Small Is Beautiful -- and Lucrative
Think small. That was the basic starting point for Mike Cayelli when he decided to open an online retail business two years ago. With a tiny house, little capital to invest, and only "spare time" to devote to the project, Cayelli knew his big dream had to stay manageable. The Washington (D.C.) entrepreneur still hasn't quit his day job, but he's projecting $500,000 in sales this year for his company, Cuff Daddy (www.cuff-daddy.com). He spoke recently with Smart Answers columnist Karen E. Klein. Edited excerpts of their conversation follow.
You have a full-time job. Why start your own company?
About two years ago, I was working for [a hardware chain] as a manager in the regional professional contractor division. I still work there, in fact. But there was some reorganization going on, and I became concerned about my future. So I wanted to hedge my bets by starting my own company.
How did you settle on becoming an online retailer?
I wanted to emulate my cousin, who's been enormously successful selling mobile phone accessories online. He imports products from Asia and realizes a substantial profit margin. I also wanted to do something purely on the Internet so I could keep working at my "real job" and develop the company in my spare time.
Your major concern was finding a niche product that was physically small. Why?
Well, we had a small house that I planned to use as headquarters. So I needed inventory that I could store in a footlocker, have my wife ship out of a home office, and haul around in a car instead of a truck or trailer. As for shipping, about 90% of our orders can be mailed first-class with two stamps in a .13-cent padded envelope.
How did you settle on cuff links?
It was not easy. I spent several months looking at things like buttons, watchbands, shoe laces, and collar stays. Every time I thought of a small, niche product I'd write it down on a scrap of paper and shove it into my pocket to research later.
I wanted a product that could produce high sales volume and a high profit margin. I didn't want something that sold one unit per week. So when I got an interesting idea, I would search for it on eBay (EBAY) and run it through a research tool called Andale. For $7.95 a month, you subscribe to this Web site and you can get diagnostic information about any product's online sales volume and average selling price.
One morning about 6 a.m., I stumbled onto some cuff links for sale on eBay and noticed there was tremendous action on that listing. I ran upstairs and woke up my wife and told her I'd found the right product.
Once you zeroed in on a product, you had to find suppliers. What was that process like?
Again, I went to the Internet. I found two great places that help you source products overseas. One is Global Sources, and the other is called Alibaba.
I looked through thousands of vendors that are listed on these sites, found products I was interested in, e-mailed the manufacturers, and got them to send me samples. I never even had to pick up the phone.
When I put the first samples up for sale at eBay and they sold extremely quickly, I knew I was onto something. We wound up with six regular vendors based in China, Hong Kong, and India that provide us with a product line that we buy for between $1 and $6 a pair and sell for $15 to $55 a pair.
How much money did it take to start the company?
We started very small with a $500 investment, though it felt like a lot because I was worried about losing my job, and my wife was home taking care of our two little boys. We used that money to buy 100 pairs of cuff links. The minute I felt comfortable that they'd all sell, and we could reinvest the money we made, we doubled that order. Sales were quick right from the start, so we started adding more products pretty fast.
What about the cost of establishing a Web site or online store?
We didn't do that right away. For the first nine month, we sold strictly through a store we set up on eBay. We wanted to have minimal startup costs, and we only had five products. With that small a product line, if you open a Web site you're going to look like a joke.
By the time we were selling about 50 items, we figured we were ready to establish our own Web site. We outsourced the development to a friend who charged us $500. We host it on Yahoo! (YHOO) Stores because they have virtually no down time, it's easy to use, and they offer good metrics, so I can analyze things like who is buying our products and who are our repeat customers. I can also see how well things like coupon promotions work.
What's been the toughest part for you?
The marketing is really hard, and I still haven't gotten good at it. I could have a cure for cancer, and nobody would know about it because it's very, very difficult to get the word out. We've paid people to do search engine optimization for us, but it hasn't really helped.
We got completely burned once by a salesman who took us for $1,000 for a marketing product that was useless. We are doing some pay-per-click campaigns with Google (GOOG) and Yahoo! now that seem to be working a bit better, and we're also going to start an e-mail marketing campaign, so we'll see how that goes. But overall, I was surprised by how much the barriers for starting a company have come down. I was lucky that my cousin shared his recipe for success with me, and now I'm trying to do the same thing. I'm mentoring a guy I work with who's also starting a company thinking small: He's selling fishing lures.