KYLE KOTTKE sounds older than his

33 years when he talks about how he

grows his business. He likes things simple.

He carries debt only on trucks/trailers. He

won’t invest in a new building because the

return on investment stinks. He won’t use

future cash flow to pay for things today.

But the company’s results make him seem

like a young hotshot: with his two broth-

ers, he has managed to double the size of

his family-owned trucking company in five

years, and he is actively working on plans

to do it again.

INTERVIEW BY BETH EWEN

PHOTOGRAPHY BY

JONATHAN HANKIN

Old schoolKottke Trucking revs growth — and lots of it — the traditional way

COVER STORY

26 AS SEEN IN UPSIZE MINNESOTA, FEBRUARY • MARCH 2012 reprinted with permission, all rights reserved www.upsizemag.com

“We actually managevery old school, andthe most importantstatement here is ourcash flow statement,”says Kyle Kottke,general manager ofKottke Trucking.

Upsize:Describe your company as it stands today.Kyle Kottke: We’re a 74-year-old company started by mygrandfather. Myself and my two brothers took over from my Dadin 1996. We operate just under a 100-person employee and inde-pendent contractor transportation company serving the fresh-to-frozen refrigerated industry.

Upsize:What is a typical work week like at your headquarters,in Buffalo Lake?

Kottke:The easiest one to describe is the driver. Of course he’staking the shipment from point A to point B hopefully on timeand safely. Most people describe my operations center as themost creatively designed chaos ever made. We’re fast-paced. Wereceive on average a phone call a minute. And that doesn’tinclude all the data exchange that we’ve got through EDIs, and e-mails, and everything else we’ve got going on.We’re booking work; we’re satisfying customer needs. And itusually turns into a very long day that seems very short.

Upsize:Have you had to make a big investment in your facili-ty?

Kottke:We sit in a very old building that our father gave us inour transaction. It’s not a pretty, fancy item, like what is very com-mon in the metro. We’re very reserved and conservative. When itcomes to technology we do have a very up-to-speed server sys-tem, phone system. But if you saw our building you would chuck-le, and my banker says if we ever break ground on a new termi-nal, that’s the day I reconsider my relationship with you.

Upsize:Why do you stick to your current HQ?Kottke:The reality is our complex today has taken us from fivetrucks to 75 trucks. We’ve been very creative with the way tomake it take us to this point. We joke with everybody—I alwayssay I have one more payment left on this building and I can’t doanything different until that’s finished. I’ve been saying that foryears.My banker knows our conservative ways enough—it’s going totake a small act of God to get us to do something different,because the last thing I want to do is spend money on a building.

Upsize:Why do you feel that way?Kottke: It doesn’t matter what building I sit in—that doesn’tmake me a better or worse company. Therefore my ROI on abuilding is as low as I can imagine. The day I outgrow this facili-ty is a sad day for me, because I have to do something different ata large expense and that’s not a good investment.

Upsize:How did you develop that philosophy?Kottke: It’s bred into us, it’s no question. You would love tomeet my mother. She’s still the lady who has a few coffee cans fullof a few quarters for the day she’s worried she has to buy a loaf ofbead. She was very old school, but very wise. She was very frugal.It was led by example when we were young.My father is very similar. He’s the hard worker of the family.He would roll up his sleeves and work hard and never say any-thing about it. It was a very good partnership that they had.

Upsize: Are they still involved in the company?Kottke:We’re very blessed. He’s not of grade A health; he’s a50-year smoker. But we’re very blessed; they just turned 70. I seemy Mom and Dad every day. They don’t have an ownership or

management role. They serve unofficially on our advisory board.My Mom has an office in one of our buildings, and she actuallyspends much of her time donating it to the city economic devel-opment committee of Buffalo Lake.

Upsize:How did you and your brothers come to buy the com-pany?

Kottke: It started as a joke. My oldest brother said the successof the 1990s was doing nothing more than increasing his inheri-tance tax, which led my Mom and Dad through estate planning.This included a period of salary options and then buying of thestock, which took us until the end of 2011 to remove them fromsome form of payroll. It allowed us to have an equity stake. So allthe gains we’ve made since 1996 have been on our own behalf.They officially sold their stock early in life, and it allowed us toget in and get started much younger. They were 55 when thatprocess began.

Upsize:What role does each brother play?Kottke: Each of us took a different path. Kurt, the oldest, start-ed as a farmer, and he was working part-time in the non-farm sea-son for my Dad. And my Dad told him it was an opportunity togrow the trucking business. My other sibling, Kory, the middle ofthe three, he knew all along he would be involved and has beeninvolved

Upsize: So you’re the youngest. How did you get to be incharge?

