The new rental model

“Embracing change is difficulty for anybody, whether it’s in the equipment industry or any other industry,” Nabil Kasam, founder, chairman and CEO of Noble Iron, tells me. “Just trying different ways of doing things is going to be a challenge for many, but it may be the means of radical improvement for our businesses.

This is the thought process behind rental and software company Noble Iron. Founded in 1998 by Kasam and his fellow business partners, the Los Angeles-based company is operating unlike any other rental business in the country, and that’s exactly what Kasam and his team want.

Noble Iron started out in Ontario, Canada when Kasam and his team bought still-in-business Stephenson’s Rental Services. “At the time, it was Canada’s largest independent rental company,” Kasam says. The team quickly consolidated 43 locations into 20 and created a turnaround plan for Stephenson’s. “We implemented technology software. That opened our eyes to the opportunity to really build better software products for the industry. So, we launched a company during the dot-com heyday called Rent on the Dot, which was the world’s first online equipment rental market. Similar to an Expedia-type model, where owners of equipment would post their inventory and customers would come to the site/portal to rent equipment.”

The company soon realized there was a large opportunity in equipment rental that needed to be addressed – software instead of paper.

“Using software internally for reservations, asset management, etcetera, wasn’t being taken care of in a robust way,” Kasam says. “So, we merged with a very small company in Guelph and launched Texada Software. Texada is now the second largest ERP software company in the equipment rental industry. But we really see this as a means of improving the ways that rental companies, construction companies – any owner of equipment assets – operate. By actually having a database that is tracking analytics across the platform, we can provide better business intelligence to the owners of these assets and to the Texada software customers.”

And that’s when Kasam decided to go back into the rental space directly and launch an unaccustomed business model. The company opened its L.A. brick-and-mortar operation to use almost like a lab where software could be tested, R&D conducted and products built around external and internal experience. The company then uses its experience from the field and translates it into its software product, therefore providing a stronger and smarter rental software product.

“It’s really to build a better model for the industry, for customers and for suppliers of equipment,” says Kasam. “We are really trying to operate more as a fulfillment center rather than a brick-and-mortar retail store. What we intend to do through our fulfillment center is represent equipment that we own, but more importantly, third-party equipment by way of asset share. So, third party customers that own equipment that’s not being utilized can actually be placed into our equipment ‘pool,’ and through our fulfillment center, we can provide logistics, service and support to get those assets out on rent, to take care of those assets and to return those assets in good working condition to owners of equipment. And anyone can participate in this asset-sharing program. It can be rental companies. It can be construction companies that have excess equipment. Or even manufacturers that want to test out new asset lines. We have partnered with a few manufactures that now have equipment in our asset sharing pool and are introducing new products in the market, such as Magni.”

Today, Texada Software manages roughly $10 billion of equipment across its platforms, and Noble Iron had 2015 revenues of $27 million. The companies employ 130 people across both businesses, and moving forward, it looks to expand into 20 new markets. ALH spoke with Kasam and his Vice President of Growth and Strategy, KJ Park, about the now, and the future, for Noble Iron. Here’s some of their secret sauce.

ALH: How many locations do you have today and where are they? How many employees?

Kasam: Today we have, as a company, 130 employees across both software and equipment operations. The reason why we don’t differentiate very much between software and equipment is we have a lot of software development that’s taking place in our equipment operations. For instance, the lead architect of our new product that we just released very recently, called Fleet Logic, which is an app for mechanics and service technicians to perform field service better was previously at Apple and joined Noble Iron, but is based in our equipment fulfillment center in Los Angeles. He spends a lot of time with mechanics and drivers. We also have our customer experience team that is in L.A. that does a lot of technology development.

Today we are operating out of this one fulfillment center in Los Angeles. It really is our data prototype that we are working on with a plan to scale to many other major urban metropolitan areas.

Our plan is by the end of 2017 to have established some sort of a foothold in a new market. And this is what we want to do. Say we’re going to a new market in Chicago or Atlanta, first we will focus on software deployment in that local market. And then, later, build a fulfillment center. We may not go in and acquire multiple retail stores, we might just establish a green field fulfilment center and then begin the asset-sharing marketplace in that locale.

Our goal is to grow: we are going to identify 20 markets in North America, which really are the top 20 major urban metropolitan areas. We see ourselves in the early stage of this model.

Park: My involvement has also been really bridging the gap between equipment rental operations and the software. I think that is very important for us as we scale out our product, which we see the product really being that platform that combines the rental and the software. It is a unique aspect that Noble Iron offers. We feel that once that is in place for Los Angeles, we will have the ability to scale to other locations.

