Rental is a Diamond's Best Friend

Feb. 1, 2004
The year was 1999. Mark Clawson, working in Palo Alto, Calif., near the epicenter of the dotcom boom, decided, along with a partner, to raise funds by

The year was 1999. Mark Clawson, working in Palo Alto, Calif., near the epicenter of the dotcom boom, decided, along with a partner, to raise funds by putting together a small group of investors to start a business. Contacts advised him about all kinds of opportunities to get rich quick by starting a technology company of some kind where fortunes were being made overnight.

But Clawson said no. Raised in Salt Lake City, Utah, by parents who operated a small business, he preferred to find a business that offered a service or produced something substantial. He wanted a stable, sustainable business that offered goods or services that were around 20 years ago and would still be around in 20 years, rather than the out-of-control technology world where industries literally turned upside down every day, creating fortunes for people who had produced nothing, and stripping those fortunes when their techno dreams didn't fly.

Clawson, and his partners The Rubicon Group, decided to raise capital and search for a business to buy. They wanted to look for a business in the Intermountain West region, a region they liked, where Clawson grew up, where they felt there would be plenty of growth for years to come.

“We looked at businesses all over, but we particularly focused on Phoenix to Boise, Denver to Reno,” Clawson says. “We looked at telecom companies, a travel-related company, a little bit of everything, looking for a good company to put money in that could sustain its growth through a disciplined business model.”

They convinced investors to believe in their vision of solid returns that would build incrementally over a period of time, rather than gambling on the hope of overnight millions via a public offering for a company that had yet to produce. They left their jobs, put together Rubicon Ventures, named for the Rubicon River that ran through ancient Rome, and began what would be a 10-month search for a business.

Clawson had come across the rental business as he was remodeling his new Salt Lake City home, and renting tools on occasion. He rented a wallpaper steamer from Diamond Rental and was impressed by the friendliness and helpful attitude of the staff. He spontaneously asked one employee if he thought the owners might sell their company, and was told: “No, they'll never sell.” However, a few months later the Rubicon partners came across an ad for a business for sale in the Wall Street Journal. It turned out that, sure enough, Diamond Rental's owners Maun Peterson and Lorin Winegar had determined that they had taken the business as far as they could and it was time to sell the company.

It was a propitious match. Peterson and Winegar were reluctant to sell to a consolidator, even though several had made inquiries. They feared for the future of their employees, having seen that they often were lost in the shuffle after acquisitions were finalized. They were looking for a buyer who would keep the company intact and invest in the company's future.

In the meantime Clawson became more serious about studying the rental industry and its potential for growth. “We wanted to find a company that was capable of growing,” Clawson says. “I worked in a law firm in Silicon Valley, I had opportunities to get involved in the technology boom and possibly make more money, but there was something that wasn't real about it. I had a gut feeling that I wanted to be part of building something and work with real people and real products and offer a legitimate service.”

Clawson looked at several rental companies but was most impressed by the potential of Diamond. He knew that even though the investors were attracted to the industry for the likelihood of incremental returns over a period of time, they still needed a big enough company to provide enough of a return to make it worth their while.

Clawson was impressed by the quality of Diamond's people, quickly understanding an oft-repeated industry maxim that any company can put out products but the quality of the people and the service they offer would be the difference maker.

“The people and the managers were really a key ingredient,” Clawson says. “What makes people really care about doing a good job? It's not something that is easily taught. The quality of an employee that cares about an anonymous person who calls because they are thinking of renting a small item and is willing to spend time on the phone helping that person figure out what they need and how to do a job. It's an intangible quality that I don't think you can test for, and for some reason, we were lucky to find a company that had a bunch of employees that have that type of wiring.”

Another incident that convinced Clawson was a meeting during the transaction process that involved a group of local attorneys and other business people. Out of curiosity, Clawson asked how many had actually heard of Diamond Rental before the transaction began. To his amazement, every person in the room raised their hands. As time went on he was continually struck by the name recognition Diamond has along the Wasatch Range.

The Rubicon group closed the deal in 2000 with the full intention of being hands-on owners, a quality that appealed to Rubicon's investors. Clawson grew up in a Salt Lake City family that owned a retail lighting business, working on weekends along with his brothers, just like hundreds of families who have run small rental companies, so the hands-on nature of the rental industry was something he intrinsically understood.

Clawson also recognized the need to learn the inner workings of a rental center from the ground up. He spent weeks learning the business at all levels, working in the yard, the washbay and at the counter to get a feel for how the business operated on a practical level. One of the first experiences that impressed him about the business' potential was seeing the same tiller rented four times in a single morning.

“The big guys wouldn't care about that, they tend to want to get their D-9s out,” Clawson says. “I saw there was a lot of potential for the home-owner business.”

Nuts and bolts manager

Clawson wanted to expand the company but also to enhance the penetration of the existing locations. He also wanted to build up the fleet to appeal more to contractors to complement the strong homeowner business, and enhance the company's infrastructure, systems and procedures to make growth possible. It wasn't long before he realized that he needed a strong manager to run the company's operations. After several months of ownership, he found the man he was looking for in Leonard Sedillo, who was trained for years in the operations of Hotch Manning's Las Cruces, N.M.-based A-1 Rental Center. Sedillo, who, after A-1's sale to RentX had gone on to become a national operations manager for the Denver-based consolidator, saw Diamond as a perfect fit for his talents.

