Sramana: Does your business model still rely on third party logistics?
Tony Ellison: Yes, by and large. We have a lot of 3PL relationships as well as a lot of private brands. Today, we offer over 600,000 items. We are in close to 16 different major categories. We started in CD-ROMs and then moved into basic office supplies and ink and toner. Today, we also cover furniture, cleaning and break room supplies, security and safety items, and several other items.
Sramana: In 1995, you started getting orders on the Internet. You hit 100 orders a day. What revenue level did you reach that year?
Tony Ellison: We hit the low 7 figures in our first year of operations.
Sramana: What kind of margins were you able to maintain?
Tony Ellison: Back in those days, we were able to maintain gross margins in the mid 30% range.
Sramana: What about operating margin? What did you need on the operating side to be able to run this business?
Tony Ellison: We were slim and lean. We had operating margins of 10% to 12%, and that is probably a high estimate.
Sramana: What was the composition of your team at that time?
Tony Ellison: In the beginning, I had two other part-time employees helping me. They became full-time employees by the end of the year.
Sramana: You operated with around $100,000 of profit in your first year. Is that about right?
Tony Ellison: Yes, there was a lot of sweat equity. I was not looking to get paid. Our major expense was G&A because we were operating out of my apartment. My help would come in 4 hours a day here and there. We later opened offices in downtown New York.
Sramana: During the period where you were working under a distributor supported model, where was the pick/pack/ship happening?
Tony Ellison: Most of that was done by the distributors. They were the ones who supplemented my Internet saviness. They took over once we captured the order. They did the pick, pack, ship, and management of returns. They handled all of that.
Sramana: What changed in 1996 and 1997?
Tony Ellison: The vision expanded. We started to offer a much larger assortment of products and we delved deeper into the IT world. We also started to hire more people. We hired professional IT people and started to market a lot more aggressively. I had built a newsletter by then, I had email campaigns running, and I did a lot of marketing to target customers.
Sramana: You were still operating under limited cash flow, right?
Tony Ellison: Yes, I had hired a team of 6 people and I had office expenses. I started to invest in a lot of software. I had to personally fund a lot of that investment and growth.
Sramana: Where did that personal funding come from? Did you raise money from friends and family?
Tony Ellison: My previous stint was at Goldman Sachs and that is where I made my money. I worked with private wealth management. I was so passionate that I believed that investing my money in my company would be the best investment that I could make.