Stealth DotCom Success
By Robert McGarvey
Featured in:
Success Magazine
Bizbuyer.com, Furniture.com, MotherNature.com -- the list of dead dotcoms grows daily and so fast that it's easy to think that dotcoms have become the new millennium's dinosaurs. Yet that is only a sliver of the story: the fact is that, with little fanfare and less press coverage, thousands of dotcoms are surviving, even turning profits, as they collectively conspire to put a new face on American enterprise. That's the unreported story, says Bart Weitz, executive director of the Center for Retailing Education and Research at the Univ. of Florida in Gainesville: "Many, many dotcoms are in fact prospering."
Adds Bruce Weinberg, an e-commerce professor at Bentley Univ. in Waltham, MA: "Plenty of dotcoms are growing methodically. You may never have heard of them; they don't necessarily have large marketing budgets. But they have focus and they are executing. That's become a key to success. A site doesn't have to be fancy to succeed. It does have to be focused."
Another characteristic many have in common -- big surprise -- is that they never got a dime of venture capital funding. What's wrong with venture money? Nothing in principle, but too often "when dotcoms executives got venture funding, they behaved irrationally. They made decisions that appealed to their VCs, not their customers," says George Columbo, CEO of Winter Spring, FL consulting firm Influence Technologies and author of "Capturing Customers.com" (Career Press). Case in point: literally dozens splurged upwards of $2 million for a 30-second Super Bowl spot. "That's no way to grow a start-up," says Columbo.
The surviving dotcoms never made those kinds of buys because they never had that much cash in the first instance. Instead, like small businesses from the beginning of time, have relied upon family and friends and personal savings for usually slender funding. The upside? "They learned financial; restraints and how to manage growth," says Weitz. "This gave them a stronger foundation for success."
Want examples of dotcoms that measure up to these ideas? Read on to discover four very different -- but profitable -- dotcoms that collectively prove the point that "e-commerce remains the very most exciting platform around for small businesses," says Weinberg.
InvoiceDealers.com
www.invoicedealers.com
Probably the problem was the late start -- InvoiceDealers.com didn't launch until 1998, three years after sector leader Autobytel.com's start and "by the time we sought funding, referral-based car sites were old news to VCs; they were looking for new kinds of investments," recalls InvoiceDealers.com co-founder and CEO Jon Christensen -- but whatever the reason, VCs united in telling the Palo Alto, CA-based car site to take a hike. But Christensen shrugged off these rejections and kept working hard to promote his no-glitz, referrals business. "I'm a car buff and believe the service we provide adds value for both the buyer and the dealer," he explains. At InvoiceDealers, you log onto the site, indicate the car you want and the options, and, whoosh, you see a price on screen. It's fast and it's basic. While other car sites have plunged into direct selling of vehicles -- notably CarsDirect.com -- and most have looked for clever ways to tap into new revenue streams, Christensen has stuck to his knitting. Perhaps because money has always been tight -- the business was launched with $50,000 in seed money and has won another $1.5 million in investments from friends and family -- InvoiceDealers sells leads, period, but it now has about 850 participating car dealers and for every lead he provides, Christensen pockets around $29. "We are a modest company -- we have 15 employees and revenues of about $5 million. But we are profitable."
"You know," he adds, "when I look around at what's happened to so many dotcoms, I've come to think that venture capital is like crack cocaine. When you get some, you soon need more. I am glad we never got funded. It means we have never gotten that big -- to do that you have to be able to buy the expensive marketing and advertising deals. But we have been able to grow, steadily, and we're profitable -- what other car site can say that?"
Eclip
Eclip.com
How many cents-off coupons do you throw away every Sunday -- keeping in mind that your weekend newspaper is stuffed with the things. But only a tiny fraction of coupons get redeemed, making newspaper distribution an exceptionally costly way to lure customers to try products. Enter the Internet and, more specifically, enter Jamie Korody, a Santa Monica, CA graphic designer who in 1997 took a few hundred dollars and her Macintosh computer and launched a site where customers print exactly the coupons they want. "We now have 35 packaged goods companies represented on our site," says Korody, and the brands are biggies: Tyson Chicken, General Mills, Nabisco, and more. "We get paid per redeemed coupon," says Korody, who puts the business's revenues in 2000 at about $300,000.
"We were profitable about 18 months after we launched," Korody says. She adds that she keeps expenses down to about $800 monthly. "I taught myself how to program, for instance, and I outsource very little of the technical work. I like working on our interface, our page designs, a lot."
How does she get traffic? In an era where companies spend millions on deals with AOL and Yahoo!, Korody goes her own way: "I simply do not spend anything to promote the site. I've kept at getting us listed in the search engines and they send us plenty of traffic. It's working for us."
Of course she's gotten feelers from venture capitalists, even from potential acquirers, but for now, she's not interested. "We have prospered, we're growing, and as long as that's true, I'm happy staying with this arrangement."
