Stand and Deliver
Though she's only 24, Vicki Whiteford was already a veteran of the brutally competitive courier business when she launched All-Ways Courier, last year. But how long can she keep substituting energy, sales talent, and street smarts for capital?
Imagine starting a company in downtown Los Angeles, a city racked by recession and discord. Imagine that it's a courier company, in an industry beset by brutal costs for everything from insurance to workers' compensation. Many local courier outfits that have weathered the fax revolution and corporate cost cutting are hurting; others are in bankruptcy. Competition is cutthroat. And there you are, 23 years old, a woman in a male-dominated field, with little capital, limited credibility, and no clientele to speak of.
Such was the battleground Vicki Whiteford faced last year, as her tiny All-Ways Courier sallied into the fray.
Whiteford entered the messenger business at 18, as a route driver, to support her then-husband. But she enjoyed it. And she was good at it. In five years she worked her way through the ranks of three delivery companies. She eventually landed a management job, running the L.A. office of Orange County-based Executive Express, where she showed a talent for managing people, winning clients, and keeping something as hectic as a courier operation on an even keel.
Disregarding the troubles of the industry in L.A., Whiteford decided to launch her own venture. "I was tired of making money for somebody else," she says. "If I could run an office for Executive Express, I could do it for myself."
On October 9, 1991, Whiteford incorporated All-Ways Courier and began laying the groundwork for the business. For starters, that meant getting a license to operate statewide from the California Public Utilities Commission, which required that she obtain the mandatory insurance policies and bonds.
It also meant getting hold of some capital. She had saved $5,000 and had $25,000 in a trust fund, but she needed much more. Banks were out of the question. Who would be crazy enough to gamble on a first-time business owner of 23? To bankers, her venture would look like a surfer paddling into shark-infested waters.
Then there was the small matter of obtaining customers. That was where Whiteford concentrated her efforts. Even before she was fully funded and licensed, she began landing customers -- and forging her credibility -- through sheer force of salesmanship.
At a film festival in Palm Springs, Whiteford met someone from Hemdale Film Corp., a Hollywood producer of such movies as Platoon and The Terminator. Hemdale sent packages all over L.A. -- press kits, scripts, promotional materials. It used six or seven courier services, paying them $10,000 to $12,000 a month for mediocre performance.
Not one to miss an opening, Whiteford pitched a proposal to Hemdale president Eric Parkinson, claiming she could save the company about $4,000 a month and provide superior service to boot. Parkinson was intrigued. And impressed. For someone so young, he thought, Whiteford possessed a levelheaded business acumen and plenty of chutzpah. Parkinson signed a one-year contract giving All-Ways exclusive rights to Hemdale's messenger traffic. It would start in March 1992, when Whiteford planned to commence operations. But it was in late January that lightning struck for Whiteford. She had bid on a job being offered by Associated Distribution Logistics (ADL), a large outfit that handled a lot of transportation work for Eastman Kodak. Kodak needed a place near downtown L.A. that could deliver parts to its field technicians doing repairs on its copiers, X-ray machines, and photo-finishing equipment. It made no sense for Kodak or ADL to handle the deliveries in-house. A courier company could do it far more cheaply. And pulling a part off a shelf and dispatching it to an office building or a hospital was not unlike taking blueprints or legal documents around town.
Ed Young, an ADL executive, solicited bids for the work, and one came in from Whiteford. She'd learned of the opportunity while still at Executive Express, which already had a Kodak parts depot near Santa Monica. Hungry as she was, willing to meet whatever demands ADL and Kodak made, Whiteford landed the contract. "If I'd hemmed and hawed, I wouldn't have gotten it," she says. As it would turn out, the concept of All-Ways' adding value to its service by being a "parts depot" would be one of the key competitive advantages upon which Whiteford would hang her hat.
Obviously, it was risky for ADL. Ed Young was gambling on a company with no existing operations -- not even an office -- to fulfill a critical need for a huge client. But he had confidence in Whiteford. "Vicki was the best option for that area," he says. "All-Ways was new, yes, but she had a strong background in the business. And good people have to start somewhere."