Kasam: We keep our finger on the pulse on a lot of what is happening ‘out there.’ Our view is that many companies out there define themselves as either software companies or brick-and-mortar companies. We see that as the false.

For instance, if you look at a company such as Amazon, it might be described as a software company or at technology company alone, but it perhaps owns more brick-and-mortar than many of its competitors combined. So, we have developers that are of the ‘Silicon-Valley-backgrounded-mindset’ who initially were questioning the idea of having any brick-and-mortar infrastructure, but now I think we’ve come to the understanding that by really employing best-of-rethinking from the traditional industry, as well as Silicon Valley, we can build a much better model than what exists out there.

Look at Uber, too. Doing Uber for vehicles is fairly straightforward because if you’re a driver and you own a vehicle, you get a notification that a passenger needs a ride. Let’s say you’re the Uber driver and I’m the passenger. You literally would drive to my doorstep, I’ll hop in the car and the contract is consummated.

Now, doing Uber for dozers or excavators, let’s say you own a 10,000-pound excavator that’s available and I need it on my jobsite; you can’t just drive that down the street. We need to ensure that you have a flatbed truck, a bonded and certified driver, we need to pick it up on time, it has to be delivered on my jobsite in good working condition, and on time, and then after it’s been delivered, it may need to be serviced. I may need to change the bucket, or there might be a hose that’s broken. I doubt anyone wants to get up at 4:30 a.m. to come and work on my assets at my jobsite.

So, what we focus on – this is the purpose of brick-and-mortar – is all that intermediary. All of the logistics, all of the other parts of equation, the parts that are critical to fulfillment. We focus on that so the Uber of dozers can actually exist. That’s why we have the fulfillment center and all the services.

We don’t see many people out there doing what we’re doing at this scale.

ALH: How many aerials are in your fleet? How many telehandlers? Is this more of a liquid number because of your approach to business?

KJ: It is liquid. Currently, in our fleet, we have about 1,020 aerials and about 130 telehandlers that we own. But at the same time, as we talk about asset share where others are contributing –whether they’re owners of equipment or rental companies – that will fluctuate. But we’ve been testing asset sharing and we have somewhere between 20 aerials as well as some other dirt equipment. Combined, we have approximately, $1.2 million of fleet that we are testing with the asset share program. That’s not including some of our re-rentals. Our customers don’t necessarily care where we’re getting the equipment, as long as it’s delivered on time and we have the asset available.

Kasam: Our software, Texada Software, is today managing about $10 billion of equipment across the platform. We really see all of the equipment being managed by Texada Software can potentially be part of this asset sharing program. So beyond the equipment that we own ourselves is the equipment that our software customers own. There’s an argument to be made that that’s a potential part of this fleet.

KJ: In the end, we see – because we are located in Los Angeles – we see the fleet in Los Angeles across different owners and different manufacturers and maybe other rental companies, as a potential list of equipment that we can access for asset share.

ALH: You sold your Houston operations recently; was that playing into this idea of targeting these new 20 markets, as well as starting with the software approach followed by a fulfillment center? Why sell the Houston branch?

Kasam: Very astute. Your notion of the approach was certainly consideration. At the time we did not have as many software customers in Houston as we do have in other markets. However, I’d say the primary reason we decided to sell Houston was the economic climate in Houston has been pretty poor for some time since the oil and gas downturn. In Houston, we had a fairly small fleet, about $15 million or so. Decision thinking was: How long is this economic environment going to be hurting in Houston? If it’s another 12 months, we don’t want to be investing in growing the fleet that may not be going out on rent as much as we’d like. And, if we miss the market, then it’s probably a better place for us to be than investing and sitting on more idle assets. So the thought was, we can sell this for a pretty attractive price and we can reinvest that capital into what we’re perusing currently. The board talked about it long and hard. And we thought, let’s sell now and then we can reinvest later; we can come back into the Houston market in two years if we’d like.

ALH: What is your telehandler/aerial work platform CapEx for 2017? What was it for 2016?

Kasam: In 2016, we spent very little CapEx. Less than $1 million. Partially that had to do with the fact that in Houston, we were de-fleeting assets. In Los Angeles, because we’ve been expanding our asset sharing pool significantly, our need for direct CapEx has been less, however, our customers are buying a lot of equipment and this is the interesting part going forward – we’re partnering with manufacturers and representing assets to customers who can buy those assets and then put them back into our rental fleet on an asset share basis. While that may not be our company CapEx, it’s our customer’s capex that is growing. So the fact that we’re not spending, but our customers are, is an interesting point. Going forward, in 2017, I think we’re going to see a lot more of this. Certainly, our plan is to be spending CapEx, but our asset sharing customers could be spending a lot more CapEx, which could be coming into our rental fleet.

