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A dot-com survivor story survival plan paying off for trinket maker

By Mary Anne Ostrom – Mercury News (Published May 28, 2003)

Of all the survivors of the dot-com bust, Branders.com may be one of the unlikeliest.

Founded at the height of Internet mania in 1999, the Foster City firm raised tens of millions of dollars in venture funding on the premise that it would use the Web to sell promotional trinkets with the logos of — what else — other dot-coms.

Customers, ranging from Webvan to Women.com, went bust. The dreams of a quick IPO crumbled. Nearly two-thirds of the staff was let go.

Today, Branders.com is a dot-com on the rebound, having doubled its staff since January, to 80.

Orders for Webvan refrigerator magnets, personalized tote bags for high-tech trade shows and $2,000 pieces of Waterford crystal from Goldman Sachs have gone away. But Branders.com now counts 10,000 customers, from dentists to defense manufacturers. One client, an insurance company, orders customized condoms to dramatize it’s in the business of selling protection.

Among Branders.com’s better-known customers are Hewlett-Packard, Intel, Wells Fargo, Goldman Sachs, Lockheed Martin, Verizon, ExxonMobil and FedEx.

The promotional-products business, in large part, is still done by independent sales representatives who go door-to-door with sample cases. Only a few of several Internet start-ups that sold knickknacks over the Web are left.

Branders.com relies on the Internet and phone to produce sales. Customers can electronically browse among 2,600 items in 29 categories ranging from “Made in America” to “Stress Balls and Relievers.”

The privately held company won’t disclose its sales. Dun & Bradstreet estimated in March that Branders.com had $12.6 million in annual sales.

High hopes

Like legions of other valley companies born in the late 1990s, Branders.com set out to change its industry, in this case the $15-billion-a-year promotional-products business. Its executives quickly raised $30 million from five venture capital firms and investors. They wowed investors with the idea that, just as Amazon.com was proving, they too could exploit online efficiencies and take off.

But after blowing through millions of dollars, by mid-2000 Branders.com had very little to show for it but an overpaid staff, top-dollar software systems, a high-priced office — and very few sales.

The wild-spending days came to an abrupt halt.

“What do you say to someone who’s been in the go-go, rah-rah phase?” said Arnold Silverman of Discovery Ventures, a Branders.com investor. “You know, Mr. CEO, you have a few million left with which to make it or fold your tent.”

Silverman gives Branders.com’s chief executive, Jerry McLaughlin, credit for taking the challenge and clamping down before money ran out entirely.

“We willed it to live,” McLaughlin, who co-founded the company, says today.

He let go of five top managers, some of whom only months before had been recruited by high-priced headhunters. He dumped expensive software and ordered his own engineers to develop customized programs in-house. He convinced the landlord to move them to cheaper space. And he halted virtually all marketing.

“Why did we need PR? We didn’t have a good story to tell. We weren’t making money,” said David Sipes, chief operating officer and co-founder.

The mantra, said Sipes, a one-time Pepsi brand manager, became do everything as quickly and cheaply as possible. By last summer, investors were again confident enough to give the company $5 million more, about half of which went to pay off debt.

Sales doubled from 2001 to 2002, McLaughlin said, and are up 84 percent for the first quarter of 2003 compared with a year earlier. Executives hope to reach profitability on a cash-flow basis by the end of the year, five years after launching the company.

When patriotic products recently became popular, Branders.com responded by touting a variety of flag-emblazoned products on its home page.

Branders.com will do special requests, as in the case of the brain surgeon seeking a stress-reliever toy in the shape of an anatomically accurate brain.

Overall, the promotional-products industry is suffering its first decline in 40 years of keeping numbers, says the Promotional Products Association International. With advertising and marketing budgets squeezed during the downturn, spending is off more than 12 percent since 2000. It remains a fragmented industry split among 20,000 distributors and 3,500 suppliers in the United States.

Building on experience

Late last year, McLaughlin decided it was time to grow the company, once again.

Branders.com began hiring in January and now has grown to about 80 employees, its former peak. Instead of high-priced executives, however, McLaughlin is building an experienced sales force.

Of new hires, he is requiring a minimum two years’ experience in sales, and in another switch from earlier days, is tying their compensation more heavily to commission than salary. Those who fail sales targets are out.

“The lesson here is not to delve into too many theories about how businesses should work,” said McLaughlin. “And don’t invest in those theories until you’ve had experience first.”

Branders.com is now expanding, across the street from the vacant complex that once housed a fast-growing customer, Webvan.

Source: MercuryNews.com

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