The e-retailer reports a $126 million net loss, stemming from a $640 million year-over-year increase in spending in the quarter on technology and content ...
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An admitted “cheapskate and control freak,” Munson keeps the store profitable by doing things himself, such as packing boxes for shipping. He also has automated much of the business, such as invoicing and printing labels, so that he and his wife Robin can manage it without hiring employees. And he manages to get by with things such as an out-of-date shopping cart because he doesn’t want to hand updating the software over to anyone else. “I haven’t had time to learn more advanced programming, but when I talk to other people who will fix it for me, they want so much money,” he says. “And I’m not sure I’ll end up getting what I want.”
The real reason he’s successful, though, is because of the practice that most traditional merchants profess to observe even if they really don’t: he treats customers as if they are always right, “even when they aren’t,” he says. The lesson: Internet customers want good service just as much as real-world customers. “I had been out there slashing prices, but I found out that’s not a smart thing to do. It just kept diminishing my profit margins. People are interested in service. As long as I’m in the ballpark for prices, it doesn’t really matter that I’m not the cheapest one out there.”
Another asset is his e-mail list. Munson has been collecting addresses since he started his business and now has thousands of them. “If I have a sale, I just send out an e-mail,” he says. “I can generate cash flow in a matter of hours.”
Catching the e-train
Company: Complete Book and Media
Web site: CBMSI.com
Headquarters: Austin, Texas
Founder: Peter Coomaraswamy
Launch date: October 1997
Start-up funds: $2,600
Current revenues: $1.4 million for first full year, with a gross profit of 27.8%
Within days of launching a company in 1997 to provide books to corporate and government clients, Peter Coomaraswamy knew he would have to have a Web site. “We saw the Internet train coming and we jumped on, cautiously,” he says. Today, about half of Complete Book and Media Supply Inc.’s revenues come through the Web, which Coomaraswamy sees simply as a tool to do business, not unlike a telephone.
“The Web is just a relatively easy-to-navigate catalog,” he says. Yet even though he chalked up a Web site as a cost of doing business, he wasn’t willing to go into debt to build one. Coomaraswamy had allotted just $2,600 to start his new firm. To pay for the site, he had to get creative.
“Our clients wanted something very much like Amazon.com,” he says. “We couldn’t afford that.” So Coomaraswamy showed his business plan to an old friend, Robert Swern, partner and director of account services at Intermedia, a New York-based marketing firm and online development agency. Swern liked the plan and agreed to build the Web site, which today houses information on 2.5 million books. “We came up with a deal where they worked very hard for a very small amount of money,” Coomaraswamy says. “Once we make it in a big way, they will be able to bill us at more normal rates.”
Intermedia purchased the hardware and software for the site, which Complete Book and Media Supply is paying back over time. To save money on its end, Intermedia bought standard SoftCart shopping cart software from Naperville, Ill.-based Mercantec Inc. and hired outside programmers to make it work with a database from Oracle Corp., Redwood City, Calif. “We needed a transactional shopping cart that was cost effective,” Swern says. “A customized Oracle shopping cart solution would have been too expensive-up to 10 times more expensive than the database itself.”
Intermedia agreed to help the start-up company because Coomaraswamy was very good at selling books offline, and Intermedia believed he would do just as well online, Swern says. “And that has proven to be true,” he says. “What we brought to the table was the ability to solve technical problems.”
Complete Book and Media Supply has been profitable since its inception. In its first year of business, the company brought in $1.4 million in revenues and had a gross profit of 27.8%. With cash flow generated from orders, the company paid Intermedia $90,000 over the last year, Coomaraswamy says. Because of the company’s relationship with a bank, Complete Book and Media Supply was able to secure credit card status quickly. Once the site was functioning, other banks started offering the company lower discount rates on card acceptance. Coomaraswamy used those offers to negotiate a lower rate with his bank.
Still, Coomaraswamy would like to do more. His Web site offers lots of books, but he hasn’t been able to add the tables of contents or book reviews because the business can’t pay for that yet. That may change as Complete Book and Media Supply grows. Coomaraswamy plans to look for outside investors later this year. “Whoever buys into the company,” he pledges, “will have a company that is solid, proven and making money.”
Company: Tronix Inc.
Web site: Tronixweb.com
Headquarters: New York
Founder: Joe Cataudella
Launch date: June 1994
Start-up funds: $12,000
Current revenues: $500,000 annually
When you call Tronix Inc., an online video game retailer with revenues of $500,000 a year, you may not expect the founder of the company to answer the phone. But he does. Joe Cataudella, who launched Tronix with a family member in 1994 on $12,000, also answers all of the company’s e-mail, deals with suppliers, pays the bills, updates the Web site and even reviews games. He only recently hired someone to help him pack boxes and fill orders. “I’m getting here at 8:30 in the morning and getting out at 8:30 at night,” he says. “That’s a lot of hours.”