March 15, 1999

Business owners say planning is key when customers start ordering online

Terry Boyd

It's cheap. It's easy, and it seems like everyone is doing it.

But that first voyage to the new world of online commerce can be exhilarating and sobering for small-business owners all in the same trip.

Gary Heine, co-owner of Heine Brothers' Coffee, was checking company electronic mail late last November when he saw the message, "Web order."

Heine clicked on it, and voilá -- there was an order from a guy in Virginia for a gift certificate, a coffee cup, a bag of Nicaraguan beans and a bag of Yemeni mocha coffee.

The order totaled just over $40, one of hundreds of transactions that day for the Louisville company, which roasts coffee for sale at four area coffee shops. But to Gary Heine, "it was the most thrilling thing that had happened in a long time."

What made that $40 sale the coolest thing since iced cappuccino was that the request was 5-year-old Heine Brothers' first online order via its then days-old Web site.

"It was . . . very, very cool!"

But, Heine said, he and partner Mike Mays also have some serious e-commerce conundrums.

For example, if big companies such as Seattle-based Starbucks Corp. can sell tons of coffee on the Internet, why can't Heine Brothers? But what would he and Mays would do if the company's Internet sales really took off?

"We want to be careful what we wish for," Heine said.

"We need to be careful if we start building a mail-order business, (then) we do a bad job of it or neglect the great business we have here in Louisville."

Small businesses spending a few thousand dollars to go online and get a few orders weekly "may feel they're successful, but that's not getting on the bandwagon," said Ray Schuhmann, president of Kinetic Corp., a Louisville-based technology and graphics company.

Kinetic operates Web sites for a number of companies, including Radcliff-based U.S. Cavalry, which sells military-related items from Israeli commando boots to camping gear at http://www.uscav.com, and the Abbey of Gethsemani in Nelson County, a Roman Catholic monastic order that sells fruitcakes online at http://www.monks.org.

Schuhmann said small-business owners often enter e-commerce backward, getting the Web site first, then thinking about how they're going to process orders.

If they really want to take full advantage of emerging technologies, aspiring e-commerce pioneers' might first ask, "How do I completely automate the process?" he said, beginning with assigning inventory-tracking numbers called "stock-keeping units" or SKUs, to each product and finishing with the ability to automatically process orders.

"There's no sense in (processing and fulfilling orders) manually when you have the power of the computer, which is why you're starting the process in the first place," Schuhmann said.

Going online might mean a sizable investment in high-powered computers and database software to process orders, along with connections to and banner advertisements on related Web sites.

"You really have to look at it as if you're opening a new store," Schuhmann said. "You've got to spend the money to get traffic to come to you."

Michael Seiler, co-owner of Just Socks, a Louisville partnership selling socks via the Internet, said he agrees that small-business owners contemplating e-commerce need to think through processes such as tracking product and responding to customer inquiries.

But he said he believes that with a limited number of products, a huge investment in fulfillment is not necessary initially. And, he added that entrepreneurs like himself feel that just having a Web presence is imperative as more and more people go online.

Online commerce is growing so rapidly that every business from the corner coffee shop to apparel giant The Gap (http://www.gap.com) is rushing to the Internet with hugely varying degrees of success.

Large companies such as Internet retail pioneer Amazon.com Inc. account for the bulk of the increasing sales, with the Seattle-based online bookseller raking in about $20 per second, according to news reports.

That said, 3-year-old Amazon.com has yet to actually make a profit.

Beyond quantifiable gross sales, having a Web site "allows your store to be open 24 hours a day, letting shoppers come look and, if interested, buy something or send e-mail," said Brock Henderson, director of marketing at IgLou Internet Services Inc.

"I don't know if anyone knows what that's worth."

No one tracks overall Internet sales, but studies indicate online sales are increasing nearly exponentially.

For the Christmas season 1998, online shoppers bought an estimated $8.2 billion worth of merchandise, nearly seven times more than the $1.2 billion they spent the year before, according to Marketing Corporation of America, a unit of New York-based advertising and marketing giant The Interpublic Group of Companies Inc.

One of the most seductive qualities of e-commerce for small businesses is that vying for even a small piece of the action with a virtual store requires a much smaller initial capital outlay than a real store and potentially has a much broader reach, said Seiler of Just Socks.

Seiler said he and partner Larry Holt -- both avid runners -- always have worn crazy socks. Seiler, corporate recruiter for The Military Channel who is a self-taught Web designer, said he and Holt, who owns Ken Combs Running Store, decided one day in late 1997 to do an Internet site and sell socks.

Going online cost Just Socks "$1,000 maybe," because he did most of the Web-site design and programming, and the inventory comes through Holt's vendors, Seiler said.

By comparison, he estimates that opening a conventional store would have cost $25,000 a year in rent, maybe $250,000 in inventory and $1,000 a month in overhead.

Feeling their way through the emerging online environment, the partners made some blunders. The site, http://www.justsocks.com, went live in January 1998 and then went three months with no sales.

"We found out we weren't doing a lot of things right," including not registering the site with search engines, which meant hardly anyone saw the embryonic versions of http://www.justsocks.com, Seiler said.

In retrospect, that omission actually was a good move, he said: "It was better people didn't see this half-assed piece of work."

In the 14 months it's been online, http://www.justsocks.com has improved the cosmetics of the site, registered it with several search engines, including Lycos, and made ordering more automatic.

Before, Seiler said, customers had to write down the sock name and number, then plug all the information in at once during the purchase.

Now, with a $25-a-month off-site shopping cart from Cart32, a shopping cart software developer and Web hosting company, orders can be entered at any time.

Seiler said Just Socks is averaging two orders a week, but that by the first week in March, the site already had paid for itself.

"The rest of the year is profit," he said.

Orders average $30 to $70, and the partners have sold socks as far away as Ukraine, Germany, Mexico and Ireland, according to Seiler. "That's the real power, effectively reaching people all over."

Heine Brothers spent "less than $3,000" to have Cliftwood Organic Works, a Louisville Web-site developer, design the company's site, Gary Heine said. The site is at http://www.heinebroscoffee.com.

Heine Brothers' pays Internet provider IgLou Internet Services about $150 a month to maintain the site, which is listed on several search engines, and to provide "store" and shopping cart software that allows Heine Brothers to receive orders from its Web site via e-mail.

But they aren't even close to breaking even. Heine would say only that Internet sales are an "insignificant" percentage of total sales, and he justifies the outlay essentially as a marketing tool.

The fact that selling online is getting cheaper and easier is both the bad new and the good news.

At one time, you had to put together different pieces -- Web-site designer, online service provider, encrypted purchase software -- to open, said Brian Dos Santos, Frazier Family professor of computer information systems at the University of Louisville.

Now, companies such as Louisville-based ipop.com will sell you the whole package.

Larry Bolton, ipop marketing director, calls his company a "commerce service provider" that focuses strictly on e-commerce. For $500 set-up fee, ipop.com will get your business online, then charge about $95 month for Web hosting.

But with more and more companies selling online, it's getting "harder to get heard," Dos Santos said. "It's getting really noisy out there."

Just Socks' Seiler said he'd not worried. The winners, he predicted, will be whoever "gets there first and does it best," he said.