Conversation Series: Ken Melrose, Toro Co.

But in visiting with Ken Melrose, leader of this giant operation with undisputed consumer and professional product name recognition, one learns more about people and idealism than cost ratios and sales volume.

As he describes in his book, Making the Grass Greener on Your Side, he’s been with Toro during unparalleled expansion and development, to the brink of disaster and back. He’s in the game for the long haul, definitely not the short term. And his management style reflects his commitment to quality.

Melrose empowers employees that work for him, challenges them to work to their full capabilities, helps grow their self-confidence and cheers them when they succeed. His employees are in charge of their markets.

In the following exclusive interview with Lawn & Landscape magazine, Melrose reveals his strategies and opinions on the professional lawn and landscape industry.

Q. What turned the tide for Toro in the landscape contracting market, and what spurred the desire to drive your business in the highly saturated, competitive landscape equipment market?

A. We’ve produced landscape contractor products for 10 to 20 years. But about three to four years ago, we formalized a campaign or an initiative to look at the landscape market uniquely and go after it with abandon.

We were trying to deal with the problem of a shrinking consumer lawn mower market. Homeowners were moving toward hiring landscape contractors to cut their yards. We recognized that this was not just a flash in the pan but a major long-term trend.

Our analysis indicated that the contract service segment of the lawn cutting market would be the fastest growing component of the turf industry. So we separated this piece of our business from our commercial group – the heavy equipment group – and the consumer products group and formed a new group with its own staffing and investment dollars.

I told the board of directors we had a unique opportunity to be a leader in this field because it’s fairly fragmented and most of the strong brand names are not very visible. There are good companies, small niche players, but not companies that have the comprehensive ability to invest heavily in the market.

The board allowed me to deploy an aggressive amount of resources to make this division the fourth leg of the Toro stool – the other three being consumer products, golf course equipment and irrigation.

Q. How will Toro grow in the saturated commercial mower market?

A. Look at the consumer market. It’s not growing and the margins are tighter and tighter. This is true of most industries. In a mature environment you start to experience consolidations as companies say, ‘We can’t make it, we need to hook up with a bigger player and spread our overhead to regain some profitability.’

That’s not going to happen in this (landscape) industry while it’s growing by double digits. But, at some point, companies will decide that one way to build leadership is to develop alliances or joint venture partnerships, just as we have done with Blue Bird or Maruyama, or by acquisition like Exmark.

Expanding our maintenance product line is another consideration. Before you can maintain a landscape you need equipment to create it. We can’t just make out-front zero-turning radius rotaries like everybody makes. We can’t just have some trimmers and blower-vacs. We need a broad line that gets into the creation side of the business.

The contractor market is pretty segmented into very professional at one end vs. a cottage industry characteristic at the low end. Toro, alone, was not going to be able to appeal to as broad a market as we think the leader should; that’s why we brought in Exmark to give us a one-two punch.

Beyond that, I think the leader is going to move into offering more support services to the customer, as well as perhaps to the dealer, that are non-product oriented but that will help contractors become better business people. It may be something that will help them with marketing and merchandising, it may create packages that give them things like insurance or financing assistance, or it may be providing extra services that they render to homeowners.

Toro is in as good a position as anyone to do some of that bundling.

Q. Toro strives to be the full-service provider to the landscape contractor. Can suppliers be true full-service providers?

A. We have to begin elevating our message or value proposition to something beyond, ‘We’ve got a better zero-turning radius mower or rider than company X.’ Because if that’s all we do, next year they’ll have a better mousetrap.

We have to start assessing what the customer – the contractor – would really like to have in a total offering beyond just products. What we’re finding is they’re asking if we could do this or that for them. For instance, can you deal with us on a regional or national scale?

We can extend ourselves beyond cutting machines, which are the linchpins of the industry right now. They may be forever the most important thing to offer, but its not where the battle will be won or lost.

Q. How does Toro balance growth through acquisition vs. new product growth?

A. In the case of the Dingo, it was easy. We had never made anything like that before. Before we saw the Dingo product, we were determining how we would move into the creation side of the business. Almost by coincidence, or luck, the Dingo opportunity came to us.

It was an advantage to us to develop a partnership with the Australian Dingo manufacturer and actually obtain the manufacturing rights for it. At the same time, they could not grow the product anywhere near the capability we could grow their product for them. So it was a real win-win situation.

The Exmark deal is not as clear-cut because we tend to build similar products. That situation was more a matter not of acquiring engineering capabilities or a product line, but acquiring a very strong brand or leader. The Exmark deal helped jump-start Toro into a bigger leadership role by having two strong brands that appeal to two somewhat different segments.

Toro and Exmark appeal to both the high end of the professional market that is going to want more services as well as the medium-sized landscape contractor who wants just an awfully good, rugged, durable, line of equipment.