ADL and All-Ways inked a contract on January 27, 1992. Kodak wanted the depot up and running within a week. Still operating from her home in Venice, Whiteford scrambled to find a location, settling on a 1,600-square-foot warehouse space. Although it was in a "marginal" part of L.A., Kodak executives from the Rochester, N.Y., headquarters approved the site. Two of them had flown out to make sure the project got off to a good start.
Given the tight deadline, they, along with Young and Whiteford, spent days and nights putting up shelves and organizing parts, in a place leased so suddenly it still had no electricity, no phone, no water in the cooler. "It was a nightmare," Whiteford recalls. "Here were these heavy-duty players from Kodak putting shelves together in an unlit warehouse. We brought in lanterns. Everyone was in a panic. Ed Young had 'This is a mistake' written all over his face." Nonetheless, by early February Whiteford was sitting on $1 million worth of Kodak parts, thousands of them. She had no dispatcher yet and no employees; some friends volunteered to make deliveries for the first weeks. But she was in business. Under the contract, All-Ways was on demand for Kodak 24 hours a day, 365 days a year. Not that she needed to have her offices staffed around the clock. Off-hours calls would be routed to her cellular phone.
The terms were tough but worth it. At $9 a delivery, the deal would yield sales of about $3,500 a month. All told, between Kodak and Hemdale she'd have monthly revenues of $8,000 to $10,000, a reliable base.
To fund the early going, Whiteford emptied her $25,000 trust fund and added the $5,000 she had in savings. Those bucks disappeared quickly.
Right off the bat nearly $20,000 went for computers and top-of-the-line software that does everything from order entry and tracking to invoicing. Another computer and a modem were needed so All-Ways could be on-line with Kodak in Rochester, to keep inventory current. The state-of-the-art computer system -- commonly used by only the largest courier operations -- would be Whiteford's second big competitive advantage. It would, for one thing, allow her to cut down on overhead and deliver on the low-price bids she had made.
Incorporating had cost $1,500, the operating license another $500. "Non-owned and hired" liability insurance for her drivers came to $4,000. There were outlays for copiers, phones, rent, and beepers, plus two-way radios so drivers could keep in contact with headquarters. Obviously, Whiteford needed more money to run the business, and her luck held. On the strength of the Hemdale and ADL contracts, Whiteford attracted the interest of a private investor named Andrew Abrams. In return for 38% of All-Ways' stock, Abrams invested $30,000 in February. Whiteford's strategy on equity was to retain at least 51% in hopes of somehow capitalizing on her "female-owned" minority status. And she wanted to keep some stock available to use as an incentive for key personnel. Now equipped with operating cash, and fast outgrowing her location, Whiteford moved her operation to a 2,500-square-foot ground-floor space in a warehouse district. Within walking distance of central L.A.'s skyscrapers, the new headquarters has ample space for the Kodak inventory. There's an office for Whiteford, a dispatching desk, a break room, and a parking lot. A cactus garden and wicker chairs out front provide a spot for the drivers to relax between missions. And Kodak foots $900 of the $1,500 monthly rent.
The beauty of a courier company -- from an owner's standpoint, anyway -- is that drivers pay their own operating expenses. Under All-Ways' compensation plan, drivers get half the amount billed on each job they complete. On, say, a one-hour priority rush trip from downtown to Beverly Hills, the messenger gets $11 of the $22 charge. Right there, Whiteford loses half her revenues.
Moreover, she pays 17.6% of payroll -- a savage hit -- for workers' comp, even though not all the drivers' compensation is considered payroll. At the end of each week Whiteford calculates how many hours a driver worked and multiplies by the minimum hourly wage. She pays that total as salary, and the remainder of what the driver is owed is paid as a partial lump-sum reimbursement for vehicle expenses. That makes All-Ways drivers employees, not independent contractors.
Recruiting drivers has been fairly easy, given L.A.'s high unemployment, even though Whiteford sets high standards for personal grooming, reliability, and courtesy. Messengers are a mixed bag of personnel -- students, summer hires, retirees, and "pros." Some do the job for years, others last a week.
It's a tough way to make a living. A driver handling the usual 6 to 10 runs a day can, depending on traffic and distance, make $300 to $500 a week. But out of that, he or she is responsible for all costs of vehicle ownership, insurance, maintenance, and fuel.
