`The Internet Is The Great Equalizer'

Cyberian Outpost: From zip to $10 million in a year and a half

In the winding roads of northwestern Connecticut, where the suburbs give way to countryside, browsers traipse through the boutiques that dot Kent's quiet main street. But every day, 7,000 people--twice the town's population--arrive from around the world to visit one shop: a tiny computer store wedged in the back of a sleepy shopping center.

The awning says Cyberian Outpost, but nobody's walking in the door. They're coming instead by the Internet--and spending $1 million a month on computers, peripherals, and software.

"We used to have a retail store, but we were paying one person to sit there for five walk-ins," says Darryl Peck, who opened Cyberian Outpost last year. Two dozen employees, meanwhile, were handling thousands of customers online--more than half from abroad. Sales have been tripling every three months, and Cyberian expects revenues to exceed $10 million this year. "It's beyond our wildest dreams," says Peck, 37. "We'd need hundreds of workers to handle that traffic in the real world."

In the real world, Peck wouldn't be selling as much at 2 in the morning as he does at 2 in the afternoon. In the real world, he wouldn't lose $100,000 in two days because of a computer glitch. He couldn't change promotions on a moment's notice or stock 8,000 products without charging manufacturers for shelf space. He wouldn't be able to leave his native Manhattan for the country and aim for $50 million in his third year. But this is cyberspace, and small business is so different here that Peck can rival giants online like CompUSA Inc. and Egghead Inc. "The Internet is the great equalizer," he says.

With a playful site that bills itself as the "cool place to shop on the Internet" (www.cybout.com), noted customer service, and a browser in 10 languages, Cyberian is among the growing success stories in cyberspace, catapulting to the top ranks of online sellers of computer hardware and software--just behind NEC Direct and Barry Diller's Internet Shopping Network. Together, analysts estimate, the three companies account for as much as a third of the $140 million of computer equipment selling online this year, according to Forrester Research Inc. By 2000, some $2.1 billion of hardware and software is expected to be sold online--a third of all Internet purchases. Startups are likely to dominate. "The big guys don't have the go-for-broke attitude," says Emily Green, a Forrester analyst. "Guys like Cyberian have mortgaged their houses, quit their jobs, borrowed from in-laws. They'll work like dogs to make it work."

Peck did all of the above--or some variation thereof. He sold his $2 million software publishing business in late 1994, after moving it from New York City to a bedroom in the outskirts of Kent. And for the first time since early adulthood, he began contemplating his career. That's when he discovered the World Wide Web. "I knew immediately that I had to make this my life," he says. "I thought, any moron can make a browser work." He surfed for thousands of hours and finally banged out a business plan to sell computer parts online. But he couldn't tempt investors. "They all said: What happens when the big guys like CompUSA go online?"

A month of rejection was all Peck could stand. He withdrew $18,000 of his own savings and borrowed $10,000 from his father. He incorporated, designed a logo, rented an office and warehouse, purchased scanners, and stocked up on 800 Macintosh titles. Computer geek friends did programming, designed his Web page, and rented server space in exchange for equity. Even Peck's sole employee worked for a share instead of a paycheck. Peck bartered away 20% of the business for roughly $200,000 of services. "Who knew?" he says.

The next challenge: drawing devotees from the $53 billion direct-mail market. "I knew I had to give them something they couldn't get by calling 1-800-SELLMESTUFF," he says. He scanned packages and linked his site to others; a flight-simulator game, for example, would hook into sites for joysticks. He created a multilingual browser for foreigners anxious to skirt the high price of U.S. products in their local stores.

IPO AHEAD? Still, Cyberian's debut in May, 1995, was abysmal. Peck and his colleague worked 17 hours a day to cut $10,000 sales for the month. "I thought it was dead," he says. He delicately began dropping the company's name in online chats, as did a few customers, and small orders dribbled in. Merchandise was delivered the next day as promised, and nobody's credit-card numbers were stolen, as many had feared. A friend who had just sold his own software company invested $200,000, which Peck sunk into online advertising, equipment, staff, and a bigger warehouse for his Mac-dominated stock.

The company's reputation took off. "They have great word of mouth," says Joshua Burgin, a 23-year-old Webmaster who spent $8,000 last year shopping online. "They don't assume Internet users are like everyone else. We're savvy, smart, and some of the cheapest bastards on earth." Which is a growing threat, as a wave of competition gets wired--including CompUSA, which sells three times as much as Cyberian in a single store. The behemoth last year opened an online showroom, but still handles purchases by phone. When CompUSA starts accepting electronic transactions, Peck says, he'll match prices and surpass service. "Computer margins are not huge to begin with," he says. And vendors, tired of paying superstores for shelf space, are rewarding Peck's free channel with discounts.

Also on his side are marketers who want to tap his customers. Avis paid thousands of dollars to place a banner on Cyberian's site. And Hammacher Schlemmer, the novelty store, opened its online site right on cybout.com and gives Cyberian a commission on sales.

Cyberian expects to turn a profit early next year. By then, Peck will have acquired an Internet-related company, doubled his staff, and begun preparing for an initial public offering. "We could be a $50 million company in a year from now," he says. That means a faster server and a bit more memory--and a little more space on Main Street in Kent, where most merchants still use cash registers and close at dinnertime.

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