Having a Voice

Communication among 1,000 employees in 58 branches can be challenging. The senior management team visits each branch once or twice a year, and Watts himself regularly visits branches. In fact Watts frequently visits branches unannounced, and he and Cox say usually they see few surprises, finding everything running exactly as it should.

To encourage open communication, Sunstate has a suggestion system, with financial incentives for suggestions that are taken up, even if they are altered somewhat in implementation. No suggestion is turned down until reviewed by Chris Watts, ensuring that all ideas are reviewed by the top levels of management.

Another Sunstate innovation is the reverse review, where all employees must give feedback on the performance of their immediate supervisors. “Sometimes it takes a while for new employees to feel comfortable with it, feeling ‘This is against anything I've ever been taught. I can't speak badly about that guy, I'll be fired!’ says Watts. “But once they sign on to it and see how it works, it truly holds those that otherwise might have a big ego as a manager in check.” It also demonstrates to Sunstate employees that their views are important, that analysis of how the company is functioning is valued coming from all levels of employees.

Back to the Future

In the rental business for nearly 40 years, the current recession is obviously not the first one Mike Watts has been through. In fact, when Watts acquired Beldon Rentals in 1977, the country was in the middle of a fierce recession that discouraged many from launching businesses.

Watts was inspired to go into business for himself when Apache Rentals, where he worked as a salesman and then rental manager, hired a consultant whose strategy was for the company's sales people to gain business by finding out what equipment was on the job, undercutting the price and getting the equipment bounced off the job. And if the tactic didn't work, the consultant suggested to try to get the superintendent fired by notifying his office he was spending needless dollars.

With these ideas contrary to everything Watts believed in, he decided to find an opportunity to go into business for himself. When he acquired Beldon, a deal that took a year and a half to consummate, he changed the company, which specialized in homeowner tools, to one oriented towards the construction contractor. Watts changed the name to Sunstate Equipment. In 1981 Watts made his first acquisition, buying Phoenix-based Fuhr Rents. It acquired Dial Rentals in 1986, and in that same year opened its still current headquarters.

In 1987, faced with the continual difficulty of obtaining tires on a timely basis, Sunstate opened Sunstate Tire Division across the street from its main branch, hiring tire expert David Hixon, who previously had his own tire business and who Watts had done business with for years, to run it.

“We would need a tire in an hour and the tire companies would say, ‘We'll get back to you tomorrow,’” says Chris Watts. The tire division services Sunstate's needs but handles outside business as well.

Watts acquired Apache Rentals, which formerly employed him, in 1988. In 1989, Sunstate started its first branch outside Arizona, in Henderson, Nev., near Las Vegas. In 1995 Sunstate opened branches in Salt Lake City and Colorado Springs, Colo., opened eight new branches in 1996 and 13 more in 1997.

In 1996 Deere & Co., interested to learn more about the rental business, acquired a 40-percent stake in Sunstate Equipment, increasing its ownership by 3 percent a year for three years until it reached 49 percent. Watts eventually bought back Deere's share in the company in late 2003.

In 1997, Sunstate, which had wanted to expand into California for years but was often stymied by the difficulty of finding property, acquired four-location Pro Rentals, based in Anaheim.

Sunstate now has 58 branches in eight states, having added four new branches in 2008. Growth is likely to slow down for the immediate future, but Watts and company have all kinds of development plans. Growth and getting bigger for its own sake have never been the driving force behind Sunstate's ambition, but at the same time, Sunstate is always looking for growth opportunities.

The recession will not stop Sunstate's growth plans but it has put a number of projects on hold and the company recently had to lay off employees for the first time in its history.

Other than hoping to buy back some of the company's bonds, Watts won't reveal much about his company's future plans, although his computer has files for a long list of planned projects and areas of expansion and improvement in almost every possible facet of what Sunstate Equipment does best — renting equipment. Watts remains optimistic about the industry in spite of the current downturn and believes that Sunstate will grow stronger as it has in past downturns.

And quickly, because the plane is leaving.