All-Ways driver Mario Ramirez, for instance, makes about $350 a week, or roughly $18,200 a year. Insurance on his 1985 Chevy S-10 pickup runs about $1,000. A gas hog, the thing guzzles $250 a month in fuel. And given that he's logging more than 4,000 miles a month, his truck has already burned through two sets of tires and needed a valve job. Last year, when he was working elsewhere, his vehicle expenses totaled $14,000. Even so, he likes the job. On the road, he feels he's his own boss, and no two days are alike.
Vehicle costs are a lot lower for David Gomez, who makes the center-city runs on his bicycle. Then again, he's getting the short $9 to $18 jobs, not the $74 runs to Newport Beach or the $60 trips down to Santa Ana.
Although getting drivers is easy, keeping them is not. Since All-Ways opened, last February, turnover has been 100%. Drivers leave because they dislike the hours or the money, or because the job is killing their cars.
There's also the risk factor. Pat Blowers, All-Ways' dispatcher, once dropped off a legal document in burned-out South Central L.A. on his way home. As he got out of his truck, eight hulking teenagers wearing red jackets and red bandannas quickly surrounded him. He was wearing blue. Unknowingly, Blowers had ventured into big-time gang country, where people get shot for wearing the enemy's color. "I guess they spared me because I was delivering this thing to one of their mommas," he says. "But now I keep both blue and red jackets in my truck."
A dispatcher is the quarterback of a courier shop. He keeps the ball moving, takes calls from customers, records the particular specifications of every order, runs orders through the computer, and then assigns the work to drivers. He's the nerve center, and when action is frantic, the job calls for someone cool under pressure. Blowers, an eight-year industry vet who had been Whiteford's boss at one time, came on board after she fired her first two dispatchers. (One guy had ripped off some COD money and bolted to Mexico.) In need of a trusted manager to staff this critical post, Whiteford hired Blowers last August. Although he had a good dispatching job in nearby Irvine, her offer proved irresistible. She gave him a big salary increase, paying him $2,900 a month. She pays herself $2,500.
The challenge of the job appealed to him. "A lot of courier companies start up and are gone in six months," he says. "You can make mistakes and screw up deliveries, but as long as you communicate that to your customers, you'll be OK. They want to know what's going on. These packages are important to them."
Whiteford is nothing if not a communicator. Articulate, ambitious, and savvy about the trade, she is constantly calling and meeting with clients and prospects. She'll do anything within reason to get business and ensure satisfaction -- tailor services to meet peculiar needs, handle daily routes, whatever it takes to add a personal touch.
Until August, when she hired a sales manager, Whiteford did all the sales work. Starting with a small marketing budget, $950 a month, she cold-called, walked the skyscraper beat, and sent out mass mailings -- anything to get her name out there.
Her best weapon has been the Rolodex cards she mails out and leaves behind on her calls. "We figure even if everything else goes in the trash, they'll save the Rolodex card," she says. "And if they get mad at their messenger, they're likely to call us because our name is right in front of them."
When she could afford it, she bought a quarter-page display ad in the yellow pages. It lists all the company's services: escrow delivery, process serving, interoffice work, court filing, title delivery, blueprints, medical supplies, and more. At $500 a month, the ad is pricey but imperative. With 453 courier services featured in those same yellow pages, it's critical to stand out from the clutter. Steadily, Whiteford has built a clientele. It includes the usual suspects -- law firms, manufacturers, printers, ad agencies -- plus her mainstays, Kodak and Hemdale. From $6,000 in sales last February, she has boosted billings by about $2,000 each month. By August she had some 200 active accounts and was just breaking even at $18,000 in sales. Her biggest sales edge remains her extremely competitive pricing. She offers four levels of service: one-hour rush, two-hour rush, same-day, and overnight. A one-hour priority run to Long Beach costs $40, for instance, then drops to $32 for same-day delivery. Overnight is $9 throughout the area. Her on-time delivery rate, she says, is around 99%.
Another edge is her comprehensive, one-stop service. While building sales, she's also built a nationwide panoply of partners -- other courier companies that handle the receiving end of her overnight shipments to major cities. She now has about 35 such agents, with a broad reach. One of them, New York City based Choice Courier Systems, operates in nine states. "You absolutely must have a network," Whiteford says. "We probably get 5% of our business from these agents. They refer business to us and vice versa. We mark stuff up, before giving it to them, to make our profit."
