Bootstrap First, Raise Money Later: Art.com CEO Josh Chodniewicz (Part 2)

Sramana Mitra: Why Art.com?

Josh Chodniewicz: This was in 1994. It was a while ago. A buddy of mine called me up. He was at Virginia Tech. He was getting his Computer Science degree there. He said, “Josh, I know something that’s going to be huge one day – the internet.” We started talking about it.

I bought myself a modem and started playing around with it. We brainstormed in a diner in New Jersey. Nobody was using it. To give context, one out of 800 Americans had an email address in 1994.

Sramana Mitra: Right. I started my first business while I was a grad student at MIT.

Josh Chodniewicz: In MIT, at least, you had an email address, right?

Sramana Mitra: Yes, it was exciting.

Josh Chodniewicz: You got a world that’s evolving. Interestingly enough when Mike and I got together, we thought that the best thing we could sell online was books. We thought, “Barnes & Nobles is going to crush us.” We decided to pass on that.

Then we thought that music would be really big. It’s clear that music would be digitized. That was also the day and age when Columbia house was around and they were selling 12 CDs for a penny. We thought that that was not a good business. We thought that the next best solution would be selling a picture. What you see on the screen is what you get.

For example, I’m a Boston Red Sox fan. I live in Austin, Texas, how can I get a poster? It’s hard to do that without the internet. The solution had not been built. The facilitation of the solution made a lot of sense inside of the internet. We started a business doing that. We launched it with 3,000 SKUs that we scanned. We did all the taxonomy around them.

Sramana Mitra: You started with just posters?

Josh Chodniewicz: Yes, then it turned into reproduction art prints. A few years later, we added framing services.

Sramana Mitra: This was all at the beginning of the internet. Your customer acquisition strategy was what?

Josh Chodniewicz: We were the 9th company in the world to start with Yahoo!’s Overture. They were the ones that invented pay-per-click. You could come in for a penny and we negotiated with them for fractions of a penny. We were paying fractions of a penny for millions of search terms.

The beauty of what we offer is that whatever you think about, we’ve got a poster for it. We could use that long-tail situation much like what Amazon did with books. Search engine was a big part of what we did. In 1997, we built one of the first affiliate programs in the world. We built that on our own. We didn’t use anybody else’s software.

We then went out to acquire websites. There were sites like WebRings. They would put together groups of sites around a certain topic. Let’s say Star Wars. Here is a ring of 600 Star Wars websites. We went to WebRings and said that we wanted to email all 600. We scraped those sites for their contact info.

We reached out to them and told them, “We have Star Wars posters that your fans might be interested in. Here’s a gallery. We’ll give you a quarter for every dollar we sell.” Our margins were high. It was around 65%. The beauty behind that was, no capital upfront and pay 30 days after the sale happens on the affiliate side. Everybody wanted it. That was a big push. We had 750,000 websites linking to us.

Sramana Mitra: All this happening bootstrapped?

Josh Chodniewicz: $35,000 of our own money. We didn’t raise any money until 2004.

This segment is part 2 in the series : Bootstrap First, Raise Money Later: Art.com CEO Josh Chodniewicz
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