Even better, she's not sitting on these laurels. In association with Que Pasa (www.quepasa.com), a portal aimed at Hispanic Americans, she is leveraging her ties to package goods manufacturers and launching "QuePasa Especiales" -- www.eclip.com/qp_spa/ -- where consumers can log on and choose the product samples they want to get, for free. "There has been very little sampling in Hispanic communities. Manufacturers are excited about this," says Korody, who indicates that within 10 days of selecting the goodies they want, users will get a big box, packed with their stuff. "Traditionally there's been a long lag between when people asked for samples and when they get them. We believe we can cut that down to a very short time period."
How much will this offshoot contribute to Korody's cashflow? That won't be known until well into 2001, but, for now, she says, "this is a big opportunity. It's exciting to be involved in doing something that hasn't been done."
MyRatePlan.com
www.myrateplan.com
Face it: just about nobody can thread their way through the labyrinth that today's cell phone and long-distance telephone rates are. If you want confusion, give a stab at finding which plan really suits your needs. Or you could just log onto MyRatePlan.com and, using simple but powerful wizards, get directed to the plans that most closely match your expected uses. "Our value add is that we have very good software tools," says founder and CEO Allan Keiter, a onetime manager with BellSouth cellular who struck out on his own in 1999 and put up MyRatePlan.com. What prompted him? When he looked at the fine print that accompanies wireless deals in particular, he knew there had to be a better, simpler way to sell people the telephone services they need -- "the Internet was the obvious tool for accomplishing this," says Keiter.
Keiter's no wonk -- he holds a Columbia MBA and his forte is revenue management -- so he outsourced development of the site's proprietary wizards. "I knew what I wanted the software to do and found programmers who realized those objectives," says Keiter, who started the business in Atlanta but recently moved it to New York City.
How does he generate revenues? "We differ from competitive sites. We do not attempt to sell phones, for instance. Our revenues come from referral fees," says Keiter, who says he's paid $25 to $50 per wireless activation and a comparable amount per long distance customer that he delivers to a carrier.
"It's funny," he adds. "Venture capitalists wouldn't fund us because they said we are not 'scalable,' mainly because we don't sell products. Well, we may not be scalable but at least we aren't bankrupt. We did $198,000 in revenue during 2000 versus $9000 in '99 and we are already profitable."
Better still, that money is Keiter's. His start-up funding consisted of $20,000 out of his own pocket, supplemented by $50,000 raised from family and friends.
With this slender financing you might think MyRatePlan.com would be failing in the fight for traffic -- but quite the contrary. "We're getting 150,000 page views per month, with little marketing expenditure," says Keiter, who says much of his traffic is owed to glowing media write-ups, including recognition as a USA Today "Hot Site" and a Yahoo Internet Life "Incredibly Useful Site of the Day."
"I believe that we will soon grow to perhaps $5 million in annual revenues, with a high profit margin." Adds Keiter. "This is a comfortable business, and we are helping people find the best plans for their needs. That's rewarding."
CleverMedia
www.clevermedia.com
It was 1995, the infancy of the Web, and Gary Rosenzweig had an idea for a website: "I realized the technology was there to support a web-based gaming site." He had the knowhow to create games that would run inside browser software -- he was then working as a programmer with an educational software company -- and he decided to take the plunge. "I started with zero in seed money. I already owned the computer and I had enough saved up so I could pay my rent for a few months. We went into this believing that if we built it, they would come, that somehow we would make it work."
Flashforward to today and, boy, is Denver-based CleverMedia ever working! Rosenzweig pegs revenues at $500,000, mainly from advertising, and he says, "we have been profitable essentially from Day One. We have no outside investors. CleverMedia is entirely self-funded."
Partly CleverMedia is succeeding because Rosenzweig has cannily stayed in touch with what users crave: "initially, many of our competitors created great games but they required too much bandwidth. Our focus has always been on finding ways to create very small games that are both accessible to all users and fun to play. We don't go overboard with demands on the user's system and 'Net connection," says Rosenzweig.
The other reason CleverMedia is prospering is that Rosenzweig captains a tight ship: "I never spend money we don't have." How does he get traffic? "We primarily grow through word of mouth," says Rosenzweig, whose site attracts folks who want to play free games -- everything from bowling to solitaire to multi-player contests in chess and backgammon. The way it works is that somehow George stumbles into the site...he gets hooked on, say, "Rat Race" -- a clever maze game -- so he recommends it to Paul, who recommends it to Ringo. "Word of mouth keeps us growing and it's free," says Rosenzweig, whose Denver-based company has grown to 8 employees plus himself. "We have about 10 million page views and one million unique visitors monthly. We're a sticky site -- people hang around -- and we just keep growing."
Even so, "although we have had talks with various venture companies, nothing clicked for us. But we are growing nicely and have distribution deals with prestige partners -- including Microsoft, which offers several of our games on its Internet properties."
Rosenzweig adds: "I got into this to have fun and we are still having lots of it -- and we're giving our visitors fun too."
Dotcom Orthodoxy
Are these four aberrations? Don't believe it. "There are so many profitable dotcoms out there. There's no doubt there will be plenty more Yahoos," says the Univ. of Florida's Weitz. "Today's opportunities for growth are tremendous." Adds Bentley's Weinberg: "when customers find a winner on the Internet, that small business suddenly can grow very big, very fast. The Net gives you unprecedented access to customers -- it's never been this good for start-up businesses. Success is definitely there to seize."
Copyright Robert McGarvey 2001
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