This year that brilliant idea almost killed his business.
Hasley didn't see it coming. After all, his Fort Smith, Ark., courier service grew 732% in the past five years. Not bad for a low-tech business. And he had accountability; he knew where his employees were and what they were doing. He could control it all. That is, until last January, when his insurance agent called with bad news: coverage for his fleet of courier trucks would increase more than 250%, from $4,800 a month to $17,000. He had one week's notice. "After 9/11, no one wanted to insure trucks," says Hasley.
He might have been able to absorb the cost if it weren't for what had happened the previous autumn: his workers' compensation insurance had jumped 400%. "In three years we had two large claims that were just horrific," he says. His previous carrier had refused to renew the company's policy, and the new quote, from a different company, was the lowest his agent was able to negotiate. "When we got the notice about the automobile insurance, that was the final straw," recalls Hasley. "There's no doubt that those premiums could have put us out of business."
Just a few days after receiving the insurance notice, he announced to his 70 drivers that they would have to become independent contractors within 60 days or lose their jobs. He had three criteria for the transition: it had to be seamless to customers, good for the drivers, and profitable for the company. "We sat down with the drivers, and we did a P&L for each route, showed them what they were making now and what they could make under the new system," says Hasley. "It was 10% to 40% more profitable for them after they pulled out expenses for insurance and vehicles."
Still, not everyone has the wherewithal or the desire to be an independent business owner. As it turned out, only 40% of his drivers were game, but the number could have been far less if Hasley hadn't handled the transition the way he did. He counseled his drivers and offered a $300 incentive to anyone who converted to independent contractor the first week. Some drivers bought vehicles from the company's fleet with bank loans guaranteed by Hasley. A third-party administrator was hired to pay the drivers and set up tax- escrow accounts. Drivers could also purchase from the administrator job-accident insurance for $20 a week and health insurance at market rates. Still, concedes Hasley, "we had a couple of weeks that were a little bumpy."
EagleOne now has just 24 employees -- down from almost 100 in February -- and 65 independent contractors. Hasley says his former employees are making more money than ever and that his customers are better served. Because drivers are now paid a percentage of what the company makes on their deliveries, drivers are motivated to be on time and make more deliveries.
The transition forced Hasley to be more efficient as well. "One of the things we had overlooked was our overhead costs," he says. "We didn't factor that into route profitability." He's consolidated routes to decrease overhead, making them as profitable as possible for both the company and its contractors. And everyone watches his own bottom line. "For us to be successful, the drivers have to be successful," says Hasley. "In the first six months since the transition, we've been more profitable than all of last year." He expects revenues to increase slightly this year, to $4.5 million, and is projecting profitability in the 4%-to-6% range next year.
In retrospect, those exorbitant insurance rates may have been a blessing in disguise. "It forced us into doing something we probably should have done five years ago," says Hasley.
But without a threat hanging over his head, would Hasley have ever revamped his business? It was imminent disaster that compelled him to abandon an idea that he once thought would distinguish his company from its competitors. Who dares to reject today's formula for success in favor of the unknown? Most of us need a kick in the pants, whether it's from a competitor, a customer, or a partner.
It's comforting to assume, too, that once a company reaches a particular stage, you can breathe a little easier. Don't believe it. Look, for instance, at Hasley, whose place on the Inc 500 list was established before his insurance debacle hit. He might have easily joined the tiny but telling group of Inc 500 companies that go out of business before the list is published. And Sandra Brittain, who boasted at the end of 2000 that "if I make one more dollar next year, we'll be at 187 on the Inc 500 list," was soon to experience the most tumultuous year of her company's history. "It was a year of education," she says ruefully. "Harvard would have been cheaper."
But probably not as useful. Because if you've survived a major business transformation once, chances are that you'll do it better the next time around. And maybe next time, you'll even see it coming.
Donna Fenn is a contributing editor at Inc.
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