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.
In deciding what new divisions to create, Carpel has taken a careful look at Sky Courier's existing business. One thing he noticed was that a growing portion of the business involved specialized deliveries for celebrities, politicians, and executives. Last New Year's Eve, for example, Sky Courier drove a Mexican dinner, prepared in Beverly Hills, across the desert to Wayne Newton's hotel room at Caesars Palace. Then there was a Chicago White Sox baseball player who lost his contact lenses before a game in Oakland, Calif. Sky Courier picked up a new set of lenses at his doctor's office in Crete, Ill., and flew them to Oakland by game time.
So, reasoned Carpel, why not create a business that is tailored to people willing to pay top dollar to get something delivered fast? Such a high-priced butler service -- tentatively dubbed Sky VIP -- is on the drawing board. Carpel plans to attract customers by offering a card inscribed with the prospect's name and a toll-free number that connects with a customer service representative 24 hours a day.
Similarly, Sky Courier is launching a medical delivery division, Sky Med, that will ship human organs and medical supplies. The company plans to send out its first mailing this fall to hospital administrators, doctors, medical-products manufacturers, blood banks, and transplant centers. The division, like VAX, will have its own general manager, sales manager and customer service representatives.
Many of the ideas for new divisions originate with Carpel himself. "Gil is very creative coming up with new flavors," says Glenn Smoak, operations vice-president. Deciding whether a division makes economic sense, however, rests largely with Smoak and Sky Courier's financial vice-president, Neil Moran. They are the ones who ask, "Operationally, are there economies of scale?" and "Should we be in this business at all?"
VAX, for one, fits Sky Courier's existing resources perfectly. To the customer, the subsidiary appears to be a small, independent courier, catering to ad agencies and graphic artists. In fact, the only way that VAX can offer competitive prices is by consolidating its shipments with Sky Courier. The subsidiary also uses Sky Courier's central computer system in Reston and calls on the parent's dispatchers and fleet of drivers whenever necessary. And in New York City, Sky Courier salespeople are now selling VAX's services to many of their corporate customers with in-house graphics departments.
Aside from starting new divisions from scratch, Sky Courier also looks for companies that are already developing or operating related businesses. A case in point is Aeromail Inc. of Westport, Conn., an overseas bulk mailing service, in which Sky Courier became a 50% partner last fall. Aeromail transports its clients' overseas mail to Amsterdam, where the materials are sorted, posted, and forwarded to worldwide destinations. According to James A. Reckert, Aeromail's founder and president, the service allows high-volume mailers -- such as IBM, Chemical Bank, and Texaco -- to slash postal costs and delivery time by up to 50%.
Both companies stood to benefit from the joint venture: Aeromail gave Sky Courier access to a relatively unexploited market and a new customer base, as well as a new product offering that would appeal to many of its existing customers. Sky Courier provided Aeromail with capital and, above all, a marketing arm -- 35 salespeople in 12 U.S. cities -- that it couldn't afford to develop on its own.
Indeed, Sky Courier's sales force continues to represent the company's principal resource in marketing new products and services. It is the single common denominator that ties all the divisions and new ventures together. Recognizing that Carpel and Wolinsky have sunk almost their entire marketing budget into recruiting, training, and compensating the direct sales force -- known in the industry for its aggressiveness.
"We look for people with the killer instinct," says Carpel, who started in the business as a salesman for Air Courier International, a competitor. Fear and greed, he contends, are the best ways to motivate salespeople. "We look for people who say they want to make a million." The company offers heftier commissions -- 5% to 7% -- than most competitors. (Federal Express, for one, pays no commissions.) A salesperson who chalks up $100,000 worth of business a month can join the 100 K Club with special benefits: no reports detailing client calls, an extra percentage point in commissions, and a seat on the Marketing Policy Committee, which reviews new product ideas.
To be sure, Sky Courier uses the stick as well as the carrot. The company issues monthly dollar volume sales reports listing salespeople in order of performance. That way, says Carpel, "those at the bottom will feel as if they're wearing a scarlet letter." In a recent sales contest, the salesperson with the worst results got a black T-shirt printed with the word "Loser."
Not surprisingly, turnover is brisk, but those who survive, says Carpel, outsell the toughest competitors. In selling to major prospects, moreover, they get help. Every division has a sales manager with a track record in that particular business and the tenacity not to take no for an answer. Says Carpel, "If it's a big enough deal, we'll bring along a closer with the regular salesperson -- just to make sure nobody slips out the back door."
Sky Courier will count on that aggressiveness as it continues to look for new markets to enter. One service under investigation, for instance, is low-cost tele-conferencing -- a product not generally found among a courier company's offerings. But Carpel says he and Wolinsky refuse to get trapped by defining their business too narrowly: "We are in the communications business. If we looked at ourselves as air freight shippers, we'd put ourselves in a little box for all eternity."
PRINT THIS ARTICLE