Beyond Their Years
Getting a Nordstrom buyer to be your senior vice president of merchandising when you haven't even started your company seems tricky. Getting an entrepreneur who just sold his company to Microsoft to invest seems impossible. But MacGyver's got nothin' on Nick Swinmurn. "[I did this] at a time when anything seemed possible," says Swinmurn, who got the idea for his shoe dotcom after a frustrating quest for shoes at the mall. "It was an idea that made sense."
Posing as a recruiter for a small brand looking for a merchandising guru, Swinmurn persuaded Nordstrom buyer Fred Mossler to meet with him. "Then I spilled the beans on the plan," he says. "He thought it was a good idea and ended up coming on board."
Mossler's background and contacts jump-started the San Francisco company, says Swinmurn, and also persuaded Tony Hsieh to use some of the $270 million he earned from selling LinkExchange to Microsoft in 1998 to fund Swinmurn's idea. It took some convincing, however. "I almost deleted his e-mail," says Hsieh, now Zappos.com's CEO, of Swinmurn's initial pitch. "On the surface, it seemed like the quintessential poster child for a bad dotcom idea."
Learning the market size was $40 billion, and $2 billion was already being sold via mail order catalogs, helped. "Over time," says Hsieh, "I saw there was a lot of potential for the company." Potential indeed: They've achieved $32 million in sales, with $65 million projected for 2003.
Offering free expedited shipping (even on returns) and changing the name from ShoeSite to Zappos helped the pair distinguish themselves in an otherwise crowded 1999 dotcom marketplace. With a careful eye toward stellar customer service, they're shooting for sales of $1 billion-which isn't far-fetched, considering they closed a deal with Wells Fargo on a $6 million revolving credit line in June. "We're focused on being not just the best footwear company," explains Hsieh, "but the best e-commerce company." -Karen E. Spaeder
|Learn how you can become a young millionaire in our Q&A with author and Young Entrepreneurs Network founder Jennifer Kushell.|
Entrepreneur: You weren't the only ones to come up with the idea for a shoe site, but you're one of the most successful and well-known. Why?
Nick Swinmurn: It's the little things, like our competitors stuck with names that were some derivative of "shoes." Also, we met with big, traditional VCs, but we weren't appealing to them at the time. It turned out to be good in the long run because in working with Tony, instead we put money into making things as efficient as possible rather than throwing money into big mistakes.
Tony Hsieh: We're [driven by] having the best possible customer experience-and that goes to our decision to warehouse our own shoes. If you go to our site, our top brands have 200 to 300 styles-a good selection. But we also really focus on what happens after we get the credit card [number] from the customer.
On day one of testing Kevin Plank's moisture-wicking T-shirts on the football field, fellow University of Maryland players were laughing and poking fun at each other, amused by the shirts' lingerie-like material. "Day Two, they were scratching their heads," Plank says. "Day Three, they were all saying, 'Hey, can I have one?'"
It's that kind of enthusiasm that launched Plank's Baltimore company, Under Armour Performance Apparel, which started in 1996 as nothing more than a way to keep athletes dry and comfortable under their gear. The company is now set to nearly double its 2002 sales of $55 million.
It also helped that Plank had contacts in the entertainment industry. The first big break was a product appearance in the 1999 film Any Given Sunday, before which Plank took out a $25,000 ad in ESPN magazine. "We took a big gamble," says Plank, who initially financed his venture with $20,000 of his own cash, $40,000 in credit cards and a quarter-million-dollar SBA loan.
Now in 4,500 retail stores nationwide and the official supplier for the NHL, MLB and other leagues, Plank's apparel line is doing more than just outlasting a day on the field. -K.E.S.
Entrepreneur: How do you stay competitive when large brands are coming out with their own lines of performance apparel?
Kevin Plank: We can only be concerned about ourselves and the job that we do. At the same time, we're very aware of them. At Under Armour, we've devised a way to explain that there's something better than wearing a cotton T-shirt. It's about educating consumers that there's this thing called performance apparel. The industry of cotton is the bigger competitor.
Entrepreneur: What were some of the things you did when you got your SBA loan?
Plank: The first thing was to pay back all the people I'd borrowed money from. [Then it was] investing in the product. We'd decided our partners were going to be the biggest partners out there. I thought, "In order to compete, I'm gonna need some big friends." We got the type of vendors and partners who could write the big checks.
Entrepreneur: Any words of advice for entrepreneurs who have a breakthrough product? Where do they begin?
