You can find inspiration for a new business just about anywhere. Mike Dillon and Jeff Fitzsimmons found it in rotten potatoes. The duo sells the Bonsai Potato Kit: Zen Without the Wait, which teaches you how to lovingly grow sprouts from an old potato (you provide the potato). For $15.99 you get a 64-page pamphlet detailing the process, a pot and “geoparticulate support medium” (gravel). Says the 31-year-old Fitzsimmons: “We’re just selling the idea of rotten potatoes over the Net.” Since their company started the business in 1998, they’ve racked up $350,000 in sales.
David Bruce, 28, found his inspiration in the dented rear end of a Volvo. He hit the Volvo with his Mountaineer nearly two years ago. With a citation in hand, he had two equally painful options: increased insurance rates or defensive-driving school. The school was marginally less disagreeable, so he went online in search of Web sites offering remedial courses. He found none in his home state of Texas, and thus his idea was born. Launched in February, defensivedriver.com offers a six-hour course with 3-D interactive graphics and animation that takes a driver back through the basics and then tests what he’s learned. A former real-estate executive, Bruce poured all his money into the business and hopes to turn a profit within a few months and, ultimately, go national. Roughly 8,000 people have taken the $40, state-sanctioned course so far. Given that 3 million lousy drivers get cited every year in Texas, it’s a growth business.
Steve Colby, 49, took his inspiration from plastic lawn flamingos, which he now sells online along with other tacky gewgaws like Tiki mugs and plastic dashboard hula dancers. He used to run a store–Off the Deep End–in Frederick, Maryland, which he abandoned last September when his Net store of the same name started outselling it. Excluding inventory, his costs have gone from $6,000 to $600 a month, and he’s on track to earn $50,000 in profits this year. Plastics, it turns out, is still good advice.
The Internet has revitalized opportunities for the 25 million small businesses that form the backbone of the U.S. economy. Dillon, Fitzsimmons, Bruce, Colby–they are the Horatio Algers of the Age of the Internet, the dot-comers for whom all business dreams are possible, even if they involve potatoes. The low cost of computers and communications has created a worldwide medium and given midlevel managers the chance to go it alone and kick the legs out from the corporate ladder. At the same time, Mom and Pop can go global–all from the comfort of their easy chairs. Never before has there been so much money available to bankroll good ideas. Wall Street’s long love affair with e-business minted so much wealth that the Internet has done for business what Michael Jordan did for basketball and Tiger Woods for golf: made it a mass spectator sport. Rick Oliver, a professor at Vanderbilt University’s Owen Graduate School of Management, calls the availability of start-up funds an unprecedented “democratization of capital.” Says Oliver, who himself is bagging his academic job and starting an M.B.A. program on the Net: “This is an entrepreneurial renaissance.”
The pages that follow in this NEWSWEEK Special Report shed light on the digital renaissance that has produced a surge of entrepreneurship unrivaled in American history. They detail the dos and don’ts of the Internet game. People are changing their businesses along every step of the supply chain.
This Special Report looks at the new shape of opportunity today, whether you’re a one-man shop trying to look bigger than you are or a bigger business trying to figure out which B2B to be. Gauge your entrepreneurial pluck with our quiz and take some tips on how to pitch a venture capitalist from one who discovered Yahoo.
The potential of the Internet is great enough to allow for businesses that would never have started during the brick-and-mortar rules of yesteryear. Darin Hayes, a former advertising executive from Coeur d’Alene, Idaho, left his job and joined up with one of his former frat brothers to start uglies.com, a site devoted to the sale of “no wedgie” boxer shorts made from mismatched fabrics. The boxers are, as the company’s motto explains, “so ugly she’ll beg you to take ’em off.” Leveraging their assets as bad dressers, Hayes and his partner started the business in 1998 with so little money–“we lived on credit cards and girlfriends,” says Hayes–they couldn’t afford the $20,000 it would cost them to set up a booth at an apparel trade show. So they scraped together $6,000 to start their site. “We looked at the most cost-effective way for us to test this business idea without losing our shorts,” Hayes says.
In uglies.com, the beauty of the Internet is obvious. The company has expanded its customer base beyond the United States to 15 countries, including Malaysia. It has no “channel conflict” with retail storefronts (there are no retailers). It can produce a product one day and sell it the next. Finally, there are no middlemen to skim profits. Though the partners don’t expect to be profitable until 2001, the company has sold $200,000 in underwear since it opened two years ago. Hayes doesn’t blink when he says he’s gunning for “world domination–at least a broad marketplace–something a storefront could never do.”
Despite the harsher climate, Net myths persist. There are just enough people in the world who have made millions overnight that fast money still seems possible. There are just enough teens in black T shirts who have hit the jackpot to make you think all their twitchy fingers have a golden touch. There are just enough of these exceptions, in other words, to make them seem like rules. Sure, the Net’s low cost may level the playing field between your small shop and big businesses, but your competitors have the deep pockets for expensive free agents while you are still sponsored by the guys at Joe’s Pizza.
Just getting your Web site off the ground is hard enough. Anders Brandi found it more difficult than strapping himself to the wing of a rickety biplane, hanging upside down by his ankles and hurtling toward earth at breakneck speeds. Brandi, who performs his wing-walking routine at air shows, works by day as a contractor specializing in remodeling homes. Living in Half Moon Bay, California, one of the San Francisco Bay Area’s countless dot-communities, the 34-year-old didn’t need to go far to put both of his businesses online two years ago. Two local ladies were building Web sites for $100 and hosting them for $25 a month.