“I had a lot of options within the industry,” Sedillo says. “But I chose Diamond because I saw the greatest opportunity. I knew there were a lot of opportunities for growth, and I loved their business plan. They told me they wanted to grow organically, to do acquisitions and cold starts. It had all the right stuff.”

Sedillo moved his family from southern New Mexico and set to work building Diamond's operations. He immediately set out to modernize Diamond's fleet and grow the inventory of larger equipment to market the company more to contractors. And he expanded Diamond's delivery fleet.

“The company we bought had one delivery truck for seven stores,” says Sedillo. “Today we have 11 branches, five semi-trucks and 11 one-tons and goosenecks. And we're tracking double-digit growth in delivery revenue. So we've radically increased our delivery capability and that's part of what appeals more to contractors about the company. Delivery is a big part of what we're doing, getting equipment into people's hands, making it as easy as possible for them to do business with us.”

Even with increased delivery, most of Diamond's clientele is of the drive-in variety and the company has the feel of a neighborhood rental center. It has the good fortune of being located mostly on well-traveled streets with high visibility. “The latent strength of our network of stores is that we're in every part of our market area and the odds are that Diamond will be closer to job sites than anybody else,” Clawson says.

When Sedillo joined the company, he worked with Clawson on a process to review the company's operations on every possible level to determine their effectiveness.

“Every ounce of everything that we do every single day is analyzed and sized up and addressed,” Sedillo says. “There isn't anything that I can think of that hasn't at least been talked about and even if it isn't the highest priority, it's on the radar screen to do better.”

Clawson put together a plan to expand the company. His goal was to increase its penetration in the markets it was already in — and all of the existing locations doubled their annual revenue, no small achievement during a recession — and expand the company throughout the Wasatch Front, a range of mountains that Salt Lake City nestles against and extends north and south for about 150 miles, where most of Utah's population resides.

Diamond's specialty is that it can appeal to just about everyone. With wide varieties of compaction, concrete, drilling, breaking, excavation, floor care, heating, landscaping, material handling, generators, lighting, aerial equipment and more, Diamond makes the one-stop shop approach work. Another Sedillo initiative was to develop the sale of merchandise, providing point-of-sale items such as gloves, tape measures and other items that complement construction and homeowner tasks. Sedillo brought in dozens of items that now are offered at Diamond branches. The result has been a double-digit increase in merchandise sales that have enhanced the company's bottom line while providing more convenience for customers.

Although it specializes on the smaller end of the tool and equipment spectrum, Diamond's inventory includes full-size backhoes, 60-foot boomlifts, skip loaders, skid-steer loaders and 26-foot scissor lifts.

Sedillo has developed a strong connection with the company's managers. They hold bi-monthly meetings where “we talk about revenue, we talk about expenses, about accounts receivable, customer service and safety,” Sedillo says. “We have open discussions.”

Diamond practices an open-book system. Since managers' bonuses are tied to the bottom line, they are privy to company financial information at all times and a sense of team is strongly encouraged. Clawson and Sedillo's management methods must be effective because the company has had very little turnover, either on the senior management or second-tier management level.

“A lot of the key people have stayed and we haven't had a lot of turnover among top management,” Clawson says. “There hasn't been that turmoil and churning that so often happens.”

Spurring growth

Shortly after Rubicon acquired Diamond, the company purchased a local events company to expand its party division. About a year later it acquired Universal Rent-All, an equipment rental company in Ogden, slightly heavier on the contractor end than most of Diamond's branches. In late 2002, Clawson's partner sold his stake in Diamond to pursue other business opportunities. In early 2003, Diamond moved into a large modern facility that formerly belonged to United Rentals in the nearby community of Tooelle, about 30 miles west of Salt Lake City and one of the fastest-growing counties in the state. It also opened branches in Park City and downtown Salt Lake City. After a strong 2002, spurred by growth related to the 2002 winter Olympics, Diamond's new acquisitions ensured the growth would continue.

Clawson gives every indication that he is a different breed of investor, one who is committed for the long haul. “Our idea is to build a sustainable long-term business rather than a buy and flip strategy,” he says. “The dynamics are great for this company because the underlying market that we're in should keep growing for a long time. The population should continue to grow, both from people having a lot of kids and from people moving into the area.” The demographics favor fast growth with the majority Mormon population favoring large families.

But the Diamond management team doesn't take growth for granted. From the beginning Clawson realized that growth can only take place with a solid infrastructure, with systems and procedures that provide a foundation. After doubling the company's revenue since the acquisition, the Diamond staff began more efforts to develop systems and procedures. Clawson and Sedillo have been working on preparing the ground for growth from the beginning of their involvement with the company as has another strategic management hire, chief financial officer Steve Schaefer. With a background in senior financial positions with public technology companies, Schaefer has played an integral role in the development of company procedures and systems.