Plank: The first thing is that you've got to believe in your product. There are some long days, some lonely days, days when there's not a dime in the checking account. It's those fighting-through moments. I got some good advice early on: You need to find out if your product will sell. I found myself spending the first four or five months going through the legal process. But it's about being the first to market, being faster than the other guy. If you're late, it's not going to matter who carries the legal document.
Good Fortunes and Corporate Candyworks
Company description: M&M licenser for ad specialty market and personalized cookies
Founder: Karen Belasco Staitman, 39
Year started: 1995
Location: Canoga Park, California
2003 sales projections: $8 million
Anybody can come up with a business idea. finding a great idea in the midst of a business failure-that takes the unique talent of someone like Karen Belasco Staitman. This serial entrepreneur started a mail order catalog business in 1994, selling specialty gift items. The venture didn't work out, but one item did: giant, chocolate-dipped fortune cookies with personalized messages inside, perfect for weddings, birthdays and other special occasions. "The cookies were very popular," she says. "So I just started peddling the cookies."
She launched her Good Fortunes business in 1995 and was inspired again in 2001 to start Corporate CandyWorks, a licensing venture with M&M/Mars to create personalized color candies for the ad specialty market. Both businesses coexist in her Canoga Park, California, family-friendly facility, where this mother of three created an on-site room for her children and her employees' children to hang out. "I know every one of my employees' children," she says. "They come here; they play with my kids. That happens all the time."
Belasco Staitman expects Good Fortunes and Corporate CandyWorks' combined revenues to hit $8 million this year. And things are set to explode in 2004. Belasco Staitman has just signed a deal with a huge e-tailer to offer her products online, and has expanded her factory by 500 percent, which promises to pump sales to $35 million in the next three to four years. Still, she hasn't forgotten the lessons she learned in her failed start-ups. "I'm truly the eternal optimist," says Belasco Staitman. "I always think I can do it, and I always find a way to do it." -Nichole L. Torres
Entrepreneur: You focus a great deal on balancing your family with your work life, and you've been able to build your company and still be a mom. How do you strike a balance?
Karen Belasco Staitman: When I started the company, I just got married and I was pregnant by the time we moved into this facility. My mom always told me that family always has to come first, and it truly does. And she said, since you're going to be in the factory, you need to build a place for the child to be with you because it's important that your children are there with you. At first, that was relatively easy. I kept my oldest Jake in the office with me, and I would just work phone calls around when he was sleeping and napping. And then the second one came along, and the third one came along, and the factory grew bigger, and we had a playroom in the back. But then I did have to hire people to help me manage both [areas of my life].
Baby Bedding & e-Learning
Company description: Infant bedding manufacturer
Founder: Renee Pepys Lowe, 38
Year started: 1998
Location: Costa Mesa, California
2003 sales projections: $10 million
If a company as big as OshKosh B'Gosh offers you their license, you have only one option: Take it. Fortunately for Renee Pepys Lowe, whose sales and marketing skills had contributed to much of the success of her mother's infant bedding business, entrepreneurship was already in the blood when OshKosh B'Gosh called in August 1998. Knowing that Pepys Lowe's mom was selling her business, which left her daughter (by then well-known in the industry) open to new possibilities, OshKosh B'Gosh left this voice-mail message for her: "We hear you're starting your own company. Are you interested in the OshKosh license?"
"I didn't know I was starting my own company," Pepys Lowe says half-jokingly from behind an understated desk at CoCaLo Inc., her $5.3 million Costa Mesa, California, manufacturer and distributor of children's bedding and accessories. Nonetheless, it didn't take long for Pepys Lowe to get cozy with the idea. In January 1999, she started selling a CoCaLo-designed line of OshKosh B'Gosh products in Babies "R" Us; Burlington Coat Factory; Buy, Buy Baby; and small specialty stores nationwide.
Word of the successful OshKosh B'Gosh placements spread to the makers of Baby Martex and Eurobaby (which CoCaLo no longer sells), and soon Pepys Lowe and her team were cranking out designs for the three brands. The acquisition of infant bedding company Kimberly Grant & Co. in 2002-combined with placements of Expectations, an exclusive line in Target stores created by Baby Martex, and the introduction of a CoCaLo line-have left Pepys Lowe confident that the 18-employee company will bring in $10 million this year.
And though she gets calls "every day" from potential licensors, as with everything Pepys Lowe does, it's about quality, not quantity: "When I do something, I do it the best I can." -K.E.S.
Entrepreneur: What did you learn going from being an employee to being the boss?
Renee Pepys-Lowe: I always had my mother to lean on [while working for her]-that was a big change. A lot of people say it was the best thing that ever happened to me. At the end of every day, I guess the scariest part for me is that I'm responsible for every single person here, [along with] finances, loans... You really have to take a lot of risks. Like when I got these phone calls [from licensors]-I did a lot of soul-searching, and I thought, "Let's just go for it."