Kottke: I went to school to be a banker and found out the tiewas very tight on my neck, and so I did not wait long to comehome. I was a graduate of the St. Cloud Technical College, thecredit and finance program.

Upsize: Share details of how you manage your financial per-formance.

Kottke: First of all for debt structure alone, we’re conservative.The only thing we debt structure is new capital purchases, ortrucks/trailers. That’s through a traditional structure. We actually manage very old school, and the most importantstatement here is our cash flow statement. We watch it everymonth, and we truly need to generate cash month to month tomonth. At the end of the day or the end of the year a good year is a 5to 8 percent increase in stockholders equity. Obviously theincome statement, balance sheet and cash flow statement is thegenerator of that. It’s the only way I know how to do things.Maybe that sounds so simple, but I’ve only worked one otherplace. I grew up around this business

Upsize:Tell me more about when you use debt.Kottke: The only capital equipment we acquire with debt isour truck/trailers. We have a large investment into tools andmachinery in our maintenance department, but all that would begenerated and taken out of cash flow. I have no debt structure onany of my facilities. I don’t have any debt structure on anythingbesides capital investment in tractors and trailers, and those aretraditional arrangements. I have three different providers thatlend: TCF, Cen Bank, and Capital One has an equipment financedivision.

Upsize:Don’t people tell you that you’re missing out on faster

28 AS SEEN IN UPSIZE MINNESOTA, FEBRUARY • MARCH 2012 reprinted with permission, all rights reserved www.upsizemag.com

COVER STORY

growth?Kottke: Everybody’s so worried about affecting their balancesheet today. I believe our approach is best for affecting our bal-ance sheet one, two or three years from now. I manage for today’scash flow, so if I can manage for whatever facility upgrade I wanttoday all of that leads to future cash flow. Maybe that’s old school,I’m not sure. You mentioned before the joke about the large, publicly tradedcompany building a new headquarters—and that’s when share-holders should run because it’s usually a sign of bad times ahead.Well the truth is they make some gadget facility to keep that realestate off their balance sheet anyway. I like things simple. Whatyou see is what you get.

Upsize:What are the biggest areas of change in your industry?Kottke: It’s changing steadfastly. There are two main drivers,and the first item of change is simply the energy marketplace.With diesel fuel at or near $4 a gallon, we’re watching our cus-tomers go back to more of a regional concept. So maybe Gener-al Mills, for example, will not ship their pastries 1,200 miles, butmaybe they’ll have two bakeries each shipping 600 miles. Itchanges the work flow of my organization.The second thing that’s having an impact is the ability to findcapable, willing and professional drivers. The truth is many of

these guys are away from home five to 10 days. That’s very diffi-cult to find the home front that is able to work with that. I have both independent contractors and employees. Not everyguy who drives the truck wants to own the truck, and thereforethey work best as an employee/driver, and the guy that owns thetruck has the investment of the truck, the fuel. It’s the same jobbut a much different outlook. It’s typical to have both; wherewe’re different is that we’re equal, 50/50 between employee driv-ers and owner/operator drivers. It’s typical many companies willchoose one or the other that they’re better at.

Upsize: Tell me more about the changes your customers aremaking to their operations.

Kottke: When diesel was cheap everybody was real quick toclose facilities and ship nationwide to one facility, so it was verylikely that a company in Minneapolis would put their biscuits allover the U.S. Now they’re duplicating facilities and regionalizingthe haul. Therefore it’s not as common to find the Minneapolis-to-further distance loads, which is OK.

Upsize:Where do your trucks go?Kottke: We service 28 states. If you drew a line from NorthDakota to New Mexico that’s what we call our west coast. Andthen we go no further northeast than Ohio. And we serve every-thing in there. It was set up 20 years ago for driver convenience.

www.upsizemag.com AS SEEN IN UPSIZE MINNESOTA, FEBRUARY • MARCH 2012 reprinted with permission, all rights reserved 29

“Everybody’s so worried about affecting their balance sheet today. I believe our approach is best foraffecting our balance sheet one, two or three years from now.”

— KYLE KOTTKE, Kottke Trucking

you want to buy today, that just robs from cash flow tomorrow.Hence the reason Mike came on as our first non-family membersalesperson, and he has hit the ground running.

Upsize:You’re speaking about Mike Udermann, your new sen-ior vice president, who first contacted me to tell me about KottkeTrucking. Why did you hire him, as your first non-family salesperson?

Kottke: The truth is you kind of hit the point that your owntechniques are hitting the wall. Mike and I have known eachother for a few years through different spots he had been, and weknew he was available, and because of our conservative ways wewere able to quickly expand our budget to bring his talent to ourteam.

