Orange County Register - April 1, 2002 - Dot-coms Keep Slim For Plump Profit
Entrepreneurs find that a tight-fisted approach can produce Web business rewards.
April 1, 2002
By JAN NORMAN The Orange County Register
Jeffrey Hunter sells 1,000 different neckties at ABCneckties.com.
Seth Greenberg and Ken Kikkawa sell 40,000 different radio- controlled cars, games and toys at eHobbies.com.
Todd Livdahl and Sean Lundgren sell DVDs, games and audio books at smeetch.com.
What do these five Orange County entrepreneurs have in common? They all run profitable Internet businesses.
After the dot-com crash, "profitable Internet" seems like an oxymoron. But many small businesses, with one eye on cost control and the other on customer service, are writing their bottom lines with black ink, not red.
Originally, eHobbies had $30 million in venture capital and 175 employees. It was losing money big-time.
Greenberg, the company's director of marketing, kept saying, "this site could make money if it was run by seven employees and a Yahoo store."
"Venture capitalists don't like to hear that," says Greenberg, who, with Kikkawa, rescued eHobbies from the dustbin. They are in the process of moving from La Mirada to either Irvine or Tustin.
And guess what? They run eHobbies with seven employees and a Yahoo store.
It grosses about $6 million, half of what the former version brought in. But the slim site is profitable.
Keeping costs as low as possible is essential, he says.
The company also has a separate site, eHobbiesOutlet.com, with discontinued products, and will launch eHobbiesRC.com soon for radio-controlled cars.
To other would-be Internet entrepreneurs, Greenberg stresses, "Don't get muddled in the day-to-day technology. At Yahoo, we don't look like a little company. It's hard to tell it's a Yahoo site until you get to the shopping cart."
Greenberg started the Yahoo site as a side project to have an alternate site if the regular eHobbies.com crashed.
ABCneckties.com and smeetch.com also find advantages in having Yahoo stores, but the basics of profitability don't depend solely on this Internet portal and mall.
Yahoo stores are easy to create and maintain, reasonably priced and provide access to 219 million users, says Hunter, of ABCneckties.
Hunter actually has three Yahoo sites specializing in different products, which gross more than $10,000 a month.
He opened a necktie shop in the Irvine Spectrum, which helped him find suppliers and learn about retailing. He also spent thousands of dollars on a stand-alone Web site that did little business.
"One day I was looking on Yahoo and saw 'build a site.' In five minutes I had a site," Hunter says. "Within six months, the Yahoo site was doing way more sales than the (Irvine) store, which I closed last June."
Yahoo gets a lot of traffic, but at a price, says Bud Rosenthal of Yahoo Small Business. Yahoo hosts the site for $49.95 a month, plus 10 cents a month per product listed, 0.5 percent for each transaction and 3.5 percent of revenue from sales to people who enter through Yahoo's portal.
Yahoo store owners can pay extra to drive traffic to their sites, which Hunter says was the key to his success. A Yahoo Yellow Pages listing is $25 a month; $299 a year to be considered for listing in Yahoo's directory; and $25 to $300 per month for sites already listed in the directory to receive enhanced placement in specific categories.
Hunter, who has a warehouse in Lake Forest, says the key to his Internet profitability is "a great selection ... and immediate shipping."
Livdahl and Lundgren of smeetch.com in Anaheim save even more money by having no inventory of DVDs, audio books and games.
They have their distributors drop-ship orders.
Hunter says that is fine if you trust your suppliers to ship promptly and accurately and not to steal your customers.
Smeetch started as a side, home-based business for the pair, who worked at Disneyland.
"We didn't want to get venture capital. We were more interested in understanding the retail aspects of the Internet," Livdahl says.
They learned what they needed by doing it. Someone asked for a federal tax ID number.
They went to the IRS. Someone asked for their resale number. They went to the Board of Equalization.
The toughest part, they agree, was establishing credit as a totally Internet business.
The first weekend they received $10,000 in orders.
"Our merchant account (for payments by credit card) would take 12 days to clear our money," Livdahl says. "Suppliers wouldn't ship because we hadn't paid. We just had to wait. It was terrible."
Which proves that profit and Internet may not be contradictory but still are tough to combine.