Interview: Ed Malzhan and Tiffany Sewell-Howard, Ditch Witch

Ed Malzahn and Tiffany Sewell-Howard both freely admit they never saw it coming. Now in his 80s, Malzahn, chairman and president of The Charles Machine Works, more commonly known as Ditch Witch, has directed his company for more than 50 years. Neither he nor granddaughter Sewell-Howard anticipated she would ever have her present position of CEO of the utility equipment manufacturer.

“In retrospect,” Malzahn says, “it just happened naturally.”

And quickly. Sewell-Howard joined Ditch Witch in 2000 as the company’s e-marketing manager and became CEO in 2003. Even though she grew up in Perry, Oklahoma, where Ditch Witch is headquartered, it wasn’t until she earned her MBA and experienced how other businesses were run that she realized the company had some significant advantages. “If Ditch Witch is your only reference point,” she comments, “you think there’s got to be something bigger and better out there. I came to the realization that maybe there isn’t.”

Still, Malzahn didn’t push Sewell-Howard into her present position. “He didn’t want anyone in the family to feel obligated,” she says. “Now I can’t imagine being anywhere else.”

The two sat down with Equipment World to discuss the company’s foundation and future.

Ditch Witch has weathered some significant downturns through the years, including the drop in the trenchless market in the early 2000s. What were some of the lessons learned?

Sewell-Howard: I don’t think it’s any secret that 2000 through 2003 were difficult years for a lot of us, especially companies who had ties to the telecommunications industry. Although we hated going through it, the long-term benefit was it forced us to reflect on where we were going and what our long-term strategy would be. We made a conscious decision to diversify our growth, and make sure we weren’t tied to one product or one set of customers.

We benefited from the fact we’re a conservatively managed company, which was good for me to observe. Sometimes younger people think a business should aggressively invest and pursue every opportunity. And so I’ve learned you need to do these things pragmatically and understand there are days if you don’t have the money in your pocket, you shouldn’t be spending it.

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Our priority was research and development during that time. It benefited us to reinvest during the downturn because we were ready to hit the market with new products when the market cycled up.

Malzahn: As we go through cycles my main concern is not the business per se, but the lives of the people we affect. And communicating that to those who have not been through a downturn before is part of the challenge.

We have a major responsibility to our employees because there are not a lot of other opportunities for them in this part of the country.

Cycles are just a natural part of being in business. We have to live through the cycles as they occur. We were there when everyone in the telecom industry wanted to be the first to bury cross-country fiber optic. You can easily cycle up in order to not miss sales, and there’s both opportunity and danger in that.

Sewell-Howard: We are unique here since any decision doesn’t just affect our employees, it affects our whole community. And when you add the dealer organization, there’s a huge family to whom we’re responsible.

Ditch Witch has seen some major product expansions in the past five years, especially in the compact equipment area. What prompted this product diversification?

Sewell-Howard: We’re getting into the compact utility business to help diversify our risk, and identify opportunities for versatile machines. This led us into developing the innovative XT850 excavator-tool carrier. The mini skid steers are also letting us address the evolving needs of the market.

Malzahn: In a way, this emphasis on versatility is not new. For about 30 years we’ve made attachments for our trencher, including interchangeable backhoes, backfill blades and plows. Although customers couldn’t make the speedy attachment changes they can today, these attachments to our larger ride-on trenchers still allowed this equipment to be versatile. The compact equipment we now have is nothing but an extension of that.

And how has compact equipment worked as a market strategy?

Sewell-Howard: It’s going well, even though it has challenged our existing system in terms of a greater demand in capacity and supply chain management. It just becomes more complex as you broaden your product line. But we’ve begun to get some traction with compact and we’re starting to see some good response for the XT and SK products.

It’s taken a while for people to think of us as something other than trenchers. And that’s probably been the biggest hurdle. When people hear Ditch Witch, they think trenchers. Compact equipment appeals to more than just the person who might want a trencher, so extending our brand to new markets has been challenging. We’re starting to get traction. People we haven’t touched before are now beginning to experience the Ditch Witch brand, which is exciting. It gives us a lot of opportunity.

Were your dealers asking you to expand into compact equipment? Did rental have any role in this expansion?

Sewell-Howard: Although we had experimented with compact equipment before, our dealers also were hearing requests from their customers for compact utility equipment.

I would define compact equipment more as a growth strategy rather than a rental strategy. Rental plays an important role, because that’s how we gain exposure to our products.

How would you describe your rental strategy?

Sewell-Howard: It’s twofold. We have a good relationship with independent rental companies and large rental chains. We’re careful about making sure we don’t compete with that. At the same time we’re encouraging our dealers to include more rental in their business model. Part of the reason is we recognize some of our innovative products – such as the XT850 and XT1600 – can be difficult for a rental company to market initially. They may take awhile for customers to grasp how to use them.

We need the exposure; we need people to get on those machines, experience and understand them. So we encourage our dealers probably more now than we had in the past to be involved in rental. We want our dealers, however, to work as a team with our other rental outlets and we would never want to eliminate them from the process.

How would you assess the current markets for each of your other product lines?

Sewell-Howard: Our trencher and plow market is a strong, stable market. It’s a good core piece of business for us, and we continue to invest from a research and development standpoint in order to maintain that position.

The trenchless market is still in its infancy. It’s only about 15 years old and in some areas of the world they’re just being introduced to the technology. The water and sewer markets are just now beginning to understand how they can use directional drilling. And quite honestly there’s a lot of room for innovation in trenchless. We have a long-term vision on how this technology will continue to evolve.

