. After expanding to the US, Lundberg was forced to scramble for work after his major client went under during the GFC.
He says the situation shows you can’t force yourself to grow too fast, and you should be eager to spread your risk out as soon as possible.
So how’s the business travelling?
We’ve had a massive year in both America and Australia. We’re set to do about $53 million for the 2011 year. We’ve got our business off right and after some customisation in America we’ve got great contractors.
Do you go over there often?
I go over three times a year right now, but if something occasionally random happens then I’ll dash over quickly.
When did you first decide you had to go over?
It was early 2006. In the first instance I had a perception, a bit prematurely, that I would hit a ceiling of growth in Australia. I thought that would be in the next five years, so 2011 coincidentally. I misjudged that, but thought that I would need to approach new business sooner than later so I was looking at other avenues of growth.
I could see the competitive nature of the industry and felt that I could find some competitive advantages by going into a large market. I felt there would be a lot of incentives there.
Why did you think the market here would reach a cap?
My assessment of the market was that the market here was only worth about $500 million, and that it was very fragmented. There were no statistics to support it really, but that was my thinking process. Obviously I’ve had a relook at my thinking since then.
Was the US market bigger?
As it turns out, it was quite the reverse. It’s about five years behind where we are now.
Where did you head first?
I went into Seattle, I had some work relationships there after some projects we’d done in Australia. This was a telco-related project. I did an assessment of what they were being provided in the area, found it to be quite lacking, and made them an offer. I felt I could provide a higher level of service and management.
I literally bought a truck, hired a few guys, and got going.
Can you describe what happened when the project fell under?
There are a few steps before that point.
The client we were looking after, we had saved them a lot of time. Ninety percent of their lost time was poor traffic management, and we got rid of that error straight away. So they asked us to roll out with them across the country, to all 92 branches.
As we started doing that, we got up to eight branches. Then we had a disagreement about the positioning of the company. We went our separate ways but I said I would retain the work that I had done in those eight branches.
Not long after, the GFC came into play.
They were forced to close the project?
Basically, the metrics of that whole project didn’t work anymore for them. They stopped work, and just scaled back their contracts because they weren’t paying dividends. But we had these eight branches we believed had another 18-24 months of work for each of them, and it was only one client.
When the project stopped, we were scrambling to find work in those areas. We had to use a new strategy of finding work to make sure we had work for those eight areas.
What do you think the lesson of that whole experience was?
The sustainability of the business model, balancing the risk and return. I was lulled into a false sense of security, and we should have done the risk management a lot earlier. Instead, we had all of our eggs in one basket.
We also tried to expand too rapidly; I stretched myself too far.
How did you deal with the problem?
That took some quick moving. I saw it coming, and moved over there to manage the process from one client to many in order to spread the risk and get multiple sources of revenue.
What were some of the challenges in finding new work?
I tried to keep as many of those branches open for as long as I could, looking for bigger opportunities in each state. But the timeline there is just five times longer to get projects up and running because the market is just less mature.
What’s interesting is that the American clients like to suggest they’re going to do business with you, and they find it very hard to say no. Australians are very upfront. That difference was challenging in finally getting worked.
You found a major client in Texas, is that right?
Eventually we landed a significant client in Dallas and that had two effects – it was going to consume every bit of cash that I had, and take all of my attention. So with those marginal branches still looking for opportunities, it didn’t make sense to keep them open, so I had to close them.
What were some of the challenges of that whole experience?
It was a cultural change that was required. The people I had recruited were operational people who didn’t have much experience running a standalone unit. Your average Australian guy will give anything a try but these guys were from much larger businesses, in defined roles, and weren’t comfortable going outside those roles. Getting them into that mindset was hard, so we fired all except one of those managers. We kept trying to educate and develop them and there was just a much larger cultural difference that I anticipated.
There are a lot of subtle differences. I found that I may have explained something to someone, and they’ll be nodding but it doesn’t necessarily mean they understand what I’ve said.
For other SMEs looking to get into America, or who may be growing too fast, what do you think they should know?
The economics of this deal looked good but the risk management was missing. I was overly confident with it all.
And again, the cultural aspects. You really need to understand the cultural gap, because there are a lot of similarities but subtle differences. I had two Australians running the business, when I should have had a senior American in order to bridge that culture gap.