Sramana: How do you handle merchandising? Merchandising involves building relationships with suppliers, determining what products to bring on, what products to create deals around, and how to position them with consumers.
Pavel Sokolovsky: Merchandising is an interesting term. In a traditional sense we did not do much of it. It just happened as a by-product of our business. I always thought that merchandising was all about presenting the product to consumers, so it’s good to realize that perhaps we did more there than we thought we did.
Sramana: You could call what you did on the catalog side of your business visual merchandising.
Pavel Sokolovsky: The roles you describe were really handled by my co-founder. Victor has always had a knack of speaking the same language as our supply chain.
Sramana: How much revenue did you bring in your first year?
Pavel Sokolovsky: We did $2.56 million.
Sramana: That is a very good ramp.
Pavel Sokolovsky: We found a market that had a need and our service directly addressed that need.
Sramana: Did that growth rate sustain across multiple years?
Pavel Sokolovsky: Yes. We have had a very strong growth rate. This last year, we did $13 million dollars in revenue. We are looking to grow that substantially this year as well.
Sramana: How many people do you have on your staff now?
Pavel Sokolovsky: We have 22 people. We have people working in fulfillment and warehousing, a customer experience team, an engineering team that handles the product complexity, a catalog management team, and accounting.
Sramana: Are the bulk of your employees in the logistics role?
Pavel Sokolovsky: No, we have four people plus some temps in the warehouse.
Sramana: What about customer service?
Pavel Sokolovsky: We have four customer experience managers, two product advisors, and a director of customer service.
Sramana: How big is your market?
Pavel Sokolovsky: In the US, there is a $22 billion market for the products we sell.
Sramana: Who dominates that market?
Pavel Sokolovsky: A very fragmented group of 68,000 local contractors. The traditional approach relies on contractors to be the point of sale for these products. We fundamentally believe that model is not good for the home owner. We are trying to change that.
Sramana: What is the average margin in this industry?
Pavel Sokolovsky: A lot of the contractors today are operating on very low or have no margins. Successful contractors can operate at 20% to 30% net margins.
Sramana: Their business model is services. They don’t really care whether they make margins on the product sales. Is that correct?
Pavel Sokolovsky: It’s pretty mixed. Most contractors are not sophisticated in that analysis so it is really hard to say. There is a really wide spectrum among the contractors.