One potentially huge payoff from that network has come from Hemdale. All along, All-Ways has handled some long-distance shipments of the studio's packages, which impressed president Parkinson. As of this writing, Whiteford has just picked up a much bigger piece of Hemdale's action.
"When we're involved in a film distribution, we'll send posters and T-shirts and point-of-purchase displays to theaters and wholesalers across the country," Parkinson explains. "That probably constitutes 10 times what we'll do with messengers in L.A. -- maybe $50,000 a month.
"Everything Vicki said she'd do, she has done," he says. "So we decided to give her a shot at this work too. She says she can shave 25% off our overnight costs. We'll start incrementally and build confidence, because we have a lot of money riding on these releases. But the plan is definitely to move forward. She could end up with all of it."
As labor day neared, Whiteford was gearing up to handle the Hemdale expansion and an account with a law firm (employing 80 lawyers) she had just landed. That meant she had to think about staffing up from 10 drivers to about 20, and trying to raise the capital needed to grow. She and Abrams were thinking of bringing in a third investor.
One barrier to growth in the courier business is that one needs cash to front a new account for the first few months. Say Hemdale awarded Whiteford its entire overnight workload today. With her 25% reduction -- achieved by consolidating shipments and proprietary techniques -- it would constitute a new, $37,500-a-month account. Half of that, $18,750, would go to the drivers, who get paid weekly. Payroll taxes, workers' comp, and overhead costs would take some more. Whiteford could be out $25,000 by the time Hemdale paid her, especially since she had until recently billed at 30 days net. Her switch to 7 days net should help cash flow.
Cash flow won't be a stopper with Hemdale, because she is ramping up gradually. But it could be an obstacle to other large accounts, as Whiteford seeks more parts-depot work. She'd like eventually to have 25 or more accounts like her Kodak operation. She's bidding for an IBM parts depot and mentions Hewlett-Packard as a prospect. If she wins those companies over, her billings could quickly allow her to eclipse her projected net income for 1993 ($360,000) and for 1994 ($468,000). The challenge would be financing the accounts until receivables caught up with payables.
Meanwhile, she needs to keep executing well, keep her drivers happy, and add new customers to move beyond break-even and toward her goal of 30% profitability. Above all, she must keep her existing clients happy. The loss of the Hemdale account, which represents more than a quarter of her revenues, would be crippling.
But that seems unlikely. Whiteford's gutsy determination has prevailed so far. And now, with high credibility, a Fortune 500 client, and the pizzazz of Hollywood in her portfolio, she's poised to go much further.
-- Research assistance provided by Teri Lammers.
All-Ways Courier Inc., Los Angeles
Concept: Establish a messenger/courier company serving all of Southern California. Through a network of courier partnerships across the United States, broaden capabilities to include overnight shipments of packages nationwide. From an early contract to deliver spare parts for Eastman Kodak in L.A., orient growth toward the "parts depot" sector, serving computer and electronics companies that need fast delivery to field technicians
Projections: Gross revenues of $300,000 in 1992, rising to $360,000 in 1993 and $468,000 in 1994. Profits rising from $15,240 in 1992, to $45,400 in 1993, to $47,800 in 1994. Aiming for eventual profitability of 30%
Hurdles: Building a solid customer base in traditional courier services, in the face of recession and the ubiquity of fax machines. Controlling costs and driver turnover. If successful in landing parts-delivery contracts, obtaining the capital to finance their implementation
Personal funds invested: $30,000
Equity held: 62%
Education: Two years at Orange Coast Community College
Other companies started: None
Last job held: Managed Los Angeles office of Executive Express, a courier company based in nearby Orange County
All-Ways Courier Projected Operating Statement
($ in thousands) 1992 1993 1994 1995 1996
Revenues $300 $360 $468 $631.8 $884.5
Salaries/benefits 204 212.4 $298.8 380.7 398
Cost of sales 12 19.2 26.4 33.6 38.4
Marketing 11.4 18 24 30 36
Overhead 57.4 65 71 76 80
Pretax Income $15.2 $45.4 $47.8 $111.5 $332.1
WHAT THE EXPERTS SAY . . .
