Sagas of Five Who Made It

A delivery man, a running man, a calculating man--and more

Not all of the successful new risk takers made their fortunes in electronic esoterica. Others have earned megabucks by putting an alluring gloss-on mundane products or performing commonplace services in newer, more efficient ways. In many of the cases, they nursed their creative ideas for years before venturing into the chancy world of profit-and-loss statements. Profiles of five who made it:

Overnight Wonder

Like the iodine content of kelp, air freight is something most Americans have never pondered. But Frederick W. Smith, 37, thought about it as far back as his undergraduate days at Yale in the mid-1960s. In a paper for an economics course, Smith proposed the idea of an airline that would carry small packages overnight from city to city. The airline would have its own aircraft and truck fleet, operate independently of the commercial schedules and routes and deliver its cargo anywhere in the U.S. between dusk and dawn.

Smith received a grade of C on the paper, which was almost a charter for the company he founded: Memphis-based Federal Express. Now almost ten years old, Federal Express has grown to handle 100,000 parcels and letters nightly. Last year's revenues reached nearly $600 million, and profits totaled $59.3 million.

Unlike many of the entrepreneurs, Smith was wealthy before he began Federal Express. A Viet Nam vet (200 missions in forward-control planes) and the son of a millionaire Memphis businessman who died when Smith was only four, he put $4 million of family money into his idea for Federal Express and went to New York City on a search for more. Smith was able to persuade half a dozen institutional investors with his sharp intellect and directness and several market research reports predicting that Federal

Express would work. He returned to Memphis with $72 million in venture capital from such organizations as Chase Manhattan, Citibank and New Court Securities.

The greatest challenge Smith faced was to create the entire delivery system and have it in place before Federal Express had so much as accepted its first package. Said he: "People were not interested in shipping things just to Columbus, Ohio. They were interested in being able to ship things anywhere in the United States."

So they were. Losses were high at first--$29 million during the first 26 months--because fuel prices jumped after the 1973 Arab oil embargo. After that, the fortunes of Federal Express rose sharply. By the mid-1970s, revenues were running at 50% above projections. Smith now has plans to expand his overnight service to Europe.

Fast Track

New crazes and entrepreneurs sometimes come together with timing worthy of the Great Wallendas. Such was the case with the fitness mania and Phil Knight, 43. His company, Nike Inc., of Beaverton, Ore., now designs and sells $500 million worth of shoes a year. Nike sells shoes for jogging, basketball, tennis, football, baseball, soccer, volleyball, wrestling, hiking and even just walking.

Nike's well-heeled empire started in 1958, when Knight was an undergraduate business student at the University of Oregon. A miler of some accomplishment, Knight came to know Bill Bowerman, Oregon's famed track coach and a sometime designer of running shoes. Bowerman complained that American companies turned out a heavy, clumsy product; no runner hoping to set a record would wear them.

At Stanford, where he later earned a graduate business degree, the running-shoe market continued to intrigue Knight. Would it be possible, he thought, for Japanese-made running shoes to grab a big share of the U.S. market, just as Nikon cameras were beginning to do in the field of photography? Two years after Knight's graduation in 1962, he and Bowerman went into partnership. They put up $500 each for 300 pairs of Tiger running shoes made by Onitsuka of Japan and stored them in Knight's father's basement. At first they sold them only in Western states, but they soon went national.

Nike Inc. essentially grew from there pushed along mainly by Knight's marketing savvy. Knight and Bowerman came out with a shoe they had designed in time for the 1972 Olympic trials that were held in Eugene, Ore. They got marathoners to wear them and proudly advertised that Nikes were on the feet of "four of the top seven finishers." Nike's ads neglected to mention that runners wearing West Germany's Adidas shoes placed first, second and third.

Soon new products were coming along. One day in 1975, Bowerman got a piece of rubber and stuffed it into his wife's waffle iron. He wrecked the appliance, but he created Nike's famous waffle sole. When Americans of every age took to running in the mid-1970s, Nike was ready with products for the new market. "We are just a bunch of guys selling sneakers," says Knight. Among those guys is Neil Goldschmidt, Secretary of Transportation under Jimmy Carter and a former Portland mayor. Goldschmidt is now Nike's vice president in charge of international marketing.

Knight makes regular journeys to Asia to line up new suppliers. He recently added several factories in China to a list of manufacturers in South Korea, Taiwan, Japan, Malaysia, Thailand and the Philippines. Knight has revived a bit of the American shoe industry by establishing plants in Exeter, N.H., and Saco, Me. He expects that Nike sales will continue moving as fast as the champion runners in his shoes.

Sizzling Software

"I always had a yearning to do something dramatic, spectacular and improbable," confesses Daniel Fylstra, 30. One of the first demonstrations of that showed up in his back yard in Southern California, where as a boy he started building a wooden submarine. He failed to finish it, but he did go on to M.I.T. for a degree in electrical engineering and computer science, and later to the. Harvard Business School.

