How I Built the Netflix of Construction Equipment
Nabil Kassam founded Noble Iron, a company that rents and sells heavy equipment for the construction industry, in 2008. Just out of Stanford business school, he was faced with an uncertain market, but came up with a business plan that upended traditional sales channels in the heavy construction industry. He sells his big equipment solely online and through call centers, and also develops software applications for owners and users of construction equipment. Today Noble Iron is thriving, with 125 employees in the U.S., Canada, and Australia with sales of $20 million.
I sat down with Nabil to find out how he updated a very closed and traditional sector. The following is an edited version of our conversation.
So you're taking the Amazon and Netflix model and applying it to renting construction equipment.
Kassam: Yes everything we do at Noble Iron is either online or via call center fulfillment. What that does is really drive down overhead, which lets us come in at about a 30 percent lower price point than our competitors. Through the use of technology we can also track and analyze our customers’ activities. This allows us to continuously improve the Noble Iron experience.
What made you realize an idea like that was transferrable to heavy equipment? Books and movies are one thing. But renting earth movers and cranes online?
Kassam: This is my third venture in construction and industrial equipment. During the first dot-com heyday, in 1999, we launched a startup called Rent On The Dot, the world’s first online equipment rental marketplace.
However, we were purely an amalgamator with Rent On The Dot. Rental companies provided inventory and customers rented it. With Noble Iron, we are a platform that owns inventory for rent; sells equipment; offers ERP software applications to our customers and other rental, dealership and construction companies; and is also an equipment marketplace.
I’d also had experience with general tool rental - consumer, DIY type stuff - with a company in Canada called Stephenson’s Rental Services. That’s where I first learned how much potential there was in the heavier equipment end of things, and we helped move Stephenson’s into that market.
But it all sort of crystallized around 2005, when I was in Silicon Valley, working on my MBA at Stanford. Social media was really on the rise and I saw things such as Yelp and Open Table coming to the forefront. That opened my eyes to the possibility that the Open Table model could be brought into the construction equipment world.
Do you see yourself as a brick-and mortar-concept that’s simply leveraging technology or as more of a technology company that has a lot of brick and mortar behind the scenes?
Kassam: Neither, really. I consider us a forward company. Everyone needs to embrace innovation and technology as a fundamental way of doing business. It’s not really an easy dichotomy, either. If you look at Amazon, they probably own more brick and mortar infrastructure than most of their traditional retail competitors.
During the early part of your career, you were doing turnarounds. What brought about the shift to being more purely entrepreneurial?
Kassam: Zynik Capital Corporation, a private equity fund I’m part of in Vancouver, Canada, had bought distressed debt and troubled companies in a wide array of industries: manufacturing, jewelry, medical devices, home & garden, real estate, agriculture... It’s how I was introduced to equipment rental. Stephenson’s was one of the companies in our fund’s portfolio.
And during most of the time I was in business school, I thought I would go back into turnarounds when I graduated. But at one point I realized I was really an entrepreneur, and doing a turnaround isn’t all that different from actually launching a company.
Tell me about starting a business in 2008?
Kassam: Not a great time to be starting a capital-intensive business. The worst. Right after I graduated and moved to New York, we were smacked with the biggest financial crisis we’ve seen in our lifetimes. We had an idea, a business plan, and a team. But banks were very skittish and unwilling to lend. Fortunately, Texas was the one state in the country with a budget infrastructure surplus at the time. Construction and industrial activity was still going strong here. So we moved to Houston and began building a sort of pilot prototype for Noble Iron. Some people on our team were from Houston and happy to be moving back home for our launch.
But you still had to come up with financing to buy a fleet of equipment, didn’t you?
Kassam: We did. And we went all the way to California to do it. We worked with an equipment manufacturer, Terex, and various banks to put together a package where we acquired approximately $30 million of equipment assets by assuming the debt of a distressed company in their portfolio. Our plan was to turn around the troubled company by implementing the Noble Iron model. Over two years, revenue at our California operations increased by 42% and we had refinanced and repaid all our initial lenders. Tom Caldaroni, Chief Risk Officer at Terex Financial Services - and the person at Terex to whom we had initially presented our turnaround plan - also joined Noble Iron as our CFO.
Soon after launching our model in California, we pursued a different opportunity in Houston. LiuGong Machinery Co., a Chinese company and the world’s 10th-largest equipment manufacturer with presence in over 120 countries, decided to enter the North American market in 2008. They ran into the same problems everyone else did at that time. Little construction activity was going on in the US and no one wanted to buy large equipment, let alone from an unknown Chinese manufacturer.
We saw an opportunity there and travelled to China to meet with LiuGong’s chairman and senior management team about getting exclusive dealership rights in Houston.
We presented the Noble Iron model and explained our rationale that the way LiuGong could best penetrate the U.S. market wasn’t through sales, the traditional distribution channel, but through the rental channel and through Noble Iron specifically. We successfully launched our partnership and today Noble Iron is the exclusive dealer of LiuGong equipment in Houston and the surrounding 20 counties. In 2012, Noble Iron won LiuGong’s Global Best New Dealer Award.
Has there been any resistance to LiuGong, with it being a new brand in the U.S.?
Kassam: I see it as being similar to where we were in the 70’s, when Japanese manufacturers such as Komatsu, came into the U.S. At first there was a lot of resistance, but there’s no question today that a Kawasaki or a Hitachi is a fantastic machine. Actually, I think the next wave of Chinese equipment will be ahead of what’s available here now in so far as cost of ownership.
The main issues have been in financing. Because LiuGong is new in the U.S., the equipment’s residual value, or used equipment value, hasn’t yet been established. But we’re able to overcome some of that through our own initiatives such as buy-back guarantees and LiuGong’s exceptional warranties.
We are also launching a rather unusual peer-to-peer program for customers who buy LiuGong and other equipment from Noble Iron. If you have downtime and you’re not utilizing your asset, put it into our rental fleet. We’ll split revenues, provide insurance, and give you our software to help you manage that and any other assets in your fleet.
ALAN YING | Managing Director, Polus Capital
Alan is the non-executive chairman of KLAS Enterprises, a leading provider of healthcare information services. He is also the President of Polus Capital, a provider of entrepreneur-friendly capital to growing and profitable businesses based out of Houston. He was formerly the founder and CEO of MercuryMD.