That gives Toro two lines that look a lot alike but are appealing to two slightly different segments of the market through two different distribution channels. We’re hoping that becomes a one plus one equals three proposition for us. Combined, it gives Toro more than 10 percent of the current market.

When you speak of products like Bluebird or Maruyama, which are commercial-grade trimmers, could Toro make them? We probably could, but that business is pretty dependent on an integrated engine manufacturer. All of the successful trimmer blower-vac companies in the gas-powered business make their own engines. Toro doesn’t.

Again, rather than spending a lot of engineering resources on a product line where we had an inherent disadvantage, we started looking for a company that made a quality, high-grade commercial line of trimmers. In the case of Maruyama, they also needed a U.S.-vehicle to establish a presence because the Maruyama name is pretty insignificant in the states.

Q. How will Toro coordinate and promote distribution of Toro and Exmark product lines?

A. They’re going to remain separate. A contractor may find a dealer who sells Exmark and Toro, but that’s not common. By virtue of a contractor knowing that Toro owns Exmark, he or she might shift from one product to the other. But, as far as Exmark and Toro are concerned, distribution is still very separate.

Contractors have a distinctive choice depending on what their needs are. One of the benefits Toro has from owning Exmark is that we don’t need to duplicate everything the two companies have done. The two can borrow from each other.

For example, Exmark is going to run out of capacity, so rather than build a new facility Toro can lend it some capacity so it doesn’t have capital expenditures. If Toro has a deficiency or two in the line, Exmark can modify one of its products and maybe put a distinctive Toro feature on an Exmark-built product. Then we have Exmark and Toro products that come off the same design platform. Costs come down for both of us, and becomes a double whammy proposition for the market.

Q. Will Toro close any more acquisitions this year?

A. No, not this year. Beyond that, we’re trying to be poised for a strategic acquisition. If The Toro Co. completes one, it will be complimentary and synergistic with one of our core businesses; most likely on the non-consumer side.

The Drip-In acquisition is a good example. After we acquired Hardie, we had a major piece of the agriculture micro-irrigation industry, but we were missing another important piece of technology as well as product execution of that technology.

Because we had a desire to be a leader in this worldwide market, we knew we either had to add that piece or decide if we wanted to stay in the agricultural business. That piece came with Drip-In. Other acquisitions have been similarly driven in order to create the breadth of product line technology and critical mass for us to compete.

If we have another business that has that kind of gap, we’d be looking today for that critical mass. Right now, we don’t feel that there’s a compelling need, but it will continue to be a viable way for us to grow.

Q. Toro passed $1 billion in sales in fiscal 1997, a significant milestone. Was the accomplishment the result of acquisitions or spurred by growth in the landscape contracting industry?

A. It was more the former. It took Hardie to push us over the billion dollar sales plateau. If you strip away those acquisitions, and if we had had a better snow thrower year, then we might have been moving toward a billion, but it probably wouldn’t have hit until this fiscal year.

Irrigation sales in California and Florida have come to a halt. El Ñino has not been just a snow thrower problem for us; it’s been a problem for irrigation. Big golf course development companies can’t start their golf course projects. El Ñino has had a broad impact on us.

The last two years have not been very good weather years. So the consumer industry has not been very blessed. Nonetheless, all of our other businesses have done well, so diversification has helped Toro to continue to grow earnings.

When you have an El Ñino that has such a sweeping impact, it becomes hard for your winners to offset the businesses that are soft. Nonetheless, with our professional businesses – like the landscape contractor group and golf – we think we’ll be strong.

Q. What’s your analysis of the consolidation taking place in the landscape industry?

A. It’s going to happen more and more. We have a national accounts group that sells to the golf market because there’s been a trend toward consolidating golf course ownership and management.

This is natural and a good thing. It’s going to force our competitors and us to be more competitive. Companies like Toro are going to have to deliver more comprehensive services and they’re going to have to staff for it. We have to change our way of thinking and our distribution methods.

It will be good for the customer and for Toro. We’re such a strong relational selling company, through our channel partners, that relationships with these large accounts will become vital to our continued success. You can forge long-term relationships if you’re willing to invest in servicing these kinds of customers in the long run.

Q. Discuss your concept of relational selling.

A. It is part of being a leader. If you want to be a leading company, you have to do more than sell a product and service it. You have to be involved in the community and the industry, adopt a corporate citizenship role, be members of associations, conduct seminars, be involved in education, charitable support and so on.

All of those things are part of building the image that we’re not in it just to make a buck. We’re in it to make this industry more vibrant and be better servers of the end users and the communities they reside in. We want to be a leader here as well.

Q. What are your greatest successes at the helm of Toro?

A. The time I went to this little playground equipment company in 1973 called Game Time was very gratifying for me. It was probably the single most important business experience I’ve had to try and establish a philosophy of leadership.

