From eBay Seller to Software Entrepreneur: Seller Labs CEO Paul Johnson (Part 4)

Paul Johnson: We built our own software to manage everything. We built a smaller version of Amazon’s software where we would bring in inventory, sticker it, and then shelve it. We built software that would list that stuff.

We had two divisions. One was books and the other was everything else. We sold about a million dollars a year on both sides of the business. The books were the ones that were more scalable and easier to do because every book has an ISBN. The physical merchandise was much harder.

We started collecting a lot of random stuff. It was a nice business. The books were less profitable because there was just so much competition in the book space. Everything was very easy to automate. Some of the big sellers on Amazon have gone through economies of scale in selling books. The physical product business was pretty good.

The problem that we had was that we couldn’t scale. We reached a threshold where we couldn’t go any higher. Eventually the postal auction went online. That was still our main source of inventory. They took that online and a company called GovDeals took it over.

As soon as the auction went online, the competition just exploded. Anybody in the world with internet connection was able to bid on this inventory. We still had other sources to get wholesale merchandise. It was very sporadic. The postal auction was every two weeks. 

Sramana Mitra: Did any theme emerge as you were doing this random selling? 

Paul Johnson: The theme that came up with was process and automation. That was the thing that separated us from everybody else. You have guys that would start where we did. They would buy stuff and sell it out of their house. That was an income. We wanted to scale it and build a big business out of it.

By the end of it, we had 30 people working for us. The real core competency in the business was logistics. We had to get really good at software and moving things around. We had a bunch of shipping partners. I go and pick up stuff and bring it from one place to another.

It turns out that we were really good at the software side of things, but we were actually not that great on the operations side. We had a lot of problems with employees. We had people stealing from us. It was hard to keep people motivated. When you’re dealing with manual work and taking it online, it’s hard to recruit, especially with wages that you can afford to pay on that type of work. That was the struggle.

The thing that we got good at was the process and technical side of it. In theory, everything worked well because we had software and systems in place. The human aspect was tough. It was not a glamorous business. It was very hard work. You had to get in and get your hands dirty.

Sramana Mitra: Were you selling any particular kind or product or was it completely random?

Paul Johnson: Here are the things that we bought a lot of because they made the most money. We decided to do books and media because they were easy to process. We focused on that a lot. We did a lot of cords, adaptors, and batteries.

When we bought them, nobody wanted to deal with these things. They would come in this huge unsorted mess from the postal auction. If you were able to process this stuff, there were a lot of high-end products that were valuable.

We were able to buy these lots for a few hundred dollars and then turn them into thousands of dollars. Most people were just not willing to deal with it. It was a lot of work. That was our bread and butter.

One other category is general mixed merchandise. They would end up putting mixed merchandise in these giant pallets of stuff. You’d spend about a thousand dollars on these. We’d buy 80 lots. It was just stuff that was lost in the mail. The workers tried to make one pallet one type of thing, but we were pretty undiscriminating of what we purchased.

This segment is part 4 in the series : From eBay Seller to Software Entrepreneur: Seller Labs CEO Paul Johnson
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