Since in-the-ground obstacle avoidance is going to continue to be a big topic, our electronics division will continue to do well. The in-ground infrastructure is getting more populated and difficult to manage.

There’s definitely a family style culture at Ditch Witch. How are you managing to maintain this culture?

Malzahn: We’re in a small community of 5,200. We’re the employer of the community, and we have the consistency of a relationship and so it becomes more of a question of how do you keep continuity among the family. It developed naturally; it isn’t something we had to impose.

Sewell-Howard: In reality people feel comfortable with that, because there’s the perception you’ve taken good care of people. There’s an appreciation the company’s remaining family owned and family operated. For good, better or worse, there’s a comfort I’m in this role because people perceive what is important to me is what is important to Ed. There’s a trust factor.

A lot of it is the personal relationships. People appreciate that you know who they are as a person, not just what they do as an employee. Admittedly, that gets harder to do as the company gets bigger.

People want to know that there’s a genuine caring for them as individuals. And we try to take that into consideration with every decision we make, that this is an ESOP company and everyone here has a vested interested in our success. We don’t take that lightly.

It never ceases to amaze me how there are people here that will do anything, and it’s been my experience you just don’t find that level of commitment in other places. It’s because there’s a sense of ownership. Sometimes you have to make tough decisions but we try to have an open book and be up front with the challenges we’re facing. We want our employees to understand the why behind an unpopular decision. We’re all in this together.

Ed has been the founder, leader and even the human symbol of Ditch Witch for so long that a leadership transition is prone to have it challenges. What have been yours and how have you responded to them?

Malzahn: I was lucky from the beginning to be with some excellent, talented people. They laid the foundation of this company. And being a little bit naive, we did things that we probably couldn’t have done if I had to report to somebody higher up. My board of directors was a group of my friends. I just have to give credit that the Lord has shoved a lot of great people in my direction.

Sewell-Howard: Well you’re being modest, but you did identify the areas that you didn’t want to mess with, particularly sales and marketing.

Malzahn: I never was thrilled about marketing. I’m a shop floor person and a product problem solver. And when accounting and computer challenges came along, I was lucky enough to have others who took those challenges and ran with them.

Having Tiffany here was totally unanticipated. When she came out of college, I didn’t think she’d be here.

Sewell-Howard: The reality was I never considered this as a career.

Malzahn: Though she lived in Perry. She lived in town and yet we never really made the connection.

Ed, what are some of the character attributes you see in Tiffany you think will lead this company forward?

Malzahn: She’s a next-generation person. She’s certainly familiar with the business end of the company and she’s gaining information as far as product is concerned. Her younger brother, Cody, is in product development and concentrates on future products. That relationship gives her a comfort level whether we’re doing things right as far as product is concerned. And it says something about her that she’s the first female on the executive board of the Association of Equipment Manufacturers.

Tiffany, what are the things you think you bring to the table?

Sewell-Howard: I’m probably more of a process person. I can see the bigger picture. This role takes some unique skills because it requires balancing the expectations of family and the business. And probably one of my biggest strengths is communication, both internally and externally.

One of the things I’m trying to bring to the table is a little more accountability in terms of the direction that we’re headed and probably a bit more structure than we’ve had in the past. Part of this is just a factor of getting larger. This has always been an entrepreneurial company, and what I’m bringing to the table is examining the question of ‘how do we go forward?’

Malzahn: I appointed a board who were friends, and she’s changing that. She wants to be challenged.

What are the markets that really intrigue you globally?

Sewell-Howard: Several global markets are in transition. Everybody talks about China, and there’s obviously a lot of opportunity there. We’ve also seen a lot of prospects in Russia, the Ukraine and Poland. Australia continues to be a strong market for us. Really, there isn’t any area we’re not seeing some opportunity presenting itself.

Malzahn: Previously, when we looked at third-world markets for trenchers, the need for mechanically digging trenches just wasn’t there. But you can’t do directional drilling with hand labor.

How have your dealers helped form your company and how involved are they in your product strategy?

Sewell-Howard: We define them as one of our greatest strengths, the cornerstone of the Ditch Witch brand. They are who our customers interact with on a day-to-day basis, and they share responsibility for the success of the products we bring to market. They’re greatly involved with the direction of our strategy and are involved in business councils, product councils and proof-of-concept tests in the market. As I mentioned earlier, they led us into the compact utility market. One of the lucky things that happened to our company as it started was our specialized dealer distribution system. It’s been a huge benefit.

I’ve talked to other manufacturers who don’t have dedicated distribution and have to fight for space and attention. I just can’t imagine how frustrating that could be. I can’t imagine not having a dealer network that is as dedicated to our success as we are to their success. And our dealers are a lot like us, a lot of them are moving into second- and third-generation ownership.

You have a history of growing internally instead of acquiring companies. Do you see that changing?

Sewell-Howard: No. Nobody gets real excited around here about just buying a company to get bigger. We’re all about innovation and a systems approach. We like to control as much of the process and as much of the product as we possibly can, to insure that we deliver exactly what the customer needs. We’ll continue to grow organically. We’ll always look for ways to get into markets. It’s more about the ideas.

Beyond markets, what is your vision for Ditch Witch? What elements both inside and outside the company do you feel keep you on track to help you reach that mission?

Sewell-Howard: Just staying consistent and continuing to focus on the people we have; making sure we have the right people in the right places to continue to follow through on the direction that we’re going. Plus, we really need to stay in touch with the customer. We got started as a company by understanding what was needed and being able to deliver. If we continue to stay focused on that ever-changing customer need, I think we’ll continue to do well.