Going Once...Going Twice...

Food For Thought

Most people think of auctions as consumer-to-consumer or business-to-consumer sales, but John Schachat discovered the auction format was a natural for business-to-business sales as well.

Schachat, 47, is a co-founder of Networld Exchange Inc., an online network for buyers and suppliers that provides Web-based tools to move products. The San Diego company focuses on the food and hospitality industry but plans to spin off to other vertical markets in the future.

The auction model on the Networld Exchange site is a bit different than the traditional auction format. "The way you see online auctions in the B-to-C side wouldn't necessarily work in the B-to-B side," Schachat explains. "What we do is provide the e-commerce piece that enables the transactions between the buyer and the suppliers; it works off the suppliers' online catalogs we have on our system."

On the Networld Exchange auction, buyers can often find products at prices lower than they'd normally pay. Suppliers, in turn, can move dead inventory without having to tie up their sales force. While many of his clients agree the auction format makes sense, Schachat says it's a different model for most of them and they're just starting to adapt to it. He admits that buyers haven't quite warmed up to the "perishable side" of the auction yet, for obvious reasons, but nonperishables seem to do just fine.

Would Schachat advise other companies to take the auction route? That depends on the business, he says. The food service and hospitality industry, for example, would benefit from any mechanism to get excess inventory sold. "You really have to look at the industry you're marketing to and decide whether [the auction model] will be palatable to buyers and suppliers," he says. "For any nonperishable item, I think it's a winner."

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This article was originally published in the February 2000 print edition of Entrepreneur with the headline: Going Once...Going Twice....

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