From Teen Student Entrepreneur in Australia to a Mature Global E-commerce Entrepreneur: Mike Rosenbaum, CEO of Spacer (Part 2)

Sramana Mitra: What was your business model? They gave you inventory on consignment and you sold it on eBay. What percentage did you take?

Mike Rosenbaum: I think it was about 15%. We’re talking about high-value goods. Our average item was a couple of thousand dollars. 

Sramana Mitra: It was a substantial transaction size. You said you grew that to about $20 million in four years.

Mike Rosenbaum: Yes.

Sramana Mitra: All bootstrapped?

Mike Rosenbaum: Yes. We bought our first equipment on our credit card. In the first month, we made all that money back. It was just one of those businesses that was cash flow positive from month one. 

Sramana Mitra: The competition was very low at that time. Now it’s a much more competitive market. You had lots of opportunity. 

Mike Rosenbaum: Exactly. eBay would send us leads too. It grew organically. By 2003, we saw that this auction format was coming to the end of its life. We decided to start DealsDirect. It predated Groupon but for products. We had this database that we had grown over four years. We had to build the tech ourselves. There was no Magento. There was no Shopify.

Over the next 10 years, that business became the largest e-commerce business here in Australia. We got to $100 million in turnover. Of course, there are bigger businesses now. We essentially became an online department store.

Sramana Mitra: Did you sell the eBay business?

Mike Rosenbaum: We kept running it alongside the new business for about 18 months. On eBay, there’s a “Buy Now” functionality but it wasn’t a thing back then. There were also a lot of trust issues on eBay. Also speed of delivery was really important.

On eBay, it was hard for us to differentiate ourselves. We were a PowerSeller, but so is someone selling out of their bedroom. It was hard to build a brand. As we were building DealsDirect, it outpaced the size of the eBay business within 18 months. We made the decision to move off eBay.

Sramana Mitra: You were still doing the same category?

Mike Rosenbaum: We started in electronics and then we moved into home and lifestyle products – the IKEA type of products. We sold beddings and nursery items, pretty much high-value goods you’d see in a department store. We started working with brands. We found that a lot of the brands didn’t want to deal with us. There was a lot of channel conflict in Australia. There were two main retail groups. They didn’t like the brands dealing online. We had to travel a lot and we bought a lot of products direct from factories.

Sramana Mitra: So this one is not consignment.

Mike Rosenbaum: Yes. Largely, it flipped to buying inventory. We started of with 3,000 square feet and ended up with 200,000 square foot warehouse. 

Sramana Mitra: The inventory was self-financed?

Mike Rosenbaum: You get terms from the suppliers. Ideally, you sell the product before you pay for it. If you buy from overseas, you have to fund the inventory. The business was cashflow positive.

This segment is part 2 in the series : From Teen Student Entrepreneur in Australia to a Mature Global E-commerce Entrepreneur: Mike Rosenbaum, CEO of Spacer
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