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STRATEGY

Growth Strategies: Fast Track

A short-line railroad company narrows its focus on specific growth opportunity goals.
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RailTex Inc.

RailTex Inc. (#464), based in San Antonio, could be growing a lot a faster -- if it hadn't been for founder and CEO Bruce Flohr. Foolish man: he'll actually pass up an opportunity if it's not exactly what he's looking for. How the company grows matters more to him than how fast.

Flohr, who has 11 years of management experience with the Southern Pacific Railroad and formerly headed the Federal Railroad Administration, founded RailTex in 1977. The company began leasing railcars to Texas stone quarries, then added consulting work to operators of the short-line railroads that were being spun off by major carriers, and eventually moved into short-line acquisition and operation itself. In 1984 the company bid on and won the right to run the San Diego & Imperial Valley Railroad. In 1986 it bought another line in Austin and the year after three more in other, widely scattered parts of the country.

Whoa! Flohr said to himself with a little prompting from some of his investors, who wanted to be sure he didn't get carried away with his own genius. If they were going to be acquirors, it would behoove them to be efficient as well as effective, they decided, to be sure that the acquisitions added up to a sensible business.

Here, then, are the criteria they devised -- RailTex's Top Four Commandments of acquisition, the standards against which all candidates are checked, even before RailTex looks at the operating history and profit potential. If a line doesn't conform to the criteria, no matter how profitable it might be, it's not right for RailTex.

* RailTex cultivates commodity diversity. One line, for instance, might be heavily dependent on hauling a single item -- coal, for instance. But no more than 20% of the company's total revenues can be wrapped up in one commodity segment.

* RailTex wants to achieve regional diversity. It doesn't want to risk having a regional recession hurt the entire company.

* Acquired lines should connect to more than one Class I (large) rail carrier, with no more than 50% of RailTex revenues going to a single Class I carrier. What if that large carrier got sick itself, or decided to do something funny with freight rates?

* And finally, RailTex definitely wants its railroads little. The larger the line, the greater the tendency for workers to specialize: "That's not my job" becomes the attitude.

Each little RailTex railroad -- a total of nine as of late this fall -- is run by a general manager with bottom-line responsibility and profit-based compensation. "We've got a guy out there who is his own entrepreneur," says Flohr -- not to mention his own engineer, salesman, and pricing authority.

Flohr's plan is to continue to grow the company through acquisition and by improving the sales and profitability of each of the acquired lines, which are not, he emphasizes, bought as tax shelters. "We want to build equity," he insists, "in operating businesses."

And when there are no more short-lines worth acquiring? RailTex, says Flohr, can diversify within its range of expertise. It might set up repair shops to service other operators. It might contract with large industries to perform the switching operations in their private rail yards and build warehouses for its own shippers. Meanwhile, Flohr, 50, says he's having lots of fun. "We all like small a lot better. Most of us came from big companies. We're thriving on the small-company focus."

* * *

Niche: Short-line railroads

Strategy: Pursue only those growth opportunities that meet the company's specific goals. Forget the rest

Headquarters: San Antonio

Revenues

1988: $14,206,000

1984: $1,950,000

Profits

1988: $1,187,000

1984: $152,000

Employees

1988: 88

1984: 15

Scope: National -- Tom Richman

Last updated: Dec 1, 1989




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