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Mom-and-pops, all grown up

Susan Gearing's home office in Columbia looks like a fun factory -- embroidery machines hum, and shelves are lined with 350 rolls of fabric, including some emblazoned with Elvis, Betty Boop and shirtless cowboys.
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Susan Gearing's home office in Columbia looks like a fun factory -- embroidery machines hum, and shelves are lined with 350 rolls of fabric, including some emblazoned with Elvis, Betty Boop and shirtless cowboys.

But behind the colorful facade lies a grueling, complex Internet retail operation. Every day, Gearing cuts, folds and mails 30 yards of fabric to customers around the world who buy from her online. And each year, her business, SusieCraft, grows bigger and more demanding.

The same is true for Jennifer Canty, a Sterling entrepreneur who started refurbishing iPods and other gadgets and selling them on eBay three years ago, primarily so she could work from home and care for her infant son. Today, the company she founded, Dyscern, employs 12 people, occupies a 10,000-square-foot warehouse and is projecting $6 million in annual revenue.

As Internet shopping matures and enters its 12th holiday season, veteran eBay sellers are discovering what it takes to make a long-term career out of selling online. Internet sales have become as competitive as traditional retail but compounded by the furious pace of change on the Web.

"You have to have a big range of skills that have to come together," Gearing said.

All-consuming business
Gearing, 60, and Canty, 35, are among the 1.3 million sellers who make all or some of their living on eBay, the global bazaar where $12.6 billion worth of merchandise changed hands in the most recent quarter. Both have recruited their husbands to help, but both say it's a fantasy that self-employment is stress-free.

"We joke that it was easier when we worked for other people," Canty said, adding that the initial joy of working for herself morphed into another challenge: "Don't let the business take over your life."

Gearing, who learned to sew at age 12, spends much of her time doing the usual spadework of any retailer, scouting quilt shows and magazines to stay on top of trends. She personally answers more than 100 customer e-mails a day and writes ad copy for each of 500 simultaneous listings -- "This lovely set of Moda fabrics is the perfect complement to any winter-themed project." With help from special software and her husband, Bill Gearing, she also tracks packaging and postage for 50 daily outgoing shipments, all while striving to master the latest tricks of Internet marketing.

"We're talking about a blog, and we're looking at [selling] on Amazon," she said. "And gosh, should we be on YouTube?"

At the same time, Gearing faces a learning curve in deciding whether and how to market her fabric through Google and other search engines. If she decides to buy ads tied to search phrases, which words will customers most likely use when hunting for threads?

After eight years of selling on eBay, Gearing still operates out of her home, with no outside staff. She said her business rings up $15,000 in monthly sales during the busy winter period, generating enough income to match her previous salary as a museum director and to augment her husband's retirement income. But like many eBay sellers who don't want to grow too big, Gearing has resisted hiring the people required to take her sales to the next level.

Traditional pain-points
Many businesses stumble as they grow beyond a part-time hobby and start to require hiring, accounting, financing and office space, said Jonathan Garriss, executive director of the Professional eBay Sellers Alliance, a 1,000-member group.

"The traditional pain-points that you see with [online sellers] very much mirror the pain-points of a traditional business," said Garriss, who runs an Internet-based shoe business, Gotham City Online. "I think there's a pretty big failure rate of businesses on eBay, but they don't account for them."

About 56 percent of all small businesses with employees fail within four years, according to the Small Business Administration. Comparable figures do not exist for Internet businesses, and eBay does not disclose failure rates of its sellers, but experts say success is as elusive online as offline.

"EBay makes it vastly easier to set up your business, but beyond that, normal business rules apply," said Bill Frischling, Canty's husband, who left his job at AOL in 2004 to join his wife at Dyscern. "And we've seen other businesses implode, ramping up to a point they couldn't manage."

One veteran online seller of movies and music, Glacier Bay DVD, staffed up rapidly after starting on eBay in April 2002. Within two years, it was selling $480,000 worth of goods at auction each month, according to founder Randy Smythe. But shortly after hitting its peak, Glacier Bay DVD fell into the red and eventually became "NARU" on eBay, meaning "not a registered user." Smythe said his business was squeezed by new competition and steady increases in eBay's listing fees.

"I didn't pay enough attention to what was going on," he said.

Serial reinvention
In order to survive without outside help, especially as eBay draws in many new sellers every year, veteran dealers say they must learn the art of serial reinvention -- a hallmark of many successful businesses. Success with online auctions often requires finding new ways to stay ahead of rivals and boost profits, altering inventory to match demand, say, or handling more volume while keeping costs down.

"You have to constantly look for new opportunities and new things," said Paul Dholakia, an associate professor at Rice University who studies user behavior on eBay.

Susan Gearing has repeatedly revamped her business. Before starting on eBay, she researched completed auctions for three months, mining the data for things people tended to look for. Not just "potholders," for example, but specifically "frog potholders," and "toile potholders." She started sewing potholders at a cost of about $1 a piece and auctioning them for prices ranging from $7 to $15. After discovering pillows sold for more, she switched to auctioning pillows and increased her monthly sales to $2,500 to $3,000. Next, she noted fabric could be sold in large volume at high margins -- roughly double its wholesale price -- so she ventured into that area. She also bought a machine that embroiders cloth, which helped her fetch even more at auction.

"You have to have the heart of an entrepreneur," Gearing said. "If you don't keep growing, you're dead."

The real efficiencies came after she and her husband selected software to help them manage their auctions, packages and postage, and Bill Gearing found a vendor to set up and maintain the Web site they started a year ago to provide another sales channel.

Automating the process
Automating processes has been even more challenging for Dyscern, a bigger business with bigger ambitions.

Initially, Canty herself fixed and tested each used gadget she sold and stood in line at the post office to mail shipments. As Dyscern added different kinds of electronics, it required new capabilities for fixing and testing. Digital cameras in particular were a challenge, because they were more complex and customers required more support, Canty said.

Customers sent e-mails at a rate of about a thousand a week, prompting Canty to hire two full-time employees for that job. She also realized she could no longer handle shipping on her own. "Within six months, we had UPS come to the house," she said. "The post office people kind of miss me."

It also meant Canty and her husband had to make investments; they moved their operation into a leased warehouse and hired a nanny to care for their child. Frischling said he had to "let go" and not micromanage employees. Originally, he'd hoped to design their software systems in house, but last month he hired a vendor to help manage inventory, auctions, label printing and shipping data.

"That alone probably saved us the work of one and a half people," he said.

A never-ending challenge
Dyscern, which gets most of the merchandise it refurbishes from big-box retailers, sells 60 percent of it on eBay and 5 percent on Amazon. It also sells wholesale to smaller eBay dealers and is experimenting with auctions on Overstock.com.

But Dyscern's heady growth did not come easily, especially during the holidays, which generate as much as 60 percent of annual business for many small retailers, including Internet ventures.

Last holiday season, Canty hired people on the fly to keep pace with the crush of orders for iPods and other gadgets. But without adequate training, her green staff members didn't move product efficiently, leaving her feeling like Santa short several dozen elves.

"It was a beginner's mistake," Canty recalled. "This year, we're moving as much product as we should have last year, with half the staff."

The amount of work it takes to build a flexible structure to manage the business is a never-ending challenge, Canty said. "You can be more consumed by this" than by any day job, she said.