'Behavior Shaping' Leads to Success at Star Rentals

Do anything for over 110 years and you're going to a learn a few things. At Star Rentals, the lessons learned go deeper than the balance sheet and rate structure. They center on bigger ideas, concepts represented by words like behavior, empowerment and energy.

Founded in 1900 as Star Machinery, the family-owned business gained a reputation for supplying high-quality industrial equipment and delivering expert customer service. Today, those values remain, but they've evolved to meet the changing needs of dynamic market. 

Equipment - the medium of exchange

When the equipment rental industry hit its peak in 2007, the average age of equipment in rental fleets was around 36 months. Today, six years later, businesses typically age their fleet to more than 50 months. Not at Star Rentals, though.

"We keep our fleet age at about 35 months, which is considerably newer than the industry average at this point," says Bob Kendall, president of Star Rentals, recalling how the wave of consolidation that hit the industry more than a decade ago set the stage for this philosophy. 

"Many independents found themselves in a precarious competitive environment and some didn't survive," he says. "We could see the handwriting on the wall and we knew we needed to level the playing field with the big chains that were dominating the market. At the time, our fleet age was greater than theirs and we knew we had to step up."

 A commitment to keeping a fresh fleet during boom times is one thing, but maintaining that commitment when times are hard is another. "It hasn't always been easy," says Kendall. "But customers have come to expect a certain level of quality from Star Rentals and the company is committed to meeting it."

He continues, "The equipment is really the medium of exchange with your customer, and so if you're putting a good product in their hands, and you're providing value-added services, like timely delivery, few service calls and accurate billing, it just makes you more attractive."

Billing makes a difference

At Star Rentals, nothing is an accident. The company has worked hard at finding out what customers value and then working to provide it. Several years ago, Kendall and his management staff conducted a task force and hired a consultant to contact 50 customers with the goal of determining what they needed to successfully serve customers in the future.

"After that, we started focusing in on the things we heard were most important. Accurate billing is huge," Kendall says. "If the billings aren't accurate, they get tied up in accounts payable. Pretty soon, they drag out and it becomes a problem for the customer."

A challenge for many in the equipment rental business, accurate and timely billing can make or break a company's relationships with its customers.

"In this business, although we all have published rental rates, you have a lot of autonomy in pricing. There are a lot of viable reasons why rates can be higher or lower, and when salespeople have the ability to tinker with that, it's easy to get it wrong in the billing."

To combat the problem, Star Rentals inplemented a billing system that accommodates dedicated pricing for each customer. "It takes human error out of it," Kendall says. "We have very low turnover, so we have a lot of long-term employees. There's a lot of consistency with those who are doing the billing, and those who are working with the customers. There's a high level of communication, so we have a better chance of getting it right the first time."

Relationships get results

A commitment to cultivating new business has been one component to Star's success, but another has been growing the business they already have. To that end, Kendall says they identify their customers who are in a growth mode and work on getting more business from them. "If we're getting 20 percent of their business, we try to strategize and work toward making it 50 percent," he says.

How do they do it? Kendall says it comes down to relationships. "We go in and meet face to face with the customer. We discuss our value proposition vs. our competitors' value proposition. It's rarely about price. It's about what kind of value we can bring to the customer."

Kendall says the value Star Rentals brings to its customers has a lot to do with being flexible and willing to serve. "It truly is a relationship business. That's one constant that hasn't changed," Kendall says. "Obviously, your rental fleet is the medium of exchange with your customer, so you need to have a quality product, as well as quality service that's tied to that."

Pillars of success

Kendall says Star Rentals has enjoyed long-term success because the company adheres to some basic time-tested principles.

"We're extremely well capitalized; we're financially solvent," he says. "You don't get through the last few years without having a pretty strong balance sheet."

Financial solvency is not by chance, of course. It's a philosophy at Star Rentals. "It's part of our culture," Kendall says. "When you go back to '05, '06 or '07, business was growing exponentially. We could have grown our business faster too, but we elected to stick to our measured growth philosophy and we didn't overleverage ourselves. We stepped up and did what we had to do to keep up with customer demand, but we didn't go crazy. Later, in '08, we didn't find ourselves overleveraged. In fact, we were in a great spot to deleverage, when our competitors could not."

Since 2007, Kendall says Star's competitors in Washington and Oregon have closed 65 to 70 percent of their branch locations. During that same period, Star Rentals managed to open a new branch.

"Our philosophy has always been, 'We're going to get through this,' and we have gotten through it while our competitors have continued to contract. We've been a benefactor of that."

Another pillar to the company's success has been its stability. "We have very little turnover, and we have a brand that's 110 years old," Kendall says. "We've made sure to embellish that brand. Even when the economy was struggling, we never lost focus on what we were doing. We didn't age our fleet, we kept fleet age where it was. We had a very modest downsizing, as far as people go, and about 90 percent of that was through attrition."