Upsize:Where will your company be in five years, or whatev-er time frame you use?

Kottke:We’re very careful not to forecast to a time but to fore-cast to a revenue. Therefore we don’t put ourselves to a deadlinethat forces us to make decisions that aren’t conducive to what hasput us here. There is lots of talk here about another 100 percentgrowth. We are sitting at 75 trucks and we are actively workingblueprints to see how we look when we’re at 125 to 150 trucks.

Upsize: Is the next generation of Kottkes getting ready to takeover?

Kottke: I’m 33; 40 and 46 are the other ages of our manage-ment. We’re very young. My nephew is 17 and going to graduatehigh school this year, and he’s the oldest of the next generation.He has an adamant goal of getting into journalism and broad-casting. As much as it was coincidental when all of us ended here,we’re going to make sure that there’s absolutely zero pressure thatthe next generation gets involved. The beauty of the next generation is, my dad only had threesons. My oldest brother had one boy. Kory had four girls and nowI have three girls. In a man-dominateed industry, we have oneman and seven girls. We chuckle. We’re either going to get somefemale power involved with the company or we’ll be part ofsomeone else one day.

Upsize: What’s one turning point for your company, whensomething happened and things started going much better thanbefore?

Kottke: [laughs] We’re farm boys at heart. We joke that ourturning point was when we started buying bulk toilet paper.Maybe it’s our even-keeled nature, but there’s not one day, onemoment that I go, Huh, there it was. There’s been many wins andmany losses, and our scoreboard has always been trying to makesure we win one more than we lose. I’m hoping 10 years from today I’ll look back at bringing in aprofessional salesman and thinking that was the first day of thenext stage of growth, but you just never know.

[CONTACT]Kyle Kottke is general manager of Kottke Trucking Inc. inBuffalo Lake: 800.248.2623, ext. 2422; kyle_kottke@kottke-trucking.com

30 AS SEEN IN UPSIZE MINNESOTA, FEBRUARY • MARCH 2012 reprinted with permission, all rights reserved www.upsizemag.com

It was a way for our drivers to be away from home a half to a thirdless than what is typical.

Upsize:How important is technology for your operation?Kottke: It’s incredibly important. There are much smarter peo-ple than me that tell me what I need and what I don’t need. I findpeople that I trust to help me. I have an IT consulting companytravel here once a month, and they do very good work telling mewhere our dollars will be spent.I just know how to move stuff. The rest of the stuff is Greek tome.

Upsize: It sounds like you rely on outside expertise when youneed it, like your attorney, your accountant, your IT consultants.

Upsize: No question. You find good people, you build yourbusiness around them. The bad part of having small companies isyou can’t afford to have them on staff.

Upsize: What is the best advice you’ve ever received aboutrunning your company?

Kottke: The moment you don’t look for progress is themoment you begin to digress. It was a word from my father whenwe took over the business. He had heard it from one of our larg-er competitors, which was always looking to progress their com-pany because they were looking at the up-and-comers.

Upsize: Are you now considered to be one of the bigs, beingchased by the up-and-comers?

Kottke: Oh no. Our industry is getting larger. Where we were15 years ago is now a struggling company. The shipping worldhas gotten bigger, and to look at a company a third of our size,they just don’t want to do that and I don’t blame them.

Upsize:What is your revenue?Kottke: We’re at $19 million. Five years ago we would havebeen approximately half of that.

Upsize:That’s a lot of growth! You’ve been holding out on me,talking about how conservative you are. How did you do it?

Kottke: Well, it’s nothing more than strategically putting onetruck more on the road at a time. You know it’s not a very scien-tific process. We had a healthy balance sheet that we’ve built ontop of and we have been able to continue cash flow gains.

Upsize:What’s the biggest challenge you’ve faced?Kottke:The hardest struggle that we had to face was a strugglethat everybody faced in 2008. Everybody else tried to trim theirexpenses and focus on just exactly what was floating their boat.We decided to do more of everything and grow through thetough times. Looking back on it, it was crazy. It was a calculatedgamble that we felt comfortable with. The balance sheet, theweather, the situation — and we’ve been blessed with picking upcustomers because other companies were cutting back.

Upsize: How did you get the courage to take that calculatedgamble?

Kottke: I don’t know—the smartest man or the richest man inthe world tells me that when others are selling you should bebuying. Does it get any simpler than that? It involves our long-term focus. We weren’t concerned about the immediate future sowe could look at the longer-term future.Paying for things when you buy them allows you to be moreaggressive going forward. If you need future cash flow for what

COVER STORY