Dec 10, 2003

Hitting The Big Time

By Charles Babcock, Darrell Dunn, InformationWeek

For most small online companies or online subsidiaries of large companies launched before the turn of the century, the dot-com bust was just that--a bust. But not for all. Some companies have shown an ability to combine insights into business problems with a sense of how changing technology has opened new competitive opportunities. These small businesses have grown at double-digit rates in a deep recession. As the economy revives, their business-technology savvy and proven business prowess are likely to open dramatic opportunities for even more growth. CaseStack

Many nuances separate success and failure among producers of consumer packaged goods. Like whether a jar label says "prunes" or the more appetizing "dried plums." Even more depends on supply-chain management, says Daniel Fisher, customer-service manager at Sunsweet Growers Inc.

Sunsweet wanted to improve visibility into its supply chain and shave expenses as its products moved from manufacturing plant to warehouses to supermarkets. It considered an SAP customer-relationship-management tool that would have cost "hundreds of thousands of dollars," Fisher says. Instead, it turned to CaseStack Inc., an online supplier of logistical services. CaseStack has nationwide relationships with warehouses and freight haulers, and it schedules their services via online applications that it wrote itself.

CaseStack provides outsourced logistics for small and midsize businesses that can't afford to manage logistics themselves. The company has logistics software devoted to knowing what quantities of product are moving off a client's manufacturing line and where and how to warehouse them. CaseStack maps shipments from warehouses to retail outlets, based on customers' orders; arranges for haulers; and dispatches loads at exactly the right times. Third-party logistics services do the same thing, but few of them have CaseStack's online systems.

	GPS lets customers check the status of shipments, CaseStack CEO Sanker says. Photo by Bryce Duffy/Redux Pictures

Most important, CaseStack lets companies such as Sunsweet consolidate loads with other shippers so that a truck arriving at a store has its entire load going into that store. That's key because trucks with full loads are given priority at supermarkets' receiving terminals. Small and midsize businesses typically move less-than-full truckloads, and drivers face all kinds of delays. Compared with the single stop of a full-load driver, a less-than-full-load driver may have 12 stops and could be required to wait three hours at his first stop until he can be fit in between full loads. His schedule may call for him to be at stops two and three before he's left stop one, which means his shipment will be assessed late penalties or even turned away for missing an appointment, Fisher says.

Ninety days ago, Sunsweet started cutting costs by consolidating shipments with other companies that don't ship full truckloads to a single supermarket. If Sunsweet wants to know whether a particular shipment arrived on time, it can check the CaseStack Web site. "When a truck leaves a warehouse, its global-positioning system starts feeding data into our system," says Dan Sanker, CaseStack's president and CEO. CaseStack doesn't need to lease warehouse space; it brings new business to existing warehouses eager to accommodate CaseStack customers.

CaseStack also collects customer-shipment data in a data warehouse. That data makes it easier for CaseStack to plan routing and warehousing, saving shippers as much as 9% on their costs, Sanker says. CaseStack plans to give customers access to this data for analysis.

Sunsweet's Fisher is looking forward to that. "In the past, we haven't had the tools to do the analysis that's required," he says. "We can leverage that data to get a lot more thorough understanding" of where shipments go and how to maximize supply-chain savings, he says.

CaseStack charges $5,000 to $10,000 a year for its logistics services and serves 400 customers. It had $5.8 million in revenue in 2002 and expects to do $15 million this year. Sanker projects revenue of $40 million in 2004. The company has 49 employees, 14 of them software engineers. --Charles Babcock MyFamily.com

For MyFamily.com Inc., IT and the Internet are the lifeblood that has let the provider of genealogy services, publications, and software increase revenue from about $4 million in 1997 to nearly $50 million last year. MyFamily started out as a book publisher 15 years ago but launched a subscription genealogy service in 1997, which today accounts for about 90% of its revenue.

With sites that include Ancestry.com, RootsWeb .com, and MyFamily.com, the ability to accurately and quickly provide customers with relevant information has been critical to MyFamily's success, letting the company prosper even through the dot-com bust, says chief technology officer Daren Thayne. "Every company has an accounting system and a call center, but IT has been fundamental to this company," he says. "Our whole product is technology, and everything we sell is technology."

One key area of concern for MyFamily has been its search engine, which enables its subscription customers to access 3,000 separate databases, including every census in the United States taken from 1790 through 1930, historical census information from the United Kingdom and Ireland, Civil War records, and World War I draft cards. Five years ago, MyFamily was using an internally developed search engine, but as the company grew, the engine became outdated and limited in its capability, Thayne says. MyFamily then licensed a search engine from AltaVista Co., which it used for a couple of years, but it wasn't long before the company realized that the AltaVista engine was too generic in its functionality. "The algorithms the AltaVista engine used didn't give the types of records our customers were interested in," Thayne says.

For example, a customer might believe he or she had a great-grandparent born in Chicago, but in reality that ancestor was born in a Chicago suburb. Regular search engines didn't readily ascertain the relevancy between Chicago and the suburb and wouldn't provide a hit.

MyFamily went back and developed a search engine that was deployed early this year to provide specialized search technology for the types of research its customers generated, Thayne says. A customer now can go to a site such as Ancestry.com and enter a first and last name in the search criteria, and the site will provide results categorized by such areas as census records, vital records, and immigration records. The customer can then drill down within MyFamily's individual databases for specific information.

