What do you do when your potential customers are small companies spread out all over the country? Skyway Freight's strategy: One sale closes a thousand deals.
It is a point of some pride to Bob Baker and Jim Watson that none of the trucks picking up and delivering air freight around the country bears their company's name. Nor do any airplanes carry the Skyway Freight Systems Inc. logo. Baker and Watson are also pleased to point out that they have never made a sales call on, sent a bill to, or even spoken with most of the nearly 16,000 businesses that ship via Skyway. In fact, Skyway has only about 100 paying clients -- and a marketing strategy that is astonishingly simple in a market that is incredibly complex.
Skyway, a young company in a low-technology business, has hitched its future to the rapidly growing but chaotic world of high-technology industries, which, for all their esoteric glamour, consume prodigious quantities of everyday goods and services like freight transportation. But selling into fast-growing markets by itself doesn't assure profits: Ask the suppliers of bankrupt Osborne Computer Corp. Even identifying potential customers among businesses that quickly emerge (and sometimes just as quickly submerge again) in the volatile high-tech environment can drive a business to distraction. Watson and Baker, however, have evolved a marketing strategy that buffers Skyway from the ups and downs of the high-tech world. Not incidentally, the strategy also gives extraordinary leverage to Skyway's limited selling resources.
Watson, a 1969 graduate of the United States Naval Academy, and Baker, who destroyed his draft card in the '60s, met in Los Angeles in 1976 when both were consultants to an air-freight company that was reorganizing under Chapter XI. Watson knew sales, having spent several years selling IBM computers to transportation companies. Baker knew the operational side of transportation. They became mutual admirers.
"Bob," says Watson, "had a reputation for being able to price a transportation transaction and ensure that there was always something left for the bottom line."
"Jim," says Baker, "can market anything."
In 1977, as soon as the air-freight company had been turned around, they left as partners with an idea they wanted to try. Originally, the idea had nothing in particular to do with fast-growth, high-tech industries.
Frederick W. Smith's Federal Express Corp., then only three years old, had created practically a new industry -- overnight air-freight delivery -- and competitors were popping up everywhere. Skyway wasn't going to be one of them, not directly anyway. Instead, Skyway would offer shippers an alternative: two-, three-, or five-day service in exchange for prices as much as 75% lower than the overnight rates. "We figured," says Watson, "that in the majority of cases, people don't really need things overnight."
Skyway could charge less by taking advantage of changes occurring in the air-passenger business. Airlines, which experience their heaviest traffic during the daylight hours, had begun using wide-bodies -- 747s, L-1011s, DC-10s -- with huge, and often unfilled, cargo bays beneath the passenger cabins. "Here you had all this new freight capacity flying during the daytime, and nobody wanted to use it," Baker says, "because everybody was convinced they needed overnight [freight] service. So we could go to the airlines and say, 'Hey, give us a reason to put freight on these airplanes.' They would have to give us a rate. That was our original concept."
On the strength of this idea, embodied in a 300-page business plan, Watson and Baker easily raised $100,000 from seven private investors in exchange for 35% of Skyway's stock. That was all the capital theyy thought they would need. Then they hit the road selling and . . . nothing happened. In four months, Skyway lost $200,000 -- twice its capital -- and survived only on trade credit.
Two things, they found, were wrong with their approach. One they figured out almost immediately.
"Customers," Watson says, "were still convinced that they needed everything overnight. We were selling a totally new concept, and I was spending all my time educating people in three-hour sales calls."
But Skyway had to sell something, soon. So the partners changed their pitch. Never mind the concept, they decided, sell price. "We'd tell a guy paying $1 a pound that we'll do it for 25 cents. He had to listen to us. If he didn't, his boss would."
The shift in sales tactics worked. Within a few months, Skyway was in the black, surviving if not thriving. Still, every new shipper that signed on for the service had to be sold, and Skyway's marketing strategy consisted simply of keeping Watson on the road as much as possible.
During one two-week East Coast trip, he made cold calls in New York City's garment district, climbing the stairs to Seventh Avenue lofts. There, as he recalls, guys smoking short, unattractive cigars asked how much he would kick back to them if they put in a word for him with the apparel manufacturers who bought the buttons, collars, and laces the loft factories made. "I didn't sell anything," says Watson, "but I learned something. I learned that it was the buyer, not the guy in the loft, who made the decision. So I flew home and called on apparel manufacturers in Los Angeles, and the light bulb came on." The second problem with Skyway's sales approach had suddenly become clear. "The whole [air freight] industry is doing it wrong," Watson concluded."They're selling to the wrong people."
The right people were buyers, not vendors. Buyers, usually, pay the freight charges on shipments inbound to them, so buyers have a greater interest than their vendors in controlling freight costs. Consequently, Skyway discovered a receptive market among Los Angeles apparel makers. After hearing Watson's pitch, a fair number instructed their suppliers -- primarily textile mills in the Northeast and in North Carolina -- to call Skyway when they had a shipment ready. Business picked up modestly, and Skyway developed something of a specialty as an apparel freight service.
The discovery that it was the buyers who were the appropriate sales contacts was an important development in the evolution of Skyway's marketing strategy. But the most important changes were yet to come. First, Skyway needed a distinctive product. It was still selling the same thing -- air freight service -- that everyone else was selling, just a slower and cheaper model. Second, Skyway needed another market, one that offered more growth potential than the rag trade. "We had a very bad receivables problem," Baker says, "because when things get bad in that industry, companies don't slow down, they go out of business. We knew we couldn't grow with these people, that we had to branch out." But the new market had to wait for the new product to take shape.
Now that they had found the right people to sell to, Watson and Baker began to learn that price wasn't the only thing these customers wanted to buy. "They would listen to price. If you had a lower price, you could get an appointment every time. But," says Watson, "they were also people who lived and died with delivery of product -- bolts of cloth from the mill. If the material didn't get in and they couldn't do the run and make the skirt, then they didn't make the ad at Macy's or Bloomingdale's, and they didn't sell."
In short, it wasn't overnight delivery that mattered so much as the ability to schedule the delivery, to know that the material would reach the factory when it was needed. And that meant knowing when it was shipped from the mill, how it was shipped, and where it was at any given time. Because Skyway was managing all inbound air freight for its customers, it could easily collect and pass on this information as part of its service. A conventional air-freight carrier, which might have only one shipment for a Los Angeles manufacturer, would have no way of knowing where that manufacturer's other shipments, consigned to other carriers, might be. At Skyway, an employee kept the status of each shipment up-to-date on a clipboard, and buyers could use a toll-free line to find out where their freight was and when it would arrive. The phone line and clipboard were the first components of a now fully computerized in-bound freight-management system that has finally given Skyway a distinctive service product.
