Business Opportunities: On-Line Articles - Second Acts in Business Can Be Successful

Second Acts in Business Can Be Successful
By Michael J. McDermott

When Keith Thompson set out to create an e-commerce retail business, he wanted it to be the Swiss Army knife of, well, Swiss Army knife shops. Thompson was not a newcomer to the entrepreneurial life when he launched Swiss Knife Shop in late 2002. In fact, he had just extricated himself from the wreckage of a high-tech business he’d owned that had come to a crash landing when the dot.com bubble burst. Still, that hadn’t soured him on the idea of business ownership.

"Some of us are afflicted with the entrepreneurial bug, and I’m one of them," he says. "Both my parents were entrepreneurs, and I have only worked for someone else four or five years out of my entire working life. I couldn’t picture myself working for someone else now, and that kept me going."

Sitting in the living room of his Amherst, N.H., home and browsing the Web on his laptop computer one night about six years ago, Thompson pondered his future. "I wanted to stay involved in technology, but not in a high-tech company of the sort I’d just left," he recalls.

In that venture, he’d been managing a workforce of about 50 employees in a company he admits he’d over-expanded. Thompson had acted on "bad advice," he says, but he doesn’t look to dodge the blame. "It was my call," he acknowledges, "and I learned from the experience."

Entrepreneurialism is an inherently risky pursuit, and more than a few entrepreneurs have been derailed by experiences such as Thompson’s. If any such misgivings were nagging at his thoughts that night, they soon got pushed aside. Scrolling through some business-for-sale listings on eBay, Thompson came across an e-commerce site that sold Swiss Army knives.

"Some of us are afflicted with the entrepreneurial bug, and I'm one of them," he says.

"My first through was that it was silly," he recalls. "How could anyone make a living selling Swiss Army knives?" But the more he thought about it, the less silly it seemed to be. Thompson began doing some due diligence and soon concluded that this was, indeed, a viable business concept. He was looking for something that would be a good business venture and also have an element of fun, and he decided this might be it.

He started bidding for the Swiss Army knife site, which had been in business for a couple of years and was a turnkey operation, all set up and ready to go. But his lack of experience in the cutthroat world of eBay bidding torpedoed his plan. "We came up to the last minute of the auction, and in the last 10 seconds another bidder increased his offer by $5,000, and I lost the deal," he recounts with some chagrin.

INSTINCT KICKS IN

Thompson’s first reaction was disappointment, but his entrepreneurial instinct kicked in quickly. He’d already done extensive research on the concept and determined it had merit. Why not launch a site of his own?

Since there were hundreds of thousands of businesses selling Swiss Army knives, the biggest challenge he faced was finding a way to set his site apart from the others. He settled on the idea of personalizing the knives with engraving as the way to do that.

His research revealed that only two or three existing sites offered such services. So with a simple decision, he winnowed down his list of potential competitors from hundreds of thousands to just a handful.

Swiss Knife Shop quickly found strong demand for its engraved products among corporate clients who wanted them for business gifts and consumers who wanted personalized keepsakes to present as mementoes to wedding party members and for similar occasions.

"The decision to highlight personalization through engraving turned out to be the differentiator that has made us one of the largest resellers of Swiss Army knives," Thompson says.

Swiss Army Shop opened for business just before Christmas of 2002. "Humble beginnings" is an apt description of the early days. Headquarters was a spare bedroom in Thompson’s home, and an engraving machine shared space with the inventory down in the basement.

Thompson believes that the best entrepreneurs have a sixth sense, a sort of "belly barometer" that tells them when an idea is really going to take off. He admits to having had some qualms in that respect during Swiss Knife Shop’s early days. "When I started, I didn’t have that gut feeling 100%," he confesses. "But I had it enough to give it a shot."

He winnowed his list of competitors from hundreds of thousands to just a handful.

His reservations proved prescient. While the business enjoyed robust sales in the weeks leading up to Christmas, profitability remained elusive, and volume tailed off dramatically in January. Seasonality was not something Thompson had factored into his business plan, but it turned out to be a reality with which he had to deal.

"Being a risk taker, I took a step back and told myself not to panic," he says. "I was determined to take a close look at the situation and see if it could be made right." Thompson’s efforts soon bore fruit. All Swiss Knife Shop’s advertising was done online, and during the frenetic activity of the initial holiday shopping season, there’d been no time to do cost-benefit analysis on the advertising’s effectiveness. There was no doubt the products were selling, but at what cost to the business?

Online advertising is sold through an auction process, with potential advertisers bidding on key words used in Internet searches. Swiss Knife Shop had been bidding on, and winning, some very expensive key words, but it had made no effort to track return on that investment.

MONEY GOING OUT

"We never went back to see what was going on," Thompson says. "All we knew was that those (online advertising) companies were going in every day and taking money out of our account."

Taking what he describes as “a very deep breath,” Thompson put some analytical tools in place and started studying ways to be smarter in buying advertising. This was in the very early days of online advertising, when it was just emerging as an important marketing tool. “There wasn’t a lot out there on how to do this,” he recalls.

Through perseverance, Thompson figured out ways to buy his advertising more efficiently, and he made some minor, but important, changes to the Web site.

It turned around quickly and was now on "slower but much surer footing," he says. But for a time, he admits, "We thought we might had made a horrible mistake." He went so far as to freshen up his resume but stopped short of launching a serious job hunt.

With a solid footing in place and a better understanding of the market’s seasonality, Thompson began developing additional enhancements to the Web site. Central to his business strategy was offering the broadest selection of knives.

Victorinox makes more than 200 styles of its famous Swiss Army knife, and Thompson’s business carries them all. "We began selling models that the company hadn’t sold in years," he says. "(Victorinox) loved us, and we became one of their best distributors."

Along with a wide selection of styles, having a well known brand name and the highest quality products are part of Swiss Knife Shop’s strategy. It also focuses on providing a superior customer experience, including competitive pricing and free shipping on most items.

Critically, Thompson figured out ways to buy his advertising much more efficiently.

The formula worked, and Thompson gradually began expanding it to other carefully selected product lines, all similar in key respects to its flagship line of Swiss Army knives.

"We’ve added very slowly to the Web site, but whenever we add a product line, we go whole-hog with it," Thompson explains. "We don’t want to go off in too many directions, and we want to keep our focus on brand name, quality and customer service in everything we do."

Testament that the formula works can be found in Swiss Knife Shop’s performance. Despite its bumpy start and the scare during the first year of business, it has been profitable in every year of its existence.