Bootstrapping a Two-Sided Marketplace to $10M: Sal Akbani, CEO of Gateway Classic Cars (Part 4)

Sramana Mitra: We’re now at the end of 2000. You’ve got this model that is validating. You’re starting to make a little bit of money with which you can pay yourself. What are the next key strategic moves and what were the next key inflection points in the business?

Sal Akbani: The next strategic move came in 2004. By late 2003, I had realized that we had basically saturated the market in St. Louis and we weren’t going to get any more inventory. We were not even getting a dollar for dollar return. We decided that we probably needed to look at other markets. I researched and came up with 38 additional markets that were equal to or larger than St. Louis. Then I wrote a business plan and started acting upon it. In 2005, I established my first remote showroom in Charlotte, North Carolina.

Sramana Mitra: Is that a part of the growth strategy? Every time you go for a new geography, one of the things you have to factor in into your business plan is a showroom in that geography.

Sal Akbani: Showroom as well as the availability of private sellers.

Sramana Mitra: Why did you choose North Carolina?

Sal Akbani: Because I had a friend there. That was about it. There was no research done. We had not started doing research to the degree as we do now.

Sramana Mitra: You had a friend there who was a trusted person who you could bring on board to run that operation. 

Sal Akbani: That was not the whole logic. The logic was that he called me in and had me go around and meet people who had classic car collections. I was planning to go to Dallas. That was going to be my next showroom. He talked me out of it and I followed his lead into setting up a showroom in Charlotte instead.

Sramana Mitra: Before you started this second market, what was your headcount in the home market?

Sal Akbani: Six to eight.

Sramana Mitra: What kind of functions were you staffing?

Sal Akbani: Bookkeeping, sales, business development, and IT management.

Sramana Mitra: What about the showroom/logistics?

Sal Akbani: That was business development. That’s basically somebody who goes out there and helps get these cars in and manages the inventory and then turns it over to sales.

Sramana Mitra: Before you went to North Carolina as your second market, what revenue level had you reached?

Sal Akbani: We were at about $3.5 million in gross merchandise revenue.

Sramana Mitra: Your revenue model is 10%.

Sal Akbani: We work on an arbitrage basis. Let’s say if we agreed that the seller gets $50,000 for a car, we market that for about $60,000 to $65,000.

Sramana Mitra: Do you remember the revenue?

Sal Akbani: Operating income?

Sramana Mitra: This is the standard way marketplaces are measured. There is the top line which is the gross merchandise value. A large portion of that goes to the sellers.

Sal Akbani: About 80% to 85% goes to the sellers. We get around 15% of $3.5 million.

Sramana Mitra: You hadn’t yet reached a million in revenue yet before you went to the second market.

Sal Akbani: Correct.

Sramana Mitra: How did North Carolina pan out?

Sal Akbani: It was tough. It was very tough. We went through the learning curve of managing remote locations without an iPhone and text messaging. It took us about two years to stabilize that market.

This segment is part 4 in the series : Bootstrapping a Two-Sided Marketplace to $10M: Sal Akbani, CEO of Gateway Classic Cars
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