Deal Radar 2010: Graystone Creations

“You have to understand that I was the most computer-phobic person you could imagine,” said John Olson when talking about the online evolution of Graystone Creations, his business for fountains and fountain and pond supplies.

Graystone began as a hobby – Olson carved stone fountains and sold them to local garden centers. His day job was as a manager for Publix supermarkets in Florida, but after a restructuring and a huge pay cut, he had had enough. A friend introduced him to eBay and Web sites, and Olson decided to make a go at a “real” business. First came the online learning curve. Olson discovered that online, competitors were as equally inexperienced as he was. “I went to work learning all I could about online sales and marketing,” he said, and he ended up embracing it. Olson believes that “as Web 2.0 becomes 3.0, we stand a strong chance to gain additional market share” by moving into social aspects, an area where he believes competitors are unlikely to follow, and working with dealers and resellers to ensure that they are using the Internet to attract customers to their online stores, installation businesses, or brick-and-mortar shops.

As Olson built his online business, he found that demand by other fountain makers for fountain parts soon exceeded sales of actual fountains, and Graystone Creations began to market fountain supplies on the Internet. Several years later, now experienced in search engine optimization, the company added pond supplies, incorporated into Graystone Industries Inc., and rented its first warehouse. Sales continued to grow, and Graystone now has two warehouses, two retail stores, and a seven-acre retreat and educational center. It is also a distributor for pond and fountain equipment with dealers and installers across North America.

Graystone’s business model is based on a multi-pronged attack which includes continued expansion into Web retail, the opening of additional brick-and-mortar stores, expanding dealers and installers across the country (but concentrating on the Southeast of the United States, where the greatest demand but least amount of competition exists). The landscape and outdoor living industry is a multi-billion dollar a year industry. The pond and water garden niche is $100 million to $200 million dollars a year for the United States and Canada.

The company gained traction by concentrating on small fountain pumps with a 200%-300 percent markup and maintaining a nearly 100% markup to dealers and resellers, which enabled Graystone to move large volume with little storage space and paid the way for expansion into larger, less profitable pond products.

For Graystone, 2009 ended with a more than 30% increase in sales over 2008. The company expects a similar or greater increase for 2010 and hopes to break the $2 million dollar mark. The nearly 30%-40% net profit is used to invest in long-term projects such as the retreat center that doubles as Graystone’s next retail location, guest facilities, and wedding/meeting center. This should be finished in 2012 and, believes Olson, will position Graystone for $4 million to $5 million in annual sales.

However, it was not always this way. In October 2005, Graystone was nearing the end of a successful selling season while it operated out of a 3,000 square foot office and warehouse in Ft. Lauderdale, Florida. On October 24, the business was destroyed by Hurricane Wilma (the most powerful hurricane to ever form in the Atlantic basin). As Olson recalls:

“We were devastated. Not only was our warehouse destroyed, we were not able to locate to another within our price range. So many warehouses were damaged at that time the price doubled on the remaining undamaged ones. We found ourselves looking at over an hour’s drive and $7,000 a month instead of $2,500 a month. With the business going into the slowest five months of our year, it was simply a losing proposition.

During this time we went to over a hundred thousand dollars in debt and cleaned out our retirement accounts paying all kinds of taxes and penalties. Hard work and stubbornness were all that kept us going. Rather than close down the business I began to explore some previously unthinkable alternatives.”

This alternative was an outsourcing experiment. Olson negotiated a low fee for this company to warehouse and ship his products. In exchange, he educated them on the products and set them up as local dealers for their area. They would thus cover the costs of their warehouse operations with the fees they charged Olson for shipping and would have access to thousands of items in stock without having to expend any capital. Olson’s cost for shipping and warehousing is at just 6%, in a much bigger warehouse than he could have afforded, and the shipper and new dealer generates another $100,000 in annual revenue that he did not have before. This, says Olson, is one way of managing overhead that competitors had not thought of.

Another approach that he has found to work is having his best customers (usually wholesalers and and dealers) run part of the business. One customer handles the phones and answers tech questions about the products, and another maintains the company’s Web sites and manages its online activities. As Olson points out, these customers “have a huge vested interest in making my company successful. The better my company does, the better they do.”

Olson has not taken any venture funding and says that he would not consider it. The facility that is being renovated was bought in a private transaction with a man who bought it out of foreclosure, and Graystone will have it paid for in about three years. As for an exit, Olson says that his thoughts on this are constantly changing. He thinks he will probably continue to groom his best customers for near-total operation of the company while he stays in the background part-time and divests profits back into long-term assets and continued profit-sharing with customers.

“If someone told me ten years ago that you could simply sit around in your pajamas half the day and make hundreds and hundreds of thousands of dollars in profits by Internet marketing, I would have thought they were nuts. I had worked hard all my life and had little to show for it. My foray into working smart has provided for me beyond my wildest dreams.”

Recommended Readings
Window Into Web 3.0: Blinds.com CEO Jay Steinfeld
Deal Radar 2009: Sheet Music Plus
Forbes Column 2009: The Future Of E-Commerce

This segment is a part in the series : Deal Radar 2010