KJ: For instance, we are selling some of our older assets but some customers, because they know about our asset share program, want to purchase the asset and put them back into our fleet. We’re in deep discussions with how that could work and what kind of benefit that can provide for both parties. I think that’ll be interesting to look at in 2017.

Kasam: We can actually say to customers, ‘You can buy an asset and have it permanently in our rental fleet. We will send you your proportionate share of the revenue generated from that asset but, whenever you want that asset back for work you have to do, we will send you back that – your asset – in prime working condition. Or, we will be able to send you back a replica of your asset for the job you are doing.’ This ability for a customer to buy an asset and have it permanently in our fleet and then just to be earning asset sharing checks on it is something that we can do that purely online companies can’t really do today.

ALH: Does your approach change traditional rental rates?

Kasam: Just from the actual pricing level perspective, I think our intention is not to bring down pricing and compete on price, we want to deliver value for our customers. We actually want to create an avenue for other rental companies and owners of equipment to put their assets on rent. The nature of many of industries as they become more mature is there is more pricing pressure, and there is more commoditization. Our intention is not to drive that. Our intention is to deliver fair value for the customer as well as the asset supplier.

We look at real-time market pricing and our goal is not to price at the highest level. We’re not going to go and beat the rock-bottom price. We don’t want to drive the market down. And, we’re not going to be the most expensive just because assets are available – that we have access to that others don’t. We’re even looking at questions as to, ‘Why can’t we actually be a subscription model provider for our customers?’ Just looking at companies such as Amazon. We could have a whole other conversation about what areas we see as opportunities to push, but for now, our goal is to really improve both the experience for customers and suppliers. That means, we’re not out there to beat-up anyone on price.

ALH: What’s your general feel for the equipment rental industry for 2017?

Kasam: It’s as difficult a question to answer. We see an environment of growth. Look at Uber for instance. Uber was born at a time when we were in the height of a financial crisis. A lot of people had assets – they had their vehicles – they might not have had the work that they used to have; day jobs or other work, but Uber gave them an opportunity to really use their own assets as part of a marketplace.

Now, the rental industry might not see a lot of robust growth on the top line, but there are avenues... There’s inefficiency that can be solved through opportunities such as asset sharing, which can mean growth through creativity. But when you look at the overall economic growth and new projects being born, I don’t think we see 2017 as a year of entrenchment. It is a year of growth. But it’s not necessary as robust as what we would have hoped to see.

KJ: You have to define growth. I see [the sharing economy] as a specific area in the rental industry that can potentially grow this year. But overall, purely in terms of dollars and revenue, I don’t know what that will be, but we will take the opportunity no matter what the economic results are for the rental industry, because I think there is an opportunity to be had in the sharing economy.

ALH: What is your management philosophy and what can you offer that your competitors don’t?

Kasam: One aspect of how we see the world is we don’t really see the industry as an ‘us versus them’ game. While we recognize that there are competitors, we don’t really feel that our competitors are competitors. They are potentially partners. For others in the rental industry, we offer software to those rental companies to better improve their business and also participate together with Noble Iron in this asset sharing model. All of us in the industry talk about utilization, and what are the rates. But if we actually come together, I think many of us can actually see that some of us have low utilization on asset classes that others have very high utilization on. We can work together to fill a lot of the inefficiencies. One key difference is that we say to our competitors, or to people who see themselves as our competitors: we’re actually partners. Let’s work together. Our goal is not to beat the competition, our goal is to really meet the needs of the market in the best possible way and we see that as working together with others in the industry.

We like to think of ourselves as a start-up. Because the world is changing so fast that anyone who feels that they have an established business model that works, tomorrow or, if not tomorrow, the day after, the world will change and that company will either have to adapt reactively or suffer the consequences.

Our management philosophy is to adapt proactively. Look at the trends that are changing and then really try to come up with very creative ideas to implement. Many of the things we try don’t work, but that’s part of the innovation process – failing fast, trying things and bringing in everyone to the innovation thinking process. Let’s actually engage with people that are on the field and work closely with customers for ideas.

KJ: If you just look at some of the management and people in our company that recently were hired, you can sort of get a sense of how we think. Many of us have not come from the rental industry. We have people from Apple, we have people from the auto manufacturing industry. I came from technology as well as manufacturing. So we all come with different types of ideas and mindsets. There is so much to learn outside of the industry. And because we are trying to invent the future, if you will, I think all of this knowledge that we collect has to be processed and communicated properly, which means breaking down any sort of barriers in communication, maybe even between software and rental, and being able to be transparent in what we do. We are continuously trying to do this. Be transparent, open and communicative and really think outside of the box – to go from where we are now to where we want to be