E-Commerce Gold Rush

Twenty thousand e-commerce sites are coming online every week

I have long been a fan of e-commerce. Today, I see the industry in a gold rush.

According to some analyst estimates, nearly 20,000 entrepreneurs now open online storefronts every week, and growth in e-commerce sales continues to outstrip that of sales in physical stores. Early online players such as Dell and Starbucks are now joined by luxury watchmaker Longines and clothing designer Roberto Cavalli.

In 1998, online retail sales accounted for about 0.5% of all retail sales in the United States. Dell was one of the only companies truly succeeding with online retailing in the mid-nineties. By the end of 1997, Dell was the first company to record $1 million in online sales.

It was around this time that the Internet became popular with the general public, and entrepreneur Kevin Sproles saw an opportunity to bring e-commerce capabilities to more companies. In 2000, a great number of brick-and-mortar companies saw the value in having e-commerce capabilities despite the demise of many dot-com era e-commerce players. By the end of 2001, business-to-business (B2B), which was also the largest sector of e-commerce, recorded around $700 billion in transactions. According to a recent Forrester Research forecast, e-commerce sales today account for close to 7% of total retail sales, and are predicted to grow at a 10% compound annual rate through 2014.

Forrester predicts that the U.S. e-commerce market will increase from $176.9 billion in 2010 to $229.1 billion in 2013.

That’s promising for the e-commerce industry and for Austin, TX and Simi Valley, CA–based Volusion, the company Sproles founded, which has experienced an almost 900% increase in revenue since its start in 1999 in Sproles’s bedroom.

The company’s core product, which is now in its fifth version, is an online store with shopping cart that includes marketing tools, design templates, and inventory management. Other products include domain names, credit card processing, SSL certificates, and social media software. Prices range from packages for 25 products and 2GB of data transfer for $24.99 a month to an unlimited number of products and 25GB of data transfer for $159.99 a month. All packages come with QuickBooks integration and 24/7 customer support, among other features.

During the gold rush, the entrepreneurs who steadily built fortunes were not only those who sought gold, but also those who made the shovels.

Volusion, the shovel maker, is today a mature company that has been profitable since 2005. Revenues have increased steadily in the past five years: they were $4.8 million in 2006; $8.6 million in 2007; $15.7 million in 2008; and $22.5 million in 2009. The bootstrapped company has not received any outside funding to date and has no plans to raise any money.

Forrester Research also released a five-year forecast for the e-commerce industry in March 2010. According to this report, apparel, computers, and consumer electronics represented more than 44% of online sales ($67.6 billion) in 2009.

Volusion’s customer base has a similar breakdown, with apparel accounting for about 20% of customers. Other major sectors where Volusion has seen strong traction are health and beauty, electronics, and sporting goods. In 2009, Volusion’s SMB and enterprise customers achieved more than $2 billion in transactions, which accounted for 1% of all Internet sales last year.

Although the dot-com bubble exploded at the turn of the century with great sound and fury, e-commerce, the essence of that era, survived. Volusion’s success is testimony to how robust that survival has been.

Today, the U.S. economy still gasps after the great recession, with only census jobs being added to the country’s payroll. People tired of looking for jobs that do not come are taking destiny in their own hands. In their bedrooms and basements, e-commerce companies are cropping up everywhere.

And powering that momentum are companies such as Volusion, whose success is testimony to the potential of entrepreneurs starting out from nothing, with nothing.

One such entrepreneur is John Olson, who is seeking the real gold of the e-commerce gold rush.

“You have to understand that I was the most computer-phobic person you could imagine,” said 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.

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.

Expecting to hit $2 million in revenue in 2010, Olson’s Graystone is just one example of how e-commerce is turning despondent and frustrated job seekers into entrepreneurs at a fantastic clip right now.

With a million e-commerce entrepreneurs hitting the Internet this year, I have to believe an exciting rejuvenation is bubbling under the surface of our failing economic system.

You can read more about Volusion and Graystone on my Deal Radar 2010 series here and here.