Behind eBay's entrepreneurial buzz

In the beginning, there were beanie babies. Whole menageries piling up in basements and being put up for auction on eBay.com.

Now, nearly six years after that craze popularized the virtual flea market, eBay-spawned businesses are coming out of the basement - filling warehouses and employing new college grads who otherwise might find themselves pounding the pavement during this summer of the jobless recovery.

Plenty of eBay sales are still orchestrated from people's homes in their spare time. But the past few years have seen full-time eBay businesses proliferate. The San Jose, Calif., company estimates 160,000 Americans make a significant income, or their entire income, by selling everything from collectible porcelain to used scuba gear on the website.

These businesses constantly evolve to keep pace with the shifting bargain-hunters' market. And much of eBay's development has come in response to their needs, says eBay spokesman Kevin Pursglove.

For instance, new lingo and services have been added to accommodate full-time sellers. Peddle at least $1,000 worth of merchandise a month for three months straight while receiving customer feedback that's 98 percent positive, and you earn the label "PowerSeller." Of the 33 million active eBay users, 65,000 have earned this designation.

Last year, the website also set up an area where people unfamiliar with online auctions can find local "trading assistants" to sell items online for them for a commission. The list of 25,000 is gaining about 30 new people a day, Mr. Pursglove says.

And at eBay's recent national gathering in Florida, the Small Business Administration gave a two-hour seminar about taxes and legal issues related to making a living off the auction site. It's the kind of education that's needed as more people find a onetime clean-out-the-attic project morphing into a full-fledged business.

"It's so easy to start an eBay business that a lot of people go in ill-prepared," says David Steiner of Natick, Mass., who publishes an online-auction newsletter for people who need tips about the process.

To be an eBay seller, he says, you have to be a researcher, photographer, master packer, customer-service rep, and computer technician. "The tradeoff is that many of these people have a real entrepreneurial spirit and they love the autonomy. They'd rather do the extra work to be able to do it when they want - like at 3:00 in the morning in their pajamas."

Young auctioneers

Now, rather than falling into eBay as a second career, some people are planning it as their first.

Take the scruffy-faced young men who run Yoozed.com, a business that's 95 percent eBay sales. Matt Solar and Artie D'Onofrio reign over a second-floor office in Boston with a d├ęcor that's part dorm room, part dotcom.

The small room where items are photographed is draped with a bright green cloth, a background that's easy to edit out once the photos are on the computer. Shelves are stacked with clothes ready for shipping once they're sold. In the main area, where customer-service staff sit at computers to answer e-mail from eBay bidders, the walls are adorned with nerf guns and posters for movies like "The Matrix: Reloaded."

The two met at Babson College, a suburban Boston school with a business focus. Mr. D'Onofrio had gotten into eBay during its early days, selling, yes, beanie babies, for extra cash. Then, looking for a more plentiful product, he started scouring flea markets and auctioning off used clothes.

He and Mr. Solar became business partners in their senior year. They took the used-items idea, applied some creative spelling, and launched Yoozed.com last fall - a few months after graduation. Each put in about $1,500 to start it up.

Half of the sales fall under the trading-assistant label - items from people who don't have the time or knowledge to navigate the auction system themselves. One person wanted to sell three bleacher seats from the dismantled Boston Garden sports arena. Another brought in a collection of 800 Bibles. Commissions vary, but average around 20 percent.

The other half they find themselves. Sales staff venture onto local campuses, buying used clothing from students.

They also go to estate sales. And one employee finds surplus electronics and oversees its shipment from a warehouse in Philadelphia.

The business has grown so fast in the past 9 months that the company has hired nearly a dozen people - mostly 20-somethings who are comfortable with co-workers walking barefoot around the office.

Yoozed has a competitive edge because of its size, D'Onofrio says. "The setup we have is rare. We can take on anything, but people [selling] in their [own] house can only do so much."

Other than wishing that eBay offered more support to businesses like theirs, D'Onofrio and Solar don't have much to complain about. Their average profits match those of a regular retail store, Solar says, but at times they have fetched a few hundred dollars for items on eBay that they bought for just a few bucks.

There's also money to be made by getting the right connections in the world of retail surplus.

"About a third of our business goes to entrepreneurs who use eBay as a resell channel," says Bill Angrick, CEO of Liquidation.com in Washington, D.C., a company with 2 million square feet of warehouse space.

With 3 to 4 percent of retail goods becoming surplus, it's a $100 billion market - a fragmented market full of inefficiencies, he says. "It doesn't take long for the people with the MBAs ... or long, successful track records to figure out that where there's inefficiency, there's margin, and where there's margin there's the birth of new business."

'Where the supplier is king'

One of those businesses is Via Trading in Los Angeles, run by Jacques Stambouli. After earning his MBA from Harvard a year ago, Mr. Stambouli decided to channel excess goods to customers through both eBay and a bricks-and-mortar store. But after a few months he abandoned the store and switched to online sales alone. Now he employs five people and moves a truckload of electronics, clothes, and other surplus items every day or two.

His motive for skipping a more traditional business career, he says, was "a desire to be an entrepreneur, and not to be employee No. 2,627 out of 6,418. It's fun ... and the potential [for profit] is bigger than most people realize."

Stambouli found goods through Liquidation.com and also developed direct contacts with department stores. His company examines and tests products before posting them on eBay.

Recently, he's shifted into helping other eBay PowerSellers find merchandise to sell. The key to keeping an eBay business going is finding the right sources of supply, he says. "You have to find random and weird sources that specialize in [certain] products... It reminds me a lot of communist times, where the supplier is king."

One of the most common mistakes for new eBay businesspeople is that "they don't pay attention to the need to purchase as well as sell," says Greg Holden, author of "How to Do Everything with Your eBay Business."

At the same time, it's important not to have too much inventory, because once an item starts selling well on eBay, the site is likely to be flooded by copycats who bring the value down.

"If you're not smart about it, you're gonna lose a lot of money," says Gretchen Franz of Scappoose, Ore.

Ms. Franz sells clothes both through online auctions and through an eBay store, a linked page on the site where she can sell items at fixed prices. "You have to keep the prices low because you're dealing with a garage-sale mentality."

She buys up to $25,000 worth of goods at a time. Recently, she took a chance on magnetic shoe insoles, designed to have a massaging effect on the foot. "I haven't sold a one. They're gonna be a freebie giveaway come Christmas time."

Big retailers in on the action

As bigger businesses, including traditional retail stores, such as Sears, start putting more items up on eBay, Mr. Holden wonders if the person-to-person culture that has attracted so many to eBay might start to fade.

But eBay's original strengths are still evident to Franz. What she most appreciates about eBay is that everyone's on a level playing field. Excellent customer service is what keeps her business going, she says. It fits the original at-home model, with the basement serving as warehouse and her husband making the post-office runs.

For her, competitors on eBay are also an essential community network, because illness confines her to the house much of the time.

"This is my window of being able to be civil and social," she says. "It is an opportunity that five or 10 years ago I would not have had."

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