Entrepreneur: Will you ever reach a point when you'll want to stop growing?
Pepys-Lowe: I want to have a five-year plan. I don't want to feel like I'm going to pass this on to my children-that's too far down the road. Last year when the Target opportunity came about, I thought, "This is the perfect segue [to the] next step for us." My philosophy is, if I wake up every single morning and I want to go to work, then I'm going to keep doing it. If I get to the point where I'm feeling burnt out, then I'll need to really look at what I'm doing.
Company description: Web-based software products and services for colleges
Founder: Ling Chai, 37
Year started: 1998
Location: Cambridge, Massachusetts
2002 sales: $50 million
Ling Chai has no qualms about going against the flow. Take, for example, her leadership role in the Tiananmen Square democracy movement, which landed her on the Chinese government's most wanted list; or perhaps her escape from China to freedom, hidden inside a cargo crate; or her two Nobel Peace Prize nominations.
All things considered, you might find it surprising that Chai got her entrepreneurial inspiration as an MBA student at Harvard. After listening to Chai, it's apparent that her spirit and resolve are not so much learned as they are core elements of her very being.
This drive has enabled her to conquer both the political and entrepreneurial fronts with remarkable results. Chai attended Beijing University for her undergraduate degree and Princeton for her master's degree, but it was being a guinea pig of the e-learning system at Harvard Business School that sparked her entrepreneurial flame. "It transformed my educational experience," says Chai. "I became convinced that every student in the world deserved to have this e-learning environment."
Wanting to provide Web-based software products and services for colleges, Chai founded Jenzabar-loosely meaning "the best and brightest" in Chinese-in 1998, entering an already competitive marketplace. Now, five years later, the Cambridge, Massachusetts-based venture has weathered the dotcom storm, watching numerous contenders fall by the wayside.
Jenzabar's products and services are used in one out of five universities in the United States, with some penetration of the international market. Despite 2002 sales of $50 million, Jenzabar is not all about the money, Chai says. "Every day, we're supporting millions of students, faculty and administrators on campuses to connect and improve their productivity, learning experiences and communication with each other," she says. "That gives us a great deal of satisfaction; that's what brings us back to work."
The rigors of running a successful company have not weakened Chai's political endeavors, however. Says Chai, "I hope by further learning leadership skills, I can someday contribute to rebuilding China." -April Y. Pennington
Entrepreneur: How did you go from being a political activist to becoming an entrepreneur? And are there any similarities?
Ling Chai: I have never changed. I was writing a business plan in China before the Revolution broke out. I was dreaming of starting the biggest child education center in China. I came over to this country to get an education at a teachers' college and go back. China's democracy movement disrupted our life and our plans; it was calling for us to do something for us for the country. The calling changed my life for ten years. Once I was able to escape China and come to this country, I was fortunate to be able to fulfill my duty for the democracy movement and get education and live my dream of entrepreneurship through Jenzabar.
Entrepreneur: You fled China in a crate through Hong Kong and France and ended up in Harvard Business School? Tell me about that experience. What was your goal at that point?
Chai: My hiding was 10 months, a horrendous journey, and the last hundred five hours was in a cargo crate, with a cold piece of bread and a bottle of water. Our goal was to live. It was five days and four nights, and finally I came to America, the land of freedom, and started to rebuild a life here-going to school, having job experiences, and eventually landed in Harvard Business School. After that I started Jenzabar.
A lot of people dream to live the true American dream. Sometimes Americans don't appreciate that. But it's such a true inspiration for people around the world to be able to come to America and live in a democratic system with free entrepreneurship. I'm fortunate to live in this dream. In many ways, Jenzabar's success today had a lot to do with that inspiration.
IT Consulting, Stuffed Animals & Mobile Computing
Company description: IT consulting firm
Founders: Antwanye Ford, 38, Andre Rogers, 37, and Thomas Spann, 38
Year started: 1999
Location: Washington, DC
2003 sales projections: $5 million-plus
The old saying "Three's a Crowd" doesn't apply to Washington, DC-based IT consulting firm Enlightened Inc. Founded by three friends who met at George Washington University, three is the number that makes Enlightened thrive. In 1999, president Antwanye Ford, vice president Thomas Spann and vice president Andre Rogers took a leap of faith from corporate jobs to start a business.
