Justin Bieber, Madonna and Kim Kardashian-West tweeted about the launch of EDbyEllen.com.
The founders of GreenTree.com Inc. were still hashing out their business plan over a kitchen table when they hired a content editor for the online wellness center and vitamin superstore they envisioned. The work space they assigned the new staffer? A roommate’s bedroom. “We spent several months with five of us working out of my apartment,” says GreenTree co-founder Eric Budin. “That’s not the ideal situation.”
But rather than spend money renting office space, Budin and his partner, co-founder and CEO Donald Kendall Jr., used part of the $52,000 they had pooled to start the company to hire people to get the Web store up and running. “We could forgo salary ourselves, but I wanted to have enough money to pay employees for three or four months,” Budin says.
His strategy worked. The company used those early days to complete a pitch document for potential investors, line up editorial content for the site and court a strong advisory board. Once those items were in place, GreenTree won a loan to build its Web site, attracted investors and moved into a corporate office in San Francisco. Revenues have since topped $100,000 a month.
While it makes an interesting story, the Internet is full of people who invested a little bit of money and a lot of sweat equity, and today are proprietors of successful Web stores. These online entrepreneurs have taken a variety of approaches to launching stores on a shoestring budget. Joe Cataudella, for one, created a thriving online video game shop with $12,000, some of which went to renting space in New York.
Yet people who succeed find common ground as they plug along. Many of the experiences they share are not much different from what they would experience operating a store in the real world. It takes hard work, creative dealmaking, the ability to provide customers excellent service, and help from people who are willing to buy into your big idea. “When you start your own business you have to find people who will work with you and grow with you,” says Peter Coomaraswamy, president of Complete Book and Media Supply Inc., which he started in 1997 with $2,600.
But there also are big differences in starting a retail establishment on the Internet vs. in the real world. Among the biggest is that an entrepreneur doesn’t have to invest in real estate. A retailer can be selling goods out of the owner’s apartment-and their shoppers are none the wiser.
Another big difference is that an entrepreneur needs to understand how technology operates so he or she can choose an appropriate service provider who has the capacity to give the retailer what he or she wants.
And finally, status as a credit card-accepting merchant is crucial to the success of a Web retailer. While traditional merchants can accept cash or checks until they are established, there is no way an online retailer can succeed without accepting credit cards. But many such retailers find that credit card companies won’t allow them to accept cards until they have a track record.
Internet Retailer takes a look at four companies that have managed to build something from almost nothing in a short period of time.
The tale of the tape
Company: The Cassette House
Web site: Tape.com
Headquarters: Kingston Springs, Tenn.
Founder: Art Munson
Launch date: Internet sales in 1989;
Web site up by 1994
Start-up funds: A few hundred dollars
Current revenues: Close to $1 million annually
Employees: Two (the husband/wife team
of Art and Robin Munson)
For Art Munson, all it took was a little initiative and a few hundred dollars to build an Internet business that grosses close to $1 million a year and still leaves time to pursue his first love, music projects. Munson sells tapes and related recording supplies online at The Cassette House.
It all began by accident. In 1989, Munson offered to help a friend sell 10,000 three-hour blank audio cassettes, the kind people who taped live Grateful Dead shows needed but couldn’t find in stores. Someone suggested he try to sell the tapes on the Internet, so Munson began to post notes through news groups, mailing lists and e-mail, offering the tapes for $8. The hard-to-find tapes sold elsewhere for as much as three times that amount, but even at $8, he still was making a 50% profit. “I sold them like crazy,” Munson recalls. “From there, I kept selling cassettes and added other things to it.”
By 1994, Munson had learned how to write HTML code and had set up a Web store. “I bought a book for $35 and downloaded other Web sites to learn how to do it myself,” he says. He also found public domain shopping cart software, which was written by a student, and paid the student a small amount to modify the software to suit his store.
Before he launched the Web site, Munson’s tape business had been grossing about $200,000 per year. But when the site went up, business quickly doubled and then doubled again, Munson says. Last year, growth slowed to about 20%, but revenues today are close to $1 million annually, with an average of more than 40 orders a day.
Not that everything has gone smoothly. Munson’s original Internet service provider made some mistakes, he claims, such as erasing his entire Web site and not having a current backup. So he is considering switching the site to a larger Web hosting company that has redundant servers on the East and West coasts.
Munson also had trouble finding a bank or credit card company that would sponsor him into the credit card networks. After numerous calls, he finally found a bank willing to bring him in.