It was a small company that we acquired and I was sent to run it. It was my first general manager responsibility and I didn’t know much about playground equipment or running a business. So it was kind of trial and error or leadership by instinct.

The odd thing about it was the employees had not been used to making decisions on their own. I was a green behind the ears leader taking over for a person that knew everything there was to know about the business. It was the blind leading the blind, so to speak.

I told them we had to change this model because it wasn’t going to work. If you’re responsible for purchasing, production, shiping, etc., you’re the best people to make the decision, not me. Let’s find a way for you to make that decision through process and analysis. Let’s achieve the self-esteem, confidence and trust to learn to be accountable and responsible.

We sold the company 3½ years later, and it was the best performing company in our division in all of Toro, gauged by return on assets. I came away from that experience realizing that over time, these people were tremendous because I empowered them to do the jobs that they were hired to do. By supporting them, they flourished.

I look back at that as a linchpin of my career. Working through people and serving them as if they were the bosses gave us terrific financial results and great human beings.

Q. What new goals have you set for yourself?

A. First, to go into the next century as a different kind of company than we are today. This is evolving as we ask, “How do we transform ourselves?”

Every year of this decade we’ve talked about becoming more of an environmental company. We need to serve the landscapers of the world by helping them beautify and preserve their green environment, not just with machines and sprinklers but with products, services and systems that solve their problems.

I think that’s the kind of company we’re going to need to be to compete with the Scags, Hunter Industries, John Deeres and Textrons of the world because anyone can out-product us in any given year, but that will be short-lived. How can we transform ourselves from a playing field into a customer satisfaction company?

We’re in the business of satisfying customers. Landscapers or groundskeepers need to be satisfied. What are their problems? What are their solutions? We’ll become just like America has become – more of a service company. In the 21st century, we’ll look like a company with services that save money and time and solve problems.

Q. Is it a supplier’s job to help educate the landscape contractor?

A. It may be a requirement in some cases and it may be an opportunity in others. We’re going to have to provide resources to do that where it’s wanted. The customer will get education from a lot of different sources, as he usually does today, but we’ll need to be more proactive.

We will grow Toro University. We’ll get more involved in agronomic services so that we’re helping the industry deal with disease, color in turf and so on. I think other companies and Toro will gravitate into the area of educating people to be better turf specialists, not just better mechanics.

Q. Who are your mentors?

A. Guy Detlefsen who worked with me at Pillsbury, and Myron Roeder, who works at Tropicana, influenced me more than anyone else.

I don’t know if visionary skills or strategic skills are innate or if they are developed. But these two either brought them out, if they’re innate, or they developed them. I know when I came to Toro it was a little com-pany, whereas Pillsbury was a huge company. So abstract thinking was not very prevalent here when we were a $15-million company. It was more nuts and bolts thinking.

My son, Rob, has also become one of my mentors. He’s a theater director and has helped me to shepherd my thinking in a new dimension. I’m not an art person so he has helped push my thinking beyond the business abstract level and has really helped shape my way of thinking about things not only through his views and knowledge, but his art form and his expression.

I think you can learn from everyone, and the best teachers in my career were often my so-called students, or the people who report to me. Those people, as outspoken as they are, continue to teach me.

I’ve been so influenced by nuggets and pearls of wisdom from so many people. That is more characteristic of the shapers of my thinking. However, I’ll add that Steve Covey is one of my mentors because he has helped me so much with my book. Not only was he the driving force to get me to write about principle-centered leadership, but he also influenced me in how to build a principle-centered culture here at Toro in the 1980s.

Q. How much time do you, personally, spend in the field?

A. I don’t spend a lot of time with any single customer group. I try to get a smattering of a homeowner group, a channel partner, a landscape architect, a superintendent, which is probably just enough to be dangerous.

I don’t want to lose my intuitive feel about the customers so I meet them enough to stay in touch. But I really think the best people to see the customer are the people who make the decisions to satisfy them, and I trust them to spend the right amount of time with them.

Q. What is the single biggest difference power equipment manufacturers will see in 15 years?

A. Consolidation. The surviving companies will be a lot more nimble and flexible and they will look more like the auto or appliance industries. We’ll be an industry in which the tools and technology have a much greater ability to change and respond to not one kind of customer but to a very broad, heterogeneous group of customers.

The outdoor power equipment industry is pretty far behind a General Motors or Caterpillar in as much as they have had so much competition for so long – from the Japanese or from each other – that they’ve learned how to be much quicker responding and flexible.

We haven’t had to do that. Maybe that’s one reason why we see our industry so fractured. The skills that will be required in the next century will be much more complex. That’s one reason why I think you’ll see some consolidation. But the companies will be leaner, more nimble and more responsive in dealing with customers on a more one-on-one basis as opposed to the masses.