With government contracts a major part of their business, Enlightened had to adapt when the government restructured after 9/11. Contracts were put on hold and agency funds redirected as more than 20 federal agencies collapsed into the Homeland Security Department, leaving Enlightened in the lurch. "It's forced us to be structured about managing the company," says Ford. "We don't take as many chances as we did before." A focus on current customers and investigating opportunities in the commercial sector are getting them through hard times.
It's the ability to adapt, focus and grow that sets Enlightened apart from its competition. "We don't let the grass grow under our feet, "says Rogers. "We're able to take the ups and downs." With 2003 sales projections expected to be more than $5 million, Enlightened is seeing the light. -Amanda C. Kooser
Entrepreneur: What is the work environment like at Enlightened?
Antwayne Ford: We try to keep a very professional environment in the way we carry ourselves, the way we try to dress, the way we like the look and feel of the offices. On the other hand, we joke with each other and the staff all the time. It's an environment where people feel very comfortable with each other. We value our relationships with our employees.
Entrepreneur: Who are your entrepreneurial role models?
Ford: One of mine is my parents. They owned their own upholstery shop. After school I went to the business and went upstairs. It was just the two of them, a mom-and-pop-type environment.
Thomas Spann: I had two influences: My aunt Barbara Stokes, when I was very young, owned a daycare. I actually was able to see early on what it took to run a small business and some of the challenges. More as an adult I was fascinated by the story of Reginald Lewis and how he was able to get to point where he could buy Beatrice.
Andre Rogers: My father had a landscaping business, so that gave me the insights. I think that was where the bug kind of hit me. I was fascinated about growing the business and how he could grow the business and make it work better. That translated even when I had a paper route. I had one of the largest paper routes in the country.
Entrepreneur: What does the future hold for Enlightened?
Rogers: The future is very bright. This environment is going to weed out the men from the boys. We came to that conclusion last year that we were going to survive, no question about it. Right now we are making structural headway, maintaining relationships in the commercial sector. I'm salivating over telecommunications turnaround.
Beverly Hills Teddy Bear Co.
Company description: Plush toy licenser and manufacturer
Founder: David Socha, 34
Year started: 1994
Location: Santa Clarita, California
2002 sales: $20 million
In his youth, David Socha imagined himself as a professional hockey player. Little did he know he would head up a $20-million-per-year plush-toy company securing licenses with the likes of The Coca-Cola Co. and Universal Studios, and producing product tie-ins with the movie Babe or Nickelodeon's Dora the Explorer TV series. But flexibility and change are nothing new to Socha.
In 1994, when this Santa Clarita, California, entrepreneur realized that a hockey career was not in his future, he started a mail order catalog business to peddle specialty teddy bears. His business hit hard times, but with some ad time on a local radio station and a piece on the local morning news, business skyrocketed-and gave Socha the opportunity to make teddy bears for celebrities like Kevin Spacey and Steven Spielberg. Socha heard opportunity knock again when he began to get requests for a wider variety of plush toys. That led him to licensing, which has propelled the company's double-digit growth for the past four years.
Socha knows he's in a market with a few Goliaths, but he's proven that his company is a force to be reckoned with. "We can turn on a dime. We've gotten orders [where] we may have been the third choice, but because [we'll] jump on a plane and go to the manufacturing facility in China or meet with a customer in Dallas," he says, "our company has gotten the reputation of getting the job done no matter what." -N.L.T.
Entrepreneur: What has been the biggest challenge in getting the company up and running and in running it day to day?
David Socha: I don't want to make it sound too negative. But there are people out there who don't have the same integrity or morals and ethics that many people in the business do, and I think it's a matter of being aware of those people and protecting yourself from the harm that can come from someone who's out to hurt you. [It's] being on your toes.
It's a constant battle, not only with our competitors, but even with people we do business with to make sure that you get in business with the right people. And I would say the biggest difficulty is watching out for the people who want to take advantage of you.
Entrepreneur: Coming into this industry, how do you compete with the bigger companies?
Socha: Really, we win a lot of jobs and a lot of contracts by default. If I could give small businesses one recommendation, it's to always be nimble on your feet.
Entrepreneur: Was it that reputation that got you in the door with those initial meetings with, say, Coca-Cola?
Socha: It probably took us three years to get Coca-Cola to consider us. And that's a part of just being faithful and knowing who you want to be in business with. That was one we said, strategically, they're the biggest brand in the world. We want to do something with them. So every few weeks, every few months, [we would] just call up. It's truly just the follow-through and the tenacity to not take no [for an answer].
