By Charles Haddad Mason C. Kauffman is one dot-com entrepreneur who never chucked his tie during the wild ride that propelled Internet-based companies to dizzying heights in the late 1990s. Neither did he let his staffers at Memphis-based shipping-logistics company Accuship tether dogs to their desks or play foozball in the hallway. The 47-year-old former FedEx sales executive even decided against taking his company public, eschewing the booming market for dot-com stocks. What Kauffman did do was earn a profit during four of the company's six years of existence. Though Accuship missed that mark last year, that was because Kauffman financed improvements in its technology. He expects a 20% return in 2001.
Such buttoned-down behavior struck fellow dot-commers as downright dull in boom times. But today, it's Kauffman who's in the vanguard. Not only is his small company continuing to grow rapidly, with its $3 million in revenue last year expected to hit $10 million this year, but Kauffman's conservatism is winning favor with venture capitalists spooked by the dot-com collapse. They gave him $8 million last year, and he's trying to raise an additional $10 million in 2001. "I feel like Forrest Gump and his shrimp boat," says Kauffman. "A lot of people are on the rocks, but we're still afloat."
Kauffman is more than afloat. Armed with the capital his weakening competitors lack, Accuship is now poised to seize the lead in the business of online logistics, a small but crucial chunk of the $42 billion worldwide shipping business. Accuship is a virtual shipping portal without a single truck, plane, or warehouse. Through its Web site, customers can find the lowest rate among scores of shippers and then schedule a delivery, even printing out a shipping label on their desktop printer.
STAR POWER. The heart of Accuship's success is database software called STAR that ferrets out the lowest rate to ship a parcel. It can be accessed on any desktop computer through a Web browser. Type in the weight of your package, where it's going, and how quickly you want it to arrive, and STAR displays a list of shipping alternatives, ranking them by price. STAR also lets companies track the journey of a package.
But that's just the beginning. Accuship also offers a suite of services that position it as the middleman between a company and shippers. For example, Accuship will consolidate all of a company's shipping invoices on one regularly scheduled bill. And it will audit a company's shipments, checking to ensure billing is accurate and that packages arrive when guaranteed.
Both services are a big deal for clients. For Coca-Cola (KO), Accuship discovered 20% of the shipping invoices were incorrect. Coke has also used Accuship to study its delivery process and make it more cost-efficient. That effort has so far shaved $500,000 a year off the company's shipping costs, says Nick Pappas, Coke's strategic-sourcing manager. For Raytheon's aircraft unit (RTNB), Accuship has consolidated 185 monthly invoices from shipper Yellow Freight into one. And it produces the invoice as a Microsoft Excel spreadsheet that Raytheon Aircraft Logistics Administrator Bob Waller can scrutinize. Waller also uses Accuship to track down errors, and "they've found a quite a few," he says.
BECKONED. Kauffman didn't build his better mousetrap overnight, like many of his rivals. Indeed, his story is more akin to that of first-generation PC-industry leaders, such as Bill Gates and Steve Jobs, than today's wunderkinds. Like Jobs, who worked first at Atari, Kauffman started with one of the star companies of the 1970s: FedEx (FDX).
Kauffman joined after hearing FedEx founder Fred Smith speaks to his MBA class at the University of Memphis in the mid-1970s. "I saw a gleam in his eye that just beckoned me to go work for him," recalls Kauffman. After 16 years with FedEx, he grew restless at age 40. He itched to go into business for himself, wondering if he could turn online logistics into a real business -- at the time, FedEx was just dabbling with it.
So Kauffman quit his $100,000-a-year job in 1994 and, like Jobs, set up shop at home, financing Accuship with his own money. From the start, FedEx sensed he might be a threat: The company marked Kauffman's departure with a universal e-mail warning employees to treat him as a competitor. "At first I was hurt," says Kauffman. "Then I began to view the warning as a sign of respect."
DITCH THE TIE. From the start, Kauffman was as frugal as the young Bill Gates. "In 1994, I didn't know that people would give you money for nothing," he jokes. "We thought you had to have real customers and profits." That's why Kauffman added staff only when absolutely necessary. He didn't raise outside capital by selling off stakes in his company to venture capitalists. And he developed his own online-logistics software. Such conservative management enabled Kauffman to eke out a 2% profit on $18,000 of revenue during his first year in business. His profitability jumped to 20% on $895,000 in revenue by 1997.
Kauffman's conservative style raised eyebrows in the high-flying world of high-tech entrepreneurs. "I can remember many a sales meeting out on the West Coast where executives laughed at us in our coats and ties," recalls Kevin D. Kimery, the former Goldman Sachs banker who now serves as Accuship's president. Once, an Accuship salesman asked Kimery if he could ditch his formal attire, worried it would put off a group of potential customers. But Kimery declined, explaining "I always felt it set us apart from our competitors." That impression was confirmed when a Level 3 Communications (LVLT) executive told Kimery it was refreshing to receive a sales call from a suited executive.
Today, Accuship has plenty of rivals, from giants such as FedEx to small fellow dot-coms such as Shippingrefunds.com. Each offers one or more of Accuship's services, but "no other company provides such a range of services," says Edward M. Wolfe, a transportation analyst at Bear Stearns & Co. who has followed privately held Accuship. Wolfe believes Accuship will become a billion-dollar business.
LESSONS FOR THE BIG GUYS. Needless to say, the big shippers didn't welcome the online startup. At first, they tried to ignore it. "FedEx thought we would just go away after a while," says Kauffman. Then, he says, FedEx and UPS
began telling customers not to use the service. But big clients such as Coke insisted that UPS and FedEx work with Accuship. "If it had just been me, I would have been pushed aside a long time ago," says Kauffman. "But my corporate support and the power of what we do turned out to be my secret weapon."
It's no secret anymore: Accuship has become a fixture of the shipping landscape in the U.S. "Kauffman has developed a great name in this business," says Wolfe. And the big shippers are learning from Accuship's example, offering their own versions of rate-shopping and tracking software. UPS, for one, has recently introduced a program called Web Event Tracking that lets companies trace the journey of packages all over the world. "It's a brave new world, and customers want to be able to follow a package through the pipeline to its destination," says Doug M. Anderson, chief financial officer at UPS Logistics Group.
Anderson says UPS Logistics is also letting customers do some comparative shopping for the first time. Such comments make Kauffman smile. "The big shippers are all coming around to my point of view," he says. "They're starting to realize that you can't have every shipment in your truck. People want choices."
Will the giants squash Kauffman before he can become a billion-dollar competitor? Bear Stearns' Wolfe thinks not and says the entry of UPS and FedEx has only validated Kauffman's strategy. Nor are FedEx or UPS likely to be as diligent in tracking down incorrect bills as a third party such as Accuship. "FedEx and UPS don't like each other very much, but I get along with both of them," says Kauffman. He's planning to use his relationship with the big shippers to try cornering the international market for online logistics, securing Accuship's position as the largest player. But even if Kauffman succeeds, don't expect him to doff his tie and jacket anytime soon. Haddad covers tech companies for BusinessWeek in Atlanta