The strange, rocky beginnings of DHL
This is an excerpt from King Larry: The Life and Ruins of a Billionaire Genius, published this month by Scribner.
With over a quarter million employees and a network of more countries than the U.N., DHL remains the largest express shipper in the world. Contrary to conventional wisdom, it was also the first, beating FedEx by several years. By some measures, the little-known (in the U.S., at least) DHL remains the fastest growing corporation in history and was certainly the most visionary. DHL instigated the destruction of the centuries-old tradition of the postal monopoly and invented its own word processor in the mid-1970s. Anticipating e-mail, it employed the grandfather of the Internet as its president in the early 1980s.
And yet if DHL’s official corporate history is to believed — and we really have no choice here, since only two men were there and both are long gone — the company was conceived during a chance encounter in a grocery store parking lot between Larry Hillblom and a salesman from a small courier firm where both men worked, a silver-haired, gray-suited 58-year-old bon vivant named Adrian Dalsey. Dalsey was the opposite of Hillblom — an impeccably groomed smooth-talker who lived in a suburb of San Francisco with his loyal wife of thirty years; by his mid-fifties, the silver fox had spent enough money on other women that none remained for his and Marge’s golden years. Hillblom’s conservative politics and his work ethic would have endeared him to a man of Dalsey’s generation, but he lacked the older man’s finesse, meaning that their encounter was probably more intense than respectful. Customers who happened to push their shopping carts by that fateful meeting might have mistaken them for a wealthy father tolerating an obnoxious child.
But they eventually agreed that their boss had left a lot of low-hanging fruit unpicked. Insurers were not the only ones with time-sensitive documents. There was tremendous value to be captured if, for example, a shipping company could forward its bills of lading to customs in advance of a ship’s arrival, saving days or even weeks in port. Ditto for banks, which could only begin collecting interest on deposits once the original, cancelled check, was received by the Federal Reserve, or a law firm that needed a physical signature in order to effect a contract. Sending these documents via the postal service might take two weeks, if they reached their destination at all. At a time of double-digit interest rates and looming postal strikes, both men knew that the market for a fast, reliable courier service was huge — and growing. They understood that their skills complemented one another almost perfectly. And they disliked each other immensely.
“Larry and Dalsey had a visible acrimony,” an old friend of Hillblom’s told me. “Dalsey liked to snipe and he had this, he was a bit unctuous, he had this — it wasn’t a lisp, but an impediment — speech pattern that was distinctive and a little bit patrician. He was a distinguished-looking guy, a ladies’ man, and thought himself so. He used to snipe at Larry in a scornful, patronizing way, and it annoyed you. So here you have these two people with totally different worldviews and different functions within the company at loggerheads, creating the nascent IBM — unknowingly.” The friend paused for a moment and smiled. “Or maybe not.”
Regardless of the natural tension between two very different people from two very different generations, Hillblom and Dalsey ultimately understood that they needed one other in order to make a go of it. Hillblom was overflowing with ideas and energy; he was willing to work twenty-four hours a day and could do a lot of the legal legwork. Plus, he had saved up six-thousand dollars, which would become the company’s seed capital. Dalsey had the client connections. They incorporated in September, using the initials of their last names and adding that of Robert Lynn, a real-estate investor friend of Dalsey’s who had promised to help them raise capital. Lynn, however, dropped out of DHL immediately, sniffing that the company would never succeed.
Dalsey quickly signed DHL’s first client — the shipping giant Seatrain, which needed to courier bills of lading between Los Angeles and Honolulu — then hit a wall. Hillblom and Dalsey had hoped that Lynn’s financing would carry them through the lean months but now they were forced to rely on a trickle of cash to survive. Marge, Dalsey’s wife, became the corporate secretary and kept the books on her dining room table. Hillblom was forced to not only travel with DHL’s bags but also to pick them up at Seatrain before boarding the plane and drop them off after he arrived. During the few hours he was not working, he slept or studied for the bar exam. And he waited for his super-salesman to sign one of their dream clients. But Dalsey, scouring the Bay Area in an old Plymouth Duster whose unmatched doors were salvaged from a junkyard, had stumbled on the first in a long line of catch-22s: DHL needed banking clients in order to become profitable but they could not afford the expensive insurance that banking clients demanded. While the value of the checks that the banks were sending was, on its face, negligible — nothing more than paper and ink — if even a single, large check became lost or delayed for more than a few days, the interest lost could be substantial. Nearly a year would pass before an insurance agent offered up a solution. In the meantime, Hillblom nearly starved to death in paradise.