Company description: Mobile software publisher and platform technology
Founder: Randy Eisenman, 28
Year started: 1999
Location: Hurst, Texas
Randy Eisenman wants to make one thing very clear: He is not a millionaire. That title is about his business, not him personally. As founder and president, he has shepherded mobile software publisher and platform Handango to multimillion-dollar sales and an impressive 30 percent quarter-on-quarter growth over the past three years. The only millions he's counting are the more than 6 million customers the Hurst, Texas-based company reaches every month.
Nobody is born an entrepreneur, but Eisenman took to it at a young age, opening a fitness-training business in his house at age 16. He got his brokerage license at 19 and headed the VC investment division of Q Investments before putting his money where his mouth was and starting Handango in 1999 at age 23, with $18 million that he'd raised. "Going on business trips, I couldn't even rent a car. I was too young," he recalls. The tech downturn could have taken Handango out of the game like so many of its competitors, but Eisenman led the company through with financial discipline (including working on $39 card tables) and hard work, mixed with a dedication to fun.
That determination has helped Handango partner with industry heavyweights Microsoft, Nokia and Palm and create a growing international presence. Says Eisenman, "We live and breathe our mission, which is to create and shape and dominate this industry and to have fun doing it." -A.C.K.
Entrepreneur: Where did Handango get its name?
Randy Eisenman: After running the business for about a year, I hired a professional management team. We had been doing business under the name of GoPDA and PalmCentral, so we decided that we needed to unify under one brand. We literally had presentations from six or seven marketing firms and probably looked at over 2,000 different names. When Handango was presented to us, we said that's the one. We thought it was a fun-sounding name and it implied something in the handheld market.
Entrepreneur: What is the work environment like at Handango?
Eisenman: You've never seen anything like it. It is a blast. It is completely open so the 70 or so employees all sit out in a giant room together. There are no offices. I sit out in the middle. It is intense and laid back at the same time; it is very collaborative and team-oriented. It is very fun. There's the ping-pong table, there's the foosball table, there's the masseuse that comes to the office on Fridays to give everybody a massages that wants one. I'm in jeans and a T-shirt today.
Entrepreneur: Who are your entrepreneurial role models?
Eisenman: My parents have been running a family business that was started in 1950. I look up to them for the kinds of people they are and the way they live their lives and their values and priorities. Business-wise the thing I admire most about my parents is how they treat their employees. It's an absolute family in their business, and they have unbelievable loyalty with their employees. That is what sets their business apart, and hopefully a little of that has rubbed off on me.
Chicken Fingers, Creative Talent & Ring Shopping for Men
Raising Cane's Chicken Fingers
Company description: Restaurant chain
Founder: Todd Graves, 31
Year started: 1996
Location: Baton Rouge, Louisiana
2002 sales: Nearly $20 million
Todd Graves went fishing to start his Raising Cane's Chicken Fingers restaurant locations. No, he wasn't lounging on a lake-he and co-founder Greg Silvey, now 31, were working 20-hour days on a salmon fishing boat in Alaska to raise money to open their first Baton Rouge, Louisiana, restaurant. It was lucrative, though dangerous, work. "It was insane," recalls Graves. "But it was incredible because we were up there for our dream."
That dream was to build a quick-service restaurant near Louisiana State University that would specialize in chicken fingers with a signature sauce and sides. A college student at the time, Graves knew how popular chicken fingers were in other restaurants, and he saw a niche to bring chicken fingers off the appetizer menu and into the main course.
Today, Raising Cane's grosses nearly $20 million in annual sales, but in 1994, Graves and Silvey, now the company's vice president of IT, listened to a business professor dismiss the idea. "He said, 'This is South Louisiana. We're known all the world over for our quality food: Creole, Cajun, seafood. Just chicken fingers will never work here,'" recalls Graves.
Their first stabs at getting start-up capital elicited the same responses from investors-and that's when Graves and Silvey went to Alaska to earn some start-up cash. Their summer earnings weren't enough to open the first restaurant, "but [it was] enough to get some private investors interested," says Graves. "They said, 'If these guys are this passionate about doing this chicken finger restaurant, we might as well take a chance on them.'"
Taking a chance paid off. Graves opened the first Raising Cane's restaurant in 1996 and has since opened 14 more, all in Louisiana. With role models like McDonald's founder Ray Croc and Wendy's founder Dave Thomas, it's no surprise Graves envisions turning Raising Cane's into an international franchise giant. Indeed, when people ask him about his long-term goal, Graves doesn't hesitate: "It's to grow something truly great." -N.L.T.
Entrepreneur: Once you opened the doors, did you still deal with skepticism from the public?
Todd Graves: Everybody that came in was like, "Raising Cane's Chicken Fingers? You've got to be kidding me. What else do you have?" And I said, "Just try it." And at Cane's to this day, [whenever] we go into a new market, it is, "Just try it!"