Fylstra was fascinated by computers, so much so that fellow students at Harvard presented him with the "Daniel Fylstra Computerized Universe Award." Between M.I.T. and the Harvard Business School, he worked for a year as an engineer at Intermetrics, Inc., in Cambridge, Mass., designing software for NASA'S space shuttle and for the European Space Agency. That large bureaucracy, with its predictable snafus, coupled with his own lack of influence, persuaded Fylstra to strike out on his own. Says Fylstra: "I always felt uncomfortable with the system, with the conventional way of doing things."

As a project for a Harvard marketing course, Fylstra and a friend founded Personal Software in 1978 with an initial investment of $500. The company produced programs for personal computers, which were just then starting to come onto the market in great numbers. In 1979 Fylstra moved Personal Software to California's Silicon Valley.

The company's main product is VisiCalc, a program for small computers that helps small-and medium-size businesses in planning and budgeting. Fylstra did not develop VisiCalc. That was done by Daniel Bricklin and Robert Frankston, software designers and M.I.T. alumni. But Fylstra was the one who began marketing it, and turned VisiCalc into the most popular small computer program. So far, some 200,000 copies (price: $250) have been sold. Expected sales for VisiCalc and the company's other software programs this year: $35 million.

Fylstra, who last week changed the name of his firm to VisiCorp, is at one of the many turning points for an entrepreneur. The company faces stiff competition from VisiCalc's many upstart imitators, among them makers of computer hardware who are selling more and more of their own software. Industry analysts see VisiCorp as a likely candidate for going public during the next two years. With appraisals of the company's worth running about $125 million, a public stock offering would make Fylstra an even wealthier young man. That would free him to strike out in another new direction or work toward becoming even bigger in the burgeoning software market.

King Pong

Nolan Bushnell, 39 last week, is the inventor of Pong, a kind of electronic Ping Pong that was the first successful coin-operated video game. The son of a Clearfield, Utah, cement contractor, Bushnell had a passion for amateur radio as a boy (call letters: W7DUK). That led to his first business: repairing radios, television sets and washing machines. He earned a degree in electrical engineering from the University of Utah in 1968. While there, he toyed with computers. He came up with Pong in 1971 and started selling the coin-operated game in 1972.

In that year, Bushnell went into the business of making coin-operated games by founding Atari. (The name is a Japanese expression of warning.) Pong revolutionized the arcade business, then dominated by pinball machines. Bushnell, though, ran into a problem frequently suffered in start-up businesses: growth got out of control. The company lost heavily for several months on one popular product, Trak Ten. Explains Bushnell: "We thought we were making money hand over fist, but the machine was selling for $995 and costing $1,100 to build. We were shipping a $100 bill out the door with every unit."

In 1976 Bushnell sold Atari to Warner Communications for $28 million. He stayed on with Warner for a while, but was increasingly uneasy inside the large corporation. When Warner displayed no interest in his idea for a chain of pizza parlors featuring video games, Bushnell stormed out to start Pizza Time Theatre. There are now 85 outlets in five states, where robots named Chuck E. Cheese, Mister Munch and Madame Oink perform vaudeville acts and tell corny jokes to the smell of pizza and the sounds of roaring video games.

Among Bushnell's other current ventures is the Catalyst Group, which he touts as a company to "mass produce small companies." It plans to provide a group of new businessmen with services such as accounting and advertising. Bushnell will take some of their stock in return, and he also gets a chance to be present at the creation of other new ventures.

Dealing in Discounts

Founded in 1971 by a 33-year-old Stanford M.B.A., Charles Schwab & Co. of San Francisco was initially just another struggling young firm in the securities business, with only a dozen employees and 2,000 or so clients. Then, in 1975, the Securities and Exchange Commission discarded the old fixed-rate system for buying and selling securities in favor of negotiated rates, in which investors are free to haggle with brokers over commissions.

Most Wall Streeters dreaded the change, correctly predicting a rash of mergers among brokers and drastically altered ways of doing business in the securities markets. But Schwab, now 44, embraced negotiated rates. He began offering clients deep commission discounts on securities transactions, sometimes slashing them to only 30% or 40% of their former levels. Schwab quickly became the largest discount broker in the U.S., with offices in 40 cities, 600 employees and 220,000 clients. For its fiscal year ending last September, the firm had revenues of $42 million and profits of $5 million.

With prosperity came new services that Wall Street firms were slow in offering. Says he: "There was a fantastic advantage in not being part of Wall Street. They had been doing things the same way for years." Schwab began providing cash management accounts to customers, complete with Visa cards and checking privileges. He also ventured into the insurance business, turning his firm into a mini financial supermarket in competition with banks, who eventually adopted some of his offerings.

One institution that took notice: nearby Bank America Corp., parent company of the nation's largest bank, which was eager to move in fresh directions under its new president, Samuel H. Armacost. BankAmerica approached Schwab about a takeover last September, in a move to become the first U.S. bank to acquire a broker. After weeks of agonizing, Schwab decided to sell. The price: $53 million in BankAmerica stock. If the deal is approved by regulators, Schwab will stay on as boss of the new bank subsidiary.

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