With Version 2.0, eHobbies Looks a Little Meaner and a Lot Leaner
By: Ben Fritz
Issue: November 21, 2001
Most people wouldn't consider a move from Santa Monica's plush Water Garden office complex to a warehouse in La Mirada, just Southeast of L.A., to be a step up in the world.
Seth Greenberg, however, likes to brag about it. As co-CEO and co-owner of the new eHobbies, which quickly re-launched this past May after shutting down in its original incarnation, he has to operate like a self-described "cheap bastard." If he makes it work, though, Greenberg and his partner Ken Kikkawa may just end up building one of the Digital Coast's most successful e-commerce companies out of what six months ago looked like just another Internet flop.
eHobbies' story is a pretty standard one: Internet company raises $30 million in venture capital with a new idea and "first-mover advantage"; burns through that cash with 175 employees, luxurious office space, proprietary technology, and an expensive national advertising campaign; three years later, with the economy slumping, no path to profitability, and no hope of raising new VC money, it folds.
For Greenberg and Kikkawa, however, the hope is that this past May will one day be remembered primarily as a beginning for eHobbies, and not an end. Just two weeks after the company declared bankruptcy in early May, however, they put together a successful bid to acquire and re-launch eHobbies. Both had worked for the first incarnation of eHobbies-Greenberg as head of marketing and Kikkawa as head of merchandising-and were betting that beneath the hype and the VCs and the "boom and bust" cycles of the Internet craze, there was a real business, one that they could salvage.
"A year ago I said this company could run with seven people and a Yahoo Store platform, and now I'm getting a chance to prove that," Greenberg observes. Unable to resist a barb at his former employers, he adds, "We're working our asses off now. I wonder whether the same people who started the company would be willing to sacrifice as much on such a small scale."
While they're not reduced to starting a firm out of their basement, Greenberg and Kikkawa are sacrificing for the new eHobbies. More like the owners of a new small business than the CEOs of a dynamic new technology company, both work long hours in their cramped corner of a warehouse, and neither earns a salary.
Unlike most small businesses, however, eHobbies 2.0 started with the advantage of a well-known name in its space and even a line of customers eager to make some purchases.
"When we came in, the site had been taking orders for three weeks, but nobody was filling them," Greenberg remembers. "So we contacted the customers, and about 80 percent of them still wanted their products. Thanks to that, we had a huge bump in revenues at the beginning and so we were profitable right away."
In many ways, eHobbies' experience mirrors that of Icebox, another Digital Coast company that went bankrupt this year and quickly re-launched. Both firms have been able to generate a significant chunk of the first incarnation's revenue with only a small fraction of the costs.
EHobbies has been doing that with only eight employees, whom Greenberg describes as a "dream team" of staffers from the first version of the company. All are working for much lower salaries, but are in at the ground floor of a business with a much better chance of success. "Their choices were to go back to a hobby shop or stick with us," Greenberg explains. "We're a little more exciting, and we've got a lot more potential."
Having these employees, many of whom are experts on the RC cars, telescopes, train sets, and other products eHobbies sells. This expertise is important for Greenberg and Kikkawa. Unlike Brad Sobel and Brent Cohen, the original founders of eHobbies, who were described in publicity material as "hobbyists," neither of the current owners profess to the same passion as their customers, describing their involvement as only an excellent business opportunity in a space they have come to understand.
For now, their focus is on the Christmas season, which Greenberg predicts could bring in $500,000 in revenue. That's still only around half of the sales generated by eHobbies last year, but proportionate to the expense involved, it's a huge gain. The company is even planning to make some independent contractors employees and bring on more temps to handle the rush.
And while there aren't any plans for rapid growth, the new eHobbies isn't planning on staying too small either. Greenberg predicts that his company could eventually generate more sales than its predecessor, with revenue over $10 million, while still keeping costs minimal.
Eventually, Kikkawa dreams of making enough money off of eHobbies to move to Hawaii, while Greenberg professes a desire to stay in business, perhaps by partnering the company with a hobbies distributor and taking an executive position. "I see so many inefficiencies in this business; I think I could help get the whole industry online," he says with enthusiasm.
He may not have a passion for hobbies, but Seth Greenberg has clearly developed a passion for the hobby business in the past six months. Perhaps most ironically, that passion seems to have developed by accident, as Greenberg admits that he and Kikkawa weren't even sure they would get eHobbies off the ground when they bought its assets.
"Honestly, we thought there was a 50/50 chance we would just end up becoming guerilla eBay liquidators, make a nice profit, and move on," he recalls. "But things have turned out a little better than we expected."