Entrepreneur: What has been your biggest reward in starting Raising Cane's?
Graves: I can tell you this so quickly because I think about it so much. My biggest reward is I'm living my dream every day. And my dream, [which] I say has turned into passion, is to grow this. People ask me, "Why do you want to grow? What is your end game?" I say, "I don't have an end game." Ray Croc didn't have an end game. Do you know how much stock he died with? Dave Thomas didn't have an end game. It's to grow something that's truly great. It's recognizing your potential and your potential in the organization to do something and do it for the right reasons, because it's special.
Company description: Temporary placement agency and creative talent outsourcer
Founder: John Chuang, 38
2003 projected sales: $280 million
No stranger to the entrepreneurial limelight, John Chuang makes his second appearance as a Young Millionaire this year, after debuting in 1998 at the tender age of 33 with staffing and placement services firm MacTemps Inc. Since then, Chuang and his business have matured.
Capitalizing on the Internet and technology boom of the late 1990s, Chuang's Boston-based temporary placement agency expanded from providing creative, Web-authoring, and Mac- and PC-trained personnel to include Web designers, a hot commodity at the time. When the bust came, Chuang began acquiring struggling companies, often for purchase prices far below the asking prices. MacTemps' growth and diversification prompted Chuang to change the company's name to Aquent, a word created with Greek and Latin roots that means "not a follower."
"We tend to enter markets where we're the leaders and offer lots of new services to our clients and our talent," Chuang says. Indeed, Aquent has become a major player in outsourcing creative teams, running the creative service departments for several Fortune 500 companies, such as Campbell Soup Co. and Capital One. Companies also use Aquent's technology and consulting services in systems integration projects. Changes in the economy and employment could have easily crippled Aquent, but adjusting to the climate and desired skill sets has allowed Aquent to rise above the competition and project 2003 sales of $280 million. Or, as Chuang puts it, "We decided to make lemonade from lemons."
Chuang can still be seen driving around Boston in the same old car he's had since college, a trusty 1987 Toyota Corolla-a clear testament to his modest ways. In fact, employees were once required to supply their own pens and stay at Motel 6 hotels while on business trips. And there are still no private offices at Aquent, not even for "the frugal mogul," as Chuang was dubbed by close friends and colleagues. "It's easy to spend money; the trick is earning it," says Chuang. "Spending money is not very impressive." Cheap has never looked so rich. -A.Y.P.
Entrepreneur: You staff a couple thousand people a day in 17 countries. How did Aquent expand internationally?
John Chuang: We essentially just go out there. We have confidence that our products and services are valuable worldwide, and we have always thought of ourselves as global, even when we were small.
Entrepreneur: With all you've accomplished, what do foresee in the future?
Chuang: Our company will be the number-one creative services company, with a significant amount of Fortune 500 companies as clients. We'll also be the number-one business in IT staffing. We are in two really great spaces right now. We're continually adapting to our marketplace.
Blue Nile Inc.
Company description: Online jewelry retailer
Founder: Mark Vadon, 33
Year started: 1998
Location: Santa Clarita, California
2003 projected sales: $120 million
"Most men don't know anything about jewelry," quips Mark Vadon, who ought to know: Searching for an engagement ring for his fiancée in 1998 was like looking for a needle in a haystack-a needle that costs about as much as a compact car.
Maybe that's why Vadon turned to the Internet-where no one could peer snootily at him or talk him into buying a $17,000 ring. The Web site where he found his ring belonged to a brick-and-mortar jewelry store in Seattle. Though rudimentary, the site gave Vadon what he needed: "straight talk, like how a jeweler would tell his friends what to buy," he says.
After the experience, Vadon made it his mission to assist guys everywhere standing before a glass case, scratching their heads in dismay. How? Develop an e-commerce site where men could get not just a chunk of jewelry, but also some help in making a purchase. In 1999, Vadon took the jewelry store owner to dinner and made him an offer to buy his business, "and that's how we got Blue Nile," says the former Bain & Co. executive.
That's also how he assembled a throng of loyal employees-many of them men jaded by the ring-buying process-as well as venture capital: "This storefront was doing a quarter million a month with this basic Web site," says Vadon. "We went to VCs with this information, and [they] loved it; they all wanted in on the deal."
With an average order price exceeding $1,000 and a lightweight product, the $72 million company can afford to offer free shipping-something that kept Vadon from joining the wasteland of dotcoms shipping 20-pound bags of dog food.