CEO of Choice Courier Systems, based in New York City. Choice is the "whale in the pond," as Katz puts it, doing $45 million in annual revenues, with offices in nine states.
How is Whiteford going to pay the drivers? Every $1,000 in revenues she brings in beyond $18,000 puts her in hock because it goes below the line into payroll.
She has a big account, Hemdale. If I were her, I would bill in advance, since she signed a one-year contract. You don't pay rent at the end of the month, so why should Hemdale pay its courier after using the courier services? Then she can issue Hemdale credits and invoices for courier-service variances from the monthly average. Similarly, at the beginning of the month she should bill Kodak for the rent and also the average amount of delivery charges every month. Cash flow is the survival word for any small business, if it's going to make it.
Whiteford needs money and time. There are major companies that, because they sell to the government at some level, are looking for minority- or female-owned businesses. If some smart investor got behind her, she could sell a bundle. Abrams didn't put in enough money. If she's got to finance this venture out of cash flow, then she shouldn't grow more than 10% a year. She's a good salesperson. Her only problem is capital.
Executive vice-president of the Go-Between Inc., a $2.5-million courier company based in Los Angeles. Also president of the Messenger Courier Association of the Americas
I think Whiteford does have the intelligence and energy to make this thing work. But there are other things she might not be able to control. One is insurance. As a result of an auto insurance rollback in California, mandated by Proposition 103, many insurers have flat-out left the state and others have reduced the range of coverage they are willing to underwrite. You can get insurance under the assigned-risk program, but the effect is to push premiums sky-high. I have seen courier companies here go from paying $2,500 a year to $120,000 a year for "non-owned and hired" coverage. If Whiteford were to get caught in that web, it could be devastating to her. It could be a blow she couldn't handle.
It's taking more and more of an owner's time to deal with the externalities of this business, versus the day-to-day internalities. We are all so caught up in dealing with the insurance problems and the IRS. I see a potential problem for Whiteford in the way she pays her drives. She is using an allocation basis to compensate them. The IRS is going to say, "Look, this flat allocation is not going to fly. You pay a wage plus a documented expense, period." The IRS has backed off somewhat at the regional level because of national discussions about what constitutes an employee and what constitutes an independent contractor, which is a hot issue. But Whiteford might have to increase her wage base and decrease reimbursement, and that would drive up her payroll taxes. With workers' comp at 17.6%, that represents a substantial hit. She has been very lucky so far, but how long will that continue?
President of Florida Courier Express, an Orlando-based, $2.6-million delivery company. Holds parts-delivery contracts with several major companies.
This is not an easy industry. If your business is strictly an on-demand type of thing, you are competing with fly-by-night outfits that skate around the licensing agencies. By avoiding all the costs of being a legal business entity -- insurance, for example -- those outfits can always undercut your prices. The Public Utilities Commission has so many eggs to crack that most of these illegal operations get away with it.
So contract business, like what Whiteford has with Hemdale and Kodak, is the way to go. The large corporations are looking for someone with the stability, the insurance, the people, and the infrastructure to take care of their problems. You've got to have those contracts if you are going to grow at all.
However, you need to find a way to finance those contracts. For example, we maintain a $100,000 cash reserve that we can float on for three months if we have to. So I see capital as Whiteford's most pressing need. Frankly, I'm amazed at what she has accomplished so far with so little capital.
President of New Courier, based in Los Angeles, with eight offices in five states
Whiteford should begin to foster a banking relationship immediately and consider an accounts-receivable line of credit. It's a tough banking environment, but even if she starts with a $5,000 line and pays it back, she could build it gradually to $7,000, the $10,000, and so on. That's something she needs to have, and it's a lot less expensive than giving away equity to attract capital, which she has already done. There's not that much left to give away.
She shouldn't try to grow too quickly. It's important to take a rest, a settling-in period, at various levels if she wants to maintain quality service. This is a people business, and you're only as good as your last delivery. She has Hemdale's support, and that's positive, but nothing is forever.
She's involved with the trade associations and has built up a network, and that's good. She's learning a lot about the industry through her competitors, and that can save someone like her a lot of years and a lot of heartache.