Fueling the fire Featured

10:33am EDT August 29, 2006
If you’re looking for Jeff Lykins, you’re not likely to catch him in his office.

Lykins prefers to spend his time out in the field, working on a deal or gathering market intelligence that he can use in his business to stay a step ahead of his competitors.

“I’m not big on sitting behind the desk,” says Lykins, president and CEO of Lykins Cos. Inc., a fuel provider that also leases vehicles. “I’d much rather be riding around with one of our sales reps or visiting a customer on a site.”

Lykins says he loves making the deal, whether it’s building a new facility to house vehicles, buying a competitor or selling a lawnmower, something he did when the company was in the lawn equipment business for a time.

An entrepreneurial attitude, says Lykins, is a necessity, not a choice in a business that earns its share in pennies on a gallon, even when oil tops $70 a barrel. He keeps that spirit fresh by encouraging his managers to take responsibility for their business segments and keeping his eyes and ears trained on the industry.

“We’re in the channel of trade between a major oil company and the consumer, so we have to be entrepreneurs every day,” says Lykins. “I think just by default or evolution or whatever, we have to be entrepreneurial to survive, because we operate at such high volume and low margins.”

Lykins encourages an entrepreneurial approach by making sure that managers have plenty of latitude to run their divisions autonomously.

“Our company’s always been very big on, if we’re going to give you the responsibility, we’re going to give you the authority,” Lykins says. “We give each of our division managers entire P&L (profit and loss) responsibility and we preach to them that they should run their division like their own business. Obviously, while I look at daily numbers and I look at everything you should be looking at to see how everything’s going and I’ll give them my opinion, I kind of tell them, ‘It’s your division, you run it like your own business.’”

But keeping that entrepreneurial engine humming isn’t always easy. Lykins acknowledges that a business leader has to have plenty of energy to tame the competitive spirit that can flare up within a company of people whose ambitions for the business can cross over into each others’ areas. To quell those potential conflicts, Lykins steps in and makes the sometimes hard decisions.

“I have some divisions of my company that are run by very driven, very profit-minded and very dedicated people, and sometimes these people, in fighting for their divisions, I have to step in and kind of make a decision, whether transportation is going to make a little more money or is wholesaling is going to make a little more on this,” says Lykins.

The Lykins Cos., known as a jobber in the trade, has two principal units that cover a wide swath of the fuel transport industry; the broadest is its wholesale business that crosses 14 states. The Lykins Oil Co. supplies branded franchises with all grades of gasoline, diesel fuels and kerosene. Its wholesale and commercial divisions supply businesses, farms, and local and federal governments with their fuel needs, including bio-diesel.

Lykins Transportation Inc. provides petroleum transportation to the parent company and serves as a common carrier, providing petroleum transportation services throughout the tri-state area for a variety of other petroleum companies and businesses.

A third business, D&L Leasing Inc., with a fleet of approximately 250 vehicles, provides daily, weekly and monthly leases on cars, trucks and vans.

To keep the product flowing, Lykins Cos. maintains vendor relationships with five refiners — BP, Shell, Marathon, Exxon and Clark.

“Because we’re so diversified in it, I have relationships with several different oil companies on several different levels,” says Lykins. “So while one of my competitors may be dependent on one company to get his supply from, and due to post-hurricane supply problems he was in trouble, I had 20 different places where I could buy petroleum.”

Varied ventures
The entrepreneurial imperative has taken Lykins Cos. into business ventures that at first blush may seem outside of its core business. It has been in the lawnmower sales business, owned a lumberyard and for a time provided lawn care services. In most cases, the ventures were a way to either develop or maximize underutilized resources or to indirectly acquire a business related to its core activities.

Lykins says that there is a rationale for entering all of those businesses, even if it’s not readily apparent.

“For example, the lawn care business was an offshoot of trying to find something for our heating oil drivers to do in the summertime,” says Lykins. “The lumber business was because we wanted to purchase a competitive jobber because he had access to the Union 76 brand at the time and we didn’t, and the only way we could buy him was to buy everything he owned, both companies.

“The lawnmower business was trying to take a gas station we owned that wasn’t doing much and spark some life into it.”