It's powerful word-of-mouth that makes Blue Nile the envy of the industry. "Other jewelers get upset because they say we're giving too much information out [about the jewelry]," says Vadon, who expects sales of $120 million in 2003. "We're pulling back the curtain and showing the wizard." -K.E.S.
Entrepreneur: Why did you decide to buy an existing business?
Mark Vadon: The good reason to buy rather than start from scratch is that it had an existing supplier base and experts, and we added experts over time. We went out and hired phenomenal merchants in the industry who had 10 to 20 [years of experience]; they had the knowledge and contacts. Most of those people are still here-we've had incredible retention. I took this business very personally, and a lot of people we've hired are the same way.
Entrepreneur: How did you get the name Blue Nile?
Vadon: The original business was Internet Diamonds-that was too brown-paper wrapper. A guy would not want to buy a diamond and say he bought it from Internet Diamonds.com. We were looking for a name that was somewhat flexible, simple to spell and, most important, somewhat sticky in consumers' minds. We hired a naming firm, and "Blue Nile" tested higher [with consumers] than any of the other names.
Entrepreneur: Do you think you're successful?
Vadon: Every day we come in here and feel like we haven't done enough. That's part of the dysfunction of being a good entrepreneur-you're never satisfied. I don't think we're ever going to be done.
Pet Treats, Computers for Gamers & Online Liquidation
Cloud Star Corp.
Company description: Healthy pet products and food
Founders: Jennifer Melton, 29, and Brennan Johnson, 29
Year started: 1999
Location: San Luis Obispo, California
2003 projected sales: $6 milllion
A trip to an animal shelter changed the lives of Jennifer Melton and her husband, Brennan Johnson. After adopting an 8-month-old shepherd mix, Melton discovered that the dog had severe allergies and a very sensitive stomach. "I started making her food because I couldn't find anything on the market, either food-wise or treat-wise, that could satisfy all her allergies," says Melton.
Their passion for their dog's health inspired Melton and Johnson to create their own line of bake-at-home dog treats that were free of the soy, corn and dairy often found in most commercial products. They started selling the treats in 1999 and soon expanded their offerings to include dog shampoos and conditioners, pre-made treats and dog food. "Most of our growth and our decisions for which area we wanted to go into have been from listening to our customers and what they want from us," says Melton.
Selling strictly wholesale, San Luis Obispo, California-based Cloud Star Corp. is set to hit $6 million in sales for 2003. And with all three of their dogs having come from shelters, they regularly donate both dog products and a portion of their profits to shelters and humane organizations. Says Melton, "We knew that was something we really wanted to emphasize." -N.L.T.
Entrepreneur: Did you face any skepticism when you first brought your products to market?
Jennifer Melton: Brennan and I still joke about it. Absolutely, people thought we were crazy. One of the first calls I made, a guy told me, "What makes your dog bone the best dog bone out there? Everyone's making the best dog bone." I think if you listen to what your skeptics are saying, it gives a little bit more of a [target] in which to respond to that skepticism. For us, it was truly having a unique product in the [area] of allergies for dogs.
Entrepreneur: How did you start selling and distributing your products?
Brennan Johnson: We attempted to go national from the beginning. We created databases of health-food stores, gift stores and pet supply stores across the country and started doing targeted mailings quarterly. And we still do mailings quarterly to a pretty extensive database of retailers.
Entrepreneur: What would you say have been the biggest rewards of opening Cloud Star?
Melton: For me, [it's when] we get these great letters from customers who've been using our product: "Thank you so much. Your dog treat is the first treat my dog's been able to have in five years." Things like that are really nice to hear.
Company description: Customized computers for gamers
Founders: Alex Aguila, 36, and Nelson Gonzalez, 38
Year started: 1996
2003 projected sales: $135 million
Attention, all gamers: The mother ship has landed. Alex Aguila and Nelson Gonzalez aren't extraterrestrials, but the story behind their business, Alienware Corp., is out of this world, considering they project 2003 sales of $135 million-after starting out in a garage with only $13,000 in 1996 and, to this day, never taking outside financing.
A longtime gamer, Gonzalez disliked changing his computer hardware to optimize PC systems for games. Finding no company offering PCs designed for game enthusiasts, the IT manager decided to use his tech skills to offer customized computers. He asked his childhood friend Aguila to join him. "He's intelligent, aggressive and extremely obsessive," says Gonzalez. "That's the kind of personality I needed."
Alienware computers-often called the BMW of computers for gamers-are sold direct and via online electronics store Ebgames.com. With PCs resembling colorful alien heads, "ours tend to be more mean, more aggressive," says Gonzalez. "We introduced sexy colors in a hot-rod environment." The alien theme is apparent: The flagship model, Area 51, and the company's Miami headquarters, dubbed the Mother Ship, are just a couple of examples.
