A day in the life of a Kiwi dotcom

While developing extensive business plans and building experienced management teams is a far more usual route to starting a company, sometimes there's no substitute for serendipity.

While developing extensive business plans and building experienced management teams is a far more usual route to starting a company, sometimes there’s no substitute for serendipity.

Ex-MP John Banks and SolNet e-business solutions manager Mike Lowe last year happened to be sitting next to one another on a plane to Auckland. Neither being shy types, they began talking. Banks, who has spent six years working with pharmaceutical companies and whose wife is a pharmacist, was looking for a way to promote the best local alternative health products, while Lowe was predictably passionate about using the Internet to conduct business. A short while later the pair spent a “strategic planning fortnight” refining details, after which Lowe’s “propeller-head” friend Dave Sharp, who claims 20 years of IT experience, came on board. Out of it came Alberon.com, which was formed in August last year.

US venture capitalists were helpful to the “aquaculture-flavoured” Kiwi business-to-consumer start-up. When Alberon went for advice, the moneymen were clear about what was needed from an aspiring e-tailer: first get the technical infrastructure right. The e-commerce “plumbing” must be scalable, reliable, perform to expectations, and be completely secure. The financiers told Alberon’s directors that if they did that they might get some money. While the company ultimately didn’t use US VC services, they were grateful for the advice, says director Lowe, recounting the story of a year in the life of a dotcom at the recent CIO conference in Auckland.

As it turned out, the company eventually chose its technical partners from those they knew and trusted, and who could deliver what they needed. They comprise SolNet (hosting services), Sun (hardware), iPlanet (infrastructure) and Java (development platform), Taranaki-based WebFarm (ISP) and Channel Islands-based WorldPay (payments system). Lowe says the ability to scale up for future growth is vital. He claims Alberon can handle a million transactions a day, though acknowledges almost ruefully that such frantic business would clean out all the mussel beds in the country within a very short while.

Answering before it was asked the question of why the company needed to go offshore for its payment system, Lowe noted – and he is far from the first to say this – that in some ways, New Zealand banks are in the “dark ages”. Although development funds came from traditional financial institutions, in hindsight Lowe says he would have sounded out other sources of funding, perhaps even local venture capitalists. Do not underestimate the difficulty of getting development funds out of banks for e-commerce ventures, says Lowe. Meanwhile, the company’s financial advisers, Auckland accountancy firm Brown Wooley Graham, understood e-commerce, Lowe says, and helped prepare forecasts, budgets and cashflows as well as assisting in getting funding.

Supply and demarcation

To gain products for supply Alberon had to have a sound business case to present to manufacturers and suppliers. They went to health product firm Healtheries because of that company’s high standards, says Lowe. It wasn’t the only company Alberon approached, but for the first six months Healtheries became its sole supplier. Healtheries made Alberon rebrand its products, which Alberon has since done with all its products, so the e-tailer lost the ability to use the brand familiarity of a $100m, 96-year-old company. Alberon is not worried at this stage about Healtheries becoming an e-tail competitor, as it has signed a five-year contract and offers only a brochure site extolling the virtues of various supplements. It was presented with the option of investing in the startup but chose to complement its wholesale channels with Alberon’s sales. Alberon has since been approached by 20 suppliers of the quality of Healtheries, says Lowe. It has been working with Trade NZ for the past year.

Alberon’s biggest problem would be if a supplier couldn’t scale to the same degree as it has planned for, says Lowe. If this became the case, the company would simply bring in more suppliers. When planning warehousing, gear up to meet unknown demand, Lowe says, and prepare for peaks and troughs in demand. Worldwide delivery and 24x7 response are essential. Be aware of product lead-times: the kinds of products Alberon sells have long ones. The company looked at outsourcing its warehousing and inventory management, but ended up developing most of it itself. NZ Post does freight forwarding, “back-ended” by DHL.

During the brand design process Alberon worked with five design companies – “all had better ideas than the other four”, says Lowe – which, while delivering grey hairs to the directors, sleepless nights and a nine-month delay, also brought a slew of good ideas and helped the company understand what it was trying to do. This was, in what has become a common refrain amongst exporters, establishing a “unique way to add value” to what are, essentially, commodity products.

Little objective marketing advice was available, Lowe says. The company has found that traditional target marketing has reached customers better than Internet-based mass-market approaches such as banner ads. There are no “silver bullets” to Net marketing, he says, though standard marketing principles apply. Without Amazon.com money, New Zealand companies have to be innovative and never stop thinking about advertising strategies. Maximise CRM tools, Lowe says, when analysing site visitors.

Lowe says the company has “hundreds” of online competitors, though he says most follow the commodity line – what appears on supermarket shelves. He admits Alberon’s prices are “competitive on the Internet” but wouldn’t be in the supermarket – a reminder to those who still believe the Internet is the world’s bargain-basement store. Lowe says the Net pushes commodities down to the “budget end of the cost curve” while demanding a premium price for premium products. For example, a 120-tablet bottle of green-lipped mussel extract will cost $US20.95. If you think that’s cheap – unlikely, unless you’re among the 0.2% of Alberon’s customers who aren’t overseas - you’ll have to get in quick: shipping is free only until the end of the year. The company is aiming to broaden away from health products in time, Lowe says. Beef jerky will be introduced this month.

Local celebrities may help Alberon’s cause: evergreen golfer Bob Charles has endorsed the company’s products, though triathlete Hamish Carter’s backing of deer velvet may carry slightly less kudos post-Olympics.

Alberon.com was launched on September 28.

Lessons learnt

- Business strategy is king

- Build your infrastructure for the long haul

- Consider every link in the supply chain

- Position yourself high on the value curve

- Be prepared to fly blind, as good advice is in short supply

- Investigate alternative sources of funding to banks

- Get well-known Kiwis involved if selling local produce

- Standard marketing principles still apply

- Gear for the unknown in warehouse

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