“I was hired as an operator in 1969 at American Telephone Answering Service,” she begins, eyes sizing me up from behind a pair of square-framed schoolteacher’s glasses. Her name is Marilyn Corral. Until her retirement two weeks before Hillblom’s presumed death in 1995, Corral was the longest-serving employee in DHL history. Her last title was vice president of human resources. A woman with a cherubic face that belies a suspicious nature, Corral has retired to the tiny town of Mariposa, in the shadow of the great Sierra Nevadas, not far from where the young Hillblom and his two brothers used to fish.
American Telephone Answering Service happens to be the company that Adrian Dalsey hired to answer DHL’s phone calls — usually clients calling to schedule a pick-up. Corral, then a chubby military wife, was in command of a turret wired with ten phone lines, each marked with a particular customer’s name so that she would know how to answer the phone. This personalized “executive” service cost more, but Dalsey had decided it was worth paying for because callers were duped into believing that they were calling an actual DHL office. When Dalsey returned to San Francisco, Hillblom suddenly began to appear in Corral’s office to pick up DHL’s messages. “He’d always show up at mealtime,” Corral smiles, “and we felt guilty because he looked like he was starving to death and never had anything to eat. So we bought more than we normally did — Chinese food or whatever — and he would eat lunch with us.”
Back then, women like Corral were “girlie” or “honey,” and silver foxes like Dalsey were expected to let their eyes wander and linger wherever they wished. But where Dalsey came across like a dirty old man — “sleazy,” says Corral — Hillblom was charming. He would loiter around the office for a couple of hours, teasing Corral about everything from her constant dieting to the fact that American Telephone’s office was on Hotel Street, where the hookers had solicited Navy boys during the War. Not long after Hillblom started showing up, he hired her as DHL’s first employee — albeit part time.
911 Alakea Street still stands, a narrow, two-story colonial brick building squeezed between two office buildings in downtown Honolulu, only a few blocks from the ocean and two miles from the Honolulu International Airport. In 1970, Honolulu was America’s gateway to Asia and 911 Alakea was occupied by two tenants: on the first floor, a Hawaiian restaurant with a rat problem; and, above it, the law offices of Curtis Carlsmith, who happened to be a classmate of [Larry’s friend Steven] Kroll and Hillblom’s. Hillblom had sublet the inside office from Carlsmith, which was just large enough for a few desks. He’d hired a handyman to build a small loft space, where he eventually laid a mattress. Corral kept her day job at the answering service. But at night, she would drive over to 911 Alakea to schedule the courier calendars. On the weekends, she would climb up into the loft, gather Hillblom’s underwear, t-shirts and bedsheets and take them home to launder them because she knew that he never would. He lived on the telephone and in the Honolulu Law Library, where he studied the statutes governing international trade and corporations.
“I would have all the filing done on Friday evening, and Monday morning the files would be all over the floor,” Corral sighs, “because he was looking for one document and couldn’t find it. I wanted to kill him. He lived on the telephone. He looked like he was always nervous, and he was blind as a bat. Most people didn’t like riding in the car with him.”
DHL’s service was both immediate and obvious. Although, on average, Dalsey was only signing two new accounts every month, existing customers demanded that DHL expand to service more of their offices. Growth was exponential and, considering the size of a few of DHL’s early clients, like Bank of America, limitless. Hillblom and Dalsey had discovered a vast well of demand that was just beginning to gush; the only obstacle was the reduced expectations set by the United States Postal Service. “People wouldn’t believe that we could have their material on the mainland before the office opened,” Corral recalls. “We had to give a lot of free service to get people to try us out. And once they tried it, they were sold.”
DHL wasn’t just faster and more reliable than the Post Office. It was far more elegant in its simplicity. Clients paid a flat rate for a nylon pouch that traveled between two destinations every business day. The smallest pouch was rated at four pounds, but customers were charged the same rate whether it carried nothing or whether they managed to stuff twelve pounds of documents in it. That the pouches expanded was, in fact, an unintended selling point. Mailroom managers who managed to “overstuff” their pouch thought they were getting the deal of a lifetime.