But the real growth has come in the acquisitions Lykins Cos. has made over the past few years in its core business, enough to help boost its revenue from $238 million in 2003 to $464 million in 2004 and more than $748 million last year. It’s an industry that’s consolidating, says Lykins, and has been dominated by small, family-owned companies that are being swallowed up by their larger competitors. That has meant a lot of opportunity for consolidation for Lykins Cos.

“Typically, it will be somebody we know, knew my mom or my dad, or may be buying from us or we may haul for them, and they’ll say, ‘Look, I’m tired of it, I want to get out of the business, I don’t have a next generation to take over,’” says Lykins.

But simply buying up competitors isn’t enough, particularly in a business with such thin margins, Lykins says.

“You want to grow your gallons profitably,” says Lykins. “When we look at somebody as a prospective acquisition, are we growing where we already are and basically taking a competitor out of the market, or is it into a new area, an area we want to get a foothold in, we want to be there, and it’s easier to buy something outright rather than go in and try to start from scratch.

“We evaluate each acquisition by what they’ve done in margin, in their customer levels over that last three years and we have a formula we work out on that, and then just a simple fair market value, typically based on assets.”

Market intelligence
Lykins keeps tabs on what’s going on in the business by listening to people on the front lines for tips that can point to an opportunity or give a heads-up to what’s going on in the industry.

“The best sources of intelligence in the jobber channel trade are truck drivers,” says Lykins. “They get lined up at a pipeline or a terminal somewhere and they all start talking, and then you’ll talk to the driver and he’ll say, ‘Company A or Company B, one of them is going to buy the other. You’ll say that’s never going to happen, they hate each other, and then three days later, it happens.’”

Lykins keeps a close eye on the industry by staying active in trade groups related to his business. The market data he gleans from those associations is invaluable, he says, both in identifying opportunities and spotting ways that he can improve his operations and management.

“I serve on a lot of industry boards,” Lykins says. “I’ve been very active in the National Petroleum Marketers Association. I serve on BP’s strategic task force and I talk to other people in the industry a lot, and see what they’re doing, where the industry’s going. What are the new trends, what does BP or Marathon or Exxon think is going to happen with supply in the next three years, how are we going to handle the ultra low sulphur diesel regulations that we’ve had pushed on us.”

A few years ago, Lykins joined a study group of his peers who operate in other parts of the country and don’t compete directly with each other. They meet regularly and share their concerns, their financials and their business issues. They’re all friends, says Lykins, but nobody pulls any punches when it comes to sharing their views about how their fellow members are running their businesses.

“It’s 14 other guys that run jobbers, some bigger than ours, some smaller,” says Lykins “For 45 minutes during those three days, these guys are all focusing on my financials, my company, decisions I’ve made over the last quarter and asking really hard questions. And these are guys that you can’t B.S. too much; they know the business.

“We share our number with each other every month. If I’ve got a specific problem, I can send an e-mail out and say, ‘I’ve got this happening, what do you think, what’s the direction to go in?’ It’s a great thing, the best thing I’ve ever done. One of the things I’ve learned is I’m not smarter than those 14 guys put together.”

The group was instrumental in convincing Lykins to get out of the convenience store business last year. At one point, it operated 24 stores with gas pumps. The group told Lykins should either get out of the business and use the capital elsewhere, or grow it to take advantage of economies of scale.

“If we were going to get serious about that business, we had to put some serious capital into it and grow to 50, 60 or 100 stores,” says Lykins. “What we looked at was, do we want to put our capital into growing 50 stores, or do we want to do what we’ve done very successfully, which is work with independent operators and help them grow. Obviously, we’d rather work with independent operators and help them grow. It didn’t fit where we had had our growth and where we felt our future growth would be.”

Lykins says within a couple of months, he decided to sell off the stores. For the Lykins Cos., he was able to hold onto the best part of the business by striking agreements with the new owners to supply it with fuels.

Lykins’ entrepreneurial outlook may very well be ingrained in his DNA. His father, Don — from whom Lykins, his CFO and a cousin acquired the company last year — started the vehicle leasing business and still keeps his hands in it. Lykins says he’ll continue to look at other business prospects. And fear won’t deter this inveterate entrepreneur, who says he grew up in an atmosphere of risk-taking.

Says Lykins: “You grow up with ... sitting around the kitchen table and you hear dad tell mom he had a lien put against the furniture today so he could buy a truckload of tires.”

How to reach: Lykins Cos. Inc., www.lykinscompanies.com