Then came a protracted nose dive that Brandi still hasn’t pulled out of. The company that hosted his two sites was supposed to supply various search engines with the names and addresses of his sites so Web surfers could easily find him. But it didn’t happen; searching the directories, Brandi could barely find himself. Soon his hosting service shuttered its business because it wasn’t making enough money. Brandi’s contracting site went down with it. But he continued with his “aerobatics” site (wingwalker.com). After a series of mishaps with the designer and hosting service, Brandi paid a company $150 to spread word of his site to 900 others around the Web, but all he got was junk e-mail. And he still doesn’t know how to update the online schedule of his appearances, which hasn’t been revised in a year. “Everybody tells me you’ve got to have a Web site,” he says. “I laugh.”
Some have learned the hard way that ditching your Old Economy company to bask in New Economy riches is a myth. Jeff Schatz doesn’t have any illusions that he can quit his day job as creative director of an ad agency in Columbus, Ohio. Last year the 45-year-old set up hotsauceheaven.com to push taste-bud-burning sauces, which have names like Smack My A– and Call Me Sally. To set up a mall kiosk would have cost Schatz more than $1,000, compared with the $124 per month he spends on his homespun site. Costs are low for him because his inventory is in the basement and his employees happen to be his wife and two daughters. Last year’s revenue totaled $20,000; almost half that was profit–enough for a family vacation in the Caribbean. “It’s a lot of work with not a lot of return, so it has to be a labor of love,” says Schatz. “We’ll never get rich selling hot sauce.”
So many online merchants underestimate the difficulty in luring customers. For years Natasha Becker of San Mateo, California, has been pushing her grandmother’s secret recipe for Russian sherry tea cakes at a local farmers market and gourmet groceries. Goaded by the e-hype, she decided to sell them online, hoping she’d have to fill five to 10 cyberorders a day. She paid a company $5,000 that was supposed to help her set up, advertise and maintain her site. But, she figures, after two paltry days of training that glossed over the importance and expense of advertising, she got ripped off. She doled out an additional $1,500 for another contractor to finish what the first company started. But her Web sales are flat. At best she gets three orders per week. Having refinanced her house, she’s already dipping into her $2,000 emergency fund. She admits that she fell prey to a myth: “I didn’t know that if you built it, they won’t come,” she says. (Note to businesses: it’s just a movie–and a Kevin Costner one at that.)
Fact is, getting noticed will only get tougher. New sites are no more likely to pull in visitors than they are to get phone calls once they’ve been listed in the White Pages. There are an estimated 12 million other Web sites out there to distract people. To make matters worse, the domain-name-registry service Network Solutions is adding a new dot-com every five seconds. And, even corporate big boys would have a hard time coughing up the kind of money Priceline has to fork over to get Captain Kirk on our TV sets. The potential audience may be huge, but the actual audience is often minuscule. For that reason, says Bruce Phillips, director of the Office of Economic Research at the Small Business Administration, “the Internet is a double-edged sword.”
All these myths conspire to create the megamyth that there are New Rules for the New Economy. Make no mistake: Old Rules still apply. Bad service digitally delivered, for example, remains bad service. Just ask customers of Toys “R” Us, whose inability to fulfill orders stranded Santa for weeks last holiday season. And if you think there’s no opportunity to improve on that, just try sending an e-mail to a business; the response time will make telephone hold times appear to have the brevity of a wink. Andrew Beebe, CEO of Bigstep.com, which has helped 70,000 small businesses go online through its soup-to-nuts service that manages Web offerings, prescribes a simple solution of winning customer loyalty by delivering good service. “Small businesses win by doing what they do well offline, which is creating relationships.” So many Net retailers, who pumped all their millions into advertising to attract hordes of people online, skimped on customer service and treated them like cattle once they arrived. Forget about location, says Beebe–the rule for online success is still “relationship, relationship, relationship.”
One of the Net’s best ways to make money is to save it. By digitizing everything in sight, you save more than paper, posting and printing costs. Human-resources manuals, health plans, procurement, electronic invoicing and all those other fuzzy business processes can save a tremendous amount of time, which, even in the screwy Internet economy, still equals money. The efficiencies of cyberspace are one reason that chemical companies and automakers are banding together to create business-to-business “exchanges” that simplify and speed up the process of dealing with their array of suppliers. The negotiation between buyers and sellers, whose bids literally move at the speed of light, allows for more back-and-forth talks and lowers prices as a result, says Wally Bock, a small-business consultant and author. He argues that, simply by listing store hours and directions to your brick-and-mortar digs online, you’ve solved the most frequently asked questions of mom-and-pop shops. Adds Bock: “The best way to have an impact on the bottom line for 95 percent of the businesses out there is to look for ways to save money.”
Freda Greenbaum, the owner of a small chain of clothing stores called A Nose for Clothes, has the right idea. The Miami resident set up anoseforclothes.com in 1998. The potential for cost savings has already justified her $2,500 initial outlay. Off-line, Greenbaum mails her customers store promotions six times a year. Postage alone costs her $8,000 each time. But online, she can e-mail a growing number of her customers within 20 minutes. She also communicates with her vendors clickety-split, making purchasing decisions from their Web sites. Originally, Greenbaum was caught up in the fever to sell online. But she doesn’t fret about the commerce craze anymore, and she doesn’t want to rush into it prematurely. “I can still have an Internet presence enhancing the areas of my business that I’m very good at: customer service and communicating with my vendors. I don’t feel it will make me money, but it’s an opportunity to cut my costs.” In other words, Greenbaum’s expectations have stepped down from their Mount Olympus heights and she’s getting down to business.
Maybe the Internet will one day save us all enough time and money that we can take those long vacations–instead of just daydreaming about them.