MyFamily has also created a data pipeline that improves the ability to scan images into databases, while also indexing the scanned information. Since a great deal of the information comes from handwritten records, MyFamily has developed specialized tools that, for example, access established U.S. census databases as a MyFamily staffer keys in data from a new census to automatically fill in previously established information such as common surnames in a geographic region. Using this capability, MyFamily was able to take the 1930 U.S. census when it became available electronically on April 1, 2002, and have one complete state online the first night and the entire census online by the end of the year.

MyFamily has also created a customer-management function that lets it send customers automated updates if information being requested is found or changes have been made to specific databases. --Darrell Dunn FreightQuote.com

Many parts of the freight industry do business today as they did decades ago, with agents manually capturing information, preparing bills of lading in triple or quadruple copies, and checking on shipments by telephone. The main piece of technology in the office is the fax machine.

That's all going to change if FreightQuote.com is a sign of things to come. FreightQuote is a site where small and midsize businesses can enter details about their shipments, name the origin locations and destinations of the freight, and quickly obtain competitive quotes.

Carriers aren't hanging around online to bid for this business. FreightQuote has used its power as an aggregator to negotiate the best rates with a variety of haulers. Its quote-generating software then calculates a rate based on the information a shipper entered and returns a list of possible carriers.

FreightQuote is "the Travelocity of heavy freight," Barton says. Photo by Bob Stefko

Timothy Barton, founder, chairman, and CEO of FreightQuote, compares the site to an airline system for checking flight times and prices. "There's no Sabre system in the freight-hauling industry," he notes.

Barton learned the value of applying new technology in specialized niches during a stint in the telecommunications industry. He was a co-founder and president of UWI Association Programs, a telecom company that built long-distance affinity programs, and president of Network Long Distance Inc., a switched-based carrier. In 1998, the latter was merged into IXC Communications Inc., which established a coast-to-coast digital fiber network, buying rights to unused fiber-optic cables already in place. From this experience, Barton learned how a new entrant can get a profitable toehold against much bigger competitors such as AT&T and Sprint Corp. He was determined to apply the lesson to freight shipping, and he created a company around a freight-quote system using hundreds of thousands of variables. "I was seeking an industry that needed a better way of doing things," Barton says. "Think of us as the Travelocity of heavy freight."

Starting FreightQuote in August 1998, Barton spent the first nine months trying to come up with a quote system. He learned enough math and coding while obtaining his master's degree in finance from Louisiana State University to build basic applications. By building a system that calculated rates based on the shipper's origin ZIP code and the freight's destination ZIP code, he could base rates between any two points in the country on an array containing 42,000 ZIP codes. Behind such a calculation, Barton had 18 levels of pricing by different freight classifications, with up to eight weight classifications, resulting in a possible 220 billion possible rate quotes.

In some cases, customers want a combination of transport methods, moving a shipment from train to truck and maybe including a flight leg as well. FreightQuote's quoting system brings back a straight truck carrier rate, followed by higher priced, but often quicker, air rates.

"More options can't hurt," Barton says of the complexity. And though he hired developers, they were oriented toward building the Internet interface. His developers preferred to have instructions on what to code, not come up with a bunch of algorithms, he says. "I was the designated math guy," he recalls, and he put his algebra and calculus skills to use.

The business had troubles early on. At first, FreightQuote had too little traffic volume to command discounts from haulers and too little experience to quote every shipment correctly. "We didn't have all the logic figured out," Barton says. Barton spent $2 million of his own money funding the company's first 18 months. Unprofitable shipments provided an environment in which he learned rapidly. The goal was to offer on FreightQuote a rate more competitive than an individual shipper could get going directly to a carrier. FreightQuote made its profit on the margin between the rates it quoted and the rates it negotiated with carriers.

As a traffic generator, it soon commanded discounts that averaged 25% off what a hauler might quote individual shippers, Barton says. But for the first 18 months, it was hard to quote every shipper a set of rates that were both competitive and profitable to FreightQuote because of the inaccuracies in customers' estimates of their loads' sizes and weights. In addition to length, width, and height, the system has to have an accurate estimate of density to return a good quote, Barton says.

FreightQuote has online competitors, but they tend to be small, specialized sites that can't compete with FreightQuote's two- to three-second response time in quoting rates from anywhere to anywhere in North America. "In the bubble days, we had maybe 100 competitors," Barton says, but most of these companies died in the dot-com crash. FreightQuote has venture-capital backing from Morgan Stanley Dean Witter Private Equity and Menlo Ventures. Its main competition is established freight brokers that have connections and knowledge of the industry, Barton says. The company has tried to grow by acquiring these "old-school freight brokers," he says, but didn't find many that were good targets.

Paul Randall, traffic manager at Nitram Energy Inc., a supplier of vent silencers for compressors, uses FreightQuote not only for its competitive rates but because he knows the freight charge immediately. That lets him bill his customers for deliveries much faster, with a single invoice that includes the freight charges. "Instead of two invoices, I send one and save a lot of time collecting," Randall says.

FreightQuote's 2003 revenue is up 45%, approaching $66 million, compared with $45 million last year and $33 million two years ago. The company has 280 employees, 28 of whom are in IT, and it was No. 5 on the Entrepreneur/Dun & Bradstreet 2003 Hot 100 list. --Charles Babcock