A veteran entrepreneur explains why sometimes the only way to help your company to survive is by changing businesses.
Norm Brodsky is a veteran entrepreneur.
Sometimes the only way you can make sure your company survives is to change businesses
Here's a tip for first-time entrepreneurs: the business you go into today won't necessarily be the one you wind up in tomorrow. Why not? Because you never know for sure how to make money in any business until you've actually rolled up your sleeves, headed into the market, and begun to sell.
Once you do that, funny things start to happen. You run into unexpected obstacles. You stumble across surprising opportunities. You may have to come up with an entirely new approach. And often, before you're through, you find that you've landed in a business that's altogether different from the one you thought you were entering.
That's what happened to me with Perfect Courier, my Inc. 500 company. When I started out in 1979, I thought I was going into the messenger-service business. It was a highly competitive industry at the time, with between 300 and 400 messenger companies in New York City alone. I quickly discovered that the only way I could count on making sales was to come in at a cheap price. The problem was, we couldn't survive by competing on price, and I never wanted to be in a low-margin business, anyway. I realized I had to either find another path or get out.
Then, one day, I was pitching our service to the manager of a big ad agency called Scali McCabe Sloves, who wasn't very receptive. "We're happy with the people we use now," he said. "What can you do for us that they can't do?"
"What problems do you have?" I asked.
"The only problem we have is in our accounting department," he said. "The billing is a nightmare."
"How's that?" I asked.
"We have a heck of a time matching up the customers with the deliveries."
Like many professional-service firms, Scali McCabe charged the cost of a delivery back to the customer on whose behalf it was made. Whenever people from the agency called for a messenger, they were supposed to give the dispatcher an account code to note on the delivery ticket. The messenger company then bundled the tickets together and included them with the bill it sent to the agency. It was up to the agency's accounting department to sort out the tickets and figure out the total charges for each account.
I asked to meet with the people in the accounting department, who were delighted to tell me about the system and all the headaches it engendered. I said, "Look, we can solve this problem for you. We've got a brand new IBM-32 computer. Give me 50 of these delivery tickets, any 50, and I'll show you what we can do."
We had, in fact, acquired an IBM-32 computer. But whether we could use it to solve the charge-back problem, I had no idea. Remember, this was before the microcomputer revolution. We couldn't just go out and buy the appropriate software. We had to have programs written especially for us. The programmers I spoke to weren't so sure they could produce what we needed. Nevertheless, I was determined to come up with a solution.
I gave the 50 tickets to the best typist in our office and told her to create a bill from them, with the individual charges grouped according to the agency's account codes. We must have done 20 versions before we got it just right. Then I took it to Scali McCabe's accounting people.
They were thrilled. They went to the manager who'd turned us down and said they wanted the agency to hire us. He called me. "Listen," he said, "I feel an obligation to the people we've been using. I want to give them an opportunity to do the same thing you're promising. Can I show them this sample bill you've put together for us?"
I said, "Sure. Absolutely."
A few days later he called me back. "They say you can't do this," he said. "They say it's impossible."
"We can do it," I said. "We just need a little time to set up."
"OK," he said, "you've got it. Then we'll run an experiment for one week. At the end of the week, we'll decide who gets the account."
Now we had to get the computer programmed. Our fallback position was to produce the bills on a typewriter, which would have been very expensive. Fortunately, we didn't have to go that route. The program worked, the test went well, and we wound up with the whole account, boosting our sales from $10,000 to $35,000 a month.
And that was just the beginning. The new billing system quickly became our mainstay. For a while at least, it was the one thing we had that our competitors couldn't offer, and by the time they caught up, we had a foothold in the market and were known for providing that service. Indeed, it defined us as a business. It determined who our customers were, how much we could charge, how we went about selling, and so on.
Technically, we were still a messenger company, but only in the sense that we delivered things and charged according to the number of deliveries we made. What we sold--what our customers bought--was our ability to solve their charge-back problems. Without even realizing it, we had moved from messenger service into information processing, and we rode that business all the way to the Inc. 500 for three successive years.
The moral, I suppose, is that it's important to be flexible when you're starting out--to be willing to change and adapt to the conditions you find in the market. Of course, it's equally important to remain flexible after you've built your company. Although Perfect Courier still exists, it's in another business now. You see, the market changed a few years ago, and we had to reinvent ourselves all over again.
But that's a story for another day.
Norm Brodsky is a veteran entrepreneur whose six businesses include a former Inc. 100 company and a three-time Inc. 500 company. His column appears every month. This column was coauthored by Bo Burlingham.