You were an analyst at Goldman Sachs. What prompted you to become an e-tailer?
I had always wanted to run a business, and as an analyst, I felt like I was an outsider looking in. I had front-row seats at the game, but I wasn’t playing. For 14 years I had bided my time waiting for the right opportunity. When the Internet started becoming a retail business in 1997, I spent a lot of time researching it and decided that this was really what I wanted to do. On top of that, Goldman Sachs was doing an IPO, and that would have locked me up for five years. I felt that I would start being motivated by money, which is not the way I want to lead my life.
How do you feel about entering the online business just when it’s slowing down?
It’s a mixed bag. The negative side of it is that it’s been painful for us having to reduce our costs pretty dramatically over the past year. We were competing in an environment where market share and building a customer franchise were the name of the game, and that’s shifted to one where we have to assume that we’re going to get no additional outside capital and have to make the business work with the money we have. On the positive side, I love doing things that everyone thinks are going to fail. It’s positive from a business perspective as well because it thins out the competitive ranks. If you’re competing against somebody who doesn’t care about making money, then it makes it very hard for you to make money.
Do you think that there is an online business model where you can make money?
Definitely. I think the biggest problem is that Internet retailers wanted to dominate an industry in no time. It can happen — and Amazon has shown that it can happen — but it comes at a cost, and the cost is mammoth losses. It takes a long time to figure out the right formula for a business. When you’re trying to get everything done yesterday on the Internet, you’re going to make a lot of mistakes and fritter away a lot of money. I think in the next few years the Internet is going to be dominated by the major stores and catalogs. Smaller Internet retailers will be able to make a profit, but only by growing in a very gradual way.
Do you outsource order fulfillment or handle it in-house?
The interesting thing about the Internet is that, as personalized as it can be, you lose direct contact with the customer. The only opportunities you have for human contact are through customer service and, in a sense, fulfillment. Outsourcing, putting faith in somebody else, was not something I was willing to do. We decided to handle it in-house. That led to many sleepless nights for many of us in the company, because we all pitched in to help out. We took an approach of under-promising and over-delivering, giving ourselves longer lead times, and we pretty much met or exceeded our goals.
Does UncommonGoods operate its own distribution center?
We’re leasing space, and it’s very rudimentary. But then again, we’re not trying to be Amazon. We’re not trying to be the category killer in the next three years. The business is growing quickly, but it’s not huge, so we can be reasonably low-tech and still make it work, kind of muscle our way through. When we have to be bigger and more professional, we will, but I’m not a big believer in spending money until you have to, particularly when it comes to technology, because you generally see the costs come down considerably.
What we’re seeing is that investing too much in automation is frequently a mistake.
If you can hold off, I think it’s to your advantage, as long as you’re not dysfunctional. So far, we’ve been OK.
Your products are one-of-a-kind and often fragile. How do you handle packaging?
That was one of the reasons we chose to do fulfillment in-house — that someone who was also working for another retailer might not give the product the same attention we would. We had some issues during the last holiday season. For instance, we had a product featured on the Today show, a bowl made out of dried vegetables. It was absolutely beautiful, but you could not possibly come up with something more fragile than that. It is paper-thin, and we did have some returns.
Do you plan to try other selling channels?
We’ll try a small catalog this year, and hopefully that will drive telephone or online orders. As for brick-and-mortar retail, that’s my background, and I’m open to it. We’ve done sample sales and had an overwhelming response. But we only have a certain amount of capital, and I feel that there are only certain things we can do well concurrently. I don’t want to bite off too much and have a mediocre store, a mediocre catalog, and a mediocre online site.
Where do you see yourself in a few years?
I can see myself doing this for ten, maybe 20 years. I don’t have any specific goals relating to taking the company public or reaching a certain revenue level. I will make sure that it is a strong and profitable business, and over the next couple of years I have specific targets, but I don’t have a ten-year goal. Honestly, I’m not doing this for the money. I’m doing it for the challenge and the fun of it.
That’s a refreshing point of view, far different from what we’ve seen recently.
“I think a lot of technology investors got blindsided by greed.”
What you had was opportunists getting into the business, and technology investors backing a retail revolution. The fundamental disconnect of the technology investors is the concept of scale. The incremental costs of producing software or hardware are low, but the payoff is phenomenal, so there are huge margins there. In retail the margins are not great. You don’t have the scale economics that you do when producing a piece of intellectual property. I think a lot of technology investors got blindsided by greed.
Is online retail still a viable business?
It’s a wonderful business to get into as an entrepreneur, because you’re not competing against people who have twenty or thirty years of experience — they have at most three or four. It’s still a wide-open field. But the people who get involved in the business today must have a longer-term perspective, because you have to be nuts to think you’ll be cashing in on any great rewards over the next few years.
So will a different kind of person be entering the business?
I think you’re still going to attract risk-takers, but you also had a lot of non-retailers involved in online retailing, and I think that’s going to change. You’ll see fewer technology people. But as for the personality type, I don’t think you’ll see conservative people getting involved in this because it’s still very risky. You need people who are determined and can take setbacks in stride.