Sramana: Search engines picked up your product descriptions, and users found your site when they were using search engines to search for things like steam cleaners and air purifiers. Is that an accurate description of your customer acquisition model when you started?
Mercia Tapping: That is exactly it. In January 2000, our first month’s sales were $2,000. By December of that year, our monthly revenue was $100,000. That strategy worked well.
Sramana: What was the competitive landscape like at that time for the product portfolio you were selling?
Mercia Tapping: At that point, there was not really any Internet competition. There were two catalogue companies, but nobody else had a comprehensive environmental control products website. There were people selling the odd single product or two, but nobody else was trying to open the equivalent of a department store.
Sramana: Was your site achieving top organic search result rankings at that time?
Mercia Tapping: We were always on the first page, often positioned between 1 and 3. It would bounce around some, but we were most often on page 1 of specific searches.
Sramana: You did $100,000 in revenue in December 2000. Were you still using drop shipping as your primary inventory management strategy at that time?
Mercia Tapping: Yes, except for a very small amount of inventory. Companies like Electrolux have always required that we have inventory. At that point we had $25,000 in inventory at any one time.
Sramana: From 2000 to 2010, what are some of the things that you have done to develop your business?
Mercia Tapping: We are now a $17 million company. Over time, the volume of certain products became sufficiently large that manufacturers begged us to take them into inventory. About 60% of our monthly revenue now comes from product that we keep in inventory at an outsourced warehouse. The products that we do keep in inventory are quick turn products only.
We started cautiously, but we do have a substantial paid search program. The majority of our business and our primary focus remains on organic search. It is an incredibly important part of our business. With paid search we have moved from fewer key terms to a program with thousands of long-tail terms. In the past year the program has become so large that we have outsourced the management of it to an outside agency. It was taking too much time in-house to manage it.
At the beginning of 2000, I signed on with a venture capital company. A couple of months later they reneged on the agreement and tore it up. There was nothing I could do as an entrepreneur. I learned that lesson. If the folks on the other end of the contract are bigger than you and want to rip up the contract, they can.
We have never taken outside financing. We have always been self-funded and bootstrapped. Quite frankly, I prefer it that way. I did not take any debt for inventory financing.
Sramana: How much margin were you making that allowed you to have this organic growth?
Mercia Tapping: In the early days the margins were 44% to 45%. We were spending very little on marketing. Now, due to increased competition and the way manufacturers have changed their pricing, margins are closer to 35%. Marketing is also more expensive.
Sramana: Do you do additional marketing outside of paid and organic search?
Mercia Tapping: We do other things as well. Any company will have affiliate marketing, and we use re-targeting ads. We have a huge e-mail program. I started a newsletter back in 1999. At any one time it has 100,000 subscribers. We have articles that are of interest to the customer base. We also started a couple of blogs along the way. The biggest thing we added in terms of marketing was a printed catalogue that we started five years ago. That accounts for about 20% of our revenue. That was a big step for us.