1SaleADay.com founder lost money on purpose for biz

Jul 19 2011

1SaleADay.com founder lost money on purpose for biz

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For two years, Internet entrepreneur Ben Federman did something most businesspeople would consider, at best, stupid.

He lost money on purpose.

In 2007, Federman, then 23, launched 1SaleADay.com, a website dedicated to doing just that — offering one super-discounted item every 24 hours.

A Milwaukee native and a high school dropout, Federman had settled in Brooklyn around 2003 after a stint in the Army. He worked at a small electronics retailer before scraping together $200,000 from savings and credit cards and then branching out on his own.

He trolled trade shows for bargain merchandise. Since he couldn’t afford to buy in the large volumes required to get deep discounts, he took what he could get — and then sold it for less than he paid.

It didn’t go well at first. His first sale — an electronic fish finder — didn’t even get a nibble since no one knew about the site.

Eventually, the site’s popularity grew, largely through word of mouth. He built buzz by occasionally offering items for free.

“They were like, ‘Wow. This guy knows how to bring good deals to the table.’ Of course, I did — because I was losing money,” Federman said.

“Everybody else was trying to make money, and I’m trying to build a company here, so I kind of saw the bigger picture.”

In those days, selling 75 wireless headsets was a big coup. Now, the site, which offers five items a day in different categories such as jewelry and electronics, can sell up to 30,000 items in a day. The company racked up revenues of $30 million in 2009 and more than doubled that last year, Federman said.

So-called “flash” retail sites like Federman’s, which offer discounts for a limited period, have taken off during the economic recession.

Last year, deal-a-day site Woot was snapped up by Amazon.com. Similar invitation-only flash sale sites like GiltGroupe, RueLaLa and Ideeli that focus on high-end fashion have gained big followings.

“When the economy is bad, there is more excess merchandise, which makes it easier to source products like this, but there are also more competitors,” said Sucharita Mulpuru, an e-commerce analyst at Forrester Research. “The ‘screaming deal’ is the big draw, but that’s why it’s so difficult to pull off.”

So far, Federman seems to be doing that. The business has moved from his apartment to a 40,000-square-foot warehouse in East New York where his staff has grown to about 70 employees.

Vendors now come to him, Federman said. “The manufacturers know they can unload a huge volume with us.”

In May, the site attracted over 500,000 unique visitors, according to website tracking company comScore.com. While that’s well below the millions some big web retailers and coupon sites attract, the number was double what it was the same month a year ago.

He is working with big web retailers like eBay and Buy.com to provide them with merchandise for their own daily deals.
Looking to expand further, Federman talked with various venture capital firms, but decided that he didn’t want to give up control of the company that he created.

Instead, he teamed up with Optima Ventures, which injected an undisclosed amount — which Federman said is in the tens of millions of dollars — into the company to create Octagon Commerce, a parent company to Federman’s growing portfolio of discount retail websites.

“I decided to bring in private equity folks who have the same vision I do” with regard to marketing and building the company, said Federman, who also aims to give about half of his profits to charity.

Rather than luring advertisers to the 1SaleADay website, for example, he uses it to hawk his other sites, like Shadora.com, which focuses on jewelry, and watch retailer DynamiteTime.

“He had really built a base,” said Optima Ventures CEO Uri Laber. “All we need to do is get the concept out to more people, and it would just grow.”

The investment also gives the company more flexibility to snap up good deals when he sees them, Federman said.

“If a big lot comes up, and we’re not ready to list it, we could still afford to buy it and hold it,” he said. “We’re going to focus on higher ticket items, better brands and bigger lots. That means better items and better prices.”

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