In addition to these underpinings of success, Kendall also points to positive energy as a factor in his company's success. "I obviously have a real passion for this business, but I sincerely believe all of our people do too," he said. "That's a strong component that I'm not sure all of our competitors have had."

That positive energy comes from the top, moves down through the employees and out to the customers. "It's contagious. Customers can really sense it," Kendall says, noting the good vibes don't come strictly from things like wages and benefits.

"It's more about who do I work for? Is there integrity there? Do I enjoy who I work with and the environment I work in? Do I enjoy what I'm doing? You need to pay competitive wages and benefits, that is a given," Kendall says. "But it's empowering your people that makes the difference."

Shaping behavior to empower employees

Training and educating employees to be problem-solvers is perhaps the most potent ingredient in Star Rentals' recipe for success. Kendall likes to call it "behavior shaping."

"We're extremely focused on shaping our employees' behavior," he says. "It allows us to empower our employees to deal with customers in the right way. In effect, anybody in this store has the authority to correct a problem with a customer. You don't have to go to your branch manager, who then goes to his district manager, who then goes to a vice president. Everybody out there has the authority and is empowered to do what they think is in the best interest of the customer, and the best interest of Star Rentals as well."

Bringing the staff up to such a level involves more than traditional training. Kendall says it comes down to constant education and reinforcement. "There are different styles of management and we want our strongest leaders to be behavior shapers. They need to shape people all along the way."

This effort might have come from the top in the beginning, but Kendall says today, each department is stocked with leaders. "Fifteen years ago we didn't have an IT department, we didn't have a risk manager, no dedicated fleet manager. We didn't have division managers or division sales managers. We've built that entire structure and for all those people to do their jobs at the highest level, there has to be education that goes along with it."

Star Rental utilizes many training and education tools to bring leadership qualities out of its employees. One example, Kendall explained, is a leadership and mentoring program the company organized for its top employees. "We took our top 25 managers in the company and did a year and a half long program with a facilitator," he explains. "Rather than using some general format, we wanted something specific to Star Rentals so it applied to what our people do every day, every week and every month."

The group got together quarterly for intense workshops. "We got so much traction with that," he recalls. "Then we turned our focus to sales. We had to be more polished, more focused on what we were doing. Back in '06 and '07, there was so much business, you couldn't keep up with it. Now, we're trying to convince people our value proposition is better that everyone else's and this is why. That takes a higher level of selling." 

On the horizon

The focus on education, training and employee empowerment has paid off, as evidenced by Star Rentals' success over the past two years. "2010 was the bottom for us," Kendall says. "We saw significant improvement in '11 and again in '12. Our job one has been getting ourselves back to performing to very good metrics.

"Right now, the industry is growing modestly, but construction backlogs are still not there yet. Still, all of the larger construction accounts are being driven to the rental channel because they want to keep their balance sheets intact. They don't want to take on expenditures they don't have to. So to that end, it's worked well. But, there's a fundamental lack of demand out there, compared to where it used to be."

One stumbling block on the road to recovery is the stubbornly slow rise in rental rates. "We're seeing continued growth in rates but it's still significantly off from where we were at our peak. There's still much work to be done there," Kendall says. "The scary thing is the escalating cost of equipment. As a result of that, there's got to be a dedicated focus on trying to get some rate improvement."

Kendall there's no magic bullet to the problem of getting rates back up to where they should be, since it's mostly a function of supply and demand. "I'll argue we're still operating in a market that's moderately oversupplied," he says. "There still needs to be some balance. Continued growth in the market will help."

Rental penetration is currently reported to be over 50 percent, suggesting the market has permanently shifted toward a rental mindset. When asked if this will last, Kendall is sceptical. "I think there will be somewhat of a fall back," he says. "You get a contractor who suddenly has a three- or four-year backlog... he can justify buying the equipment he needs. Maybe it won't fall all the way back, but I do think as the market continues to improve and stabilize, contractors will go back to buying more equipment."

Pride trumps challenges

According to Kendall, the biggest obstacle standing in the way of a full economic recovery is confidence. "People don't have the confidence they did five years ago," he says. "Not enough companies are building. Nobody's been able to generate any legitimate confidence." 

In addition to the economy, Kendall is concerned about rising equipment costs, particularly as they relate to Tier 4 emissions regulations, as well as difficulty finding qualified mechanics and quality employees.

At the end of the day, however, Kendall says he's extremely satisfied with how Star Rentals has weathered the storm over the past few years. "I'm so proud of what we have accomplished in the last three to four years. Coming out of it like we have is a real accomplishment," he says. "Things probably looked a lot better in '06 from a measurement standpoint, but I would argue what we've done with our focus on education, taking care of our customers... it's huge. I take a lot of pride in it."