When my start-up found itself face to face with catastrophe because of conditions beyond my control, I learned how to cope
Thirty years is a long time to be in business, and it's sometimes difficult to recall exactly what happened when. But there is one period that, looking back, most people remember clearly, mainly because it represents such a sharp break from whatever they were doing before. I'm talking, of course, about Year One.
My first year in business began on August 13, 1979, about the time Inc. was coming out with its fifth issue. On that Monday morning, I started my first company, Perfect Courier, a messenger and delivery service. (I'd had a law office before, but that doesn't count.) I remember the year as incredibly exciting -- I mean, just overwhelmingly exciting. Whenever I turned around, new opportunities presented themselves, and I spent way too much time thinking about them. Like most first-time entrepreneurs, I didn't understand the importance of maintaining focus -- of not letting yourself get distracted from building your main business until it's able to sustain itself on internally generated cash flow and you've begun to establish a good reputation in the marketplace.
But opportunities weren't the biggest distraction. My investors were. I had eight of them, accountants and lawyers all, each of whom had put up $25,000. Without their money, I couldn't have started the business, and so I owe them a debt of gratitude. That said, they certainly made me pay -- in part by reinforcing my own fixation on the top line. You'd think accountants would know that profit and cash flow matter more than sales, but the company's growth rate was all these guys cared about, and it was never fast enough for them. Not that we grew slowly. Perfect Courier went from zero to $12.7 million in five years and landed at No. 47 on the 1984 Inc. 500. Yet my investors were never satisfied. They always wanted more, more, more, and let me know it every chance they got.
But of all the challenges I faced that first year, one in particular stands out in my mind. It taught me an important lesson about what to do when you're suddenly confronted with potential catastrophe because of conditions over which you have no control -- something a lot of companies are facing today. In my case, the problem wasn't a recession. The United States was in one, but recessions can be good for start-ups, as I've noted before (see "Starting Up in a Down Economy," May 2008). Rather, the problem was a strike of New York City transit workers that shut down all subway and bus lines and brought business in the city to a standstill.
We had seen it coming. The union and the Metropolitan Transportation Authority had been negotiating since early February 1980, and as the strike deadline of April 1 approached, they were still miles apart. A strike seemed inevitable. To make matters worse, it looked as though workers at the Long Island Railroad were going to strike at the same time.
I realized I was facing a potential disaster. Perfect Courier was barely seven months old. We were doing about $30,000 or $40,000 a month in sales. Deliveries by car or truck accounted for about one-third of our revenue. The rest came from messengers who got around the city on public transportation. Losing the messenger sales would cripple us. Granted, we could live off our receivables for a while, but we wouldn't be generating very many new ones. What would we do when the cash ran out?
And there were other issues: How would our people get to work? For that matter, how would our customers' people get to work? Would we be able to keep selling? Would our customers stop paying us? How would we meet payroll? We couldn't very well lay everybody off for the duration of the strike, which -- for all we knew -- could go on for months. Somehow, we had to come up with a plan that would allow us to survive until some sort of settlement was reached. But what kind of a plan?
I was at a loss. I decided I needed advice from someone who'd been through the previous transit strike, in 1966, and could perhaps tell me what to expect. As it happened, one of our clients was a major accounting firm called Oppenheim, Appel, Dixon & Company. The head of the mailroom there was a guy named Sam Revson, who'd been around forever and whom I held in high regard. Because the strike was scheduled for the busiest part of the tax season, I figured Sam might have made some contingency plans, and I wanted to know what they were.
I dropped by his office one day in the middle of March. "Sam," I asked, "what are you doing for the strike?"
"Why?" he said. "Are you thinking of transporting people during the strike?"
The thought hadn't occurred to me, but it sounded like a reasonable possibility. "Yeah," I said.
"That's a great idea," he said. "We could really use you. It makes sense, because you have vehicles already."
"Yeah," I said. "They're ready to go."
"Particularly being located next to Penn Station, like you are," he said. "Assuming the Long Island Railroad doesn't go out, people could just walk across the street, and you could take them downtown. But how are you going to handle the pickup at the end of the day? Have everybody meet somewhere?"
"Yeah," I said. "That's what I'm thinking."
"It's probably the way to go," Sam said. "What are you going to charge?"
"I figure $20 a person," I said, picking a number out of the air.
"Each way or round trip?" he asked. He didn't seem to have any problem with the price.
"Each way," I said. "So, $40 round trip."
"How are you going to know which people are coming back with you?" he asked.
"Once we take them downtown, we assume they're coming back, and so you have to pay for the round trip."
