Are We Making Money Yet?
The story of how the founder of a messenger service transformed herself from a salesperson to a CEO.
By learning the costs in each of her messenger service's transactions, Claudia Post transformed herself from sales addict to CEO -- and not a moment too soon
In December 1994 Claudia Post, the founder of Diamond Courier Service, did something that offended every cell in her salesperson's body: she began shedding business she had already sold. While her messengers delivered gift baskets of fruit and candy, Post was delivering sour news to some of Diamond's customers: "After some careful analysis, I'm forced to make a difficult decision -- I have to relinquish part of my business with you." The chief executive and her sales manager had drawn up a list of clients to visit. Arthur Andersen, the Big Six accounting firm and one of Diamond's earliest customers, was on it. So was Montgomery McCracken, a prominent Philadelphia law firm -- Post's own law firm, in fact. She relished making those calls about as much as she enjoyed selling her personal investments, which she also did in order to save her company.
"I can't tell you how painful it was," Post recalls. "I mean, these customers depended on me."
The timing of these unsales calls was particularly ironic in that just a few months earlier, the Philadelphia office of the Small Business Administration had handed Post her first business award -- for civic involvement, job generation, and fast growth. She deserved the award. She had started Diamond Courier in August 1990, determined to outperform the downtown courier company that had just fired her from a sales position. Post plotted Diamond's sales growth on a straight trajectory, and it took her only 17 months to achieve her first objective, $1 million in sales. She nearly doubled that volume during the next year. "What she did was incredible," says the admiring owner of a Florida-based courier company.
In 1993, its third full year, Post's company had $3.1 million in sales. By then Diamond employed some 40 bike messengers and 25 back-office staffers and provided steady work for 50 independent drivers. There was never any ambiguity about Post's own role in the business: master networker and fearless cold caller -- the sales whiz every struggling young company needs. Post put the "star" in start-up, and she was happy. "I was busy having a great time selling. Cash flow? Profit before taxes? I didn't know how to figure out any of that stuff," she says. She was a selling machine. And to be sure that she could keep on selling, Post recruited a former colleague, Tony Briscella, to step into the sales manager's role at Diamond.
It was early that year, however, that symptoms of underlying problems in the business first became apparent. The usual start-up cash crunches grew more serious and arrived more often until eventually they became chronic. By the latter part of the year, Post was helping her staff shuffle the accounts payable and decide whom to pay and when. Briscella, her new sales manager, who'd previously worked for Federal Express, had begun to complain that he couldn't get accurate operating results. "I'd hear things like 'We either broke even or made $6,000.' That," he says, "drove me crazy." Despite Diamond's continued growth, it wasn't much longer before Post had to resort to selling her jewelry and liquidating long-held stocks from her Merrill Lynch account to generate the cash she needed to pay her employees. Of course, the more her cash problems mounted, the more Post, the consummate salesperson, wanted to get out and sell. Yet she increasingly felt chained to her desk by the by-then nearly daily crises. One day an anxiety attack, which she mistook for a heart attack, sent her to the hospital. As she left, one of the office employees called after her, "Don't you die on us!"
Post didn't die, but Diamond Courier nearly did. By the spring of 1994 the company was undeniably sick, and Post remembers thinking, "Here I am with a company that's doing $3 million plus, and I have no money. I'm working a gazillion hours a week. There's something terribly wrong here."
But what? Desperate and scared, Post asked a friend in the industry to examine her books. "Claudia," he said after a cursory look, "you're headed for the rocks."
What had happened to this growth company and its founder?
* * *There was nothing wrong with the service that Diamond provided to its expanding client list -- at least nothing beyond the usual sorts of snafus experienced by fast-growing companies. Customers loved Post and her company. But in four years Diamond Courier had grown in so many directions that it was no longer the one business that Post had started; it was more like six. As she had pursued the simple idea of running a downtown bicycle-courier business Post had seen and gone after other opportunities. Now, besides bike-messenger services, the company was into driver deliveries, truck deliveries, airfreight services, a parts-distribution service -- and even a legal service that served subpoenas and prepared court filings. Although all the businesses shared some common resources, each had its own line workers, manager, and administrative-support person, as well as its own steady customers and unique pricing and billing practices. In that respect, Diamond wasn't so different from a manufacturer that jumps into a dozen different product lines or a retailer that branches into several market niches in quick succession. The question was never, What do we do best? but always, What else can we sell?
It wasn't that diversification per se that had brought Post's business to the brink of failure. Any of the businesses Diamond now found itself in could conceivably have been profitable. The problem was that Post simply didn't know which, if any, of them were. She didn't know because she was operating on a set of reasonable but unexamined assumptions. She assumed, for instance, that if she kept selling and priced her services at market rates, she would build a profitable business. She assumed that growing volume would generate economies of scale. She assumed that if she took good care of customers, the business would take care of itself. She relied upon those and other assumptions because, as she admits now, she never took the time to question or test them. But even if she had taken the time, she didn't have the means. Consequently, Post continued to believe that sales would be Diamond's salvation when, in fact, nearly every sale she made pushed the company a little further into the red and a little closer to failure.
