Bootstrapping a Niche E-Commerce Venture: Elite Fixtures CEO Steven Annese (Part 3)

Sramana Mitra: How much inventory did you take on and how did you source that inventory? This is one of the key questions for every bootstrapped e-commerce entrepreneur.

Steven Annese: When I first started, I didn’t take any inventory on. I basically had a drop shop agreement with a major distributor at that time that distributed probably around 20 main brands of lighting, and they were very familiar with the lighting showrooms in the US. I didn’t have to take on any inventory which was a much bigger advantage than stocking a garage full of inventory. You have to also understand that when I launched, I launched with about 20,000 SKUs.

Sramana Mitra: How did you do that? Educate our audience on how you got to 20,000 SKUs on a shoestring.

Steven Annese: I didn’t have to take any inventory. All I really needed was the assets, which was the data.

Sramana Mitra: You mean the digital assets?

Steven Annese: Correct.

Sramana Mitra: What agreement did you have with the distributors of these products?

Steven Annese: Honestly, it was just a handshake. I told them my plan. It was just simply a handshake at that time. Later, we got into a contractual agreement because of the  volume that started to go through. Obviously, they must have thought that it was going to be a small volume. The liability was a lot smaller. As they saw the volume grow, there was a contractual obligation that I had to fulfil. Everything was then, at that point, legal.

Sramana Mitra: Two questions on that number. What about shipment? Were they doing the drop ship? Who handled the shipment and order fulfilment?

Steven Annese: They were doing the drop shipping for me. I would get the orders. I would send them the orders electronically. They weren’t equipped with EDI and neither was I at that time. It was an export in Excel. I would email them the file in Excel, which was basically the SKU, quantity, and the ship to address. Once they shipped it, they sent me back an Excel with those Purchase Order numbers and the tracking.

Sramana Mitra: Once the volume started flowing in, what kind of contractual agreement did you have to get into with the distributors?

Steven Annese: The contractual agreement was basically that I was going to be personally liable for any outstanding payments at that point. They didn’t know me. I just happened to contact them. They basically supplied me with the data because it was minimal effort on their part. It was the data that they were using to load into their ERP system for their contracting work.

Sramana Mitra: At what revenue level did these issues start coming in for you?

Steven Annese: Those issues started to come in when I was probably doing about $20,000 a month.

Sramana Mitra: The work flow is that you are taking in the order and the payment. The distributors are actually doing the shipping and getting paid when? What are the payment terms?

Steven Annese: The payment terms were net 30. They were getting paid once the item shipped. I was charging the customer when the item shipped where mosts e-commerce companies would charge when the order is placed. I thought of that as slightly unethical because if there was an item for instance that didn’t ship for two weeks, we had the cash on hand from the customer two weeks prior to the item shipping. We thought it was fair, when I designed the system, once the item ships is really when the customer should pay for the item. Same thing for the distributor.

This segment is part 3 in the series : Bootstrapping a Niche E-Commerce Venture: Elite Fixtures CEO Steven Annese
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