"OK," Sam said. "Are you going to issue passes or sell tickets or what?"
"We're going to issue passes," I said. "And we're going to number them. How many people do you think you'll have?"
"Well, if it's just a transit strike, not a Long Island Railroad strike, we'll have about 50 people," he said. "How often do you plan to run the shuttle?"
Suddenly, it's a shuttle. "About every half-hour," I said. "They'll come up to our place. We'll have coffee and doughnuts for them, at no charge."
"What if there's a Long Island Railroad strike as well?" he asked.
"We'll have a carpool service," I said, thinking fast. "We'll have pickup points on Long Island, one on the North Shore, one on the South Shore, and a couple in Queens."
"Sounds good," Sam said. "Do you want a deposit?"
"Yeah, of course," I said, "and I'll need a week's worth, because we have to set up this whole system. You're the first person I came to, because you're our best customer. I have only so much capacity. If you want to do this, I'll need the deposit right now."
"OK," he said. "What if the strike doesn't happen?"
"The deposit is nonrefundable," I said.
"OK," he said. I left with a check for $10,000.
When I got back to my office, I told everybody what had happened, and we all had a good laugh. Then we went to work calling our other customers, making laminated strike passes, and figuring out how we were going to accommodate all the people who wanted to take advantage of our new service. The truth was, we had only four vehicles, and we had to get our own people to work as well. "How can we possibly do this?" my employees asked as more and more customers signed up.
"I have no idea," I said, "but we'd better come up with something."
We decided to call everyone we knew who worked in Manhattan and owned a car. "Here's the deal," we said. "We're going to pay you to drive into the city, plus we'll cover your parking, gas, tolls, everything. You're going to have to drive anyway. With us, you can make money doing it. You just have to agree to take some other people with you."
We managed to put together a network of about 40 drivers -- friends, friends of friends, relatives, friends of relatives, relatives of friends, you name it -- and were ready when the strike began on April 1. Coordinating the operation proved to be the biggest challenge. During the strike, some of the drivers got sick, while others ran into conflicts and couldn't make it. The needs of our customers were constantly changing as well. I wound up sleeping at the office along with two of my employees to handle the calls that came in from customers all night long and to find replacements for the dropout drivers.
In the end, the transit strike lasted almost two full workweeks. The Long Island Railroad workers went out as well, but only for a day. Still, the city was in chaos. There weren't nearly enough cabs to accommodate the thousands of people looking for rides. We did our best to adapt. Among other things, we came up with a new system for the messengers who didn't depend on public transportation. Far from declining, our messenger and delivery business boomed during the strike. So did our new car service. As word spread about what we were doing, more and more people contacted us. Commuters arriving on the Long Island Railroad would come across the street to our office and ask for a lift downtown. We'd tell them, "Unless you're a customer, we can't help you." We landed a lot of new accounts that way.
Just as important, our ties with our existing customers became closer. Before the strike, for example, we'd had only a small portion of the delivery business that Sam's firm did, and we'd had no contact with the senior people. During the strike, we saw them every day, and they became our friends, as did the executives at other accounts. They came to our office for coffee and doughnuts. Our people would serve them and then drive them downtown. A lot of them increased the amount of business they did with us. At the end of the strike, our monthly sales were more than twice what they'd been at the beginning.
By then, of course, we were ready for it to be over. Although we'd done well financially, the 11 days of the strike had been utterly exhausting. Aside from the additional cash and the new sales, I took away from the episode one of the most important lessons I've learned in business: When in doubt, go to your customers. They will tell you what they want and lead you to solutions you'd never come up with on your own. Indeed, just about every successful new initiative I've taken in business since then has come from listening to customers. For that, I'm eternally indebted to Sam Revson.
My investors were another story. As time went on, they kept ratcheting up their demands. I had to buy cars for two of them and hire a chauffeur for another. They also insisted on auditing my books every quarter, presumably to find out whether I was stealing from them. Eventually, I got fed up and brought matters to a head. We agreed to go our separate ways. I raised the money to buy them out by, once again, going to a customer -- my largest one, Citibank. I offered our contacts there a five-year contract with no price increases, on condition that they pay the first year's fees up front. To protect the bank in case I wasn't able to deliver for some reason, I bought a so-called payment and performance bond, in effect an insurance policy on the deal.
But that happened long after the first year. I think it was right before we made the Inc. 500 for the first time. Or maybe it was afterward. To tell the truth, I'm not sure. Like I said, 30 years is a long time.
Norm Brodsky is a veteran entrepreneur. His co-author is editor-at-large Bo Burlingham. Their book, The Knack, was published by Portfolio in October.