“Initially, we were focused on increasing revenue and implementing our growth strategy, so we didn't necessarily have time to refine processes and controls,” Schaefer says. “Now with a major growth spurt behind us, the standard progression is to focus on really building the underlying processes, controls and quality initiatives to allow the company to grow to the next level.

For 2004, we have some bold quality initiatives that will fundamentally change our operations.”

Schaefer also put in place a more robust accounting system and is currently working with software provider Alert to develop matrixes to compare the various branches to enable management to see what procedures are most effective in operating efficiently and building revenue and profitability.

“Where the cost is justified, we are trying to leverage technology in everything from the simplest of counter tasks to more robust initiatives such as computer-based training,” Schaefer says. By 2005, Schaefer aims to have virtually paperless customer interactions and branch management.

Another use of technology to improve customer service has been a program to monitor phone calls to the counter. Diamond's management wanted to develop a standard for how to talk to the customer on the phone, how to ask questions, how to ensure customer satisfaction, how to improve their ability to diagnose the customer's needs.

Diamond contracted with a Utah company on a program that tapes calls so the Diamond management staff could monitor phone calls so they can suggest ways the staff member can improve. The staff agrees that they can be monitored at any time, but never knows when a specific call is a monitored call.

The result has been far more effective telephone techniques that enable staff to service customers better and to maximize the opportunities for revenue that can come in with each phone call.

Pixie dust

Improved infrastructure and use of technology, enhanced inventory, a new level of communication, beefed up delivery and merchandise sales and expanded territory have all contributed to Diamond's fast growth. But management is quick to credit the development of a customer service culture, always focusing on customer needs first.

But when asked how they develop a customer service attitude, the Diamond senior managers like to laugh and talk about the use of a lot of pixie dust. “It's energy,” explains Sedillo.

“It's the intangibles of service and quality and focusing on taking care of people and bringing energy and enthusiasm to the table,” says Clawson. “That's the pixie dust.”

Part of the culture of Diamond is a belief that every customer is important, from the big project contractors to the homeowner renting a small item by the hour. “What's important to us is we don't have grand-slam syndrome,” says Sedillo. “We're not passing up the nickels to reach the dollars. Every dollar that comes in is a celebration.”


Clawson sees his Rubicon Ventures as different from most of the investors in the rental industry. “We have shareholders spread out across the country,” he says. “We have to report to them, but they are extraordinarily patient. What they are focused on is a good aggregate return on their investment. They know there are going to be quarterly fluctuations and they are content to let us run the business. We don't have to live quarter by quarter.

“One of the key things when we were soliciting money was that we have high-net-worth individuals and institutions, so this isn't anywhere close to a material investment for any single investor. And that's good because this way people can be patient with it, they can just let it go; they have a portfolio of investments and it's one of many. It allows us to not manage quarter to quarter with the need to provide a great return to investors in, say, the third quarter of 2003. They are willing to be patient and let the company develop.”

Just like most of the investors that backed the industry's large public companies, Rubicon investors knew no more about the equipment rental business than they did about thermonuclear physics.

“They didn't know much about equipment rental, but the risk in this was on the leverage and on the management team rather than the type of business, because the underlying business was pretty solid and stable,” Clawson notes.

Clawson says the investors are pleased with Diamond's growth and future prospects, but he knows the company must continue a solid performance to keep their confidence. While the company has no plans to go national or set up branches far from its base of operations, it does plan to grow by deepening its penetration into existing markets, expand further along the Wasatch Range and look for opportunities to expand in the Intermountain West. It appears to be laying a solid foundation for future growth, in a region where continued growth is likely.

Rubicon Ventures was named for the Rubicon River in ancient Rome, that generals were forbidden to cross with a standing army or be charged with treason. When Julius Caesar crossed the Rubicon, he had no choice but to conquer or be conquered.

It looks as Diamond Rentals is flowing in the same direction, not to conquer Rome, but to succeed in the world of rentals.



History: Diamond Rental was founded by Maun Peterson and Lorin Winegar around 1980. After growing to seven branches, it was acquired by Rubicon Ventures in 2000, a small investment firm led by Mark Clawson and a partner who later sold his stake in the company. They retained the original owners and staff and hired general manager Leonard Sedillo. Peterson and Winegar stayed for a transition period.

Since the acquisition, Diamond acquired a party rental company in Boise, Idaho, and an equipment rental company, Universal Rent-All in Ogden, Utah. It also opened tool and equipment branches in Park City, Utah, and downtown Salt Lake City and moved into a location formerly operated by United Rentals in Tooelle, Utah.

Key managers: Mark Clawson, CEO; Steve Schaefer, chief financial officer; Leonard Sedillo, general manager.

Employees: 130 to 150 depending on the season.

Branches: Tool and equipment locations: Salt Lake City, Bountiful, Holladay, Kearns, Layton, Mill Creek, Ogden, Park City, Sandy, South Jordan, and Tooelle, Utah. Diamond has party and events locations in Salt Lake City and Lindon, Utah, and Boise, Idaho, and a convention equipment business at its Salt Lake City headquarters.

Revenues: Total company revenue for 2003 was $12.7 million, about 55 percent tool and equipment, 45 percent party.