Alienware plans to continue offering technology to power- and performance-hungry gamers, while also courting the growing market of computer users who appreciate a better-quality product. They're taking over the PC world, one user at a time. -A.Y.P.
Entrepreneur: What is special about your PCs?
Nelson Gonzalez: We assemble a machine specifically for performance, using the best parts available. Then we tweak the operating system so it's very vanilla, not loaded with stuff you don't really need, but optimized for gaming and performance. Dell recently got into this business, but we are very competitively priced, probably less expensive. Because we're dealing with the high end, we're able to leverage those relationships, and now we're very comparably priced at the higher-end ASP.
Entrepreneur: Who's your typical customer?
Gonzalez: It tends to be male, but actually the majority of the people who buy our machines are probably wives or mothers for men age 18 to 50. These men are professionals making over $70,000 or so and have multiple computers at home. They've bought off-the-shelf stuff, have built their own machine, and find that we bring a lot of value for what we give in terms of performance, upgradability of a box and support.
Entrepreneur: How is your marketing different?
Gonzalez: We're very honest with our customers first and foremost, so it's a completely different approach than what is being done out there in the PC industry. If you see an advertisement from us, you'll see a $3,000 price-tagged system. We put down all the details of what components you're getting. It's almost like we're selling a turnkey solution vs. a $999 computer that will upsell you on everything else.
Entrepreneur: You haven't ever had outside funding?
Gonzalez: Our business has grown organically. We're very proud of that accomplishment, probably that more than anything else. It's so tough to expand operations and grow a business organically; it takes a strong management team to do it effectively.
Company description: Online marketplace for corporate asset liquidation
Founders: Bill Angrick, 35, Ben Brown, 30, and Jaime Mateus-Tique, 36
Location: Washington, DC
2003 projected sales: $60 million
Started during the Internet boom, Liquidation.com is an online emporium where corporations sell their excess assets to the highest bidders, typically generating higher returns than conventional liquidation methods. Co-founders Ben Brown, Bill Angrick, and Jaime Mateus-Tique knew from the beginning that the simplicity of their business plan would spell success. "Sellers always have assets to sell in our economy," says Angrick. "So we provide a very simple business that fills that need."
It was Angrick's vision for an efficient, one-stop online shop that moved investors in the early days. But Liquidation.com set itself apart by avoiding the excess of other dotcoms. It was bootstrap city-to the point that Angrick and Mateus-Tique shared a 300-square-foot studio apartment near their Washington, DC, office.
Those days are behind them, as the trio expects $60 million in sales this year. And revenues come not just by serving the sellers' needs-Liquidation.com is a prime resource for smaller start-ups to find wholesale merchandise that they can resell via stores or online outlets like eBay. Says Angrick, "We understand we're a service business [first] not a Web site, not a tech company." -N.L.T.
Entrepreneur: As someone who ran a dotcom throughout the trying times of 2000-2001, what was your philosophy in terms of getting through that time?
William Angrick: It was an exceptional period, and the assumptions in place for creating value and attracting investment capital and being perceived as a success-those assumptions have all changed. Back then, it was awkward to start a business in a bootstrap fashion and then be patient and build on a small scale as you got profitable. People required you to scale the business rapidly to show you had market share or presence and could discourage competitors from coming into your space. And all the advice we got from VCs was to raise as much money as possible, grow as fast as possible. "Don't worry about profitability; we'll deal with that later." Well, that was bad advice.
Entrepreneur: How did companies looking to liquidate view you when you first started?
Angrick: I think early on, most of corporate America was circumspect about using the Internet. There were issues of trust, quality control and whether the dotcom service provider was going to have staying power to provide that service on a long-term basis.
Entrepreneur: What are the reactions of the smaller start-up companies that buy this inventory off of the Web?
Angrick: There's a constant flow of inventory coming into our market, so there's a wide breadth for buyers, ranging from consumer electronics, computer and technology equipment to apparel, vehicles, and a variety of medical and electronic equipment. This is all very relevant to our buyers. A small-business buyer traditionally didn't have access to this product. They couldn't call up Mr. Fortune 100 company and say, "I want to buy your surplus." They now have a channel where we create a very open, efficient marketplace for the buyer. And if he's the high bidder, he gets it. It doesn't matter if he's a large, medium or small company, so long as he meets the terms and conditions of the sale, which is essentially paying for the merchandise. That's a fundamental enhancement for that marketplace. So in a symbiotic relationship of sorts, we are facilitating entrepreneurship with small-business buyers.
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