Web Firm Embraces Old Economy Model
By: Christopher Keough
Issue: December 17, 2001
Once was a time when working at eHobbies was luxurious. Comfy
Aeron chairs, company-sponsored lunches, free membership at Santa Monica’s
Spectrum Club, weekly massages, an in-house concierge and fine views from the
Water Garden office project.
Today, pampering at eHobbies amounts to
pizza on Fridays.
The new eHobbies is exactly like the old eHobbies, if
you’re talking about the business the company does. It’s nothing like the old
eHobbies if you’re talking about how it does that business.
“One of the
reasons we’re still here is because the idea, the concept, is a viable one. It’s
just the way it was executed was poor,” Ken Kikkawa, co-chief executive said of
the leaner, meaner eHobbies.
Kikkawa, former vice president of
merchandising in the company’s previous incarnation, and his partner Seth
Greenberg, who was vice president of marketing, started Hobby Hub Inc. to
acquire the assets of eHobbies from Sherwood Partners, a restructuring firm.
They are believed to have paid $200,000 just as eHobbies was about to declare
bankruptcy in May, financing the acquisition by dipping into savings, taking out
a second mortgage and, in part, by selling the 30 used Aeron chairs, which
retail for $700 a piece.
Although they are bound by confidentiality
agreements, the pair said the deal also involved an ongoing licensing fee to
Sherwood on its retail transactions.
“It’s the era of the small deal and
the small company,” said Rafe Needleman, a columnist at trade magazine Red
Herring, who tracks Internet startups. “You cut costs as much as you can and you
hope there are enough people out there willing to buy your product and pay your
“Repatriation,” as he called the act of reviving viable
Internet brands as viable businesses, is the future of e-commerce, he said,
adding that the slimmed down eHobbies makes sense. Startups will hit the
Internet with smaller budgets and less opulent operations.
The new model
is not for everyone, Greenberg said, which is why he and Kikkawa only picked a
handful of colleagues to come along for the second effort. “A lot of people were
spoiled in the old days,” Greenberg said. “Our salaries were healthy and the
perks were amazing.”More, faster
eHobbies was created to sell
remote-controlled vehicles, trains, models, telescopes and other hobby items to
hardcore enthusiasts over the Internet. The way to do that, and make a profit,
was where the first iteration of eHobbies missed the point.
Consider: eHobbies launched in 1999 and, at its height, was a 175-employee company funded
by $30 million in venture capital. The company’s strategy, other than treating
employees like royalty, was getting the name out and getting product on the
trucks – budget be damned.
“Cost wasn’t an issue,” Kikkawa said. “It was
Greenberg said the old mentality was classic
The old company spent liberally to promote itself, including prestigious commercial time during “ER” and a $400,000 national radio campaign during the 2000 Christmas season. It ended up running out of money. Kikkawa said the new company is doing more special orders, preorders, corporate orders and some consignment sales than the previous company.
Though he wouldn’t give specific numbers,
Greenberg said the new operation has allowed eHobbies to slash overhead to just
5 percent of the level of the company pre-collapse.
There are other ways
the company has become a model of austerity. The seven-employee business
operates out of a cluttered office and 10,000-square-foot warehouse in La
Mirada. Greenberg and Kikkawa haggle over nickels when buying boxes and switched
the old operation’s long-distance and 800 phone service from AT&T to Qwest.
The old 25-person tech department? All handled for $50 per month (plus 10 cents
for unit listed) on a contract with Yahoo.
The business remains fully
Web-based, though it will take phone orders and allow buyers to pick up the
product at the warehouse if they are in the neighborhood.
“We don’t have
the visions of grandeur the old company had,” Kikkawa said. “We see ourselves as
a giant online hobby company and we’re running it like a hobby shop by
conserving our cash and spending it wisely.”No more ‘funny money’
As they navigate their first holiday season, Greenberg and Kikkawa have
confidence that their new model is working and think they’re ready to promote
“We’re starting to make commitments for future
advertising,” Greenberg said. “It’s a little different when it’s money coming
out of your pocket versus funny money.”
EHobbies already has worked out
one deal that Greenberg said will pay huge dividends. Through a partnership with
Citysearch Inc., a subsidiary of Ticketmaster Online, eHobbies is promoting a
national contest on citysearch.com that will award a $120 radio controlled
Lexus. The contest will reach 20 million people, Greenberg said, and the deal
only cost eHobbies the car and a couple of $100 gift certificates.
What they’re doing is not new thinking. In fact, Greenberg said he tried to get the
old company to recognize ways to scale down.
“You can’t make a horse
drink,” he said. “I kept running around the office saying this place could be
run with seven people and a Yahoo store.”
For Greenberg and Kikkawa, the
new eHobbies is not only cheaper to run. It’s easier, too. Changes that used to
take weeks, if not months, to negotiate clunky bureaucracy at the old company
now can be done in hours.
“I feel so much more in control,” Greenberg
said. “We would have to politic and jump through hoops to get things done at the
An example of that facility is a deal Greenberg worked
out with a Yale professor who has become known at eHobbies.com as Dr. Doug.
Greenberg was searching the Internet for descriptions of a new remote
controlled truck eHobbies had just ordered. He stumbled onto a hobbyist site run
by Dr. Doug, AKA medical researcher Doug Gelowitz. He called Gelowitz and by the
end of the day had talked him into letting eHobbies use the content. It was a
transaction that would have taken weeks and several lawyers to do at the old
company, Greenberg said.
“We basically talked over the phone and I never
signed anything,” Gelowitz said. “I said he could have my content in exchange
for some product. I trusted him. I gave him a chance." to top