Logistics

The Startup Cashing in on FedEx's On-Time Guarantee


The Startup Cashing in on FedEx's On-Time Guarantee

Photograph by Peter Foley/Bloomberg

FedEx (FDX) and UPS (UPS)offer an array of services to help small businesses save time and money. They also offer full refunds for late deliveries, but they don’t make it easy to collect them, says Jose Li, a former FedEx executive who founded startup 71lbs. to handle the process for small companies. “A lot of these customers have never heard of the money back guarantee,” he says.

Li started his career in shipping at Jamba Juice (JMBA) when the chain had two employees in its shipping department. Later, he worked at FedEx, where he marketed to such retailers as Amazon (AMZN) and Target (TGT). He noted that corporations with large shipping budgets were better than their smaller counterparts at keeping costs down. One Fortune 500 strategy he thought he could bring to Main Street: tracking late shipments and collecting refunds.

To that end, 71bs. conducts automated weekly audits of customers’ shipping accounts and submits claims for applicable refunds. Li’s company takes half of all refunds it helps collect. The shippers send the full refunds to business owners’ accounts, and 71lbs. invoices its customers on a monthly basis. (The company’s name is a play on the weight at which carriers often assess heavy package surcharges.)

Li says the seven-employee venture, which launched last summer and raised seed funding from the Pritzger Group and OCA Ventures, is on track to break even later this year. Based in Fort Lauderdale, Fla., to shorten Li’s trip to Lima, Peru, his hometown, the business has about 1,000 customers that use its refund service. As more sign up, Li hopes to offer other tools, including a dashboard to help them track their shipping costs in the style of Mint.com.

Startups aiming to take on tasks that small business owners don’t have time to do themselves seem ubiquitous these days. Unlike companies that charge a fee for services, Li’s commission pricing model may make 71lbs. an easier sell. And while mom-and-pop operations have been offering similar services for years, Li says automating the process gives his company a good shot at wide adoption.

The 50 percent cut his company takes is standard in other cost-recovery businesses, as with tax accountants, Li says. One question potential investors frequently ask: What would happen if FedEx or UPS did away with its on-time guarantees. Li doesn’t think that’s likely to happen, nor is he worried that the shippers are going to make it easier for businesses to collect refunds any time soon. “It would be taking profit away from their bottom line,” he says.

Clark is a reporter for Bloomberg Businessweek covering small business and entrepreneurship.

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Companies Mentioned

  • FDX
    (FedEx Corp)
    • $175.9 USD
    • -0.52
    • -0.3%
  • UPS
    (United Parcel Service Inc)
    • $111.93 USD
    • -0.48
    • -0.43%
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