A Niche In Time

Relying on a single product or service to support a business in a rapidly changing environment is like building a house on shifting sands. Unexpected events -- a change in technology, say, or an industry price war -- can quickly force a fast-growing, profitable company into the red, or even out of business. Some companies try to avoid such a fate by spreading the risk -- that is, diversifying into new markets and offering a wider range of products. But diversification has its pitfalls, as Gil Carpel, co-founder of Sky Courier Network Inc., has learned. Sky Courier Network was founded in 1977 to serve law firms and corporations willing to pay a premium to get a document delivered to a client in a hurry. The company's service -- speedier than those offered by such overnight couriers as Federal Express Corp. and Purolator Courier Corp. -- caught on fast, and Sky Courier recorded impressive sales increases, as did several other "time-critical" couriers, such as Sonic Air Courier Inc. in Los Angeles and Dial Air Couriers in Dallas. Unlike Sonic and Dial Air, however, Sky Courier pushed to establish a national presence. Today the company, based in Reston, Va., serves about 30,000 U.S. communities, as well as 140 cities overseas. Revenues have kept pace: From 1978 to 1983, Sky Courier's annual domestic sales jumped from $2.9 million to $32 million, earning the company the rank of #187 on INC.'s 1983 list of the 500 fastest-growing private companies in America.

But maintaining that rate of growth has become increasingly hard for the 325-employee company. Large couriers, such as Federal Express and Purolator, whose volume deliveries permit low rates to customers, have monopolized the overnight business, leaving the smaller companies to scramble for what is left. "It's an industry of cannibalism," says Edward Katz, president of Choice Courier Systems, a delivery service based in New York City, and former president of the Air Courier Conference of America (ACCA), an industry trade group. "Those that are around today will disappear or get eaten up by those that are growing." Katz estimates that only a few of the dozens of existing smaller air couriers will ever make it past $100 million in sales.

Like other small and medium-size companies, Sky Courier has its share of problems. For one, the company's original market -- law firms and financial printers -- has grown saturated. Furthermore, any company that specializes in the rapid delivery of documents and printed matter is vulnerable to changing technology, specifically such electronic delivery systems as facsimile transmission and computer-to-computer communications. "There is a problem out there that we can't lick," says Jack Rozran, president of Cannonball Air Courier in Chicago and current president of ACCA. "Electronic transmission could make us look like buggy-whip manufacturers."

Although the electronic transmission business -- estimated at around $1.2 million in 1983 -- is moving more slowly than many analysts predicted, large courier companies are covering their bases either by developing their own electronic delivery systems or by forming joint ventures with electronic-communications companies. The smaller couriers, however, can't afford the capital outlay necessary to compete in this area. For them, says Sky Courier's Carpel, the alternative is to find new markets that offer long-term stability.

In 1982, Carpel and Sky Courier's president, Joe Wolinsky, decided to do just that. They began by developing a specialized service for New York City advertising agencies and graphic-arts houses, shipping video film and artwork. Such a service, they figured, would complement the company's other operations and was less vulnerable to changes in technology. They soon ran into problems, however, mainly with their commissioned salespeople. In order to be competitive, Sky Courier had priced some of the specialized deliveries lower than its regular service, so a salesperson's orders often resulted in smaller commissions. Without proper training, moreover, the sales force had trouble understanding the distinct needs -- and even the language -- of the new customers. When they did get orders, they sometimes bungled the billing information. Before long, Sky Courier, which had carefully built a reputation for quality service, was besieged with frustrated customers.

The experience taught Carpel a valuable lesson. When going after a distinctly different market, he says, there has to be a management team -- even a separate division -- dedicated to serving that business. "By crystallizing the business, you make customer feel like he's getting a customized product." By applying that principle, Sky Courier has turned around its struggling video delivery business.

In 1982, Carpel and Wolinsky formed a New York City-based subsidiary, Video Air Express (VAX), devoted exclusively to the ad-agency and graphic-arts market. They brought in Leon Lewin and Drew Gross, both with extensive experience in the graphic-arts field, to manage sales and operations. Lewin and Gross proceeded to redefine the nature of the business. Now, says Lewin, "we act as a liaison between the ad agency and the publication." For example, if an ad for a newspaper is delayed because of bad weather, Lewin calls the paper and provides the ad's specifications so that space can be reserved until the material arrives. "We sell peace of mind," he says.

The strategy seems to be working. Since VAX was formed about two years ago, business has more than tripled, topping $2 million in 1983. Carpel attributes some of this growth to the decision to locate VAX in New York City, but more significant have been the knowledge and contacts that Lewin and Gross brought to the business. And the two men are transferring that know-how to Sky Courier's sales force. Lewin holds regular marketing seminars for Sky Courier's 12 New York City-based salespeople. He and Carpel are also setting up a new commission structure that will make VAX's services more attractive to sell. VAX has, in fact, become a model for future divisions.