As DHL expanded to more destinations, the pouches were color-coded by city, then stuffed into bright green, weatherproof duffel bags in a sorting area — often a grocery store parking lot where the drivers would meet after finishing their rounds. The bags were then driven to the airport and loaded directly onto the airplane from the tarmac — last, so that they would be the first to arrive. A DHL representative would then meet the courier at the counter, hand him (or her) a plane ticket and a small pile of baggage claim receipts. Hillblom often drove to the airport to help load the planes, goofing off with the drivers as he had with Corral and her fellow operators at the answering service. Meanwhile, Corral scoured Honolulu for couriers — anyone willing to give up their baggage rights for a free ticket to the mainland or to Guam. She called schools and churches first. A few of Hillblom’s old Boalt professors became couriers, as did Steven Kroll and both of his parents. So did a good portion of the Mormon congregation in Honolulu. Hillblom and Dalsey both had a tendency to offer young women jobs. And at one point, two FBI agents showed up at Alakea to investigate reports that DHL was giving people airline tickets for free, as long as they were willing to take only carry-on baggage. The fact that would-be couriers were instructed to meet a Mr. Monty Hall at 11 p.m. underneath a digital clock beside the Pan-Am ticket counter did not help assuage suspicions that there was something nefarious going on. But by the time the FBI agents finished their investigation, Corral had convinced them to become couriers themselves.
So it was with DHL’s customers. Once they understood the company, their trust seemed absolute. DHL’s couriers accumulated large rings of keys that permitted them entry into banks, law offices, insurance companies and the mailrooms of large shipping firms. Corral was amazed that anyone would give Hillblom and his minions, who were often even younger and more questionable-looking than himself, access to their inner sanctums.
Of course, expansion required more than just couriers. Every station, particularly one like Honolulu, where pouches were being forwarded east or west, needed a manager. Hillblom and Dalsey naturally turned to a couple of their former co-workers at MPA: Bill Robinson and Jack Atwood. To foster an entrepreneurial spirit — and to save cash — Hillblom decided that each station should be owned by its own managers under contract with DHL. Robinson ended up with Los Angeles. Atwood quickly left to open an office in Seattle. That freed up Dalsey and Hillblom to focus on Asia, where their big shipping clients already were and where their banking clients wanted to be. Dalsey did most of the traveling, making sales calls and chatting up potential station managers, often in hotel bars. Hillblom stayed in Honolulu, imagining a network that could grow exponentially but still be controlled. In theory, moving documents around the globe was not unlike moving crates of peaches from a farmer’s truck to a loading bay. The real challenge was building the network, which involved a number of thorny legal and logistical issues. Legally, for example, most countries required that a shipment’s actual owner (or an employee of an owner) clear customs themselves. DHL was a third-party. If they were using a subcontractor in another country, that company would be twice removed from the shipments’ original owner. Then there was the question of payment. If the shipper was a DHL customer, and a DHL courier shipped the pouch from Hawaii to Guam, for example, but another company shipped it onward to Singapore or Tokyo, how much did each company get paid? And whose customer were they? Then there were technical issues. If you loaded a shipment at point A and picked it up at point B, the courier business was pretty straightforward. But the hub-and-spoke system envisioned by Hillblom meant that shipments could become delayed — or lost — at several points along the way to point D, or E or F. How did you keep track of thousands of important documents that could be in dozens of places at any given time?
While Larry grappled with these issues at the law library and his office, his partner, Dalsey, was jetsetting the Far East in gleaming new Pan Am 747s. The old man usually stopped in Honolulu just long enough to see his girlfriend there and have dinner and an argument with Hillblom. “I was never very impressed with him,” Corral says. “Of course, I was probably biased because Larry didn’t like him at all. He admired his sales ability and Dalsey could really talk the talk. But they were always fighting about stuff. They differed about how everything should be done. We eventually decided it was really because Adrian was 55 and Larry was 26. Larry wanted to try it and see what worked; Dalsey wanted to do it the way it had always been done. They would have yelling matches on the phone. In front of the rest of us, they would be civil, but I knew what was going on. Larry always won, because he would convince all of us that he was right.”
Alakea was far too small and too messy for company meetings, which were held a mile down the road at a diner called the Tasty Broiler — Hillblom’s favorite restaurant because of its $5.99 prime rib special that included soup, salad and a drink. Money was very tight. If Dalsey joined them for dinner, he and Hillblom would try to outsit each other at the end of the meal, waiting to see who would eventually pick up the bill. Once or twice, an unsuspecting employee was left picking up the tab when both men abruptly left. Corral was forced to take money out of her own savings account to make sure that her paycheck cleared. Dalsey and his wife, Marjorie, who was doing the company books on their dining room table back in Walnut Creek, maxed out credit cards and took out a second mortgage to pay the bills when Hillblom’s seed money ran out. Corral remembers having to comfort her young boss frequently. “We’re doomed!” was a favorite refrain of Hillblom’s, she recalls. But at the same time that Hillblom was playing Chicken Little at the office, he dialed up his old roommate Dave Crass and bragged about how much money his company was losing.
“That’s crazy,” Crass told him. “You’d better get out while you can.”
“Nope,” Larry replied. “Pretty soon, we’re gonna be making money. A lot of money.”